Business Overview and History
PAVmed Inc. (PAVM) is a diversified commercial-stage medical technology company that operates in the medical device, diagnostics, and digital health sectors. The company has transformed itself in recent quarters, taking decisive steps to solidify its corporate structure and strengthen its balance sheet, positioning it for long-term sustainability and growth.
PAVmed was founded in 2014 with the vision of advancing a pipeline of innovative healthcare technologies. Led by a team of highly skilled personnel with a track record of bringing innovative products to market, the company has focused on innovating, developing, acquiring, and commercializing novel products that target unmet medical needs with large addressable market opportunities.
The company's structure is designed to have distinct subsidiaries for each of its financed assets, providing the flexibility to raise capital at both the parent company and subsidiary levels. This unique approach has allowed PAVmed to maintain a diverse portfolio of medical technologies while managing risk and capital allocation effectively.
In the early years, PAVmed concentrated on building its portfolio of innovative medical technologies. A significant milestone was reached in 2021 when the company made progress in commercializing its flagship product, the EsoGuard Esophageal DNA Test, through its subsidiary Lucid Diagnostics. Lucid Diagnostics received New York State approval for EsoGuard and began marketing the test. However, the company faced challenges in obtaining broader reimbursement coverage, which impacted Lucid's financial performance.
Throughout 2022 and 2023, PAVmed continued to advance its product pipeline, including the Veris Cancer Care Platform developed by its majority-owned subsidiary Veris Health. During this period, the company encountered financial challenges, reporting significant losses and needing to raise capital through public and private offerings to fund its operations.
The company's current focus is multi-faceted. It continues to pursue commercial expansion and execution of its flagship product, the EsoGuard Esophageal DNA Test, which is developed and commercialized by its subsidiary, Lucid Diagnostics Inc. (Nasdaq: LUCD). Additionally, through its majority-owned subsidiary Veris Health, PAVmed is focused on entering into strategic partnership opportunities with leading academic oncology systems to expand access to the Veris Cancer Care Platform, while concurrently developing an implantable physiological monitor.
In terms of other existing products and technologies, PAVmed has adopted an incubator-type platform where it is looking to obtain financing on a product-by-product basis as necessary to advance each asset to a meaningful inflection point along its path to commercialization. The company's PMX incubator is currently focused on advancing the PortIO implantable intraosseous device.
Strengthening the Balance Sheet and Corporate Structure
Over the past several quarters, PAVmed has taken decisive steps to strengthen its balance sheet and corporate structure. In September 2024, the company deconsolidated its subsidiary Lucid Diagnostics, preserving its ownership in Lucid without having to absorb Lucid's operating losses on its balance sheet. This strategic move cut PAVmed's shareholder deficit in half.
Furthermore, PAVmed has restructured its convertible debt, agreeing to exchange $25 million of existing obligations for newly created Series C convertible preferred stock. This transaction, which is subject to shareholder approval, is expected to wipe out PAVmed's deficit and demonstrate a plan for sustainable compliance with Nasdaq's continued listing standards.
Operational Highlights
In the third quarter of 2024, Lucid Diagnostics reported record revenue, with a 20% quarter-over-quarter increase. The company also published the ESOGUARD BE-1 clinical validation study, which was accepted for peer review publication. This completes Lucid's clinical evidence package, allowing it to formally submit for Medicare coverage.
Veris Health, PAVmed's digital health subsidiary, has also made significant progress. The company's pilot program with The Ohio State University's James Cancer Center was successfully completed, and Veris is now in active discussions with the institution regarding long-term commercial and strategic partnerships. Additionally, Veris was awarded a $1.8 million grant from the National Institutes of Health to optimize and validate the Veris Cancer Care Platform for the needs of medically underserved cancer patients.
On the incubator front, PAVmed has entered into a term sheet with an angel fund to directly finance the development and commercialization of the PortIO implantable intraosseous device through its PMX subsidiary.
Financial Performance
For the third quarter of 2024, PAVmed reported a GAAP net income of $61 million, primarily due to the deconsolidation of Lucid Diagnostics. The company's standalone burn rate for the quarter was approximately breakeven, demonstrating the progress made in managing its operating expenses.
PAVmed's revenue for the third quarter of 2024 was $996,000, representing a 25.7% year-over-year increase compared to $791,000 in the third quarter of 2023. This growth was primarily attributed to an increase in the volume of EsoGuard Esophageal DNA Tests performed in the company's CLIA laboratory.
For the nine-month period ended September 30, 2024, PAVmed reported total revenue of $2.98 million, with a cost of revenue of $4.79 million. The company experienced a net income of $27.29 million for this period, which included a $72.29 million gain on the deconsolidation of Lucid Diagnostics.
Looking at the most recent fiscal year (2023), PAVmed reported revenue of $2.45 million, a net loss of $64.18 million, and negative operating cash flow of $52.04 million.
As of September 30, 2024, PAVmed had $765,000 in cash on hand. However, the company's balance sheet now includes the $25.5 million market value of its 31.3 million shares of Lucid Diagnostics common stock, which it has retained following the deconsolidation. This value has since increased by more than $6 million as of the latest available information.
Liquidity
PAVmed's liquidity position has improved following the deconsolidation of Lucid Diagnostics and the restructuring of its convertible debt. The company's retention of 31.3 million shares of Lucid Diagnostics common stock provides a potential source of liquidity, as the market value of these shares has increased since the deconsolidation. Additionally, the restructuring of the convertible debt into Series C convertible preferred stock is expected to improve the company's balance sheet and compliance with Nasdaq listing requirements.
As of September 30, 2024, PAVmed's debt-to-equity ratio stood at -7.17, reflecting the company's negative equity position. The current ratio and quick ratio were both 0.057, indicating potential short-term liquidity challenges. The company had $32.05 million in Senior Secured Convertible Notes outstanding.
Product Segments and Overview
PAVmed's business is structured around distinct subsidiaries for each financed asset, allowing for targeted capital raising and development strategies.
Lucid Diagnostics (Nasdaq: LUCD) is PAVmed's flagship subsidiary, focused on the commercialization of the EsoGuard Esophageal DNA Test. EsoGuard is a laboratory developed test designed to detect Barrett's Esophagus, a precursor to esophageal cancer. In the three and nine-month periods ended September 30, 2024, Lucid recognized revenue of $942,000 and $2.92 million, respectively, primarily from the delivery of EsoGuard test results. The cost of revenue during these periods was $1.38 million and $4.79 million, respectively.
Lucid has continued to expand the clinical evidence supporting EsoGuard, with the manuscript for its multi-center BE-1 study accepted for publication in The American Journal of Gastroenterology in November 2024. This study demonstrated EsoGuard's high sensitivity and negative predictive value in detecting esophageal precancer in an intended-use screening population.
Veris Health, another majority-owned PAVmed subsidiary, is focused on the commercialization of the Veris Cancer Care Platform. This platform is designed to improve outcomes for cancer patients through remote monitoring and telehealth capabilities. In October 2024, Veris was awarded a $1.8 million grant from the National Institutes of Health to optimize and validate the Veris platform for medically underserved cancer patients.
PAVmed Incubator (PMX) is a wholly-owned incubator launched to complete development and commercialization of existing portfolio technologies such as PortIO, EsoCure, and CarpX. The company has an agreed-upon term sheet for PortIO with a network of angel investors based on a pre-money valuation of $42 million and is seeking independent financing for separate subsidiaries to develop and commercialize each technology.
Risks and Challenges
Despite the progress made, PAVmed continues to face risks and challenges common to medical technology companies. The company's ability to generate substantial revenue and achieve profitability is largely dependent on obtaining positive third-party reimbursement coverage for its EsoGuard Esophageal DNA Test, as well as its success in driving adoption of the Veris Cancer Care Platform and advancing its pipeline of incubator technologies.
Additionally, PAVmed's continued listing on the Nasdaq stock exchange, while improved, remains a risk that the company must carefully manage. The company has received an extension from Nasdaq to regain compliance with the minimum stockholders' equity requirement, and the successful completion of the convertible debt restructuring is a critical step in this process.
PAVmed's ability to continue operations will depend on its success in commercializing its products, particularly EsoGuard and the Veris Cancer Care Platform, as well as its ability to raise additional capital through equity or debt financing. The company has expressed substantial doubt about its ability to continue as a going concern within one year after the issuance of the financial statements.
Conclusion
PAVmed has undergone a strategic transformation that has positioned the company for long-term sustainability and growth. By deconsolidating Lucid Diagnostics, restructuring its convertible debt, and advancing its key subsidiaries and incubator technologies, PAVmed has laid the foundation for its future success. While challenges remain, the company's diversified portfolio, experienced management team, and dedicated approach to innovation suggest that PAVmed is well-positioned to navigate the evolving medical technology landscape.
The company's focus on completing its clinical evidence package for EsoGuard, expanding partnerships for the Veris Cancer Care Platform, and seeking independent financing for its incubator technologies demonstrates a clear strategy for growth. However, PAVmed must continue to manage its liquidity carefully and work towards achieving profitability to ensure long-term success in the competitive medical technology market.