PAVmed Inc.
Q3 2020 Earnings Call Transcript

Published: 17 Nov 2020

[Operator:]

Greetings, and welcome to the PAVmed, Inc. Business Update Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Mike Havrilla, Director of Investor Relations for PAVmed. Please go ahead, sir.

[Mike Havrilla:]

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.

[Lishan Aklog:]

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. As we will discuss in some detail, PAVmed has passed through a clear inflection period over the past several months, despite ongoing COVID-19 related challenges, commercial activity is accelerating at an exponential rate. Traction and enthusiasm for our commercial GI Health products among physicians is growing. And as importantly, the reimbursement landscape for these products has solidified allowing us to look forward to revenue and revenue growth starting after the New Year. Our balance sheet remains strong from recent financing, providing us with sufficient capital to drive this commercial activity and advance our products towards commercialization. Our growing theme of talent and professionals working with a world-class team of consultants, advisors and corporate partners continues to deliver on important milestones across our portfolio.

[Dennis McGrath:]

Thank you, Lishan, and good afternoon, everyone. Our financial results for the quarter ended September 30, 2020, were reported on our press release, was published earlier this afternoon and also in our quarterly report on form 10-Q, which was filed with the SEC on November 6, both available at sec.gov and on our website. With regards to the financial results for the quarter, research and development expenses for the third quarter of 2020 are $2.6 million, up from about $1.5 million for the same period in 2019, and about $500,000 higher sequentially, returning to the first quarter of 2020 level. as you might expect the variation both sequentially and year-over-year is primarily related to clinical trial costs, the product development costs. particularly, the sequential changes positively impacted by clinics beginning to normalize operations given the slowdown in the second quarter related to the pandemic. general and administrative expenses were $2.9 million for the sector for the third quarter of 2020, compared to $1.7 million for the same period in 2019 and we’re about even sequentially. The year-over-year increase reflects approximately 700,000 increase in sales, staffing levels and other sales related costs together with an increase of approximately 500,000 in consulting services related to patents and regulatory compliance, financing costs and public company expenses. PAVmed reported a net loss distributable to common stockholders of $5.6 million or a loss of $0.11 per common share, also duplicating the net results in the previous quarter. Our press release provides substantially more detail related to the non-cash charges occurring in the current and prior periods. Also, the press release provides a table entitled non-GAAP measures, which highlight these amounts along with interest expense and other non-cash charges namely, depreciation, stock-based compensation and financing related costs to give a better understanding of the company’s financial performance. We noticed from the table after adjusting the GAAP loss by approximately $1.1 million for these type of non-cash or financing-related charges. the company reported a non-GAAP adjusted loss for the three months ended September 30, 2020, a $4.5 million or $0.09 per common share. PAVmed had cash of $8.3 million as of September 30. during the quarter, company received additional net proceeds of approximately $7 million from the sale of convertible notes at a conversion price of $5 per share. So with that operator, we can now open up the call to any questions from our audience.

[Operator:]

Thank you. Your first question comes from the line of Frank Takkinen with Lake Street Capital Markets. Please proceed with your question.

[Lishan Aklog:]

Hey Frank. Good afternoon.

[Frank Takkinen:]

Thanks. Appreciate it. Congrats on the progress this quarter. Just a few questions for you here. Thinking about some of your early adopters of EsoGuard, sounds like you’re having some fantastic success with initial adoption from patients. So, I’m just hoping you could take us a layer deeper into utilization trends that you’re experiencing, maybe, how many sites are now stocking EsoGuard and overall patient receptiveness of the product.

[Lishan Aklog:]

So, the – in terms of the adoption and the response both from physicians and patients, it’s been, like you said, it’s been extremely positive. I think as I’ve mentioned before, we were prepared as we were entering into the GI space in our discussions with the GI physicians for some pushback, as it relates to potentially cannibalizing their existing endoscopy business and so forth. And that is just generally not materialized, we’ve had much easier time than we had expected. And making the case that this is a tool that they should be embracing that is ultimately, clearly, to the benefit of their patients, but also to the benefit of their practice. There are patients within their practices, just right there, patients, who are undergoing colonoscopy are there for other reasons, who are high-risk patients. they might not otherwise perform an endoscopy on, who are candidates for e-cigarette testing, and that our joint activities targeting primary care and they’re referring that work will ultimately increase the funnel of the patient. So, it’s really been nothing but positive. I mean, we obviously have some that have become just real champions and are doing cases almost every day and are leading the charge. That’s always the case with the introduction of new technologies, because early adopters, who become champions and bring others along. But it’s been really steady and broad. And I don’t like to emphasize one of the things that I said, in my prepared remarks, which is that, although we’re focused on gastroenterologists and the – and we were doing so, so that the procedures can be centralized and concentrated, where the disease is most known and amongst physicians, who really own the disease. We’re actually having really good signals that there’s receptivity within the broader medical community including internal medicine, and – but one example both at the academic center here in New York, as well as in the private large internal medicine, private practice out west are very encouraging time for that. The physician was – the patient response has been good as well. I guess I’ve mentioned the formal data that we’re starting to get from our clinical trial, which shows really high user acceptance created a 90% patient satisfaction and that’s born out in the commercial clinical activity as well, where patients – some obviously, have concerns about swallowing this and gagging, but we’ve trained our operators really quite well to educate the patients before the procedure and we’re achieving a high technical success rate. And so we’re able to swallow it and people appreciate the fact that they’re achieving some comfort level. These are patients with chronic heartburn, who now are becoming increasingly, aware of their risk factor – risk for developing that. In terms of a specific numbers, I think, let me ask Dennis to maybe, chime in on that.

[Dennis McGrath:]

I think Frank, it’s early in the game, provide a data set to give some kind of predictive insight into what’s occurring today. I will give you some highlights, but we will be developing that data set. We’re seeing a little different in each type of practice and we’re also drilling down and honing our message and the type of practices we’re pursuing, which the dynamics are a little bit different on each one. But to give you just some high level – and first off, I don’t want to provide any data set today that gives an indication of one way or the other, when that data set is evolving. And the typical things you’d want to know is what’s the utilization per store. What’s the same-store sales quarter-to-quarter? Those metrics will develop and we’ll start reporting on them as revenue starts to generate in the first quarter and we start to provide deeper color. So, analysts like yourself can kind of figure out what that means presently and what that can mean prospectively as you build your models. But to give you some high level, the month of October was significantly higher than the month of August, the first 10 days of November equal to what we did in all of October, we increased the number of sellers out in the field that are doing a lot of prospecting – that prospecting is starting to yield results today. I think by the end of – when we report on the first quarter, we’ll have a greater feel of what that data set that will be beneficial to folks like in our shareholder community in terms of what the past results might mean in terms of the future opportunities. We know that the total addressable market, we know what the response from the physicians is. It all speaks really well in terms of what that opportunity is the granularity of how to report on that will evolve in the upcoming quarters and be happy to give you a kind of color at that time.

[Lishan Aklog:]

Yes. let me just add a couple of things. So, on accounts, we’ve reported previously hundreds of accounts that we’ve engaged with that number is multiplied several faults and since then, and on – in terms of accounts that have product on the shelf, believe that have numbers approaching about 100. So, we have plenty of sites. right now, we’re focused on procedural volume. And as Dennis said, really the last two, two and a half months has really shown an early nice inflection, with cases doubling about every four to six weeks. And we’re confident that we’ll be able to continue at a good pace. As I mentioned, because we’re – we appear to be plowing ahead despite the surgeon cohort cases that we’re seeing in this winter.

[Frank Takkinen:]

Well, that will sound fantastic. Just switching gears a little bit to the reimbursement side, congrats on getting the final scheduled test code, determination for EsoGuard on effective January 1, I was just hoping you could give us a little feel for revenue recognition with that, if there’s an opportunity to backfill some of these tests that you are doing right now. And how you expect to initially ramping revenues when it’s a little bit uncertain – treatment option?

[Lishan Aklog:]

Yes. Sorry, let me just start in terms of mechanics and then maybe to comment on the accounting side. So we’ve been performing procedures this year, but we have cautiously chosen not to submit those until we have an effective – until we had effective CMS and Medicare payments determination. So yes, we will be submitting those starting January 1, under the new code and we have a full year to submit. So there was a backlog that you’ve mentioned will start to kick in, as we start to go under the effective payment by January 1. And then from that point on, we will be submitting claims and billing on procedures on an ongoing basis. Obviously there’s a timeline between claim submission and receive a payment and that’ll affect sort of the timing of revenue recognition. Dennis, would you like to chime in a little bit further on that?

[Dennis McGrath:]

Yes, sure. So the payment that Lishan said, CMS or Medicare starts to take effect January 1. And we can bill in 2021 for procedures performed in 2020, as long as those procedures were performed within 12 months of the date we invoice. And it’s our intent to invoice all of these procedures soon in January. And the gap rules require us to be able to have a definitive understanding of what the estimated collections are on each invoice to bill, to recognize revenue based upon the invoice. And most companies who go through this process, there’s a period of time of where the evidence evolves to where that predictability of invoice translating to cash comes about. So early stages of this, we will recognize revenue on cash and steeps. Part of our targeted audience are in the private payer bucket. And those folks who are being tested, we will submit claims to the likes of all the private payers. There’ll be some denials, there’ll be some payments, there’ll be some clarification in terms of coverage policies that will become clear through 2021, adding to the predictability of that invoice to cash collection cycle. And when we get to level of predictability, then we’ll start recognizing revenue on an invoice basis or accrual basis, if you will, rather than the cash basis. But keep in mind that our targeted audience for this disease and the precursors to it is a significant Medicare patient population. It’s somewhere between 60% and 70% of our target audience. And as it becomes definitive as to what the Medicare payment is with this determination and that there are no denials or denials on a significant basis until that process has worked out. Once that process has worked out, it becomes predictable. We’ll start being able to recognize revenue for the Medicare patients likely sooner than on the private payers, as that takes root in 2021. Hopefully that explained clearly the revenue recognition that we’ll be going through in the early part of 2021.

[Frank Takkinen:]

Perfect. That makes sense. And then just last one from me to touch on the CarpX business a little bit. Like some good commercial progress there, first manager in the door, surgeon group set and starting to look towards first commercial procedures. I’m just hoping you could talk about the ramp of that business a little bit more. And when you expect to maybe put the foot down on the throttle – the commercialization throttle a little bit more aggressively with that offering?

[Lishan Aklog:]

Yes. First thing, it’s a little bit hard to do quantitatively, but I can clearly map out the past from a qualitative point of view. So, as I mentioned, the goal is to have an initial network of well framed very committed hand surgeons who are not just key opinion leaders, but advocates or ambassadors, but I actually can serve as trainers or proctors for the procedure. We established a group of five, we’ll likely we’ll expand that a bit more over the coming months. We’re getting them trained and we’ll get them to start doing, getting some procedures under their belt over the coming months. Once we’ve reached that, so it’s going to be fairly steady and deliberate, and you might say slow for that early part. But once we have a core group of half a dozen to a dozen surgeons across the country who have done meaningful procedural volume have got the procedure down, have honed the procedure collectively. Remember, any early introduction, there’s an iterative development process that happens with – as you introduced the procedure. And that’s part of the reason to get a deliberate start is to learn from the early experience, so that when you expand further. So once that group has had a good amount of cases under their belt and feel comfortable with the procedure, feel comfortable with participating in training and proctoring, then we can move out quickly. This is not sort of a slow linear ramp. It’s really a slow and steady per space, followed by sort of a more accelerated phase once we have that core group up and running.

[Frank Takkinen:]

Got it. That makes sense. All right. Thanks for taking my questions and congrats on all the progress in the quarter.

[Lishan Aklog:]

Thanks a lot Frank.

[Operator:]

Your next question comes from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.

[Lishan Aklog:]

Anthony, how are you doing?

[Anthony Vendetti:]

Good Lishan. How are you doing Dennis? I just wanted to follow-up a little more on EsoGuard, EsoCheck. So I know you’re performing some of the procedures, billing won’t start until 1-2021, any way that you can provide a little bit more color on how many of those procedures so far? Just to try and get an idea of what the ramp spin? And then wanted to talk a little bit about COVID-19 and the impact?

[Lishan Aklog:]

Dennis, I'll let you handle this.

[Mike Havrilla:]

Dennis, are you still there?

[Dennis McGrath:]

Yes, of course, I was on mute and I gave an eloquent answer. So Anthony, I think, we're going to defer to the response, I gave to Frank in terms of what that dataset looks like. We gave kind of high level speed ramp in terms of November over October. We really just got started here towards the end of August with the clinic starting to trickle open a little bit earlier than that. I think that they're the kind of the number of clinics, the number of procedures per clinic, same-store sales, month-over-month, or quarter-over-quarter are all things that we expect to the reporting upon. And that dataset will become clear for us that can help with that kind of question and what that represents to the future. And I'd like to defer that until at least the next quarter, to be able to provide that level of color and detail as we see the different types of clinics and the subsets of their services in those clinics become clear in terms of our pursuit of a future clientele. So I think we'll defer that till the next call.

[Anthony Vendetti:]

Okay. Well, I'll just say that, I thought that was eloquent as well, Dennis.

[Lishan Aklog:]

That's why I referred to him.

[Anthony Vendetti:]

But I guess, Den, can you just talk about whether or not you're seeing an impact from COVID-19 or what Lishan said during the call is that hospitals have figured out how to work during this pandemic now that we understand COVID a little bit better. And so would it be accurate to say it's not having much of an impact on the uptake as far as you can tell at this point?

[Lishan Aklog:]

I don't think that's an overstatement really. I think people have figured it out. People are doing procedures. As I mentioned, we have advantages with EsoGuard and EsoCheck as that the procedure is simple and office space. So what you used to me, maybe be a 30 minutes cycle time for endoscopies in an endoscopy center has probably doubled now, because of just the extra cleaning that has to happen between cases of the technology. So we've seen some commentary that there might be actually, the advantage of doing EsoGuard in a COVID setting because of that. And so yes, it's just been our experience that sort of a break has been lifted. And that hasn't really changed as we've gone through this fall and winter surge. Our ability to get access to physicians in the commercial setting has been pretty good. And if you recall, prior to this call, much of that activity was being done virtually that's pretty much eliminated. We were getting our folks in there. Occasionally, you'll get a hotspot that comes up, where things tighten a little bit. But one of the things that we've been doing with our sales team is that we've been having our sales management – managers be more on it round and that's supervisory and actually sort of in the trenches more. And so that's actually allowed us to be responsive to occasional sort of hotspot related restrictions, where they can sort of quickly move from one location to another. And we have a couple of examples of that this week. So far it doesn't seem like this, the surge is going to hamper this rapid exponential growth in cases that we've seen over the last couple of months. It doesn't seem to be affecting us and for the reasons that I just described.

[Dennis McGrath:]

Sure, sure. Anthony, I would just add to that our people are now traveling and with exception – or in certain exceptions, not able to get into certain clinics. We are paying commissions to the independent reps or valid tests that are being done through our process. So as Lishan said that is ramping up, we are seeing definitive results. And as revenue starts to click in here in January 1, we would start the providing the additional color on various metrics. Look the key as, Anthony, once you set with a set of metrics, you were obligated to continue to report on them. We want to make sure that we're the first set of metrics we provide on revenue dissection, is something that all of us are content with to be able to measure performance and give some guidance in terms of what the future is likely to hold by duplicating more of what we are currently doing. And I think by waiting till January 1, I think all of us will be in a better spot in terms of the reliable metrics that give us those kind of insights.

[Anthony Vendetti:]

Sure. Understood. And then just following up on CarpX, you mentioned initial network of KOLs before going to a full commercial launch, approximately how many KOLs and how long do you think that that feedback will be – I mean, how long is it necessary to wait for that feedback before you feel confident to do a full commercial launch?

[Lishan Aklog:]

Yes. Just to clarify one thing, it's not their feedback so much as their experience and their role as proctors and trainers, right? So some of it is feedback and some of it is procedural development, but the primary purpose of establishing this early group is for, to establish a cohort of folks who can serve as trainers and proctors then for general evangelizers. So we have files, I think somewhere between five and 10 is probably what this initial cohort will be. We'll have to get them all trained that is, we have to get them to a – they do have to travel for that to work at ever lab to do the training. The first one went quite well last week. And I don't think, it's not a tunnel. I mean, I think once each of them get a couple of dozen cases under their belt with good success and a level of comfort that they feel that they can train and proctor other surgeons, and then I think we should be good to go with a broader relief to a broader audience. I don't think that should take once we get them trained and these are very busy versus the typical answer to, it could do next 12, even upwards of 20 carpal tunnel releases a day. So, they’re very busy. So, once they have it under their belt and they’re trained, I don’t expect that will take a long time for them to get the records clinical experience for us to feel comfortable utilizing them as part of a wider release.

[Anthony Vendetti:]

Okay, great. Thanks very much. I’ll hop back in the queue. Appreciate it.

[Lishan Aklog:]

Thanks, Anthony.

[Dennis McGrath:]

Thanks, Anthony.

[Operator:]

Your next question comes from line of Ed Woo with Ascendiant Capital. Please proceed with your question.

[Lishan Aklog:]

Hey, Ed. Good afternoon.

[Dennis McGrath:]

Hi, Ed. How are you?

[Ed Woo:]

It’s my question, in terms of EsoGuard and EsoCheck, how often do you think the patients will be utilizing either of these?

[Lishan Aklog:]

When you say, how often, could you just clarify and make sure, I understand your question.

[Ed Woo:]

Yes. Frequencies in terms of, obviously, being diagnosed….

[Lishan Aklog:]

Yes. So, let me make sure I understand the question. So, a typical patient, who has a chronic carpal or GERD, who has risk factors that would make them appropriate for screening of which again, there’s millions of patients like that. Well, undergo an EsoGuard test to determine if they have Barrett’s esophagus or something further along the spectrum. If they’re negative – if they’re positive, then they’ll undergo an endoscopy, not just to confirm the diagnosis, but to determine whether they have more advanced disease, dysplasia or cancer, which needs to be addressed immediately. Those who just have non-dysplastic Barrett’s will enter into what’s currently in established surveillance regimen, which is typically, an endoscopy every three years although as I mentioned, we’re trying to develop tools and technologies to work within that in surveillance of Barrett's as well. A negative patient – it’s not clear that a negative patient needs any further testing, a clinician may choose to do so at some point, three, five years down the road, if they have – particularly, if they have ongoing persistent symptoms, but a negative considered a negative, and generally, those are not – there’s no mandatory follow-up for those features.

[Ed Woo:]

Great. So, you don’t anticipate something that a more frequent like annual or semi-annual basis.

[Dennis McGrath:]

Yes. I mean, it may turn out that once we get our data from the clinical study and we actually have some longer-term data that we can – that we would establish such a screening regimen. But right now, there really is no foundation for that. What we’re talking about is screening, high-risk patients, who have established chronic GERD, and if they’re negative, then they’re likely to be negative for the foreseeable future.

[Ed Woo:]

Then, because you mentioned earlier, there’s such a big gap between people who should be tested – recommended, be tested and people actually being tested. Have you guys considered doing direct-to-consumer marketing?

[Dennis McGrath:]

Definitely.

[Lishan Aklog:]

Yes, that is – that’s always been a part of our long-term strategy. And right now, we’re putting a lot of effort in establishing the foundation for that. This is a disease, you can sort of divide diseases in terms of patient facing, and those are not patient facing. And this is clearly, a disease that patients can understand. We can educate them on the relationship between their chronic heartburn, which they typically believe to be just something that’s symptomatic that they have to – they can treat with PPIs or an asset prior to what we be their symptoms and educating them on the relationship between that and the risk that it puts them for our chronic prolonged for esophageal cancer is part of the educational process, where we’re establishing right now as we speak. Once we have gotten some traction on the reimbursement side and we have a little bit further along, we fully intend to invest in an aggressive direct-to-consumer marketing, platform kind of for the reasons I just described. Dennis, do you want to add a little bit to that?

[Dennis McGrath:]

So, I think that’s exactly on point. I don’t think that there’s anything else to add to that to give more color.

[Ed Woo:]

Great. That was very helpful. And then my last question is just, you got many products that are various stages of commercializations or in trials. Are you still looking out for additional products to add to your portfolio and has COVID presented additional opportunity for people to present products for you?

[Lishan Aklog:]

The answer is yes. Sorry for the chuckle, but I think you’ve got a little – you must have an ESP. So, our company from the onset has always been built on the notion that we will look at technologies that provide opportunities for that address unmet clinical needs and provide market opportunities and we’ve done that. So, we’ve licensed three technologies, obviously EsoGuard and EsoCheck, which are our leading and potentially, our most valuable products are ones that we – that were a result of that process, where we searched and found this technology and licensed that from an academic medical center. So, we are constantly, I mean, very regularly presented with technologies and are – and evaluating technologies all along the way. And there are several that are in the pipeline that we’re in sort of an active process of evaluating. And the answer to your question is a couple of them actually, are directly related to COVID and COVID test. Do I answer to both questions?

[Ed Woo:]

Great. Well, thank you and good luck.

[Lishan Aklog:]

All right. Thank you, Ed.

[Dennis McGrath:]

Thanks, Ed.

[Operator:]

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Dr. Lishan Aklog for closing remarks.

[Lishan Aklog:]

All right, great. Well, hey, thank you all for joining us this afternoon and for the great questions from our analysts. We look forward to keeping you rest of our progress via new releases and periodic conference calls such as this one. And please remember to want to keep in touch with us contact Mike Havrilla at [e-mail] and continue to keep up with our news through our Investor Relations website, and by following us on Twitter, LinkedIn, and YouTube, and the rest of our website. So, thanks again, everybody. Have a great day.

[Operator:]

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.