PAVmed Inc (PAVM) 2019 Q1 法說會逐字稿

Greetings and welcome to the PAVmed Inc. business update conference call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mike Havrilla, Director of Investor Relations for PAVmed. Please go ahead, sir.

Good afternoon, everyone. This is Mike Havrilla, PAVmed's Director of Investor Relations. Thank you all for participating in today's business update conference 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 operations, future results of PAVmed. I encourage you to review the company's filings with the Securities and Exchange Commission to 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 competitive environment.

PAVmed has not yet received clearance from the FDA or other regulatory bodies to market any of its products. New risks and uncertainties may arise from time to time and are difficult to predict. All of 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 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 statements to reflect any changes in expectations or in events, conditions, 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?

Thank you, Mike. Good afternoon, everyone, and thanks for joining us on this quarterly call to discuss -- to update you on our business and discuss our recent financial results. We are so fortunate to have engaged shareholders who share a long-term commitment to our vision here at PAVmed. I'd like to thank all of our shareholders, especially our long-term shareholders and new shareholders, for their ongoing support. We remain firmly committed to providing you with timely and robust communications on our progress.

As a reminder, the best way to keep up with PAVmed news, updates and events is to sign up for our e-mail newsletter and to follow us on Twitter, LinkedIn, YouTube and on our website.

As I stated in this morning's press release, the 4.5 months of the -- for the first 4.5 months of this year represent perhaps the most exciting period in our company's history, with an enormous amount of hard work and perseverance coming to fruition on multiple fronts. This includes -- these include a critical clinical milestone for CarpX; solid regulatory and reimbursement progress with EsoGuard and EsoCheck; the successful completion of important animal studies for PortIO and DisappEAR; exciting technologic breakthroughs for NextFlo and PortIO; palpable enthusiasm for EsoGuard and EsoCheck during the major annual GI conference; and even some important patent allowances from the USPTO.

Before Dennis provides an overview of our first quarter results, I'd like to spend the bulk of today's update on the lead products anchoring our portfolio: CarpX, EsoGuard and EsoCheck. These products collectively target unmet needs in millions of patients worldwide and multibillion-dollar addressable market opportunities. They are central to our mission to build a valuable high-growth commercial company.

Here are some of the highlights that are specifically related to these key products. We successfully treated the first 9 patients in the CarpX first-in-human clinical safety study in New Zealand. We received a positive substantial equivalence opinion from the FDA on the results of the EsoCheck GLP animal study. We established a strong presence for our subsidiary, Lucid Diagnostics and its EsoGuard and EsoCheck products at the major annual gastroenterology meeting. We advanced the EsoGuard Proprietary Laboratory Analysis or PLA process to secure reimbursement through 2 key steps. We recruited the Director of Clinical Operations of a large multinational medical device company to serve as Lucid's Chief Operating Officer. And we engaged a leading contract diagnostic organization to build custom EsoGuard specimen kits and perform key portions of the assay.

Let's now do a deeper dive into CarpX. As many of you know, CarpX is our groundbreaking, minimally invasive device designed to treat carpal tunnel syndrome. Carpal tunnel syndrome is a very common condition where scarring of a ligament in the wrist from repetitive motion compresses the nerve, causing severe and debilitating symptoms. The clinical and economic burden of carpal tunnel syndrome on society is massive. We believe CarpX will dramatically reduce recovery times compared to traditional open carpal tunnel surgery, which is typically several months but can extend longer. We are targeting an estimated immediately addressable domestic market opportunity of over $1 billion based on 600,000 patients undergoing surgery each year for carpal tunnel syndrome, and that doesn't include many more who suffer in silence but would likely choose a treatment option with a shorter recovery time. CarpX brings the established tools of the percutaneous and minimally invasive revolutions that have taken over the treatment of other conditions to a condition which has remained primarily surgical for many decades with limited exposure to innovation.

So CarpX is a single-use device which uses a proprietary balloon catheter with embedded bipolar radiofrequency cutting electrodes, which is designed to closely mimic the anatomic results of invasive carpal tunnel surgery but to do so much less invasively. The balloon catheter device is designed to be inserted under the scarred ligament in a minimally invasive fashion while pushing the nerve and tendons away. When the RF energy is activated, the electrodes precisely cut the ligament from the inside out in a matter of seconds. The device design provides physicians with ongoing feedback to optimize the safety and completeness of the procedure.

Extensive preclinical testing in animals and in over 100 cadavers has demonstrated that CarpX is a safe and effective precision cutting tool for dividing the transverse carpal ligament. We've been working closely with the FDA to secure U.S. regulatory clearance of CarpX through its 510(k) pathway.

During a presubmission meeting in January, the FDA requested a 510(k) resubmission with clinical testing to definitively document procedural safety in humans and indicated that we could avoid its time-consuming IDE process for U.S. studies by performing the study outside of the U.S. As a result, we amended the protocol for a previously planned first-in-human study in New Zealand, and following multiple discussions with the FDA, we reached a consensus on the parameters of the CarpX safety study, including a primary endpoint that was limited to device safety at 90 days post procedure.

Yesterday, we announced that the first group of 9 patients with carpal tunnel syndrome underwent successful CarpX procedures as part of this first-in-human clinical safety study. This was the first time the CarpX device was used in living patients with carpal tunnel syndrome, and it performed very well as a precision cutting tool, consistent with its design and extensive preclinical testing. The procedures were performed at St. George's Hospital in Christchurch, New Zealand, by 2 veteran plastic, reconstructive and hand surgeons. 3 members of the PAVmed team were on the ground in New Zealand, led by Chief Medical Officer, Dr. Brian deGuzman. Dr. deGuzman trained the surgeons on the CarpX procedure in cadavers and was present in the operating room during all of the procedures. 9 patients with a clinical diagnosis of carpal tunnel syndrome underwent successful minimally invasive carpal tunnel release using the CarpX device. Complete division of the transverse carpal ligament, the protocol's effectiveness endpoint was confirmed by endoscopic visualization. There were no device-related adverse events.

The CarpX procedure was technically straightforward with a short learning curve. Procedure times fell rapidly with each successive cases. The shortest, 20 minutes from incision to closure, and should be similar or possibly even shorter than traditional surgery. Certain procedural steps were successfully enhanced to address anatomic and tissue property differences between normal cadavers and living patients with carpal tunnel syndrome. For example, the surgeons found that the CarpX device required less power and lower balloon pressures to cut the ligament than it had in cadavers. This was an unexpected positive finding which should further enhance the procedure.

According to the protocol, these patients will undergo post procedural clinical follow-up at 2 weeks and at 90 days and with repeat electrodiagnostic testing during the 90-day follow-up visit to document the protocol's safety endpoint. Another group of patients are scheduled to undergo CarpX procedures in the coming few weeks. Once these procedures and their 90-day follow-up are completed, we will resubmit the CarpX 510(k) application, incorporating the clinical safety and effectiveness data from the study.

Despite the time it took to finalize the protocol with the FDA as well as administrative and logistical delays in New Zealand, we are now off to the races and are hoping to complete this regulatory process in time for commercial launch of CarpX during this calendar year.

Now let's move on to EsoGuard and EsoCheck. Just 1 year ago this month, we created a majority-owned subsidiary of PAVmed called Lucid Diagnostics to license revolutionary technology from Case Western University: the EsoGuard esophageal DNA test and the EsoCheck cell collection device. The technology was the only cancer screening technology highlighted in the most recent National Cancer Institute 2020 report to Congress.

So EsoGuard is an esophageal DNA test which uses precision next-generation sequencing of bisulfite converted DNA to detect methylation at 31 sites on 2 genes, vimentin and CCNA1. EsoGuard has been shown in a published human study to be highly accurate at detecting Barrett's Esophagus, or BE, which is a precursor to highly lethal esophageal cancer in patients with chronic heartburn or acid reflux, also known as GERD. Most individuals with BE are unaware that they have BE and, thus, are unaware of their risk of developing esophageal cancer. We believe that the EsoGuard diagnostic test, when performed on samples collected by EsoCheck, has the potential to save many lives through the early detection of Barrett's Esophagus and the prevention of esophageal cancer. The estimated immediate addressable domestic market opportunity for EsoGuard is at least $2 billion based on tens of millions of U.S. GERD patients who are already BE screening candidates according to current published guidelines.

EsoCheck is a noninvasive cell collection device that is designed to sample cells from a targeted region of the esophagus in a 5-minute office-based procedure without the need for endoscopy. The sample cells can then be subjected to any commercially available diagnostic test, including EsoGuard.

Lucid had a very strong presence at this year -- at this week's Digestive Diseases Week, DDD (sic) [DDW], this meeting in San Diego, which is the major annual gastroenterology meeting, which is sponsored by the American Gastroenterological Association. We had a fantastic booth where our team engaged physicians and introduced an array of new high-quality educational materials on both EsoGuard and EsoCheck, including an EsoCheck animation, which is now available on our YouTube site. The link was in our press release issued this morning. A leading gastroenterologist, Dr. Amitabh Chak, gave a well-attended presentation on both EsoGuard and EsoCheck and was the lead author on 2 EsoGuard-, EsoCheck-related abstracts.

Booth traffic was very strong, with excellent feedback and overall excitement from the gastroenterology community. This excitement was partly driven by acknowledged advantages of EsoGuard and EsoCheck over their main competitors in the BE detection and esophageal cell sampling space, namely CytoSponge and trefoil factor 3, or TFF3.

For example, EsoCheck has many advantages over CytoSponge, a device marketed by Medtronic. The CytoSponge capsule must be digested in the stomach before it can be used to sample cells, unlike EsoCheck, whose invert and protect technology allows it to perform a targeted sample of the lower esophagus. CytoSponge Brillo Pad-like spherical sponge samples cells from the entire esophagus, throat and mouth, which dilutes and contaminates the lower esophageal barrier itself, unlike EsoGuard, which is a modern DNA biomarker test, which is automatable. TFF3 is a standard immunohistochemistry test which requires a pathologist. Dr. Nick Shaheen, a leading BE expert who happens to chair Lucid's Medical Advisory Board, presented data from a study using CytoSponge and TFF3, which showed results which were markedly inferior to EsoGuard and EsoCheck's results published last year in Science Translation Medicine.

So EsoGuard is now officially a Laboratory Developed Test, or LDT, having completed full CLIA validation in the laboratory of Cleveland this spring. The process to secure CMS and subsequently private payer reimbursement for the EsoGuard LDT is progressing steadily and on schedule. At the end of March, we submitted the EsoGuard LDT to the American Medical Association as the first step in its Proprietary Laboratory Analysis or PLA process to secure a diagnostic CPT billing code. Since then, EsoGuard has cleared 2 additional hurdles, the technical advisory review and the CPT Editorial Review Panel. Next month, Lucid is scheduled to participate in the next step in the process, the CMS Clinical Laboratory Fee Schedule or CLFS Annual Public Meeting, where actual proposed payment methodology and amounts will be presented. This month, we also engaged a leading contract diagnostic organization to build custom EsoGuard specimen kits and perform key portions of the assay to support the marketing of the EsoGuard LDT.

Our efforts to secure regulatory clearance for EsoCheck through the FDA's 510(k) pathway are also nearing completion. Last quarter, we completed the GLP animal study that the FDA requested to document effectiveness and safety relative to a clear, commonly used endoscopic brush. In order to expedite the review process and allow the reviewer to preserve time on the approximately 30 days remaining on her review clock, we chose to submit the outstanding data from this GLP study for FDA review through an accelerated presubmission process while we finalize some perfunctory sterilization validation work. The presubmission process has been completed, and we are thrilled that the FDA provided the opinion that the GLP animal study results do, in fact, support substantial equivalence of EsoCheck safety and effectiveness, really clearing the major hurdle to EsoCheck 510(k) clearance. Once the final validation step is completed in a couple of weeks, we expect a quick review of these matters and final clearance.

We are also pursuing other indications for EsoCheck beyond its use to collect cells for the EsoGuard DNA test to detect Barrett's Esophagus. We have engaged a couple of key advisers at leading academic medical centers to begin utilizing EsoCheck and other common esophageal conditions, such as esophageal candidiasis, which is a yeast infection of the esophagus, which occurs in patients with compromised immune systems; and eosinophilic esophagitis, which is a common inflammatory condition of the esophagus.

Our long-term strategy, of course, is to secure a specific indication based on published guidelines for widespread BE screening using EsoGuard on samples collected with EsoCheck and the 20 million patients in whom BE screening is currently recommended. This requires having the EsoGuard system cleared by the FDA as an In-Vitro Diagnostic or IVD device. This process is progressing at an accelerated pace in close collaboration with our world-class medical and regulatory advisers, including the former Director of the FDA's IVD office. An FDA presubmission package outlining Lucid-sponsored clinical studies to be performed in support of this indication is now complete and will be submitted to the FDA in the coming weeks, along with a meeting request to discuss its clinical data requirements for a de novo or Pre-Market Approval, PMA, pathway submission.

In June, Lucid's new Chief Operating Officer, who most recently served as Director of Clinical Operations of a large multinational medical device company, will begin to oversee clinical operations planning of these upcoming Lucid-sponsored clinical trials as well as operations of the EsoGuard LDT.

So the remaining lead products in our pipeline are going well. I'll be brief with these updates as they are covered in this morning's press release as well as dedicated product update press releases that we've submitted in recent weeks.

Our PortIO implantable intraosseous vascular access device continues to advance through the FDA's de novo pathway. The GLP animal study requested by the FDA has been completed. And a presubmission package incorporating these data will be submitted to the FDA in the coming weeks. Groundbreaking data from a pilot animal study demonstrated an unprecedented maintenance-free implant duration of over 60 days. Another animal study designed to document maintenance-free implant durations for up to 6 months has also been initiated. We are finally planning a long-term first-in-human series in Colombia, South America and CE Mark submission in the coming months. We continue to explore potential strategic partnerships, including outright acquisition of PortIO.

Our NextFlo disposable intravenous infusion set recently achieved a key milestone in its quest to eliminate the need for complex and expensive electronic infusion pumps for most of the estimated 1 million infusions of fluids, medications and other substances delivered each day in hospitals and outpatient settings across the United States. NextFlo testing has demonstrated constant flow rates across a wide range of IV bag heights, with accuracy rates comparable to electronic infusion pumps. We anticipate NextFlo will be a Class I device whose market introduction will not require FDA 510(k) clearance. We are finalizing a commercial-ready packaged version of the device before demonstrating it to potential acquirers, including a market leader in the space who recently contacted us expressing interest in the technology.

Finally, a 3-month animal study of the DisappEAR resorbable, antimicrobial pediatric ear tube animal study has been completed with excellent results. The resorbable ear tubes, machined from blocks of a proprietary silk technology, demonstrated unexpected surface properties which appear to provide several unique benefits over traditional plastic tubes, including enhanced flow of fluids in and out of the tube and potential intrinsic antimicrobial properties. Additional animals are being followed for longer durations to confirm device stability and corroborate the low incidence of otorrhea, which is a difficult to manage condition where fluid and pus drains out of the middle ear into the ear canal. In vitro antimicrobial testing is also being performed to determine whether the surface properties have antimicrobial properties without the need for antibiotic coating.

So after all that, I'll now turn the call over to Dennis to review our financial results.

Thanks, Lishan, and good afternoon, everyone. I'll be brief with our financial results for the quarter ended March 31, 2019, were reported to the SEC on Form 10-Q this past week and our related press releases published this morning. Form 10-Q is available at sec.gov and on our website, where we also have posted the press release.

So with regard to the financial results, research and development expenses for the first quarter of 2019 were $1.45 million, about $80,000 higher than the fourth quarter. Consistent with remarks we made last quarter through the end of this current quarter, R&D increased as we pushed CarpX and EsoCheck towards FDA clearance, PortIO and DisappEAR completing their animal studies as well as milestone breakthroughs for NextFlo, as Lishan explained. Third-party contract development and manufacturing expenses accounted for nearly 75% of our year-over-year increase, which was around $890,000. General and administrative expenses were $1.7 million for the first quarter of 2019 compared with $1.4 million for the same period in 2018 and were lower by about $250,000 sequentially. The increases are due principally to compensation-related costs, including increased headcount, stock-based compensation expense, as well as other operating costs, largely related to precommercial launch activities, including trade shows, travel and key opinion leader events.

PAVmed reported an operating loss for the 3 months ended March 31, 2019, of $3.1 million and a GAAP net loss attributable to common stockholders of $3.6 million or a loss of $0.13 per common share. The difference between the 2 principally reflects changes in the fair value and other related noncash charges affecting GAAP accounting with a convertible debt, and you can look to the 10-Q for a lot more detail in regards to that.

Our press release and the 10-Q provide substantially more detail related to the noncash charges occurring in the current and prior periods as well as the various security exchanges undertaken in the first quarter of last year to mitigate some of those events.

Also, the press release provides a table entitled non-GAAP measures, which highlight these amounts along with interest expense and other noncash charges which are predominantly depreciation and stock-based compensation so that the reader might have a better understanding of the company's financial performance. You'll notice from the table that after adjusting the GAAP loss by these charges, the company reported non-GAAP adjusted loss for the 3 months ended March 31, 2019, of $2.5 million or $0.09 per common share.

PAVmed had cash of $4.2 million as of March 31, 2019, which is a change of approximately $4 million during the first quarter. Note that a significant part of the cash used, namely $1.3 million of the $4 million, reflected a reduction of payables and accrued liabilities. As you are aware, after the quarter ended, we increased cash by $3.7 million, which offsets the first quarter burn almost entirely.

With that, operator, let us open it up for questions from our audience.

(Operator Instructions) Our first question comes from the line of Anthony Vendetti with Maxim Group.

I just wanted to follow up on CarpX first in that -- so it sounds like the first 9 patients went extremely well, no adverse events. From the fourth quarter, when we talked about doing the first-in-human trials, we, I think, discussed doing 20 patients, and I know the next group is up. Is the next group the next 11? Or is it a smaller group before we get to the 20?

Yes. Thanks, Anthony. So the bottom line is we're confident on the time lines I outlined. The actual number of patients is sort of approximately 20. It may be more. Those patients are being recruited and are going through the informed consent process and preoperative testing. But we're confident that we'll complete enough patients in this next round to get us to -- through those 90-day -- through that 90-day follow-up and then submission of those results according to kind of the schedule we have planned. And we're really fairly close to what we had talked about during our last call.

Okay. So as you mentioned then on the call, Lishan, expectation is, assuming this next group goes well, that it is still possible to get clearance and to start commercializing it by the end of 2019?

Yes. That's correct.

Okay. And then I know you gave a good update on all the other products. Is there anything in the time frame that you have on the other products that has changed from the fourth quarter? Or as with CarpX, everything else feels fairly on track?

I would say things are really on track. I think this -- the -- I think the key -- probably of all the things that I mentioned and probably worth highlighting is the fact that we used the presubmission process with the FDA to get them to sign off on the substantial equivalent of the data that came out of the animal study. So we did that in a way that allowed us to preserve some time on the clock, which is always helpful to them, and I think we'll get that wrapped up very quickly. So that's obviously good news, and it's consistent with what we discussed last time. And also, it was good news to all of the gastroenterologists who came by the booth at DDW this week because there's a lot -- as I mentioned, there's really a lot of excitement around having the opportunity to use this both for Barrett's as well as for some other conditions that we're exploring.

Okay. Great. And then as we look ahead through the remainder of this year, is the focus going to be on obviously going forward with all these products, but I know, Lishan, you're always thinking of additional products. By the end of the year, could there be any other products that we'll start hearing about in terms of what's in the pipeline?

Well, I mean, I'll just say this, which is that, that's sort of in the DNA of this company, it's what we were founded on, to always be seeking innovations that fit within our business model, things that we believe will be additive to the value-creation opportunity within this company. And I think I'll use that -- your question to sort of highlight the story of the EsoCheck and EsoGuard technology, because if we had been talking sort of Q1 of 2018, these were not even on the radar. We haven't even presented this technology. We were offered it in -- to look at it in January of 2018, and exactly a year ago today -- or this month, we consummated a licensing agreement.

So yes, there should be no more -- stronger evidence that we're always opportunistic, we're always looking for opportunities to identify really attractive innovations that can add value to this company. And I think the EsoGuard, EsoCheck story is a pretty good example of that.

Okay. And then, Dennis, just on the expense line, the overall expenses came in a little lighter than we were looking for. G&A was down a little bit, and then R&D was up a little bit. Are those -- Dennis, are those better numbers to use in terms of modeling going forward? Or should we look for something different in the rest -- for the rest of 2019 in terms of the cadence for G&A and R&D?

Yes. It's a great question because the beauty of this model is the ability to almost have the largest portion of our expenses pretty variable, right? So we can speed them up or slow them down based upon resources and opportunity. And as you go through Lishan's remarks, you can see the significant advances that were made, something like NextFlo, and it made sense to continue to invest behind it, and DisappEAR and PortIO. And the EsoGuard technology is accelerating faster than what we initially anticipated.

So the second quarter might very well look a lot like the first quarter. And as we get through these heavy-duty R&D expenditures to advance all these technology, for instance, the New Zealand trial is going on in the second quarter, then things will start to modulate depending upon what the next step is for the commercialization or some of these technologies or the outright strategic exit from some of the nonlead products.

(Operator Instructions) Our next question comes from the line of Tom -- I apologize, there are no further questions at this time. 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, CEO, for closing remarks.

So thank you all for joining us this afternoon and for your question, Anthony. We look forward, as always, to keeping you abreast of our progress via frequent news releases and periodic conference calls such as this one. I also encourage you to contact Mike directly with any questions at JMH@PAVmed.com and to contact us on the various social media sites that I had listed earlier. Everybody, have a great day. Thank you.

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