Morning, and welcome to the PAVmed second quarter 2025 business update conference call. At this time, all lines are in 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 call over to Mr. Matt Riley, PAVmed's Senior Director of Investor Relations. You may commence.
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 CEO of PAVmed, along with Dennis McGrath, CFO 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. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the SEC.
For a list and a description of these and other important risks and uncertainties that may affect future operations, see Part One, Item 1A, entitled Risk Factors in PAVmed's most recent annual report on Forms 10-K filed with the SEC and any subsequent updates filed in the quarterly reports on Forms 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 CEO of PAVmed. Lishan.
Thank you, Matt, and good morning, everyone. Thank you for joining our quarterly update call. As always, I'd like to thank our long-term shareholders for your ongoing support and commitment. We'll be diving into our operational highlights in a bit. Before doing that, just a reminder that we've taken some critical steps over the past year to stabilize PAVmed's corporate structure and balance sheet. There's still some work to be done on that front. Despite that, we believe we remain well-positioned to operate as a diversified commercial life sciences company with multiple independently financed subsidiaries that operate under our shared services model. Let me just give a brief overview of PAVmed's portfolio. PAVmed is a vehicle to deliver innovative medical technologies. As I mentioned, we operate under a shared services model, and as our subsidiaries succeed, PAVmed will also succeed.
Lucid is our publicly traded diagnostics company. It is obviously our strongest, most advanced asset, and it is on the cusp of key reimbursing milestones, including Medicare, which we will talk about in a little more detail later. Lucid has been able to raise its own capital and has sufficient runway to accelerate commercialization once we secure Medicare coverage. Veris Health is our digital health company that has a cancer care platform that enhances personalized care, and we will go over some of the updates in a bit. Veris has also been able to secure its own financing, and that has given us the ability to restart development of the device, the implantable physiological monitor, which works in conjunction with the cancer care platform.
PMX, our incubator, which houses some internal projects like PortIO. We have been working to try to raise capital for these internal projects. That really remains an ongoing challenge.
However, we also, in parallel, continue to be solicited regarding other very promising assets, which we continue to aggressively pursue. We do remain active in this front and are trying to balance incorporating new assets with the availability of capital. On the biopharma side, we talked a bit last call about us exploring opportunities within the biopharma space. In our last call, we thought we were close with regard to one asset that fits well within our shared services model and could leverage our clinical research team, which is one of the reasons why we have decided, in conjunction with one of our board members, to explore in this space. Unfortunately, that asset fell through. But the pipeline actually remains robust, and we continue to explore interesting assets in this vertical. Let us just do a brief update on Lucid.
Obviously, I encourage you to listen to yesterday's Lucid business update call for greater detail on each of these areas. But the main takeaway is that Lucid is now better positioned than ever to capitalize on the large market opportunity that EsoGuard provides. There are some real concrete near-term milestones that we believe will drive Lucid's success and therefore will positively impact PAVmed. Just to highlight some numbers, EsoGuard test volume was 2,756 tests, which was within the target range of 2,500-3,000 tests per quarter. Revenue was up about 40% from Q1 at a record level at $1.2 million for the quarter.
As I went through in a lot of detail on our call yesterday, the big upcoming event for Lucid is this MolDX Contractor Advisory Committee meeting, the CAC meeting, which is a critical step in the LCD process for Medicare coverage. We believe we are in the final stages of that and it indicates with strong evidence of progress towards positive Medicare coverage policy. Lucid also announced a partnership with Hoag, a world-class health system in Southern California, to launch a comprehensive integrated EsoGuard esophageal precancer testing program across the entire hospital healthcare delivery network, including gastroenterologists, primary care physicians, and concierge medicine. We are very excited about this model. We are excited about this engagement, which really provides a model for additional health systems which we are now engaging with to try to replicate the Hoag model.
As Dennis will talk about in more detail, Lucid also strengthens its balance sheet with an underwritten public offering and has sufficient capital to get through these upcoming milestones. Consistent with the PAVmed model, Lucid continues to succeed at raising its own capital. Finally, on the commercial side, Lucid secured its first private commercial coverage policy from Highmark Blue Cross Blue Shield, and that became effective in late May. As I noted on the call, this has been a very positive experience for us. It establishes a precedent both with regard to our commercial insurance engagements and with Medicare as well. It really points to the value of our clinical evidence, clinical validity, utility, as well as the economic argument supporting EsoGuard. So we remain deeply engaged with our commercial payers and are already seeing traction within the Highmark coverage area. Let's move on to Veris Health.
Some recent highlights include that Veris completed a second financing of $2.5 million direct equity financing that supplemented an earlier $2.4 million financing at a very attractive pre-money valuation of $35 million. We're very excited about that. It really shows investor confidence in Veris' commercial potential and the progress we've made to date. Most importantly, it provides sufficient capital to fund the development of the implantable physiological monitor, which had been on pause, and to get that through FDA clearance and subsequent commercial launch so we can serve its purpose as a value added in conjunction with the platform. That development has restarted as soon as we completed that financing, and we have a clear path with FDA. We had our final meeting with FDA, of many, many meetings we've had with them. That feedback was favorable.
We were actually able to bypass an in-person meeting, and we look forward to completing the development work and filing for FDA in 2026. Our long-term strategic partnership with The Ohio State University Comprehensive Cancer Center – Arthur G. James Cancer Hospital and Richard J. Solove Research Institute really progressed nicely during this quarter. We completed our partnership agreement with them and are heading towards a commercial launch. Right now, the electronic health record integration step is in process. It's gone a little bit slower than we expected, but should be wrapping up, and it'll allow us to do a broad launch across the cancer center to onboard patients across a variety of condition-specific groups with a target of enrolling over 1,000 patients within the first year.
We've also begun on a variety of components of a longer term strategic plan that we look to start implementing upon completion of the submission and clearance of the implantable.
This includes a commercial strategy that builds on the model that we've established with The James Cancer Center at The Ohio State University and continue to target new accounts. It also includes the commercial model for the implantable, and we're working through pricing and our commercial strategy on the implantable, and so far that looks very attractive from a pricing point of view. Then we look towards commercial expansion after the implantable is clear beyond that. We're also hard at work at developing an internal program to put us in a position where we can expand beyond simple remote patient monitoring to embrace AI, artificial intelligence-based clinical decision support tools that are targeted towards cancer care.
We really believe we have a good opportunity to do that and are putting in the resources and the effort to develop a strategic plan that we would seek to launch upon completion of the implantable. Our focus right now, as I mentioned, is to complete the OSU engagement and to get the implantable across the finish line, and that's the primary focus of our team. There's a lot of strategic work going on behind the scenes to make sure when that's completed, that we'll be in a position to really create some significant value over the long term. With that, I'll pass the call on to Dennis.
Thanks, Lishan, and good morning, everyone. A summary of financial results for the second quarter were reported in our press release that has been distributed. On the next three slides, I'll emphasize a few key highlights from the second quarter, but I encourage you to consider those remarks in the context of the full disclosures covered in our quarterly report on Form 10-Q as filed with the SEC. A couple reminders as our financials, particularly the income statement with year-over-year comparisons, will for the next couple quarters illustrate periods before September 10, 2024, with Lucid's operating results being consolidated into the presented PAVmed results first this year, so 2025 periods, without Lucid's operating results being consolidated into PAVmed financials.
We do present some supplementary information in the footnotes of financial statements, particularly footnote four of the 10-Q, that helps with some of the comparisons. With regard to the balance sheet, you will recall from our last three investor update calls in November, March, and May, that the company was engaged in a multi-step process to regain compliance with NASDAQ listing standards for the minimum equity level, which it did in February, and also position the company for longer term financial stability. The two key components were deconsolidating Lucid from PAVmed's consolidated financial statements and restructuring our debt, whereby we exchanged about 80% of our outstanding debt for new Series C preferred equity. The slide reflects the balance sheets for the second quarter and the first quarter, both after deconsolidation. Again, that occurred on September 10, 2024.
Now the March balance sheet also reflects the impact of the debt exchange, which occurred after December 31st. Notably, the liability reduction of about $25 million coming in large part from the significant reduction in the convertible notes in exchange for an increase of approximately $25 million in preferred stock, and the balance sheet inclusion for the first time of the equity value of PAVmed's 31.3 million shares of Lucid stock. The June 30 balance sheet reflects the impact during the second quarter of the Lucid stock price changes on the value of the Lucid shares mark-to-market, as well as any conversions of the preferred securities to common stock. A couple of key things to point out on each of these balance sheets. Cash does not include any Lucid cash.
However, it does include the two Veris related financings, mainly the $2.4 million in the first quarter and the $2.5 million in the second quarter to support the development of the FDA submission of Veris' implantable device. The equity method investment balance of $36 million as June 30th reflects again the 31.3 million Lucid shares mark-to-market, representing a $10 million gain since year-end from a 40% rise in the Lucid stock price between the periods. This amount was previously eliminated from PAVmed's balance sheet prior to deconsolidation. Note there is plenty more information in the 10-Q on both the debt exchange, the Series C preferred stock, and the equity method treatment of PAVmed's investment in Lucid shares. At present, PAVmed continues to be the single largest shareholder of Lucid Diagnostics, with an ownership of approximately 29% of the common shares outstanding.
Although PAVmed no longer has voting control of Lucid, PAVmed, its board, and management still have significant influence over Lucid with more than 27% voting interest. Shares outstanding today, including unvested RSAs, are approximately 21.9 million shares. The GAAP quarter ending outstanding shares of 20.1 million are reflected on the slide, as well as the face of the balance sheet in 10-Q. GAAP shares do not reflect unvested RSA amounts. Additionally, we issued 25,000 Series C preferred shares as part of the debt restructure at the beginning of the year. To date, approximately 1,850 Series C have been converted to approximately 4.7 million common shares. If the balance of the Series C were converted at the contractual $1.7 conversion price, an additional 21.7 million shares would be issued. The Z warrants, after having been extended for one year beyond their initial five-year term, expired on April 30th. Next slide, please.
Similar to past presentations, this P&L slide provides some GAAP and non-GAAP year-over-year and quarterly and annual comparisons. As cautioned earlier in my comments, there are some significant differences in how the information is compiled between the comparative periods given the change in PAVmed's financial control of Lucid. Importantly, the GAAP construct for deconsolidating Lucid on September 10th of last year somewhat blurs the historical understanding of the information for PAVmed as a standalone entity, and GAAP does not allow the presentation for the prior periods on the face of the financial statements to be similarly adjusted. Although as mentioned, there is some supplementary information in the footnotes. On a pro forma basis and purely for illustrative purposes of this slide only, the Veris revenue and the Lucid management fee are combined collectively more than $3 million per quarter to visually align PAVmed's income sources versus operating expenses.
For SEC reporting purposes, the MSA income is below the line item. Furthermore, for the second quarter, you see on the slide and in the 10-Q, a large GAAP net loss of $12.3 million before NCI, the non-controlling interest, and preferred dividends, opposed to the six-month total reflecting $6.3 million of income. This results from the mark-to-market of the 31.3 million Lucid shares for the periods, resulting in a second quarter non-cash expense of $10.6 million in the line item titled Change in Fair Value of Equity Investment, and an income pickup of $21 million in the first quarter.
Happy to answer any detailed questions on this slide in the Q&A, but I think it is more informative to look at the second quarter standalone information presented in this slide and the full second quarter information presented in our press release that shows a company's baseline bias of operating a cash flow break even and incurring incremental patent expenses for development activities that are offset by the dedicated funding. So in the second quarter, you see a non-GAAP loss of $845,000, which has been funded in part by the NIH grant proceeds of $900,000 in the fourth quarter and a PAVmed Veris $2.4 million financing in the first quarter and a Veris direct subsidiary financing of $2.5 million in the second quarter. Non-GAAP operating expenses for the first quarter and second quarter were nearly identical at $4.5 million, a change of $53,000 between the two quarters. Next slide, please.
With regard to non-GAAP operating expenses, on this slide, you see a graphic illustration of our operating expenses over time as presented in more detail in our press release. The non-GAAP OpEx since the Lucid deconsolidation has been nearly flat for the last nine months. OpEx increases moving forward are likely tied directly to the R&D efforts to get the Veris implantable device submitted and cleared by the FDA, for which the recent Veris-related financings are supporting. With that, operator, let us open it up for questions.
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press the star followed by the one on your touchtone phone. 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 two. If you are using a speakerphone, please mute the handset before pressing any key. One moment please, for your first question. Your first question comes from Anthony Vendetti from Maxim Group. Please go ahead.
Thank you. Good morning. So a couple things. On the rollout with OSU, I know there has to be integration with EHRs, and used to follow the healthcare information technology industry very closely, and having those integrations with different systems within a hospital sometimes takes longer than expected. Where is that specific process with integrating Veris' remote monitoring in with that EHR? Is that what is taking a little bit longer, or have you overcome that? And then-
Yeah
and then the AI component, just a little more clarity on that clinical decision support piece of it. It sounds like that's early stage, but could be very interesting going forward to add to the Veris platform.
Yeah. Both great questions, Anthony. Thanks for the opportunity to flesh those out a little bit. The EHR integration has been a bit of a gating item for us to kind of transition to a full commercial expansion across the network. Yes, it is challenging, and it takes some work. It's not quite as onerous as I think the models that you were talking about, where you're really, in effect, altering their EHR. There are third-party vendors, one of which we're using, that have a sort of an established turnkey way to take an external platform and have it communicate with various hooks and links within the EHR system. It's not really built into the EHR. It's just getting these third-party applications that can interrogate and deliver information bidirectionally to the EHR in a streamlined way. The amount of work is modest or moderate.
It's mostly just the challenge of overcoming kind of bureaucratic hurdles within an academic medical center. But we're making progress. We expect it to get wrapped up soon, and then we'll be able to launch. The goal was to kind of get it up and running before launching at all, but we may actually proceed with an early rollout as the EHR integration process is proceeding. It's coming, but it's just taking a little bit longer than we had hoped for. On the strategic side, you're right.
When we founded this company, the platform itself, the software platform itself, and even the implementation and the platform's utilization of data from an implantable monitor were really firmly rooted in the remote patient monitoring, or RPM paradigm, where the patient's physiologic information, whether through the external devices that they currently have or through the implantable, are relayed effectively just directly into the platform for the clinical team to see and for them to make clinical decisions. There's some elements of highlighting and color-coding things to give folks a sense of prioritization of the different alerts. But it's really just that. RPM is literally remote patient monitoring. It does include some patient, the patient's own reported symptoms, and incorporates that in a nice interface that is very user-friendly and allows the clinical team to view the information and utilize it in their decision-making.
But obviously, I don't think it's a mystery to anyone that over the years since we launched Veris, there's been an explosion of power, expertise, and activity in the healthcare space with regard to AI tools. We've initiated really a formal process within Veris to map out how we can incorporate more AI into the process as a way to enhance the care of these patients even further. Our target really is not sort of just throwing out an incredibly wide net around operational efficiency or other elements. There are plenty of other companies that are doing that, and that's not our wheelhouse. Our wheelhouse here is really in the clinical care of cancer patients who are being exposed to treatments that can lead to complications. We're narrowly focused on clinical decision support tools. That can go anywhere from smarter alerts.
So you're not just simply saying, "Hey, the temperature is rising," or, "Patient's getting a fever," or there's some report of certain symptoms that might trigger just an alert based on the value of the data, but making alerts smarter so they can provide some level of clinical risk or additive information through AI that would be useful to clinicians. Then it goes all the way to more advanced tools that are actually prompted out quite extensively in other areas and other specialties. But here within cancer, it would be tools that could predict, that could utilize data, and could train off of data. One of the expectations with regards to this partnership at OSU, which is the third-largest cancer center in the country, is to be able to work with them on using their vast data resources to train models that can provide clinical decision support.
So a good concrete example of that would be one of the dreaded complications of patients undergoing chemotherapy, for example, is neutropenic sepsis. So the white blood count gets low from the chemo, and they have a risk of developing infection. So algorithms that are trained on data in cancer patients undergoing chemotherapy that utilize the data that our system provides to provide a more comprehensive risk profile where the risk of sepsis can be predicted well in advance of a typical clinical picture, and interventions can be made in order to prevent those complications from going further. So it's tools like that, rather narrowly focused on cancer care in these patients who are the opportunity to get sick and to provide a layer of clinical decision support on top of just the reporting of the physiologic monitor.
We are working internally, mapping it out, identifying potential products and tools, and we'll be working with OSU on mapping out ways to use their data, especially other data sources, to start to train models. So that's something that we're pretty excited about and will be a real value added to the platform. Just to maybe just in closing, the platform now is really great. It's an excellent tool. Even though we are doing EHR integration, frankly, when we deployed our platform, the clinicians typically use our platform as the front end for the way they care for their patients. That will be supplemented by the physiologic data from the monitor. Then the next step in that would be to supplement the value proposition further by adding AI-based clinical decision support tools. Hopefully, that answers your question.
Yeah, no, that's great. Then just on the funding component, is Veris still funded at this point through FDA submission and expected clearance? Then any additional color around that timeline in 2026 would be-
The answer is yes. I'll let Dennis map out the details of that. There's including the opportunity to raise additional cash through a warrant that's linked to one of the financings.
Yeah, that's correct. With the funding, it certainly through clearance and the warrant exercise, which also has a call feature within 60 days of an FDA clearance, is expected to support the commercial launch afterwards.
Okay, excellent. Thanks so much. I'll hop back in the queue.
Great. Thanks, Anthony.
Thank you. Your next question comes from Edward Woo from Ascendiant Capital. Please go ahead.
Yeah. Congratulations on all the progress. My question is on the biopharma opportunity. Is there a specific area that you have been looking at that you may continue to focus on for the next opportunities that you're evaluating?
Sure. As we said last time in a little bit more detail, we've been There's a little bit of noise there. Is that Ed? Is that your mic? Yeah, thanks, Ed. As we mentioned last time, we've been sourcing assets at quite a decent clip now, actually, for over a year, and we've made some progress on some. I would say the majority have been in the cancer space. There's just a lot of activity both on small molecules and on biologic immunotherapies in a variety of areas of cancer. It is attractive because much more so than medtech and diagnostics, the pathways through FDA, the FDA process and clearance and reimbursement is much more streamlined. Recently, we've been viewing assets outside that space.
The one asset that we were hopeful that we might get across the finish line last time was in cardio immunology and in the cardiac heart failure space. It should be no surprise to anyone that the biopharma initiatives around obesity are exploding. So we are getting to view some assets just at the very early stages in that space. So it is an interesting process. Again, there is a lot of assets out there. We have a lot to offer as a public company parent with access to longer-term capital. That is attractive, but the devil is in the details. It is really a question of how much upfront capital the holders of these assets are looking for and so forth. So we remain optimistic over the long term, and we will keep looking, working our way through that pipeline.
Great. Thanks for answering my questions, and I wish you guys good luck. Thank you.
Thanks, Ed. Have a good day.
Thank you. There are no further questions at this time. I would now like to turn the conference call over to Dr. Lishan Aklog for closing remarks.
Great. Thank you, operator, and thank you all for joining today, and thanks, Anthony and Ed, for great questions. Really just want to close on similar to my opening comments that at the end of the day, PAVmed's success within, given the model we have and given that we stabilized things from a corporate point of view, ultimately is going to depend on the success of its subsidiaries. And it's really their commercial success and their ability to finance their operations ultimately through profitability. And both Lucid and Veris are on solid footing on both fronts. There are some really important strategic milestones, obviously, especially at Lucid, with the potential to drive significant value at the PAVmed level over the coming months.
And we do, as I said again, in just response to the last question, we continue to aggressively pursue opportunities with very strong commercial potential, and we're always looking to expand the portfolio of subsidiaries to find the next Lucid, the next Veris, to ultimately drive PAVmed's value. I am bullish about one such near-term opportunity with academic medical centers and particularly intriguing because it's around innovative technologies that would leverage both Lucid and PAVmed's expertise in esophageal disease. We're looking forward to see if we can get that opportunity locked down. With that said, again, just do encourage you to remain connected with us and our progress through our press releases, these calls. Please sign up for email alerts if you haven't done so already on our website and follow us on social media. Thank you very much, and everybody have a great day. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you very much for your participation. You may now disconnect.