Good morning, and welcome to the Lucid Diagnostics Third Quarter 2023 Business Update Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Michael Parks, VP, Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone. Thank you for participating in today's third quarter 2023 business update call. The press release announcing our business update for the Company and financial results for the three and nine months ended September 30, 2023 is available on the Lucid website. Please take a moment to read the disclaimer about forward-looking statements in this press release. The business update, press release and this conference call include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause the 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 U.S. Securities and Exchange Commission. For a list and description of these and other important risk factors and uncertainties that may affect future operations, see Part I, Item 1A entitled Risk Factors and Lucid's most recent annual report on Form 10-Q filed with the SEC and subsequent updates filed in quarterly reports on Form 10-Q and any subsequent Form 8-K filings. Except as required by law, Lucid 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 Lucid Diagnostics. Dr. Aklog?

Thanks, Mike, and thanks, everyone, for joining us this morning. I look forward to offering an update on Lucid's business as well as its finances. I don't think it's hyperbole to say that this third quarter has been the most important quarter in the Company's history. We crossed several critical milestones in translating test volume growth into revenue and revenue growth. We've had eight consecutive quarters of steady growth in test volume. We performed 2,575 commercial EsoGuard test which is 17% quarterly growth and 137% annual growth. Even more importantly, we recognized revenue of $783,000, which is a nearly 400% increase quarter-on-quarter and nearly 1,000% increase annually. We had strong contributions from our Lucid test centers, the Satellite Lucid test centers and our high-volume Check Your Food Tube testing events, which are gaining traction as well as traction with our strategic accounts, which I'll discuss further. These include health systems and academic centers. Our strategic accomplishments include the following: we upgraded our revenue cycle management infrastructure and processes, as we discussed in our last call, and we've been delivering solid results with EsoGuard claims processing and payments. In a very strong boost to our clinical utility data to support in-network payer coverage engagement and we've reported near perfect results in over 1,500 patients across three studies that have been released. The Clue Study, the PREVENT registries and our San Antonio fire department study. Two of these have been accepted for peer review publication and one is pending. We're accelerating our activities and direct contracting with employers to offer EsoGuard as a benefit. Our first contract was signed and testing has begun this quarter. We hired a VP of employer markets that's pushing this initiative forward. As we announced recently, we also launched the 2.0 version of our EsoGuard assay, which…

Thanks, Lishan, and good morning, everyone. The summary financial results for the third quarter reported on our press release that was published last night. On the next three slides, I'll emphasize a few key highlights from the quarter, but I encourage you to consider those remarks in the context of the full disclosures covered in our quarterly report on Form 10-Q, which was filed with the SEC last night and is available on our website. With regard to cash at $24.1 million, this does not include the $5 million additional funding shortly after the end of the quarter. As the funding occurred two weeks earlier, pro forma cash would have been $29.1 million. The sequential change in the cash balance reflects a third quarter burn rate of $8.5 million, including a reimbursement to PAVmed of approximately $2.2 million. Absent this payment, the burn rate would have been $6.3 million, which is slightly less than the average burn rate for the first three quarters of $6.6 million. Given the pro forma cash of just over $29 million and a steady state for the burn rate below $7 million, the simple math suggests that if this rate is sustained, it puts our runway to more than a year. The burn rate for most of the year has been softened by PAVmed deferring most of its quarterly management service payments since October of last year. This PAVmed optionality for paying the outstanding intercompany obligation in stock or cash at PAVmed's election serves to increase PAVmed's ownership while strengthening Lucid's balance sheet. This flexibility, payment in stock or cash has created some breathing room for Lucid to allow cash collections to catch up to the submitted reimbursement claims, which we will talk about in a second. With regard to AP, accounts payable, since the…

[Operator Instructions] Our first question comes from Kyle Mikson with Canaccord.

First question on the RCM situation. You said that weekly collections were -- I think trending like 30% higher. Just wondering how that kind of flows into the P&L. You did $700,000 in revenue this quarter, or I guess, last quarter in 3Q. Could you approach based on that math with the 30% higher collections, everything, could you approach or exceed $1 million maybe in the fourth quarter based on the higher collections? Or just kind of thinking about the run rate or the kind of inflection point in volume and revenue going forward.

Yes. First off, the collections are directly related to the future revenue that will be recognized. The only small piece, we do have this study with the VA to the extent we have additional tests with them and that last clinical study is near its conclusion, although there will be another upcoming one and that is recognized on an invoice based -- there's only a handful of revenue last quarter. And to my comments collections are increasing, increasing at a increasing rates. The average so far for the quarter puts us over $1 million in recognized revenue for the fourth quarter. So your assumption is correct.

Okay. And then the -- actually, you know what, on this note about the financials. Just looking at the slide with the EBITDA and net income and everything, it's pretty similar year-to-year and even the nine-month data is pretty -- I mean, it hasn't really contracted much, I guess, like you're still kind of probably burning a similar amount of cash. What you guys thoughts on getting cash burn down over time? Or is that a priority for you as you think of the profitability as EsoGuard kind of like it's out there in the field more broadly. And like I just said, like flux and everything out there in terms of adoption. Is that like what levers can you pull? I think you mentioned something about like reps stabilizing and everything, maybe possibly increasing over the long term, but how are you thinking about all these things like kind of converging into like expenses and cash burn?

Let me give some high-level comments and then Dennis will. I think some of your assessment of the numbers might tweak a bit. So look, this is the balancing act like we've said it before, we'll say it again that what we're balancing here is driving test volume growth to now a level that is sufficient for us to really have sufficient same history to engage with the medical directors of payers and so on and so forth, while trying to keep our burn rate down in this particular environment, and that involves keeping our sales headcount flat for this entire year. So that's -- we've been really happy, honestly, with how that's worked and that the test volume growth has been steady. We've been able to do that with a flat headcount while making the progress that we need on the revenue cycle management side, claims processing, claims payment and so forth. So I do think, Dennis, maybe you can sort of dive a little bit more into the impact of the reduction in force and the restructuring early this year with regard to our burn rate over the past year as well as moving into the future.

Yes. So Kyle, if you look at that EBIT number of $9,251 on Slide 17. The inclusive of that is about 2,250 in intercompany obligations from Lucid to PAVmed. And as I indicated in my comments, ideally, the PAVmed would accept that in stock. And therefore -- and which has been the case where the majority of time since last October. If you back that out, that gets you right to around the burn rate that I commented on, that's sub-$7 million. And we believe the levels of OpEx that we're seeing right now, we can maintain until we see the acceleration of collections to a higher degree, which will then definitely accelerate in our go-to-market strategy, and we know exactly where those initiatives would gear up. And so if you look at how that burn rate can change over the next four quarters, let's say, over 2024, collections is a key part of that. Even if the submitted claims of $5 million a quarter stayed relatively flat. The demand side of this equation is still pretty strong. Then as you increase the amount of collections, you did the calculations based upon the information I gave you for the first six weeks and you're over $1 million. As that continues to increase as a percentage of that five-minute submitted claims, the burn rate will go down. And we're expecting, based upon the initiatives from our market access team and now having published data on clinical utility, that certain -- that trend certainly should be realized. So we think that we've hit the right tone with the level of OpEx. Obviously, if those assumptions on the revenue collections are not hit, and we see that as only a remote possibility. But if true, then we would seek to reduce our OpEx even further. But as Lishan indicated, we're trying to strike that balance. Claims history is important to get reimbursement. The -- and it's just important because you need to have the attention of the Chief Medical Officers for them to deal with what our market access team are presenting to them. So we think that the OpEx will remain flat. Our collections will increase. The burn rate will be down because of all those -- some of those factors.

Okay. Thanks Dennis and then Lishan for the earlier comment. Lishan, on the EsoGuard 2.0 assay, a couple of questions about that. I guess, first, like why is now the right time for the assay launch? I mean I feel like 1.0 is been in the market for a couple of years. It's not fully penetrated just yet. It's still kind of like on that upward trajectory. How are you thinking about FDA approval for the new assay, how much data has been generated and like how much will be generated going forward in publications and that sort of thing? And then how much lower in cost of goods sold with this lower -- with this 2.0 assay have compared to the former. And also the turnaround time. I feel like that's something that might improve or actually may expand or increase with this newer assay as well. So some of those factors, if you could just touch on those it's great to know.

Yes. So look, it's the same assay, Kyle. The same genes. It's the same CPG islands, the same methylation site. So there's nothing fundamental at the core with regard to how we're interrogating the biologic process that's going on here. So this is really incremental improvement that has -- that does have a meaningful incorporation of really cutting edge technology with regard to doing this in a multiplex fashion. So that's -- just to be clear, we're not introducing an entirely new assay. We're just taking the same underlying biology, the same genes, to the same methylation and performing the assay in a more efficient way that will give us perhaps a bit of additional edge on performance, particularly as we move towards screening population towards where the magnitude of the positives can be closer to the cutoff. So we're just kind of picking our way and doing continuous improvement, and that's honestly what we should all be doing. In terms of the regulatory question right now, as you know, this is being marketed as a laboratory developed test, and we have had engagement over the years with FDA through multiple pre-submission meetings as well as a breakthrough device. And we will be reengaging with FDA over the long term to have EsoGuard presented as an IVD. But we have -- this is -- the point is exactly what you suggested, which is we obviously want to have the best version of the assay as we enter into studies that would ultimately, over the long term, get us towards an IVD, which we'll do and will be necessary for us to do under the current proposed FDA rule. So yes, we're just making it better and it's getting incrementally better. And we think it will be -- that will be…

Yes. Look, we need to prove it out, but it's safe to assume that we think there's about a 10% improvement in our actual costs there.

Okay. All right. That was like great color. Like it sounds as a similar as say, like you said, Lishan like a fundamentally similar performance has gotten better and improved. The workflow is now more efficient. So the COGS improvement as well, 10% pretty good, I would say. That was great. Let me just ask a really quick one before I hop off. The -- this progress with commercial and private payers, what are they reimbursing on average? Remember, in the past, that was like 50% to 60% of the Medicare rate? Like how is that looking now?

Yes, Dennis.

Kyle, maybe you can restate your question in terms of -- I'm not sure exactly what -- because we talked about allowable plans at nearly the $1,900, right? What were you trying to dissect further?

I guess the commercial payer segment in the past on average, I believe that was -- that bucket was kind of paying roughly half at $1,938 rate. So like -- I think it was like $1,100 or $1,200 around there, but maybe that has changed in past quarters. So --

Gone up. I think it's clears say it's gone up, right, Dennis?

Yes.

Yes. It has gone up, and I'm actually reaching for the number because I don't think we've published that exactly. So the mean average of allowable claims is $1,863, the actual payment rate. But that ---

You're looking for that. The actual payment rate is dependent on a few other variables in terms of like deductibles and the portion of the patients responsible for that varies year-to-year based on enrollment periods and so forth. But I think as a generic statement, the average payment that we're getting for commercial payers is actually higher than it was when we were saying that we were getting about 50% to 60% of our build rate, so the $2,500 bill rate. So it's definitely increased, if that's your question, Kyle.

Yes. That was perfect. Again, thanks so much guys for all the commentary.

I just want to emphasize -- I just want to reiterate one other thing. So the test is not similar. It's the same test. The same test just better in terms of efficiencies. And so just to be clear, the underlying biology is identical to the original test. Just wanted to make sure that there was no confusion about that.

Our next question comes from Ross Osborn with Cantor Fitzgerald.

You mentioned targeting police officers for new pre-cancer detection events. Would you discuss the rationale for this population and if you plan to create a registry from these events similar to firefighters?

Yes. No, I think the expansion beyond firefighters into other groups is really I would think of it more generically as opposed to policemen being -- having sort of unique risk factors associated with it. It really is a population. If you look at the risk factors for having esophageal pre-cancer, yes, there's a reasonably high incidence amongst them, but not because of any particular occupational exposure as opposed to in firefighters where it's really very well documented that they have increased cancer rates in general and the second highest increase in that cancer rate and those cancer rates is amongst esophageal cancer. So a good opportunity for me to emphasize that we remain very focused on firefighters as a specific population. That's why we've split our registry to include a dedicated subset of firefighters. I would view the police as basically just a broader expansion of our finding sort of a captive audience, a group that has a reasonably -- a reasonable rate of having the risk factors and being good candidates for testing and having them aggregated in entities such as place unions that will -- that give us an opportunity to target a larger group at once and to improve access. And so we'll continue to expand these CYFT events into other groups. There's public service employees, and it really starts to kind of meld into the broader direct contracting initiative that we're just getting off the ground with our first employer. So if you think of employers as self-insured entities, unions, they really are sort of part of the same spectrum of just collected groups of patients where we have potential for high-yield events such as our CYFT events. The firefighters are special in that they have a clear elevated risk and require and justify a targeted focus. Does that make sense?

Yes, makes perfect sense. And going off of that, and apologies if this was addressed in your prepared remarks or in a couple of calls. But would you discuss how your conversations going with additional employers for Direct Contracting? Do you think it should be a key driver for '24?

I think it should. The conversations we've had and the conversations we had with our first employer contract, the ones that are undergoing testing right now this quarter as we speak. It's really interesting. There's a sort of a sweet spot of kind of small to medium employers who are self-employed where one esophageal cancer patients amongst them or one cancer, other kind of cancer can have a really big impact both economically, if they're self-insured, they have some reinsurance and other opportunities to cover that. But right now, esophageal cancer diagnosis will typically cost about $1 million or more once you get through all the surgery and chemo and radiation and immunotherapy. And so there's a strong economic argument to be made for these particularly for the smaller to medium companies. There's also a human element there, where these tend to be close knit organizations and the impact of cancer or cancer death within that organization is really meaningful on a human level. And so our ability to have these conversations into -- and there's a real motivation on leadership at these employers to provide their patients with something that they would deem to be a real benefit to them. The whole area of offering testing as part of a broader health and wellness benefit program sort of separate from your medical insurance, coverage under your medical insurance through standard claims process is really a blue ocean. It's something that other companies, other diagnostic companies have had good success with. And there's a whole sort of untapped ecosystem out there that we are about to really dive headfirst with [Jim Fraccione], our new VP of Employer Markets of working within the ecosystem of brokers and others that work with employers to get their health and wellness benefit programs packaged together. You think of that more along things like smoke and cessation and nutrition and other things, add-on things that are benefits that employers can offer their employees, but targeted testing, and particularly testing that's designed to prevent cancer falls within the same rubric there. So super excited. These -- there's a cyclical nature of this. They tend to peak around open enrollment periods, but there is a lot of opportunity there and an opportunity that supplements and in some ways, short circuit some of the even more traditional routes going through payers. So yes, super excited about diving forward into this.

Our next question comes from Mike Matson with Needham & Co.

I guess I wanted to ask about, Dennis, just given the trends you're seeing with the revenue cycle management, collections and so forth. Do you have any feel for our ability to predict when you could maybe start to recognize revenue when the tests are actually performed as opposed to when we get paid for them?

Yes, Mike, I think that's still several quarters out. I would think we would be -- actually, we're collecting the data to be in a position to do so, but I don't think that's going to happen until the end '24.

Okay. I understand. And then just on the Check Your Food Tube events, I mean, it's good to see the traction there. But I'm just wondering about kind of the scalability of that as you grow and do more tests. I mean is that something that can kind of scale with the Company?

Definitely. I think -- I thought you were going to ask the other question about whether it's sort of cannibalizing our core business, but we love the Check Your Food Tube event. They are highly efficient. The kind of the input into a large number of tests that come out of these events in terms of the person hours of sales interaction as well as the efficiency of having our nurse practitioners or other clinicians perform the EsoCheck is highly efficient. And so it's very scalable. I mean you typically will have an engagement with, let's say, a fire department in a location as a prototypical example, that's a rep and maybe their area director working with them to get this organized. We have a single person on the sales team that coordinates all of these in a fairly efficient fashion. And then when they're scheduled, the -- we haven't -- one of our nurse practitioners or other device administrators come in, and they're doing 50 in a day, where we'd love to have that in the more traditional environments where we're engaged sort of more into trenches with physicians. So it really is a highly efficient and absolutely very scalable way to do this. But again, I just want to be clear, even though this wasn't your direct question that our approach to this remains all of the above. Everything we can do, whether it's our -- in the traditional and the trenches or working with physicians and institutions working through these health events, working with employers and unions and other self-insured entities, we're attacking it on all fronts anywhere we can enhance patient access. So yes, it does remain -- it is a very attractive modality and an efficient one that is definitely scalable.

Okay. Got it. And then just finally, now that you've got -- or you're close to having some of the clinical utility data, do you have any plans to go back to Medicare? I understand that you're focused on the payer, some employers and things like that, but Medicare a big opportunity. So do you have any plans to go back to them? And what would sort of be the timing of that? Or is there some kind of cycle there that you have to wait for or something.

Yes. So I think -- so yes, as you know, we've made substantial progress here. We have two published -- of two of the three clinical utility studies are published, and so we'll wait until the third. But the way we engage with Medicare is somewhat different than the way we engage with payers, right? The payer process is kind of more blocking and tackling pilot programs, small and regional plans, larger plans, it's sort of a continuous process. With Medicare, it's much more binary and so we will wait until we have all our ducks in a row, have all of the clinical utility studies published in the period literature. We'll have some initial conversations with them in the first half of next year about how to structure our submission under the existing LCD and we may wait till later in the first half to get the results of our additional clinical validity study, the BE2 study that's actively enrolling. And so yes, we'll engage with them in the first half of the year to plan that out and work towards a submission of the full package of the clinical utility and clinical utility data sometime later in the year. So that's an active process, but it's qualitatively different than the sort of the more incremental processes that we're working with the commercial payers. And as you noted, just to reemphasize, a key missing element there had been the clinical utility data now that we have that moving forward and lock down the -- our opportunity to reengage with MolDX is approaching.

Our next question comes from Mark Massaro with BTIG.

This is Vivian on for Mark. As I can see the progress with establishing claims history and clinical utility data, I guess, supporting conversations with commercial pay. You called out the revenue cycle management as well. I guess how should we think about remaining levers to pull for ASP improvement? What kind of growth we could see off of Q3 ASP?

Yes. So the ASP growth is really just a matter of the collections against the submitted claims. First off, our price per test is just under $2,500. Medicare rate is just under $1,900 or just at $1,900. And we think that those numbers will continue to hold for us as we go forward as the benchmark to be paid against. Now we're all out of network and at the allowable amount of '18, just under $1,900 were kind of out of network, not in coverage policies by the private pay. We think that's an indication that, that becomes a pretty good floor for us. So in terms of actual revenue recognized divided by number of tests delivered in a quarter, we think that ratio changes purely based upon collection and the movement in the market access from out of network to in network over time. So I think that's where you are aiming at in terms of ASP, getting to that benchmark, but we don't see that benchmark eroding at any time soon.

Sort of a qualitative response to that is that the levers are what we're doing on the coverage side, which is utilizing the clinical utility data now that it's coming out, engaging with payers on pilot programs and a variety of other ways to go to leverage that data and actually get in network coverage as we are improving collections with the processes that Dennis mentioned. So the levers are really focusing on medical policy coverage as the RCM, the revenue cycle management activity is improving and gearing up.

Our next question comes from Ed Woo with Ascendiant Capital.

Congratulations on the quarter. As you guys continue to have consistent high growth and scale up the testing business in the U.S., have you thought about international opportunities?

Yes, that's a great question. That comes up a lot. I think I might have mentioned this on previous calls. We have previously done an analysis in Europe. The EsoCheck has CE mark, and we have the ability to run the assay there. Europe is very tough for molecular diagnostic screening tests, some of the genetic profiling tests and so forth that have a strong presence there. But even test like Cologuard and others have struggled in Europe because the overall reimbursements there are low. We've had some discussions about Canada, and that's really been our focus at this point. So we get occasional input from other parts of the world, but that's not been a major focus right now. We're really laser focused on the U.S. market.

This concludes our question-and-answer session. I would like to turn the conference over to Dr. Aklog for any closing remarks.

Great. Thanks, operator, and thank you all for your attention this morning, and thanks for all the great questions. It's always enjoyable to discuss the results. As I said, we couldn't be happier with this quarter. It's really as a result of incredibly hard work that's laid the groundwork on clinical research on our laboratory and market access team and so forth, and we're looking forward to a bright future for Lucid technologies. We look forward to you continuing to update you on our progress through press releases and follow-up calls. And as always, feel free to contact us through mikeparks@met@pavmed.com and to follow us some social media. So thank you all, and have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.