Good morning and welcome to PAVmed's Fourth Quarter and Full Year 2023 Business Update Conference Call. [Operator Instructions] This call is being recorded on Wednesday, March 27, 2024. I would now like to turn the conference over to Dennis McGrath, PAVmed President and Chief Financial Officer. Please go ahead, Dennis.

Thank you, operator. Good morning, everyone and thank you for participating in today's third quarter -- fourth quarter 2023 business update call. Press release announcing our business update for the company and financial results for the fourth quarter and the full year ended December 31, 2023, is available on the PAVmed website. Please take a moment to read the disclaimer about the forward-looking statements. The business update press release and this conference call both include forward-looking statements and 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 U.S. Securities and Exchange Commission. For a list and a description of these and other important risk factors or risks and uncertainties that may affect future operations, see Part I, Item 1A entitled Risk Factors in PAVmed's most recent annual report on Form 10-K 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, PAVmed disclaims any intention 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 now would like to turn it over to Dr. Lishan Aklog, PAVmed's Chairman and CEO. Lishan?

Thank you, Dennis and good afternoon, everyone. Thank you for joining our quarterly update call. Before proceeding, a couple of things. As yesterday, I'd like to apologize for my scratchy voice. I'm a little bit under the weather. I'd also like to thank our long-term shareholders for your ongoing support and commitment. We've been together through some challenging times. And as we'll discuss in greater depth, we continue to leave no stone unturned to enhance long-term shareholder value. Lucid clearly remains PAVmed's strongest and most promising asset and we're very pleased by its commercial progress and Lucid's ability to finance its operations despite challenging market conditions. We're looking to replicate the model more broadly and have raised PAVmed's -- revised PAVmed's overall strategy to drive shareholder value through independently financed subsidiaries which like Lucid, can leverage PAVmed's shared infrastructure. Consistent with this approach, we've updated Veris' commercial strategy accordingly. We've launched our PMX incubator in partnership with Hatch Medical. And we've aggressively sought ground-breaking independently financeable technologies with large market opportunities agnostic of center. So a couple of -- let's just start with some recent highlights, starting with Lucid Diagnostics. A reminder that, yesterday, we had a full presentation regarding Lucid, so I would encourage everyone to view that webinar or the transcript of that webinar to get further details with Lucid. I'll just give some highlights. Quarterly revenue rose nicely at 33% from the prior quarter. And these health fair high-volume CYFT events continue to gain traction. Our out-of-network reimbursement is improving with stable pricing and we've expanded our clinical validity and clinical utility data to support in-network coverage, including Medicare. As I mentioned and I'll talk about it in further -- in more depth in a bit. For Veris Health, we've shifted our strategy to target large academic…

Thanks, Lishan. Our financial results for the fourth quarter and the year were reported in our press release that was published last night. On the next 3 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 annual report on Form 10-K that was filed with the SEC Monday afternoon and is available on the PAVmed website. So balance sheet, Slide 16 here. Cash of $19.6 million reflects sequential burn of $11.8 million. Cut our quarterly burn rate by 31% since the beginning of the year of 2023. These improvements are related to the cost control initiatives we put in place at the beginning of the year with continued improvement with each successive quarter. Obviously, the cash balance does not reflect the $18.1 million in additional Lucid funding just 2 weeks ago. We disclosed in the 10-K that our ability to fund operations beyond 1 year from today is largely dependent upon how revenues ramp over the next 5 quarters which is highly dependent on how the reimbursement landscape for both government and private health insurers, as well as successful efforts for direct contracting with self-insured employer shapes, increases in payment realization of submitted claims and/or our corporate finance activities. The change in other assets is largely related to the normal amortization of certain intangibles, prepaid insurance as an example, the application of advanced vendor deposits to current period and current expenses. With regard to the convertible note. The balance reflects a $37.7 million in face value principal plus $6.5 million in fair value accounting convention which is a noncash amount that gets added to that principal amount for accounting purposes. The face value principal is split between PAVmed and Lucid at…

[Operator Instructions] Your first question comes from Frank Takkinen with Lake Street Capital Markets.

This is Nelson [ph] on for Frank. I was wondering if you can provide some additional commentary on the biomarker legislation mentioned in yesterday's call. What do the steps look like to obtain coverage with that? And how do you think about that opportunity impacting your business overall?

Yes. Thanks for the opportunity to elaborate on that a little bit. It's actually a really important and exciting area. As we mentioned, there are 15 states that have some type of biomarker legislation but they vary from state to state. So each one has a different flavor. The language is different. Generally, they seek to mandate coverage within the state by commercial payers for biomarker tests. Some of them are specific to cancer, some not. And so the opportunity there is great but it does require some work with regard to looking at each state one at a time and determining, in consultation with the commercial payers there, the language and making the case that we're covered under that language. And so we're still in the early stages of those engagements but we're starting to get some traction there. And we believe that we will, in many of them, if not ultimately all as we would hope, find -- end up with a determination that EsoGuard, it is in fact which we believe it is, a biomarker test for cancer prevention that would be subject to mandatory coverage by payers in that state. So there are steps along the way, although the foundational language in these statutes are promising.

Got it. And then maybe switching over to Veris. How should we think about the potential revenue contribution from that in '24 and '25? I understand there's a lot of moving pieces still but as you shift into those large academic and regional centers, how should we think about that?

Yes. I'll let Dennis maybe chime in a bit. But sort of conceptually and strategically, we've -- we're moving away. We still have some existing accounts with -- that are oncology practices. But the cost of acquisition of these accounts was significantly higher, we needed a full sort of sales team to do that. While engaging with strategic accounts has longer lead times. They take more -- there's more time because as they're named, the reason they're called strategic accounts is because there's a strategic dimension to these engagements. So they do have longer lead times but the commercial opportunity and the revenue opportunity in particular is higher. So, I would -- I'll let Dennis maybe chime in a little bit on sort of how we're not really yet projecting. But the larger -- these are larger accounts, I think one of the accounts that we're in the late stages of discussing has 10,000 patients with -- getting infusion therapy. And so the revenue opportunity is substantial and it's equivalent to dozens of smaller cancer oncology practices. The process for getting to being in a position where we would have some meaningful portion of those patients on the platform is not necessarily short. But often, we would expect to start with a pilot program in one particular area within that cancer center, for example, a higher-risk subgroup like bone-marrow transplants. And then work our way to a broader application. So why don't I leave it there and see if Dennis has any further insights. I don't think we'll have a lot of color yet on a revenue trajectory but this is clearly, we believe, the path towards sustained value creation within Veris and financeability.

Yes, maybe just a few other data points. So as Lishan indicated, these large strategic accounts have a large patient population. 10,000 was the number that Lishan put there. And if you think about the top 10 cancer centers in the United States, they're all in that kind of framework of large patient pools. And as you'll recall, this is a recurring revenue model for us. Reimbursement is not an issue. It's already established. The general notion is that we would collect about $80 per patient per month for each patient that's on the platform. Lishan already mentioned, our selling costs will be less because of just a single person getting a much larger opportunity. The transition will initially be pilot program, connected devices, ultimately higher penetration and adoption of the patient pool on the platform down the road, implantable devices as part of it. These larger institutions tend to have a venture arm. Whether or not they -- whether they participate in one that they influence decision-making, or they have one themselves, adds to the ability to finance this and become an anchor tenant, if you will, in a financing for this opportunity. So all of the piece parts make sense. The smaller cancer centers that we have started with have demonstrated the effectiveness of the platform, the completeness of it, the ability to monitor patients. So all of the validation side of the technology has now been accomplished with the smaller institutions we've been involved with. It's now time to step up to these larger opportunities which give us a greater opportunity for scaling and scaling with the recurring revenue. So, I think that's what -- over the next 2 years, you'll see more of this. And how fast that speed will be in terms of adoption remains to be seen here but we are pretty optimistic about what could occur over the next several quarters for us.

Your next question comes from Ross Osborn with Cantor Fitzgerald.

So I understand the switch to larger centers but would be curious to hear, is the biopharma opportunity still interesting? Maybe in the post-market study space?

Yes. We didn't mention that because that's sort of the anchor of what we're pursuing here in the near term, is with the large -- our expectation in terms of very near opportunities are with there. But yes, we are still actively involved. We have discussions with 2 major biopharma companies. Just to remind everybody. Thanks for triggering the opportunity to talk about this, Ross. There's a separate -- related but separate opportunity to apply this platform technology in partnership with biopharma companies who are launching a large number of new cancer therapies, many of which are expensive and many of which are very intense in their therapy and can lead to complications and therefore can benefit from monitoring. And these conversations are focused around the Phase IV, of the post-market surveillance aspect of this, where a drug -- a new cancer therapy is launched but launched -- is cleared and launched but only as a, say, third- or fourth- or even fifth-line therapy for patients who failed other therapies because of the still to be proven balance between safety and effectiveness. And so there's a strong will and a strong interest with these companies to improve the outcomes during those Phase IV post-market surveillance studies and the opportunity for a remote patient monitoring platform to monitor and to enhance the safety of these drugs by picking up changes in the patient before they result in complications. And so yes, those are conversations that remain ongoing. There's a strong interest. There's clearly a synergy. They are also long lead time conversations, they're not going to happen overnight. But it does remain an important area of sort of strategic focus. But I would still emphasize the large academic centers as being sort of the linchpin of our near-term strategy.

Okay, great. And then, sticking with Veris. Would you provide an update on where you stand in the development work on next-gen PortIO offerings?

For next gen, you mean for PortIO? I just want to make sure I heard you correct, Ross.

Yes.

So PortIO is we use the first-generation device in the first-in-human study and that demonstrated really excellent results with no complications. We have a second-generation device that was in its late stages of development that enhanced some of the usability and structure, it has a built-in handle and a few other things. Fundamentally, the actual implantable portion was the same. So there's a bit of additional work to get that through verification and validation testing and ready for use in a clinical study. So the -- we haven't decided yet as to whether we're going to proceed. But I would say the most likely path, if we can secure financing for PortIO in the near term, would be to proceed with the IDE with the first-generation device and then transition into the second-generation midstream if that becomes ready. We're real anxious to start an IDE study. We've done spent a lot of time with FDA over the previous years on fine-tuning a variety of preclinical work as well as various aspects of the study design. We think we're in a good position to get an approved IDE based on the first in-human results which we were gearing to do when we stopped the develop -- when we paused the development work a year ago. So that's pretty much where we stand. Hopefully that answers your question, Ross.

Your next question comes from Ed Woo with Ascendiant Capital.

My question is on the recently announced incubator that you guys are developing. Have you -- what is your exact responsibility? Any financial commitments to -- for the incubator?

So the incubator is a wholly owned subsidiary of PAVmed, so it's 100% owned. It's just structurally, we're dropping those assets into the incubator. And we're seeking to, on a product-by-product basis, secure individual financing, just like you would with a freestanding incubator seeking to secure financing for the development and commercial -- regulatory clearance and commercialization of each individual product. And that would be in a separate subsidiary where there would be additional stakeholders, including anybody who finances that particular. So there's an opportunity to finance individual products. We have a partnership with Hatch Medical that would -- that incentivizes them to sort of help with that process on an individual product-by-product basis. But the incubator itself remains wholly owned by PAVmed. Dennis, do you want to add any color to that?

Yes. So the game plan here is to have a joint venture with Hatch where they will provide capital. We will provide talent, engineering knowledge and know-how about the market. And ultimately, once a decision is made about whether this is fully commercialized or we'll look to partner with a commercial entity, Hatch has the ability to broker that transaction as well. So the full service entity that can provide both financing, development work, the exit and brokerage, combined with the talent that we have internally, to bring this to its full realization.

Just one point of clarification. So the it will be the entities, the PAVmed entity or subsidiary of the incubator that will be raising the capital. Our partnership with Hatch is designed to help in all aspects, whether it's helping introduce to potential financial partners, angel networks and also participate in the development. And ultimately, as Dennis said, an area where they've had great success over the years in brokering commercial and strategic transactions.

Your next question comes from Nick Sherwood with Maxim Group.

For the incubator, do you plan on being the majority owners of those products that are spun-off of the incubator? Or are you open to having minority stakes in CarpX or any of the other products?

I mean, our expectation is we have target financings for each of them. They're not huge. They're relatively modest in terms of the amount of capital required to get each of those products through regulatory clearance and commercial launch. And so we would not expect the financing into them to be dilutive so that PAVmed ended up with a minority stake. So our expectation is that each of the products and subsidiaries would still be majority owned because we expect the valuations and the capital needs to kind of reflect that math. Look, over the long term, if they're -- once these are launched commercially and there's opportunities to partner with entities that are looking to deploy resources to advance and accelerated commercialization, that we're open to whatever kinds of transactions are in the best interest of our shareholders. And that could include anything up to an acquisition of that technology by a larger strategic. But I would say and Dennis, correct me if you think otherwise, in the initial transaction, the initial financing to relaunch these products, the amount of capital that we're seeking to raise in each of these is modest enough that I would expect -- really don't anticipate PAVmed losing its majority stake in any of these.

I agree.

Awesome. And then my final question is, what -- how far along in the progress for securing independent financing for the Veris system to clear the path to FDA submission and the 510(k) clearance?

So we have interest. We've had discussions with various groups that have expressed interest in that. And what we've decided to do is to look to consummate our first to demonstrate that we can engage with a major large academic cancer center and sort of demonstrate and do a proof of concept that there's an opportunity to continue to do that. So our expectation is that, once we do sign this first contract, then we will be able to engage with various folks that have expressed interest and consummate a financing shortly thereafter.

Can you share with us the size of that target pool of the institutions?

Yes. We have -- yes, I mean, they're obviously based on -- we've done this in a very systematic way. And based on sort of the criteria that I outlined on that slide, about NCI centers, magnet centers, a minimum of at least 20 oncologists, a minimum number of patients getting systemic infusion therapy and so forth. There are dozens of such centers across the country. We have a couple of dozen that are on our target list and about a dozen that we're making active inquiries with. I would say we have 5 or 6 where we've actually had active discussions. One of them, again, is very late stage and a couple of others are -- at least one other is pretty far along and a couple of others, we're making progress with. Hopefully, that gives you some color.

[Operator Instructions] There are no further questions at this time. Please proceed.

Lishan?

Sorry, I was on mute. Thank you all for joining us today and for the great questions. And as always, we look forward to keeping abreast of our progress via press releases, conference calls such as this one. The best way to keep up with PAVmed or Lucid news or updates or events is I would encourage you to sign up for our e-mail alerts on both the PAVmed and Lucid Investor Relations websites and to follow us on Twitter and LinkedIn as well. So, thank you very much everybody and have a great day.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.