Good day, and welcome to the Lucid Diagnostics Second Quarter 2023 Business Update Conference Call. [Operator Instructions] Please note, 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, Betsy. Good morning, everyone. Thank you for participating in today's second quarter 2023 business update call. The press release announcing our business update for the company and financial results for the 3 and 6 months ended June 30, 2023, is available on the Lucid website. Please take a moment to read the disclaimer about forward-looking statements in the 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 actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer in our filings with the U.S. Securities and Exchange Commission. For a list and description of these and other important risks and uncertainties that may effect 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 and 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?

Thank you, Mike, and thank you, everyone, for joining us this morning. I appreciate you taking the time. We look forward to providing you an update of the last quarter. As we mentioned in the press release yesterday, we really closed out very strongly for the first half of this year. So let's just start with some of the second quarter highlights. From a commercial execution side, we're excited to have grown test volume to just over 2,200 EsoGuard tests. That's 20% quarter-on-quarter. So another double-digit quarterly growth and 159% on an annual basis. We'll talk in a little bit more detail later about the various aspects of our commercial execution, but the drivers of this growth were increased seller productivity and continuing increased activities through our satellite test centers and our high-volume testing events. We also had some very important strategic accomplishments in the last quarter and in recent weeks that really bode well for us in the coming quarters. A very important milestone was that we upgraded our revenue cycle management infrastructure and provider. That was a process that took all of May and most of June, and that process is now completed. Again, I'll talk about that in some more detail. And we certainly saw an immediate positive impact on our claims processing and payments, which Dennis and I will both review in some detail during the month of July. The prospective clinical utility studies that we've been talking about each quarter and are very critical for our engagement with payers reached its first enrollment milestone and actually surpassed it at over 500 patients between the two studies. And those results will be -- are being analyzed. They'll be posted and the first manuscript will be submitted later this month. We also were excited to see the…

Thanks, Lishan. The summary financial results for the second quarter and the first half of the year, we reported a press release that was published last night. On these 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 was filed with the SEC last night and is available on our website. So on Slide 16, here is our balance sheet. Cash, $32.6 million, reflects a sequential burn rate of $6.9 million. The burn rate in the first quarter was about the same at $6.6 million. Obviously, the simple math suggests that if this rate is sustained, it puts our runway to more than a year. The burn rate is softened by the -- by PAVmed's currently deferring payment of the quarterly management services agreement, which creates optionality for paying the outstanding intercompany obligation in stock or cash. which is at PAVmed's future election. Furthermore, as cash collections continue to accelerate, as we'll talk about in a second. This can further throttle the burn rate for the upcoming quarters. Vendor payables were flat for the sequential quarter as was also the case in the first quarter. So the burn rate is not substantially influenced by changes in key net working capital balances. The intercompany debt to PAVmed increased by $3.1 million, for which $2.3 million is the quarterly shared services charges. The shares outstanding, including unvested restricted stock awards as of today, is 43.7 million shares, which is substantially unchanged from the first quarter. The GAAP outstanding shares are reflected on the slide as well as the face of the balance sheet in the 10-Q. On the next slide, Slide 17, compares this year's second…

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

So good -- congrats on the volume. Nice to see the solid increase sequentially. And I think I understand the -- what happened here with the RCM provider and the switch here, and it sounds good in July going forward. Can you possibly quantify the volume that was lost during period in May and June and then early like qualitatively? And then just maybe confirm if you can recapture that revenue maybe during the remainder of 2023?

Yes. None of those claims were lost. Quadax just picked up all of those -- we actually suspended those claims and waited for Quadax to be online and they reached back to that date. That's why the statistics I just gave from May 1 to August 14 represents the claims that they submitted, some of which were from May to June 30 and then the balance since that time. And that total in that period of time was a little over 2,000. So not submitting May 1, and that gets picked up in June 12, and they submitted all of the backlog.

Yes. So no, just to use your term, no claims were lost and no test volume was lost. Obviously, those...

That resulted in timing of collections, but not in loss test.

Right. I should have said shifted to the, I guess, second half of the year. But I heard your stat at the end there, Dennis. I was just confirming if that was what you were talking about? That's perfect. That's great. In terms of the high-volume testing impact in the quarter, maybe just walk through that and maybe talk about how we're thinking about that going forward? If it's recurring and organic revenue kind of growth stores? Or is it still to subside and we shouldn't really expect any of what's happening going forward?

I think it's upside, but it's also a key part of our growth. So in the first quarter, the first quarter total had about 450 tests from those high-volume events, check your food tube events, and it was slightly higher in the second quarter, about 8% or 9% growth. So to get to your question, the organic growth of non-test events was around 23%, for an overall blend of 20%.

Yes. And that's consistent with the strategy now, right? We said this and I would say it again that we're not shifting on -- from one strategy on the other. This is all of the above strategy. Any opportunity we have to get patients to access, we're seeking them. And these high-volume events are very productive tool for us. It's a different modality. It's typically one physician where we find a physician champion we, find a group -- as I said, we started with firefighters, but we're diversified beyond that. And we find a real interest and need and demand for doing these tests, and we can do them in a very efficient way because our nurse practitioners can do 30 per MP per day. So it will remain an important role. We've really fine-tuned our comp plans to make sure that we're not cannibalizing more for the other. So there's still the same incentive to drive the individual sort of boots on the ground, physician-driven referrals. And we expect to see growth in both.

Okay. Awesome. And Lishan, one for you on the prior authorization process. EsoGuard is such a novel kind of diagnostic. And EsoCheck as well, the procedure itself pretty new, it's been in the market for like 2 or 3 years. How is the receptiveness and the expediency progressed until you started submitting claims to commercial and private payers a few years ago? And what are the point of pushback for these kind of like key gatekeepers here?

It's multifaceted. As you know, these are the whole commercial payer process is very -- can be complex. It could be very diverse with regard to how people engage I'll just put at the top that for the larger sort of the kind of the big in-network contract, the wholly the home run, so to speak, that is the commentary is always about clinical utility, come back to us when you have sufficient clinical utility. But that's not to say that, as Dennis said, we're actually with an upgraded provider that's helping us engage with payers on a claim-by-claim basis. Many of those interactions are, like you said, they involve even if they get denied initially, there's an appeal. And the appeal often is -- we see that as an opportunity to engage with the medical directors on a peer-to-peer basis and have an opportunity to educate them on the importance of the test and so forth. So we're having more engagement. The volume has gone up and more interaction with medical directors. And there's certainly been great progress over the last 6 weeks in terms of how those conversations are going and the proportion of the -- that are resulting in the lab claims. So early -- still early, but it really does bode well and quite excited for the comp quarter.

Quadax has a very sophisticated appeals process, and they are just getting started. So I had already indicated they processed just over 2,000 claims since May 1. Only about 200 are in the appeals process, and they're just getting started to increase that level. And we have also found that the number 1 and number 2 reasons for denial. One is medically not necessary, which is [indiscernible] our mind given the guidelines that are out there to establish that. And the other is --

Often those are just being up, those are often with the label that had an administrative person's laps down, and that's an opportunity to have a conversation with a medical director to actually make the case that it is.

And that's where the appeal process comes in. And ultimately, that will be cured by a network coverage, right? And then the second is it's noncovered routine screening exam, which again is comprehensible, given the history and the guidelines, the risk factors. These patients have to demonstrate before they can get tested. So that will change in time.

Perfect. Just one before I hop off. The Lucid registry and the multi-tentacles studies, when -- what is the expected timing for the peer-reviewed publication for that? Like do you think that, that would be published within like a year from now?

Certainly within a year, yes. But thanks for giving me a broad range here because the peer review can be a little bit hard to predict, right? We are committed to -- this has become good practice. Now we are committed to as soon as we have the danger script complete and the data fully scrubbed to post it on a preprint server while the peer review process is going on. And so that actually does provide us with an actual manuscript that we can have ones we can initiate conversations in. So -- it's a little bit hard to say. -- clinical utility studies are not often like a traditional clinical studies. So a little bit hard to know how long it will take to get to clear preview. But we'll have plenty of opportunity during the care review process to use the preprint manuscript to engage conversations with payers.

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

Just one on -- just with the new revenue cycle management process or a partner, I guess, how long do you think it's going to take until you can shift from billing on collections to -- sorry, recording revenue recognizing revenue on collections to submissions, I guess, of claims.

That's hard to determine, Mike. I know from other companies that process could be anywhere from 6 months to 2 years, and it really depends upon where we -- the speed of which things change from out-of-network to in-network and contracts and being paid by contract. It all comes down to the predictability of when we submit a claim to a third party, the likelihood of getting that amount paid and adding some degree of intelligence to that based upon historical data. Quadax will give us the data that once it's sufficient, we can make that change, but it's hard to predict. And I can only use past companies in terms of that time line to kind of give you a range of an answer. But it's becoming more and more sophisticated for us, and we'll know when we know over the next couple of quarters.

Yes, I understand. And once that happens, what just be basically, like you have a history of getting paid on x percent of your submissions. So you're able to record that fraction as revenue or something like that?

That is correct. So when the key determinant of when the service is delivered is when our lab submits the report to the referring physician. That will be the point of recognition. It is now the point of recognition, but there's one other consideration at that point we have to take into account is what is the likelihood of getting paid at the billed amount and that's the unpredictable piece. So going forward, with reimbursement fully matured, where the predictive value of payment is pretty much assured. The recognition will be at the point of delivery of the test from our lab to the referring physician and we'll know based upon carriers, United and Aetna and what we're getting paid by those different entities and we'll develop the statistics by those entities to be able to record the revenue that we build them or submit to claim for and recognize it at that point of delivery.

Okay. Got it. And then just in terms of the lab operations, can you talk about the kind of gross margins at the current volumes? I mean I know you’re not getting paid on all the tests, but let’s say that you were getting paid on most of them or able to record the revenue, I guess I should say on most of them, what would that gross margin look like currently?

Our processing costs through the lab are about $125. That does not take into account the cost of the of the EsoCheck device. An EsoCheck device in full swing with a full transition to coastline is around $60. And the remaining balance of overhead, probably is $200 around it to the cost of revenue. We think that there’s opportunity in the processing cost to bring them down as volume increases. Some of that will be through equipment efficiency and new equipment and higher volume efficiencies and some of it will just be the speed of which it moves through the facility as well as the cost of the lab supplies will go down. So there is some margin improvements, but generally thinking about it as a $200 per test. You have a $200 -- $2,000 billable tests, you’re talking about a 90% margin. Obviously, it will take us some time to get there. That’s probably how it plays itself out.

The next question comes from Mark Massaro with BTIG.

Congrats for another strong sequential volume quarter. We're in the summer here, and I just wanted to ask about potential impacts related to seasonality. Were there any large events in Q2 that occurred that you think may not occur again in Q3 that would put your sequential volume growth trajectory at risk?

Let me -- I'm glad you asked about that. Let's dive into that a little bit further. So the straight answer to your question is no. that as we sort of were hinting at earlier and we'll reiterate, the growth has been strong, both in the organic direct physician referral side as well as the testing event. And the testing of that volume is not just sort of individual events, testing event volume is -- some of them are smaller. Some of them are hundreds of patients. Some of them are dozens of patients. So it's just another channel, and it's another channel that where we have identical growth, and that compared to the other quarter-to-quarter, maybe not. But it's not like it's so bulky and choppy in one that we would expect it to mask sort of the sluggishness or slowing down on the other side. That said, I do want to -- so I'm glad you mentioned this because I wanted to mention a little bit more about the increase in productivity, right? So we have, as I mentioned, we did freeze our sales team, the overall team at 38, 39 sellers, and we've kept it there. And this growth has been driven by what we expected to happen, which is that with more tenure, we would have increased productivity. And productivity is about double this year in terms of the number of tests per seller per week. And we have a whole variety of initiatives and very sort of structure and data-driven processes that we expect to continue to extract more and more productivity per seller. That said, that number is -- can't go up indefinitely. There are some level at which it will plateau, and we don't really know yet what that is. So given the encouraging news from -- on the revenue cycle management side, I think there's a good prospect that if we start seeing higher ASPs per test collections, that we might be in a position where we can say, "Well, we'll release that cap on the number of sellers and increase the number of sellers to accommodate potential plateauing of the productivity." But if we don't increase the number of sellers, there will be some point at which will plateau and we won't necessarily be able to continue to drive this kind of quarter-on-quarter growth without increasing the number of sellers. So we won't do that until we have a little bit more traction on the payment side. Hopefully, that makes sense as a little bit of a comment there.

Yes. Yes. Yes, still early days. So yes, so my next question, now that the claims submission and adjudication pause has is over, and it sounds like you witnessed really strong trends in July, I'm curious if we could start to see the average realized prices trends back up almost to like the Q1 levels where you were in over $200 per test on revenue per test or realized revenue per test? So I'm just trying to ask if you expect the sort of the billing and collections to manifest itself in terms of realizing price and seeing that flow into revenue in Q3?

Yes. We believe that to be true, particularly since we're seeing the number of claims that are being adjudicated out of total. That's why I gave some of those statistics. And the amount that -- of the adjudication that results in an allowed amount is almost 40%, and we expect that to continue to grow with Quadax's involvement. And that translates into collections, then I think that number not only gets to the first quarter but starts to exceed it on an accelerating basis quarter-by-quarter going forward.

Excellent. Last one for me real quick. As I think about these clinical utility studies, I think in the past, you said you expect to complete them by the end of this calendar year. Is that still on track? And you provided an update on numbers, I think it's somewhere in the 200 range. How much -- how many more are you expecting to enroll? And how long will that enrollment go on for?

Yes, thanks for giving me the opportunity to clarify that. So clinically show the studies enroll on an ongoing basis that you get a certain number, and you can publish them. It's not like that it has prespecified endpoints and things like that, like you would need on what did you say? So what I should have been clear about is that the CLUE study has -- which has enrolled 206 patients will be -- is targeted to enroll up to 500 patients, and we expect to complete that enrollment by the end of the year. The Lucid registry is open-ended. It will continue to enroll as long as we find it useful, both from a clinical utility point of view, but the Lucid registry actually has the clinical validity component to it as well because we're actually diving further down into the patient's journey to get endoscopy data on those that are positive. So in terms of a whole variety of other purposes as well. What I was trying to and hopefully maybe on a clear about it is that our goal with regard to our first submission of a clinical utility study was to get to a total of 300 patients by the mid-summer, we would see that at 500. So we are going to take the patients that we have enrolled to date and we're analyzing that data and expect to submit that as a stand-alone manuscript, one for CLUE, one for registry by the end of this month. But they'll both continue to enroll, and we'll look to submit additional data as we get larger numbers and tweak the analysis accordingly. Assume you've seen that in other companies as well with regard to just sort of multiple increasing volume of the amount of clinical utility, the amount of patients under that. We wanted to get to this kind of 400 number because that's -- you need enough positives to demonstrate that a positive we'll get and endoscopy. And so we've definitely reached that number where that's going to be a meaningful data point.

So basically, this is our first set of tools to engage payers on clinical utility, and we intend to do that. And we continue to evolve that with additional amounts and additional dimensions of clinical utility to engage them even further if there's any pushback at this first level of data.

Yes. More is better. We've learned that from monitoring other companies.

The next question comes from Ed Woo with Ascendiant Capital.

Congratulations on the quarter. My question is on the high-volume testing events. Have any of them been repeat or happened again and again? And do you have plans to make some of these events a regular basis at some of these locations?

Great question, Ed. So yes, the answer is yes, that we've actually gone to had an event and there are people who couldn't make it. We've had events where retirees wanted to come and get tested, and we set a nurse practitioners back. So I wouldn't yet say that these are sort of recurring events where people will come back and get retested over some period of time. But they're not -- there have definitely been some repeat customers where the enthusiasm for an event and the positive feedback has led to us going back and just testing more people, extremely high patient satisfaction.

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

Great. So thank you all for your attention. I'd like to thank -- the questions were great, and we look forward to continuing to update you on our progress through press releases and follow-up calls. Feel free to contact us through Mike at mep@pavmed.com and to follow us on social media. Thank you very much, and have a great day.

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