PAVmed Inc. (PAVM) Q2 2022 Earnings Report, Transcript and Summary

Greeting. Welcome to the PAVmed Inc. Second Quarter 2022 Business Update Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I'll now turn the conference over to Adrian Miller, Vice President of Investor Relations. Sir, you may begin.

Thank you, operator. Good afternoon, everyone. This is Adrian Miller, Vice President of Investor Relations at PAVmed. Thank you for participating in today's business update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and Chief Executive Officer of PAVmed, along with Dennis McGrath, President and Chief Financial Officer of PAVmed. The press release announcing our business updates and financial results will be available shortly on PAVmed's website. Please take a moment to read the disclaimer about the forward-looking statements in the press release. 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 the statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the Securities and Exchange Commission. For a list of those description - and other risks and uncertainties that may affect the future operations, see Part 1, Item 1A entitled Risk Factors in PAVmed's most recent annual report on Form 10-K filed with the Securities and Exchange Commission and any subsequent updates filed in quarterly reports on Form 10-Q and subsequent Form 8-K filing. Except as required by law, PAVmed disclaim 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 those expectations may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. With that, I'd like to turn the call over to Lishan Aklog. Dr. Aklog?

Thank you, Adrian and good afternoon, everyone. Thank you for joining our quarterly update call. Before proceeding, I would like to thank our long term shareholders for your ongoing support and commitment. Our combined team has grown to over 150 employees and singularly focused on growing PAVmed enterprise while enhancing long term shareholder value. PAVmed and its subsidiaries continue to make solid progress as we push forward on our long term growth strategy and mission to create a leading diversified medical technology company across all three sectors, medical devices diagnostics and digital health. Our subsidiary, Lucid Diagnostics has completed a transformational period during which it has completed its transition to an independent full service medical diagnostic company with its own CLIA certified fully operational laboratory LucidDx Labs. Lucid is getting steady commercial traction from an expanding sales team and network of testing centers and secured critical practice guideline recommendations. Our digital help subsidiary there -- where health is also progressing well towards an exciting initial commercial launch this year. Other products in our recently streamlined portfolio are moving steadily forward along their development path. And we have completed and nearly a year long efforts to strengthen our senior leadership team securing the high caliber talent in critical areas such as business strategy and development, regulatory and quality, medical affairs, laboratory operations and systems integration and customer support. And finally during this past quarter, and in recent weeks, we have launched an ongoing company-wide initiative to confront perhaps most challenging sector, national and global market conditions in decades, are uncharted waters with no clear path or timeframe to recovery. Our leadership team has been challenged to think critically, creatively and systematically to maximize runway and strengthen our balance sheet to protect the long term interests of a company while continuing to execute on strategic objectives and mission. We have sought to find the right balance between preserving our long term growth trajectory and maintaining a cash preservation posture during a period of volatility and uncertainty. This has been a rewarding even clarifying experience for a team already resulting in streamlining and strategic reallocation of resources for this fiscal year and a significant rationalization and prioritization of our pipelines. So I'll start with by providing an overview of our business and then we'll pass the baton over to Dennis who will provide a financial update before we open it up to questions. Let me first take a step back and provide a brief background on our company and its mission. For those of you who are new to the PAVmed story. PAVmed is a diversified commercial stage medical technology company operating in the medical device diagnostics and digital health sectors. Our mission is to utilize state-of-the-art technologies and the service to patients by providing innovative and disruptive products and solutions, which significantly improve or save lives while enhancing healthcare quality, efficiency and cost effectiveness. Our vision is to build a growing and profitable diversified medical technology leader across the three major sectors. The PAVmed enterprise today consists of two majority owned subsidiaries Lucid Diagnostics and Veris Health and internal business units with a portfolio of near commercial product and research and development projects. Lucid is a NASDAQ listed commercial stage cancer prevention medical diagnostics company, which markets EsoGuard and EsoCheck, the first and only commercial tools for widespread early detection of esophageal precancer to prevent esophageal precancer test. Veris Health is a privately held digital health company developing a digital cancer care platform to improved personalized cancer care through remote patient monitoring using smart devices with biologic sensors and wireless communications, including the first intelligent implantable vascular access port. PAVmed operates as the central engine which provides a broad range of shared services through its subsidiaries and internal business units. These include general administration, finance, product design and development, regulatory affairs, quality management, clinical research, manufacturing and medical affairs. This centralized shared services model allows each subsidiary and business units to be laser-focused on the development, commercialization and clinical evidence for its product or products. The model provides numerous benefits to facilitate value creation across the enterprise including economies of scale, risk mitigation through diversification and lower cost of capital and much greater growth potential. During the past years or so, we have undergone a major transition focused on expanding our internal human resources systems and physical infrastructure laying the foundation for commercial success, as well as optimizing and rationalizing our portfolio. Our team has grown to approximately 150 talented and committed individuals. This transition is really now complete and expanded infrastructure that's in place. For the coming quarters and years, we're now entirely focused on commercial expansion, execution, reimbursement and revenue products. Our strategy over the past quarter is to focus the bulk of our efforts and resources on Lucid, Veris CarpX Ultrasound and EsoCure while remaining opportunistic with regard to our R&D pipeline and new groundbreaking technologies. I'll now provide a more detailed business update and then pass the baton over to Dennis in a second. My discussion of Lucid will be a distillation of my remarks during yesterday's Lucid quarterly call and I would encourage you to read the transcript or listen to the recording of the Lucid call for additional details. Feel free to contact Adrian to help with this. In recent months both major gastroenterology specialty societies ACG published the updated clinical practice guidelines which support for the first time the use of non-endoscopic tools as an acceptable alternative to endoscopy to screen at risk patients for esophageal precancer. Both explicitly saw future check-in [indiscernible] diagnostic tool. The only such devices commercially available in the U.S. In addition to both expand the adverse target population by treating men and women with the appropriate number of risk factors equal. This enhances the Lucid value proposition by increasing the target population from 13 million to 30 million and its addressable market opportunity from [$25,000 to $60,000]. Finally, the AGA for the first time recommended topics of pre-cancer screening in patients without symptoms, further expanding the target population. Our recent commercialization efforts are going very well. We continue solid consistent growth in EsoGuard testing volume. Lucid process to 850 commercial tests in the second quarter of 2022. That represents an approximately 60% sequential increase from the first quarter of 2022 and an over 300% increase annually from the second quarter of 2021. We continue to see a steady increase in the proportion of tests performed at our Lucid test centers which now represent approximately two-thirds of the overall testing volume. This is a direct result of our investment in our expanding sales team focused on primary care physicians. And we're making excellent progress towards reaching our year-end target of 39 sales representatives and a total of 68 sales professionals. Our expanding network of Lucid test center supports our primary care channel by providing a facility where patients referred for EsoGuard testing by primary care physicians can undergo the EsoCheck Cell Collection procedure. The test centers have very modest fixed costs and attractive margins operating almost entirely as a marginal variable cost business. The second stage of Lucid -- of the Lucid test center program is now underway. We recently launched them for new metropolitan areas in Orange County, the Dallas-Fort Worth, Palm Beach County and Columbus, Ohio. During the first stage, we were which we completed earlier this year we covered seven mostly medium sized metropolitan areas in the Southwest and Pacific Northwest. We're seeking to launch five additional centers this year targeting the Southeast and Midwest. On the laboratory fronts, we now have a fully operationalized - CLIA-certified, CAP-accredited laboratory with the DX Labs campfire own personnel operating with our own quality standards and processes, and most importantly capable of submitting and aggressively pursuing claims directly with pace per pay. Last week, our new revenue cycle management providers started committing a backlog of claims held since the last transition in February, and we should start seeing some how to network and PPO or preferred provider organization receipts, along with recognized revenue in the coming quarters. On the private payer reimbursement front, we have entered into participating provider agreements with secondary PPOs, and a specialized diagnostic fiber optic network - which collectively cover many millions of [indiscernible]. Full engagement with traditional regional and national health plans and consummation of in network contracts will require some additional time to generate meaningful claims history and to collect and report retrospective and prospective clinical utility data. With regard to Medicare we, along with over a dozen diverse partners, completed the public comment period for the proposed foundational local coverage, determination, or LCD published by two Medicare contractors delivering a strong evidence base message on how to improve the draft LCD into one that can be operationalized consistent with clinical evidence, updated guidelines and precedents. We now wait for a response. From a clinical research front, we've made some significant changes to our strategy. A key element of the company wide initiative is to take a careful look at our allocation of resources for clinical research to align with our near medium and long-term goals. Our updated strategy to focus and to heavily focus our clinical research efforts and resources towards generating, critical clinical utility data to support private payer and Medicare reimbursement, multiple retrospective and prospective clinical utility studies are underway. Towards the same end, of course, the same as we have adjusted our ESOGUARD-BE-1 ESOGUARD-BE-2. We're pausing enrollment and we want prospective screening study. And we'll rebooted under the breakthrough device umbrella at a later date. We are continuing BE-2 the case control study and will likely complete enrollment at a somewhat lower sample size in early 2023. Let's now move on to PAVmed other majority owned subsidiary Veris Health. Veris is developing a digital cancer care platform with symptom reporting telehealth function and advanced data analytics designed to improve personally cancer care through remote patient monitoring using smart devices with biologic sensors and wireless communication, including the first intelligent implantable vascular access port. The Veris Health cancer care platform will allow the cancer care team to detect early signs of common cancer related complications provide longitudinal trends of physiologic and clinical data, offer data driven risk management tools for precision oncology, and incorporate additional prospects for substantial value creation through data monetization and bio-therapeutic clinical trial support. The Veris model is an attractive software-as-a-service, recurring revenue business model that leverages existing remote patient monitoring or RPM codes, which the providers can utilize to build for review and interpretation of patient data that are - the patient data that our system provides. The model provides a healthy margin for the providers and the company without - the need for new codes or other regulatory hurdles. The model also leverages supplemental payments to providers who improve their outcomes including preventing hospitalizations is provided through the [Medicare Aeon] program. Veris is advancing its mission especially on three fronts, software, device and data. On the software front, our team and our partner Loca are scheduled to complete development of the software platform independently. This includes the patient facing smartphone application, as well as the clinician facing mobile and desktop applications. The team continues to work closely with the Microsoft digital healthcare team as a member of its global partner program, as well as teams from other vendors providing the tool for integration with electronic health records data and analytics and health security. The completed software platform will then be subjected to rigorous compliance audits and will be available for commercial launch by the end of the year. In anticipation of the upcoming commercial launch, we have filled out the various commercial team including our Chief Commercial Officer, Director of Product Management, and Director of Systems Integration and Customer Support. The initial launch will be in conjunction with a package we're dubbing at Veris box, with Veris branded OEM, Bluetooth enabled connected healthcare devices. The Veris box of external connected devices is the first step of a three step device development process. The next product which we've dubbed there as Mercury is an implantable physiologic monitor and designed to be implanted in conjunction with a traditional vascular access port for chemotherapy or other treatments. The various Mercury development process is progressing well, we have completed a successful FDA pre-submission meeting, during which the FDA provided us with a clear path to - high maintained clearance. Several animal studies have demonstrated the device's ability to continuously collect and wirelessly transmit these logical parameters. And we expect the device to proceed through design predevelopment, testing and FDA submission and clearance next year. The third step and the device development product, a process the product we've dubbed the various dizziness takes the device design a step further with full integration of the implantable monitor within the port. We're working with FDA to finalize its regulatory path, i.e. whether it will be a 510K or de novo pathway. Design and development work on this version will accelerate once we've had experience with the modular, Veris Mercury device. Finally, Veris is all about the data, the system will be generating a substantial amount of clinical and physiologic data, which will provide a rich substrate for monetizable data analytics using machine learning and AI. Veris has filled out its data science team with two full time data sciences and two data engineering. Let's now move on to CarpX is our product 510K cleared minimally invasive device to treat carpal tunnel syndrome. Key opinion leaders and surgical partners have been using CarpX in a limited commercial release focused on generating user experience to drive procedural and product improvements. This experience led us to explore the possibility of incorporating intraluminal ultrasound into the device to provide real time imaging of the ligament to be cut along with critical anatomic structures. Initial exploratory efforts have advanced to a full blown Product Development Project, which we've dubbed CarpX ultrasound. In addition to integrated ultrasound imaging, the design incorporates additional features that we believe will enhance the clinical and commercial attractiveness of the product, including much of the electronics to a handheld device and console, decreasing the, per case cost of goods and the gross margin opportunity. The design and development work including cadaver testing is ongoing well is ongoing, and we expect the device to proceed through design freeze, development, testing, FDA submission and clearance next year. Given these projected timelines for the next generation CarpX ultrasound device, we've decided not to expand commercialization of the current first generation product. We have plenty of inventory and now we'll continue to have our KOLs perform procedures and grow our experience and form the product development until the CarpX ultrasound version is ready for commercial launch. Accept is EsoCure, our EsoCure device is designed to endoscopically treat esophageal pre cancer and is also progressing well. The device is designed to compete with Medtronic market-leading Barrick device by offering the advantages of direct for the modulation of the esophagus through the work and port of the endoscope and without the need for a $0.25 million console. Development work is progressing well and head-to-head chronic animal studies continue to show promising results. We expect the device to proceed through design freeze, development testing, FDA submission and clearance next year. Quick reminder that Lucid has licensed the EsoCure from platform for future commercialization as it is highly synergistic with EsoGuard and [indiscernible]. The remainder of the plasma pipeline consists of research and development projects whose commercial path is not yet fully established. PortIO is our Implantable Intraosseous Vascular Access Device, which we believe does not - which does not require flushing and is the first Nathan three long-term vascular access device. PortIO's first in human study is progressing well with three new sites approved in Colombia, South America when the site recently performed successful implantation of the device in seven patients. All of them have completed seven days of infusion after implantation and successful excellent patients. We are currently in the 30-day follow up period with no complications or other issues. These patients close out the initial group of patients in the protocol that underwent seven days implantation and now allows us to move on to the next set of patients that had a device implanted for 60 days. Recruitment of these patients is well underway with procedures expected in September. Once we have established some success with the 50-day implants we'll reassess our regulatory pathway and decide whether to pursue the market in Europe or proceed with the U.S. IBM product. NextFlo is a platform infusion technology. The first product incorporating it is our NextFlo intravenous set, which seeks to revolutionize care by eliminating the need for complex, expensive and error prone electronic infusion pumps for most of the one million infusions performed in this country each day. NextFlo is on the verge of progressing to their patient validation testing and FDA submission. When the team encountered difficulty with repeatability despite good flow regulation. This required relegating NextFlo to research and design - research and development redesign project. The flow regulation features work, but we need to kind of - we need to crack the code with regard to repeatability. We're committed to trying to solve this design issue but we do not have a solution. Finally, as part of the company-wide initiative I mentioned earlier, over the past couple of months, we've taken a very aggressive approach to pipeline rationalization and pruning to make sure that we are allocating capital viciously. As a result of this analysis, we have either terminated -- we've rather terminated certain development projects or shelved them for the foreseeable future including Solys, DisappEAR, FlexMO and NextVent. Although we continue to pursue attractive business development opportunities and have some promising prospects in the pipeline, again, we have raised the bar with regard to the types of projects we will consider pursuing and investing resources there. Before handing the reins over to Dennis, let me quickly summarize the strategic priorities from our company-wide initiatives that I've touched down through the course of my remarks. Number one, clearly is to advance Lucid commercial activities. This includes completing the expansion of the sales team and Lucid test centers this year, driving steady testing volume growth to demonstrate clinical utility and generate claims history, secure private and Medicare reimbursement, optimize our laboratory including -- operations including claim submission and prosecution, and generating critical clinical utility data. Number two is to launch the Veris platform with the Veris dot connected devices early this year. And number three is to advance our precommercial products [indiscernible] Esecure to a development regulatory clearance and commercial launch next year. With that, I'll hand the reins over to Dennis to provide an update on our financials before proceeding with questions. Thank you.

Thanks Lishan, and good afternoon, everyone. Our preliminary summary financial results for the three months ended June 30, 2022 were reported in our press release, was published earlier this afternoon. We filed our quarterly report for PAVmed on Form 10-Q with the SEC last night August 15, the due date. Report is available at sec.gov and on the PAVmed website, As we outlined during Lucid's earnings call yesterday as a rule, EsoGuard test performed are recognized as GAAP revenue when cash is actually collected by the company. As previously mentioned, this will more than likely be true during this transition period of negotiating third-party private payer reimbursement contracts and related coverage policies. As I reported to you in previous quarters, for compliance purposes during this reimbursement transition period, we initially negotiated a short-term month-to-month fixed payment arrangement with the contract laboratory that was previously processing the EsoGuard assay and was performing the insurance company, billing and collections function. This commercial agreement terminated concurrently with the opening of our own laboratory on February 25. We recognized $189,000 of revenue as part of the EsoGuard commercial agreement with ResearchDX for the partial period from January 1, 2022, through the end of the agreement on February 25. Part of the transition to our company own commercial clinical laboratory, we contracted with a revenue cycle management company or briefly abbreviated RCM - RCM service provider to submit third party reimbursement claims on our behalf. The RCM service provider will oversee payer claims, appeals processes, patient billing, online payment collection, and claims tracking with the appropriate licenses and certifications for billing and credentials secured and recently completing the necessary back office systems claims for approximately 1000 tests performed since the establishment of our own lab are now being processed, including 850 tests in the three months ended June 30, 2022. Presently recognized revenue for GAAP purposes is subject to actual amounts collected during the period. Due to delays receiving certain information needed from the IRS related to establishing a required lockbox at JPMorgan our commercial bank, the initial batch of claims were submitted by the RCM on August 1. Accordingly since the RCM began submitting claims processed for our own lab subsequent to June 30, there are no collections during the three months ended June 30, 2022. Future revenues will be recognized based upon actual collections until such time as the coverage policies are in place with CMS and payment contracts with the private payers. This obviously can result in the disconnect between the timing of revenues recognized versus the timing they are submitted for third-party reimbursement until all of these future conditions are met. The gaps in claim submission from this transition will impact near-term GAAP revenue recognized until the system catches up with claims per tests performed during the transition. It is our expectation that we will begin to recognize GAAP revenue related to our Lucid labs in the second quarter as mentioned and will be adjusted based upon actual collections received. Due to revenues will be recognized based upon actual collections, so such time as the coverage policy in place with CMS and payment contracts with the private payers. This obviously can result in a disconnect between the timing of revenues recognized versus the timing they are submitted for third party reimbursement. And so all of these future conditions are met. The gap in claim submissions from this transition will impact near term gap recognized revenue until the system catches up with claims per test performed during the transition. It is our expectation that we will begin to recognize GAAP revenue related to our LucidDx Labs as we progress through the second half of this year and recognize revenue will be adjusted based upon actual collections received per test submitted for reimbursement by the laboratory. The number of EsoGuard tests performed and submitted for payment are provided in the press release and was discussed earlier by Lishan. Obviously, we're in the early stages of our commercial launch particularly with our test centers. We'll continue to evolve our reporting metrics as various sales and marketing efforts further influence adoption, particularly with the ramp up of our Lucid Test Centers and our EsoGuard Telemedicine Program. Presently, there are four banking analysts who have issued coverage on PAVmed and others doing their diligence. The quantity of EsoGuard tests assuming the related claims will be reimbursed at the CMS payment rate. We will need to perform to meet the 2022 revenue estimates provided by the analysts are achievable. The collections and therefore the recognized revenue each accounting period are highly dependent upon the evolving reimbursement landscape. Since there was no revenue in the second quarter, costs for the test centers and our laboratory are reclassified to operating expenses. For the second quarter and excluding 38,000 of non-cash expenses, test center costs were approximately 460,000 and are included in marketing expense. For the second quarter and also excluding non-cash expenses of about 375,000, laboratory costs of approximately 745,000 are included in G&A expense. PAVmed remains Lucid's controlling shareholder holding approximately 72.4% of voting interest of Lucid. Lucid's operating results will continue to be consolidated into PAVmed's financial results. The statement of operations will reflect a line items to show the non-controlling interest/profits or losses to non-PAVmed shareholders of its majority owned subsidies. As well there will be a corresponding offset in the equity section of the balance sheet for amounts attributable to minority interest equity. With regard to operating expenses, since there was no revenue in the quarter cost centers were reallocated as I mentioned. During the yesterday's earnings call, we discussed the three components that make up Lucid's operating expenses, namely sales and marketing, general and administrative and research and development. Since Lucid's operating expenses represent approximately 60% of PAVmed's non-GAAP consolidated operating expense for the second quarter I'll summarize the consolidated operating expense as a total. For the three months ended June 30, 2022, PAVmed's consolidated operating expenses were $23.4 million, compared to $13 million during the same period in 2021 and reflects a quarterly increase of 22% sequentially. There is a table in the PAVmed press release published today and the Lucid press release published yesterday that adjusts each of these three components of operating expense for the embedded non-cash stock based compensation expense. Without including the SBC or stock-based compensation expense, operating expenses from PAVmed - operating expenses were $18.5 million inclusive of $10.1 million of Lucid's operating expense. PAVmed reported the second quarter net loss attributable to common shareholders of $25.6 million or a loss of $0.29 per common share versus a loss of $11.5 million or $0.14 per share in 2021. The press release provides a table entitled non-GAAP, which highlights these amounts along with other non-cash charges, namely depreciation, stock-based compensation, financing and acquisition-related cost to enable better understanding of the company's performance. You'll notice from the table that after adjusting the second quarter loss by approximately $11 million for these charges. The company reported a non-GAAP adjusted loss for the second quarter of 2020 a $14.5 million or $0.17 per common share. PAVmed had consolidated cash of $65.2 million as of June 30, which compares to $77.3 million as of December 31 2021. During the quarter, we realized approximately $24.5 million of net proceeds from the convertible debt financing announced in April. With that operator we can now open up the call to questions.

Thank you. [Operator Instructions] Our first question is from Ross Osborn with Cantor Fitzgerald. Please proceed.

Hi, thanks for taking my questions. Congrats on the progress. So just starting off, could you please spend some time discussing the use cases with the first iteration of the Veris Health platform? And then what the scale of the launch later this year and early next year looks like?

Yes, so Ross thanks - I appreciate the opportunity to dive a little bit deeper in this. So the - just to step back again, to reiterate the overall goal of the Veris various platform is to provide physiologic data parameters from a patient and that are communicated in real time through a wireless and cloud-based connection to the providers to facilitate detection of early - design to complications if that can result in morbidity, mortality and cost. We're providing that and that data is - can be of any form for the purposes of remote patient monitoring codes, as long as there's an FDA device, clear devices that is generating that data, the clinician can go for that. So we're going to be providing that data in three different steps. And the first launch is to give us the opportunity to launch the software platform. And in order to do so we're providing a bundle of 10 Bluetooth connected external devices that will communicate with our platform and generate the five data points including our rate, activity, oxygen saturation, weight, blood pressure. And so that data and that information - along with symptom reporting, which have a fairly robust system reporting, and other quality of life metrics will be provided to the caregivers. We are starting will obviously start with a modest launch with targeting spectrum of providers of different sizes, including smaller practices and rural - including in rural areas where we think this will have particularly resonate to - the larger cancer centers. And of course, this initial effort is to get experience with some of the complexities of getting the platform on the IP networks of the providers to establish connections with the electronic health record, to establish connections with to be able to turn on the telehealth functions and other factors. So we are excited we have the team we've built, we have a gentleman joining us who did customer integration at Epic, the electronic healthcare record and they'll be overseeing the systems integration and customer support aspects of this. And then just to advance forward once we have the first version of the implantable part, then some of those devices like the scale and the blood pressure cup will remain. But many of the parameters will then move towards being collected and transmitted from the long-term implantable device. Cost was about a little bit.

Yes, that's great. Thank you. And then just one more from AON PortIO I believe you mentioned there were seven patients included in the first phase with no complications. Correct me if I'm wrong please?

Yes, I think we're more than that. We had seven in the most recent group. I think we're over 10. I'll get back to you on that number. The first wave I believe we did four and I think this is - we done seven, something to read around that. And what's most important as I mentioned is that protocol required us to have the first group have a seven day implantation with explanation. And that was to demonstrate that you know, the fusions work they were safe. And that you could explant the device and that there wasn't a fracture or other complications associated with the implantation. Now that that part is complete, we really get to the important part, which is to demonstrate seven days within a final report is not really clinically that useful. But what is useful is to get out to longer periods of time something orders of weeks to month. So this next phase, which - we are excited to launch, the device will be implanted for 60 days. And our expectation is to prove, for the first time in humans, what we demonstrated a while ago in animals that we have a implantable vascular access for the first ever that is maintenance free. So in the animal studies, once we implanted them, they didn't require any flushing any blood thinners or anything like that. And they were functional and - patent at 60 days. Obviously, our goal here is to replicate that and we have every reason to believe that we'll be able to replicate that in humans. So that - that's the current - that's the current state of the first in human study and - they said we're still not I don't have this on our roster of full bore pre-commercial products, because we're still trying to figure out the regulatory path, we have an outstanding new head of regulatory and quality. And there's some thought and some hope that we could reengage with FDA about this being potentially a quicker path. Potentially still with the de novo, but a quicker path than we had previously. We're facing with an ID in the US. So we'll get the first name and study in that and then we'll - kind of iron out the longer term plans after we get that data.

Okay, understood. And then, with the second phase, can you disclose how many implants you're targeting?

I'll get back with you about that I forgot what the number is, but it seems a couple digits.

Okay, great that does it for me. Congrats again on the progress. And thanks for taking my questions.

Yes thanks.

Our next question is from Frank Takkinen with Lake Street Capital Markets. Please proceed.

Hi, Frank, hi, Frank it actually, I just got a text - the number is 30 up to 30 patients for that second. Thanks, Dr. [indiscernible]. How are you doing Frank, thanks.

Good, good thanks taking the questions. I wanted to start with just a question on your comments around the reprioritization or rationalization initiative. It sounds like it's all longer term opportunities that won't impact really the short or intermediate term story here. So that's kind of one confirmation of that, except for the first part of the question and the second part of that is just can you quantify expected cost savings by putting some of these initiatives on hold on an annualized basis?

Yes, so the answer, of course the answer to the first question is yes, that's exactly the point is to try to this was a very sort of collaborative concerted effort over a couple of months with a dozen or more members of our senior leadership team. And the goal was in fact, as he said, to make sure that, given the landscape that what we are investing in today, and what we're deploying our resources today have the most that's the nearest term opportunity to be accretive and to lead to commercial traction, commercial growth and so forth. So 100% correct with your first question? In terms of the – I'll let Dennis comment a little bit more granularly. But this is a process that we started a couple months ago. And it did lead to some reallocations within the second half budget of this year, not a significant total savings, but more reallocation within the program. So for example, on the Lucid side, we've shifted costs from the longer-term studies, to clinical utility studies. And even unwinding, the longer term studies still require some classes - you can shut this taking off immediately. So but we certainly expect to have some cost savings going into next year. One good example there again, qualitatively is looking to kind of plateau grow our sales team through this year. But then once we get to that sort of 60 total commercial team number and approximately 18 Lucid test centers to pause and keep apply team, keep our cost sort of relatively flat, focused on growing test volume through the team we already have. So Dennis, would you like to add anymore color to that?

Yes, sure thanks. So Frank in the sales and marketing, given the comments that Lishan made about, we intend to increase our sales force, going through the end of the year, there will be some increases in sales and marketing costs between now and the end of the year. However with that, and the target number of test centers, we expect the 2023 to be fairly flat to that second half cost level as the landscape for reimbursement starts to evolve. And we probably won't put more resources towards that end until we get clarity there. We believe by increasing the resources between now and the end of the year, we'll gain critical mass by the end of the year such that we can drive reimbursement, we can drive claims to get attention from payers. We can facilitate adoption. And then when reimbursement comes in play, that will start contributing. And we can then decide whether or not we are going to step on the accelerator again. Lishan pointed out that on the clinical research, there is a shift between longer-term more expensive to shorter studies that are focused more on reimbursement. There will be some overlap between now and the end of the year. But what we see through 2023, and 2024, those costs will be relatively flat. And they're flat somewhat, because of the shift in priorities with some of our products here, that would have had a higher level of development costs, or clinical costs in those time periods. We think that is the wise thing to do given the overall economic climate and the longer term priority there. As far as the administrative expenses, it should be relatively flat between now and the end of the year and we intend to keep them relatively flat through most of 2023. We do - Lishan comments earlier, indicated that we've rounded out the infrastructure, the management team that we believe can sustain us through continued growth at the top line, we had a number of pretty healthy growth in tests during the last quarter. And that was done with only a fraction of the sales force that we expect to have by the end of the year, keeping in mind that it takes about four months for a new hire to actually start to carry their weight and contribute. And the numbers are such that at the end of this quarter, with only a handful of folks calling on the primary care physician area and we are going to increase that sizably. We think that gives us that initiative to drive reimbursement. So that's how we see, you know, over the call it the next 18 or 30 months, there'll be some increases between now and the end of the year to get to those levels of critical mass and then should be fairly flat until we see that inflection from reimbursement, which will then signal us to put more resources behind the commercial efforts.

That's great color. Then I wanted to ask one on CMS, I understand you're kind of in that wait and see stage. But any estimation you guys are comfortable putting out there when you could potentially hear back from either Palmetto or Noridian on next steps?

I'm a little bit weary, because I think you know, Frank, when we submitted the first technical file in May of 2018. We certainly thought it was coming soon, coming soon and 18 months, next year, a little bit more than that. Later, we were still waiting. So you know, I think let me first - let me just first sort of couch it in the maybe a bit of a qualitative way. Honestly, if we got - if we go back and we had a cleaned up and nice, operational foundational LCD tomorrow, we wouldn't be in a position to be able to convert that into EsoGuard coverage. Because we clearly need more clinical utility data to check that final box as was articulated - towards the end of the year of the draft LCD. So my hope and gut is that, that we will - the time it will take us to. We're going to complete a - fairly large retrospective clinical utility studies with our NYU experience. Hopefully by the end of this year, and we should start seeing the sample sizes for the other prospective studies to start to kick in the first half of next year. So, my kind of ideal situation is once we've reached threshold numbers, and substantial, you know, solid critical mass of clinical utility data in the first half of next year that that will coincide with the publication of a final LCD, that gives us the opportunity to file a technical file for technical assessment and convert that foundational LCD into coverage for use in art. So, that's kind of roughly - would be sort of the ideal timeline, but you never know.

Okay, that's helpful. Thanks for taking the questions. Congrats on the progress. I'll stop there.

Thanks so much, I appreciate it.

Our next question is from Ed Woo with Ascending Capital. Please proceed.

Yes thank you for taking my question. My question is on CarpX ultrasound. What is the thinking in terms of why you get excited to focus on this new product? And will there be significant investment required or and any regulatory approval requirements?

Great, thanks for getting the opportunity to flush that out a little bit. So we're really pretty excited about this CarpX ultrasound, because we have experienced now, you know, obviously in hundreds of cadavers, and dozens of patients with the current device and the function of the balloon dilatation. All the key principles, the bipolar RF cutting, and so forth, work quite well. But the one element that has, you know, kept us with this first generation device, and this kind of, you know, what felt like a perpetual, limited commercial release, is that there are procedural challenges that we would - both based on feedback would clearly benefit from the ability of the surgeon to kind of see what they're doing right now, they can obviously see what they're doing when they insert the device, but after the balloon is inflated, it is blind at that point. And to be clear, with other techniques, there's a lot of the cutting is also blind, even with endoscopic techniques, but we challenge ourselves to come up with a way to improve what functionally works well, but to improve the procedural point of view from the physician from the surgeons perspective, by incorporating ultrasound. And I want to be clear that people understand that this is not like an external ultrasound probe that - the surgeon has to sort of, you know, learn how to use in conjunction with the device. But we're talking about your intraluminal ultrasound. So the ultrasound probe is actually what goes right down the shaft of the CarpX device similar to anyone who has, you may have seen when they called intravascular ultrasound, where you can put a catheter in a blood vessel and visualize to the circumferential cuts of the vessels. So that's similar quality image. So that's an image that can be - a surgeon could be taught to interpret quite easily, but it's very intuitive. And they can learn to identify the various structures. And before after inflating the balloon, but before firing to cut the ligaments, they can feel a high level of confidence that there everything was in good position that the critical structures are out of the way. So that was the impetus for it. And - we spent some time with kind of exploratory work and development and some initial challenges with getting some ultrasonic images. So we were fortunate enough to partner with a firm that has an ultrasound guided device for anesthesia. So they've done some of the kind of the baseline circuitry work for us and have a lot of experience with this type of imaging. And so, we're starting to get some, some decent images. So we have a pretty good feeling where this is going, it is going to take some time, certain amount of trivial development process. We've allocated sufficient capital within our budget to - we think this is a high priority along with the others. And so, we decided to go for more on this and to invest the capital necessary to get this product on the market and frankly, realize the commercial opportunities as we've been all patient waiting for contracts over these years. There's still a very, very prevalent conditions and the current options are not great. So we're really hopeful that this will be the - product that gives us an opportunity to take advantage of that, that commercial opportunity. So yes- we're very excited about that.

Lishan comment on the regulatory path?

Yes I'm sorry Ed. So yes - the regulatory path and we'll just be filing this as a - use our current device as a predicate for our new 510K, likely a new 510K. And it will, we don't expect there to be significant hurdles with that because the fundamentals, the things that took us quite a while to get through FDA, which had to do with the cutting and thermal spread, and all these things that we had to deal with in the past, that - the working part of this, the dismal end is almost identical to the current device. We are moving as I mentioned in my comments, we're moving a lot of the electronics to a handheld non-disposable device and a console. That's actually quite exciting from the point of view of economics because it lowers the per case cost and gives us a better margin and a better opportunity to compete from a price point of view with existing technologies. So we expect the regulatory path to be fairly straightforward, then we'll leverage the existing 510K for the current first generation.

Great, well, thank you for answering my questions. And I wish you guys good luck. Thank you.

Thank you, Ed.

Our next question is from Anthony Vendetti with Maxim Group. Please proceed.

Hello Anthony.

Hi, Dennis. Hi Lishan, how're you doing? So just wanted to talk a little bit about the number of tests performed in the second quarter at your Lucid test center. So I think you mentioned 850, just in the second quarter alone. Is there anything you would attribute that significant pickup in the number of tests to and is that a good - is that a good baseline? Or was there anything extra in the second quarter that you don't think is repeatable going forward?

Let me take a first crack at that, and I'll let Dennis some of numbers there. So, you know, I think as Dennis mentioned, we've had now two nice consecutive percentage growth quarter-on-quarter. If you remember, we're about a year into the initial - the first Lucid test center launched in September of last year, so we're not even barely a full year in. And as an essential, we hired literally our first sales rep, calling them primary care physicians in the third quarter of last year. So now we are as of belief today, we're at 20 and we're moving towards 40 for the end of the year. So I think the simple answer to your question, Anthony was that the steady growth quarter-on-quarter we've seen for the last few quarters is directly attributable to allocation of resources to building a sales channel -- sales, a group of sales reps, expanding the number of test centers and the support to allow the sales reps to generate referrals to the centers. And it's directly a reflection of that. It's also reflection of something I'd love to talk about a little bit more depth on the Lucid call, which is that we have -- our sales leadership has done a really great job of honing the sales process, which you think about just kind of walking in and talking to a doctor and getting them to do the test. But it's actually quite a sophisticated process here with how we target, how we route, how we -- all the top tracks around that, and it's quite to this data to organize data driven. And that process has definitely helped sales training has gotten much more intense. We just finished one couple weeks ago, it's you know, it's a in-depth, really intense field training, field right, along with an entire week of classroom training. So that's been helpful. So I think our productivity and the time from a rep starting to them being productive in terms of generating test volume, think will portray. And, you know, I think, that really is the -- those are really the key factors and we obviously are expecting to continue to grow. That's why we're investing in this team. We like -- we think, kind of 60 for the end of the year as a good number to kind of pause that and then allow the, you know, the sort of run with those horses for a bit to grow within those territories and within those reps in place. So yes, I think hopefully, that's all kind of a long winded, yes. I don't know, Dennis, if you wanted to elaborate any further on that.

Yes, just maybe a few more details. So Anthony almost all organic growth and it's driven simply by more accounts which is driven by more feet on the street. We entered the quarter with 21 total people in the sales organization that as of April 1, that included and representative -- sales representatives that were primarily focusing on the primary care physician. At the end of June, we had 29 total in the sales organization, 16 of which were focused on the primary care physician. And presently, we have 40 total people in the organization as of August that includes 24 people that are dedicated principally to primary care physicians. So we steadily increase that, we continue to hire, we've improved our sales processes, and more accounts referring more patients to our test centers. And another stat, I think Lishan touched upon this in your prepared remarks is that out of the 850 tests in the quarter, about two-thirds were coming through the test centers, which are tied directly to the increase in calling on primary care physicians. We still had an increase in the institutions and hospitals but the more telling increase was in the referrals into our test centers.

Okay, great. And then just last question on the overall business review, focusing on costs and projects. Was there anything that came out in terms of direct costs savings, other than policies and programs? Any cost cuts specifically?

Yes, I mean, I think, the way I would summarize it is, we were very conscious with this effort. And it was kind of one of my points to this team is that, look, this is not austerity program, we can't cut our way to growth, we're not going to fundamentally change kind of the - our stance with regard to growing this company, right. So the effort was very much driven, obviously from a general posture of cash preservation. But more kind of rationalizing and streamlining and maybe pruning because we're looking for the work that I think that would say that. So for example, on the sales growth, we have projected to continue to grow in 2023. And this decision to not scale - not dial back our growth this year, but expect the plan on plateauing this year and letting that team for a little while, was basically, that will result in flattened costs Dennis mentioned on the sales sale costs into next year. We did a pretty aggressive rationalization and prioritization of our - the product development side, some which are below the top there. Some projects in there that were, you know, a bit loose shoddy, but we thought had big opportunities. So we just couldn't justify the investments in capital lease at this point of time. And so we settled on the three products, [indiscernible] secure, and the first implantable version of the -- various device with you know, with PortIO kind of hanging out a little bit behind. And on the personnel headcount of data set, we've grown - yes, it's certainly conceivable following us. We've grown this company quite a bit and a lot at that senior leadership team. And really what I would say as a general matter, I mean, that's not 100% but from this point on, we kind of have the team. And we -- increases on our headcount moving forward are going to be almost entirely commercial team, members of the commercial team ramping up consistent with the commercial - the traction we're getting reimbursement and all that. So we'll be hiring people on the various commercial team one after we see some traction there and so forth. But in terms of more of the base team, the infrastructure, the leadership and so forth, I think we got the team and then it's fantastic.

Okay, great. That's helpful color. I appreciate it. I'll hop back in the queue. Thanks, guys.

Great. Thanks, Anthony.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Dr. Aklog for closing comments.

Great. Thank you very much everybody for taking the time to join us today and forward all the great questions from our colleagues. As always, we look forward to keeping you aggressive on progress via news releases and conference calls. Just encourage you to keep up with PAVmed news updates and events to sign up for our email alerts. That's the best way to keep in touch. You can do that on our PAVmed Investor Relations website. To follow us on social media. We're fairly active on Twitter, LinkedIn, and YouTube. And also to feel free to contact Adrian at AKM@PAVmed.com for any questions. So thanks again everyone and have a great rest of your day.

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