Title

Presentation

Operator: Welcome to the Lucid Diagnostics Business Update and Fourth Quarter 2022 Financial Results Conference Call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the call over to your host, Michael Parks, Vice President, Investor Relations. Mr. Parks, you may begin, sir.

Michael Parks: Thank you, Paul. Good morning, everyone. Thank you for participating in today’s fourth quarter 2022 business update call. The press release announcing our business update for the company and financial results for the year ended December 31, 2022, 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, 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 description of these and other important risks and uncertainties that may affect future operations, see Part I Item 1A entitled Risk Factors in Lucid’s most recent annual report on Form Q-10 filed with the SEC and subsequent updates filed in the quarterly report on Form Q — 10-Q and any subsequent Form 8-K fillings. 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 like now to turn the call over to Dr. Lishan Aklog, Chairman and CEO of Lucid Diagnostics.

Dr. Aklog?

Dr. Lishan Aklog: Thank you, Mike, and thank you everybody for joining us this morning. I look forward to giving you a positive update on our activities for the past quarter and recent weeks. As those of you who’ve been with us for a while have noticed, we’ve changed the timing to hopefully better serve our shareholders to have our quarterly calls in the morning part of the open in our press releases in the evening prior. So I’ll start with some recent highlights before doing a bit of background and then diving further into details. We’re really excited about the steady significant strides we’ve made over the past quarter. As you’ll see, the EsoGuard test volume growth has remained strong and we’ve seen some nice acceleration particularly in this quarter and a rapidly increasing satellite Lucid Test Center activity that is now driving nearly one-third of our testing volumes.

We’re very excited to report that we’ve secured in-network EsoGuard contract with the largest secondary PPO, MultiPlan, and this provides access to EsoGuard to approximately 60 million consumers of that participated in the networks. Our commercial payer engagement and claims history is accelerating. In-network EsoGuard contracts are now averaging over $2,000 per test and all of the PPO contracts we’ve secured are priced at or above the Medicare rate. I’ll dive into this a little bit further later, but we’ve launched a really important initiative for us. We’re calling it our Direct Contracting Strategic Initiative and the goal here is to engage directly with large ASO or Administrative Services Only self-insured employers, unions and other such entities.

As we reported in the press release, we had a successful launch of our high-volume CheckYourFoodTube events and we have a robust near-term pipeline of additional events coming up in the next month or two. Our laboratory, we’re very proud to say, handle the unexpectedly record peak volumes from these event and this reflects a lot of effort we’ve made in enhancing our operational efficiencies. We received FDA clearance to market a non-sterile version of EsoCheck. These increases our margins and mitigate potential supply chain issues associated with sterilization. We’re making good progress collecting clinical utility data, which is a key driver of future in-network commercial payer contracting, and as we’ll describe in more detail, we secured financing of just under $25 million, which extends our cash runway well into 2024.

For those of you who are new to the story, just a few slides here to give you some background of Lucid Diagnostics is a commercial stage, cancer prevention, medical diagnostics company and we’re focused on early precancer detection, specifically in patients with longstanding chronic heartburn or gastroesophageal reflux disease, also known as GERD who are at risk of developing highly lethal gastroesophageal cancer. And our mission is very simple, which is just to prevent death from this cancer in at-risk patients with chronic heartburn. The data on esophageal adenocarcinoma is awful. It’s highly lethal and it continues to become more prevalent, about 16,000 deaths in 2021, a similar number with the slight uptick in 2022. It’s — and the incident has increased 500% far outstripping all other cancers over the last four decades and it’s a very, very lethal condition.

It’s the second most lethal cancer with an over 80% five-year mortality rate, and most importantly, the Stage 1 five-year mortality. So right at the early stages, it still carries at over 40% mortality rate. So in order to have an impact on those death early precancer detection is necessary and that’s not currently occurring. It hasn’t historically occurred and less than 5% of those patients who are recommended for screening are undergoing traditional endoscopic and that’s where we cut price. So our lead products, EsoGuard and EsoCheck are the first and only commercially available test that’s capable of serving as a widespread screening tool to prevent esophageal cancer death through the early detection of esophageal precancer. EsoGuard is an esophageal DNA test that uses next-generation sequencing to detect early changes in the precancerous conditions, as well as cancer and EsoCheck is a noninvasive cell collection device that allows the samples to be performed accurately in an in-office set.

We are very proud last year and we’re excited that both major gastroenterology societies, the American College of Gastroenterology and American Gastroenterological Association now support EsoCheck as an alternative and acceptable alternative to endoscopy for the early detection of this precancer to prevent deaths from the cancer. The commercial opportunity here is large. The minimum at-risk population defined by these guidelines. The most recent updated guidelines is $30 million. Medicare has established payment of $1,938 and will show later that, that payment flow is being respected and that results in a very large addressable market in the tens of millions of dollars. We also have a very high gross margin at over 90% and we’ve made some progress.

We’ll highlight again in getting our COGS down and getting us towards that 90% or greater numbers. Our commercial strategy is now really very well owned. We have two referral sources that we target, primary care physicians and specialty — specialists and institutions. And you can see here that our interaction with them is different, when we discuss with primary care physicians, we’re just encouraging them. So we’re educating them and then encouraging them to order the test as they would any other cancer screening test or like still DNA testing or other test. With the specialist and with the institutions, there’s an opportunity to build a consolidated program centered around EsoGuard that’s focused on esophageal cancer, precancer and gastroesophageal reflux.

We also now have three modalities by which the — where the cell collection procedure is performed, where the EsoCheck procedures performed and that — and the operator is different. We have our physical Lucid test centers, which are now 13 locations in 11 states and our own nurse practitioners perform testing there and that continues to remain robust. In the last couple of quarters, we’ve steadily expanded what we referred to as our satellite Lucid Test Centers where our nurse practitioners have scheduled days at physician’s offices and they can perform the EsoCheck procedure on patients who are already scheduled at the physician’s office and this provides a very attractive expansion in our physical reach and our overall horizon. And then, of course, at the — particularly at the specialists and the large institutions, the physician practice itself will often perform the procedure, either one of their nurses or nurse practitioners or their physician system.

We continue to show nice steady growth in EsoGuard testing volume. Here are the numbers by quarter. We’re reporting the estimated numbers for this quarter as we’re now quite close to the end of the quarter and you can see on an annualized basis, we’re at a steady approximately 200% per year compounded growth rates. To dive in a little bit deeper on where this testing is occurring and where these referrals are coming from and who is performing the procedure. We continue to have about 60% of our referrals are coming from primary care physicians that we think that will continue to be the case and that might up — tick up over the coming quarters. And this is because that’s where most of these patients are patients with gastroesophageal reflux are rarely seen by specialists or institutions and they’re generally managed by their primary care physicians.

Another important trend is highlighted in the right pie chart. This is the breakdown of who’s actually performing the EsoCheck collection procedure. You can see that — and where you can see that 29% of these are at our physical Lucid test centers, 31% are in the satellite Lucid Test Centers. If you recall, both of these, so 60% of the tests being or the sample being collected are being collected by our nurse practitioners in one of these venues. And the proportion that are — of the overall number, that 31% that are being performed at satellite Lucid Test Centers is steadily increasing. It was 22% in the third quarter. But we still have a robust activity as well in the individual physician practice. We launched another horizon, another location and opportunity and model for patients to get — to bring to the testing directly to adverse patients in high-volume events that we’re referring to as CheckYourFoodTube Precancer Detection Events.

The first event was highly successful. We’ve been in partnership with the San Antonio Fire Department. You could see in the images here, that’s our nurse practitioner, working with the Fire Department, our nurse practitioner team and others working with the Fire Departments to test 391 at-risk firefighters over two weekends. And this was quite successful, the tests were all performed and we’ve seen positive. So we’ve seen positive results that are leading to endoscopies in patients, including patients in their 40s and a few in their 30s. So excited that those patients have had the opportunity to get an noninvasive biomarker test that is confirmed on endoscopy, we’ll put them in the proper surveillance and monitoring regimen to prevent them from developing esophageal cancer.

So we’re taking this model and where we are — we are granting and repeating. We have a robust near-term pipeline of future events, targeting unions and other groups across the country and expect to be updating you on these in the coming months. This, as I mentioned, is a very important area of focus for us and we’ll be doing this in conjunction with the Direct Contracting Strategic Initiative that I previously mentioned. As I mentioned, we’re very excited to have signed an in-network agreement with MultiPlan. MultiPlan is the largest secondary preferred provider organization and one of the largest independent providers outside of the large health plans. This expands EsoGuard access to approximately 60 million customers. MultiPlan partners with 700 payers across the country, including all of the top 10 payers and 1.2 million healthcare providers.

They process $74 billion in commercial health plan medical charges in 2022. If you look overall at our contracting and payment status, really solid progress in this regard. The engagement we’re having with commercial payers is accelerating. As you see on the right in the pie chart, we continue to have really 90% of the tests being ordered and performed our own commercial payers. So that’s where our immediate focus is. We have 13 commercial payer in-network contracts for EsoGuard that we’ve secured and the really gratifying point here now we’ve done enough of these is that the price is holding. Our average contracted prices over $2,000. Our list price is $2,500. So all — and all of our contracts are somewhere between the Medicare, the PPO contracts are somewhere between the Medicare payment rate of $90 — $70, $38 at our $2,500 list price.

So therefore in-network contracts. We’re out-of-network contracts, the out-of-network payment continue — out-of-network payments, they continue to respect our charges. The average payment is $1,440, and that lines up nicely with about a 50% to 60% out-of-network benefit that’s goes with most planned. The key drivers to expanding future in-network commercial payer contracting are progressing well. These two primary drivers are generating claims histories. We are now generating claims histories. We have hundreds of claims with many of the large — the larger plants and this is how you — once you reach a threshold, this is how you have the opportunity to engage with these plans on potential in-network coverage and what data they need in order for us to secure that in-network coverage.

We’re also starting to see claims that are working their way through the denial process and appeals process, and we have been seeing some payments that were initially denied paid on appeal. I’ll remind you that this entire process of submitting claims through our own laboratory only started in mid-third quarter. So we’re just still in the early stages of this, but the progress is really gratifying. We’re also in the process of generating the primary focus of the commercial payers, which is demonstrated in clinical utility. I’ll show a little bit later on what that entails. So good solid progress on that. And as I mentioned, we’ve launched a Direct Contracting Strategic Initiative. This involves engaging directly with entities — self-insured entities, such as employers, unions, public service departments and others who are under the ASO umbrella.

So they have only administrative services through one of the plans that they control their own test and directly engaging with them, provide the opportunity to secure contracts that are outside of the traditional commercial payer contracts and an opportunity for meaningful revenue. This model of targeting ASO entities has been used successfully by other cancer detection companies such as GRAIL and we’re studying their model and working closely with their alumni, as well as with other consultants to help us quickly drive this initiative, which we think will be an important part of our future activity. I’d mentioned clinical utility data. Again, this is extremely important. The larger plans we want to see that there is a clinical utility and performing EsoGuard test.

The definition of clinical utility is very straightforward in this case. They want to know that if a physician orders the test and it comes back positive that the physician will change whether it comes like positive or negative or alter medical decision making, specifically that if it’s positive, the physician will order a confirmatory endoscopy, and if it’s negative, that the physician will not order an endoscopy. And so documenting is very simple, folk in the medical decision-making algorithm is very important to justify the coverage of this test for payers. And so we are in the process of collecting a multipronged approach to collecting both retrospective and prospective data documenting positive clinical utility with the EsoGuard test. I’ll start with the here in rough order of when we expect the results to come out.

The — one of the nice things about these CheckYourFoodTube events is that we have an instant shot of hundreds of patients that we can analyze this initial one as we will — is retrospectively — in a retrospective analysis of prospectively collected data on what happened to the firefighters who got tested and how did their testing leads to the appropriate medical decision making. So this study has completed IRB approval and the data is now all in place and it’s being analyzed and will be submitted shortly for peer review. We also have a retrospective study that’s well on its way and nearly completed. This is a single center study from NYU that had 374 patients that were collected and we’ll analyze decision-making in clinical utility and we expect that to be completed and submitted for peer review shortly.

The two prospective efforts that we have is our Lucid registry. We have some significant breakthroughs in terms of streamlining that process and we expect now every patient that is tested by one of our nurse practitioners to be offered the opportunity to enter into the registry that’s allowed us to collect both clinical utility data, but also clinical validity data into the future. And then the CLUE study is a prospective multicenter clinical utility study as well, which has started enrolling. We’re looking to get a critical mass, the critical number of patients across these studies. You can see the numbers on the right here by midyear next year. And then finally, there’s a prospective virtual patient randomized controlled trial, where physicians are interviewed and received casing yes and they’re asked how they would respond to that.

That’s a very well-validated approach that payers have accepted in the past for clinical utility. So we’re adding that to the mix as well and we’ll expect to enroll about 100 patients in that. I apologize I understand that the slides were not showing. Okay, let me just spend 20 seconds on each of the slides, just to highlight again, as this slide, the commercial payer mix, 90% commercial payers and 12% Medicare Medicaid. I apologize for that. Here is the slide on the clinical utility data that I just summarized, showing the retrospective and prospective studies and the number of patients that we’re targeting to enroll by midyear this year. I apologize for that. A quick summary on our lab operations, again, very proud and excited that our laboratory shows — continues to show enhanced operational efficiencies, probably, the most important number from this slide is the proportion of samples that have sufficient DNA.

That number has plummeted. It’s winning around 6% now from a much higher number when we first took over the laboratory from the third-party and we look forward to continuing that low rate moving forward that provides much more utility when we get those numbers down low. Our turnaround times have remained solid over the last couple of quarters at nine days. And the CheckYourFoodTube with the San Antonia Firefighters was sort of a spontaneous stress test for our system and the team passed with blind colors, they were able to perform 100 EsoCheck procedures in a day with 50 per day by the nurse practitioners and the laboratory received on one day 200 samples that was able to process that on one day with the current — with our current infrastructure.

And just finally, some updates on the manufacturing side. As I mentioned at the beginning, we submitted EsoCheck for market approval — market clearance and received the 510(k) to be able to market it without sterilizing. This is a non-sterile procedure, is going into the mouth in the esophagus and the purpose of this was to enhance many aspects of our operation. As you see, it further reduces our COGS by approximately 10% after a substantial decrease in our cost of goods from transferring to high-volume manufacturer and lead times have been cut dramatically. The sterilization has come across the industry a major source of supply chain issues and constraints that’s been eliminated and ETO sterilization is the hot topic right now with environmental issues and we’ve obviated that being a factor in our testing.

We also have a new EsoGuard cell collection kit with a new manufacturing site and new improved design and the cost of goods for manufacturing these is also decreased by approximately 20%. So, with that, I’ll pass on the slides to Dennis to talk about our financial detail.

Dennis McGrath: Thanks, Lishan, and good morning, everyone. So if you go to the next slide. So the Board has authorized a $20 million preferred offering at an $11 million secured convertible debt. We completed the initial closing of the preferred in the amount of $14 million and have until the end of May to complete the remaining $6 million. The financing was priced in accordance with NASDAQ at the market closing bid price rules. The accredited investors were led by a family office familiar to our IR firm and some long-term high net worth shareholders for participants in total, but share a long-term vision for the company. After exploring a variety of alternatives, this preferred structure created a mutual win for the company and the investors by matching an attractive dividend with a strong incentive to hold the stock for more than two years.

Additionally, yesterday, we entered into a securities purchase agreement to issue $11 million in convertible debt securities with an accredited investor that has provided the same type of structures for PAVmed over the years and currently holds PAVmed’s existing debt with similar terms. We expect to close the funding in the coming days. The note interest is only for six months and has a $5 voluntary conversion price and a 7.9% interest rate. Amortization does not begin until a six-month anniversary, which we can then pay in cash or in stock. Both structures keep stock out of the market for long periods of time, likely two years in the case of the preferred, which allows the company to complete its work on clinical utility studies and improving reimbursement.

Our runway is substantially elongated through deepen 2024. On a pro forma basis, when combined with our cash at the beginning of the year, results in pro forma cash of approximately $46 million. For the fourth quarter, the change in cash from the third quarter was $4.5 million. Please refer to the two Form 8-Ks that were published last evening for additional details on both financings. So the summary of financial results for the fourth quarter and the year that we reported in our press release that was published last night will be corrected as the tables reflect PAVmed’s consolidated operations set of the standalone lucid financials, we apologize for that. We will be publishing PAVmed released this afternoon, which include both PAVmed consolidated and Lucid standalone.

On the next three slides, I’ll emphasize a few key highlights from the quarter, but I encourage you to consider those remarks in the context of a full disclosure covered in our annual report on Form 10-K that was filed with the SEC last night and is available on our website. So on the balance sheet. You see the year-on-year changes. But the cash, as mentioned from the third quarter to the fourth quarter was a $4.5 million sequential decrease and it was $30 million for the year. Vendor payables were relatively flat for the sequential quarter and for the year, offset by intercompany debt to PAVmed, which increased to $3.3 million at 12/31 and both Boards have authorized the ability for Lucid to pay that in stock rather than cash to preserve the cash at the loose level.

Shares outstanding, including unvested RSAs as of today is 43.4 million shares. The GAAP outstanding shares are reflected on the slide, as well as the face of the balance sheet in the 10-K. Next slide. So slide 20 compares this year’s fourth quarter to last year’s fourth quarter of certain key items, as well as year-over-year comparison. Just to review the information in my comments in light of the cautionary disclosure at the bottom of the slide about supplemental information, particularly the non-GAAP information. Revenue for the fourth quarter reflects actual cash collections for the quarter. The prior year reflects the fixed monthly fee received from the third-party lab that we used before setting up our own lab earlier last year. Revenue recognition, a key determiner is the probability of collection as we’ve mentioned in our calls in the past.

So the vast majority of patient out-of-network claims submission means revenue recognition occurs when the claim is actually collected and we’re in the early innings of that versus when the patient report is invoiced and submitted for reimbursement. As you will see in our 10-K, this is called variable consideration in the jargon of gaps, ASC 606, revenue recognition guidelines, and presently, there is insufficient predictive data to reflect revenue when invoiced. Our GAAP and our non-GAAP loss for the fourth quarter, $10.5 million is fairly flat compared to the third quarter loss of $10.2 million. Slide 21 is a graphic illustration of our operating expenses for the periods reflected. Total non-GAAP OpEx was relatively flat sequentially. Cost of revenue primarily consists of EsoCheck devices, lab supplies and fixed lab facility costs.

It is being presented in our 10-K and 10-Qs as operating expense consistent with practices of other diagnostic companies. Sales and marketing increases were offset by decreases in R&D and G&A, which allow the operating expenses to be relatively flat. So, with that, Operator, let’s open it up for questions.

See also 11 Bank Stocks with Insider Buying and Selling Last Week and 30 Best Hotels in Canada.

Operator: And our first question comes from Kyle Mikson from Canaccord Genuity. Your line is open.

Dr. Lishan Aklog: Kyle, good.

Dennis McGrath: Good morning, Kyle.

Operator: Just one moment. Seem to be having a little technical difficulty here. All right. Mr. Mikson, your line is open

Kyle Mikson: Hey, guys. Can you hear me now?

Dr. Lishan Aklog: Yeah. We can.

Kyle Mikson: All right. Perfect.

Dennis McGrath: Yeah.

Kyle Mikson: Interesting. Yeah. So congrats on the results. Thanks for the questions. On the effect of ASP here was $95, it seems like have the denial rate for reimbursement seems like still pretty high. Cash collection is pretty low. It’s not like super surprising I guess. But just the ASP dynamics, you’re talking about out-of-network $1,400 payment and then commercial payers, $2,000, PPOs at the Medicare rate, which is like almost $2,000 as well. So would you mind just walking through why the revenue per test is so low and when that inflection point occurs and what kind of like catalyzes that?

Dr. Lishan Aklog: I’ll let Dennis dive into that deeper, but maybe just provide a high level. This is a bit of a moving target, right? Because the average life cycle of — the cycle for payment can run up to 90 days. There’s claims adjudication out and so forth. So what we’re seeing in any particular quarter in revenue is really a snapshot of what was going on with submissions a while back. But I’ll let Dennis a little bit further in detail.

Dennis McGrath: Correct. So, as Lishan indicated, the submitted claims do take some time to process and beginning in the fourth quarter, those amounts start to trickle in. There was more than 200 insurers that were billed claims leading up to the fourth quarter and into the early part of the first quarter. In the first quarter, we are starting to collect at an accelerated pace. It’s still early in the game and claims are being adjudicated both from a denial and appeal, as well as asking for additional information. That will — that steam will pick up as the year unfolds. The fourth quarter is not indicative of what the first quarter results are so far and we expect that the coming quarters that reimbursement will improve MultiPlan certainly helps with that endeavor, as well as we are getting paid from some of the larger players, United, particularly, and we’re getting paid out-of-network rates.

That backlog should continue to pick up and so that, ultimately, we’re hoping that in time, when we get to full reimbursement, there will be a match in terms of when the claims are submitted and the cash is collected. But for now, there is a large gap between those timeframes.

Dr. Lishan Aklog: If I could just add a couple of things, just to, again, emphasize the sort of the phase shift here. We started submitting claims in the end of August. So basically mid-to-late third quarter. So the fourth quarter results, if you kind of take that typical 90-day cycle and those cycles are longer for new tests. One of those tests are more established, they tend to — the turnaround time take longer. So the fourth quarter numbers really reflect a small portion of the claims that were submitted in the — in only half of the third quarter. The other point I would make is, again, these are early numbers. We don’t have good denominator on this. But we don’t have — the number of — you sort of mentioned the denial rate, there really isn’t a denial rate yet, because the number of claims that have gone through the full adjudication process that have been divided is very low right now.

So most of the claims are — have either been paid or more likely the vast majority of them are still working their way through the process.

Kyle Mikson: Okay. That was really helpful guys and it sounds promising, too. Maybe just sticking on a similar kind of subject, really good to see the kind of projection for the first quarter, test performed here, like 1,500. Looks like — I believe that 36% growth sequentially, so that’s awesome. Any reason why that type of sequential growth can continue going forward to potentially accelerate from there? And is there anything about maybe seasonality or other dynamics that could maybe inflate that 1Q number? I mean it sounds very reasonable, but just trying to think about how that progresses throughout 2023.

Dr. Lishan Aklog: Yeah. No. I think if you look at that slide, there’s a bit of seasonality you saw in the fourth quarter, and that’s common, as you know, Kyle, from other companies. We also in the fourth quarter had to work through some compliance structure, establishing some compliance structure in a couple of our larger states as it relates to how to do the satellite Lucid Test Centers. So there’s some pent-up demand in both Florida and California there that we’re addressing. But if you kind of look at the overall trend in the line, is that 36%, something like that quarter-on-quarter, about 200% or so compounded growth rate, I think, is sustainable for some period of time, and obviously, the goal is to continue to grow that.

I think, you know as we’ve said in the past, we’re not on full throttle, right? We’ve decided to plateau our sales team and that sales expense that did a show. We expect that to be flat for this year. And we think our current team can continue to drive test volume growth as we start getting more predictable payment and improve on our contracting, and we think these initiatives, such as the high-volume testing events, as well as Direct Contracting with ASO type entities, we’ll be — we’ll play an important role in that growth over time.

Kyle Mikson: Okay. All right. That was great. And similarly, just thinking about test order per ordering position, I guess, and I know your test center strategy is not on hold, but you’re just sort of investing in your current number, I guess, of the centers. And the MultiPlan you got some providers there as well and so some visions will get on board and I suppose to start ordering one more. So I mean that denominator number is sort of is still pretty healthy. I’m just wondering if test per doc is increasing. How that’s progressed through the — like since the launch in 2021? Is there a plateauing, like just any kind of trends? Yeah.

Dr. Lishan Aklog: Yeah. I mean what we’re focused on. I don’t have a sort of a single number to give you to capture that. What we’re focusing on, we have a good number of providers. We have, as you mentioned, threat geographically now and the fact that we can do satellite Lucid Test Centers have given us, again, we’re not — just to be clear, we’re not putting the physical locations. They still more remain an important anchor and are key in areas where we — as sort of the headquarters for our clinical team, our nurse practitioner team, but the fact that they can branch out both within their local geography and literally got on a plane to go to San Antonio and do 400 test in the week. All of that is enhancing our geographic reach and the number of providers.

But we have a very focused effort right now by our sales team to focus on stickier business. On having accounts continue to order on a clip, the reps are now increasingly incentivized along that — along those lines and it is working. So we have figured out ways. The issue with the repeat ordering and stickier business is not about sort of loss of interest. It’s more — it’s just more a matter of potential. And I think I’ve mentioned this before, but I’ll reiterate it, one of the things that we really like about the satellite model is by having a day where the Lucid nurse practitioner is going to come to the practice on a particular day does bring the whole issue of esophageal precancer testing front and center and as they know that the fees is going to be there next week or in a couple of weeks, it’s much more front and center than previously, where we had to just have multiple contact points by our reps to keep it front and center.

So, yeah, I don’t have hard data on you on that, but the trends are actually — are good. We are getting stickier business, but we’re also — we’re doing both. We’re trying to get breadth and depth at the same time, while keeping kind of a mid-throttle approach until we get more predictable reimbursement.

Kyle Mikson: Okay. Just one last one before I hop off. So I guess on FDA, obviously, there’s a lot of back and forth, but it does seem like FDA is going to push towards regulating ODTs like in the near future, I guess. And I know you delayed the BE1, BE2 trials. But what would happen to your ability to offer EsoGuard in the event that the FDA starts to kind of crack down on tests in the next one year or two years or 24 months. What’s the plan B here?

Dr. Lishan Aklog: Yeah. We’re monitoring the valid act, as well as the FDA’s recent declaration around rule making in this area carefully. We don’t have any concerns in the near-term. These are all long-term. That’s certainly not one-year or two-year events. There are grandfathering clauses. We have confidence with regard to where our risk, where we will win wider in our risk assessment that we think will have the appropriate data to be able to continue uninterrupted. And so we’re monitoring closely. We’ve established long-term strategies to mitigate that. On our — on the clinical utility side, we will start getting clinical utility data. I should mention that there are other sources of clinical utility data from the BETRNet study, the NCI-sponsored studies that were anchored by the BETRNet consortium that’s centered around Case Western Reserve.

Those studies are collecting data. They’re starting to get critical masses of data with good results and we should start except — starting to see those come online in meetings and in peer review publications well before we have our BE2 data out. So we’re monitoring that, but we don’t have any concerns in the near with that.

Kyle Mikson: Perfect. That’s great, Lishan. Thanks guys for the question. Appreciate it.

Dr. Lishan Aklog: Thanks. Thanks a lot, Kyle.

Operator: Thank you. And our next question comes from Ross Osborn of Cantor Fitzgerald. Your line is open.

Dr. Lishan Aklog: Good morning, Ross.

Dennis McGrath: Hi, Ross.

Ross Osborn: Hi. Good morning, everyone. So, generally, a couple of calls, I may have missed this, but where did you end the year in terms of sales reps and what are the hiring plans for 2023?

Dr. Lishan Aklog: So we had 40, which is what we had said we would target in our strategic update call in January that reflects some layoffs and some backfilling, but we have — where we settled in a 40 sales personnel, as well as the clinical support team, the nurse practitioners and clinical specialists. We’ve added a couple of that to make sure we have sufficient coverage there. And the plan right now is to maintain that flat through the year and to allow this team to continue to drive the type of test growth volume that I just talked about with Kyle. Certainly, there will be opportunities to dial that up if the reimbursement side accelerates more quickly than we’re prepared to keep that flat or down.

Ross Osborn: Okay. Great. And then I realize the focus is now on satellite testing at least for the near-term, but could you discuss your geographic presence relative to your original stage geographic rollout? And then as a follow-up, what can you do to accelerate satellite testing activity?

Dr. Lishan Aklog: Yeah. I just want to kind of maybe restate just to make sure there’s no misunderstanding here that there isn’t — we’re not shifting or we’re not pausing the physical test center model, it still remains our anchor. That’s where our nurse practitioners are physically based, but they have the opportunity to move and do tests in a broader geographic area. The — there is really good sales coverage right now and our sales team coverage is broader than the 11 states and the 13 test centers that with physical locations that we currently have. And so there are opportunities, for example, in Georgia, and other states where we don’t have physical test centers where there is increasing activity that we could support using nurse practitioners using the satellite test center model.

So we’re not — certainly, we’re not — with 40 reps, we’re not covering the entire — every single state or every single metropolitan area, but the geographic coverage is broader and it certainly covers the major states, particularly, California, Texas and Florida, Ohio, those are big location — remain big location for us.

Ross Osborn: Okay. Great. Thanks for taking our questions.

Dr. Lishan Aklog: Okay. Thanks, Ross.

Operator: And our next question comes from Mike Matson of Needham & Co. Your line is open.

Dr. Lishan Aklog: Good morning, Mike.

Dennis McGrath: Hi, Mike.

Mike Matson: Yeah. Good morning. Just a question on — so the CYFT event, you said you did like 391 tests there. Is that included in the test number and do you expect to get paid for those tests?

Dr. Lishan Aklog: That’s an interesting question. So, yes, they are included in those numbers and there — we are — these are commercial patients that have commercial insurance and so they’re not applying a research project or anything like that. So we do to them in the commercial numbers. We don’t know yet. It’s an interesting dynamic, because generally, for example, typically with a firefighter group, the Firefighter Union is often an ASM, so they have their own decision-making opportunities. So you might expect that our ability to engage with them directly. That’s why I was saying that the CYFT events are tightly linked to our Direct Contracting Initiative, right, because we’re dealing with typically organizing these on the logistical side, dealing with the firefighter team and the unions in particular.

And so as we’re expanding what’s a quite robust pipeline, we’re being much more proactive at the beginning about understanding the payer structure within each of these and working closely with the self-insured entity, typically, to set these things up. So we don’t know yet, but there’s certainly some hope and some promise that the prospects of the payment rates, the percentage of claims that get paid as a result of these tests could be higher. That’s our hope, obviously. And so it’s an attractive aspect of this business because it’s a large, high volume event. It’s a good chunk of testing. We can handle that chunk of testing and it’s with a single entity that. And our engagements with these entities with the firefighters in particular have been extraordinarily positive.

They understand the need. They’re very focused on protecting their members and it’s a very different dynamic than a typical — than engaged with a typical health plan. So we’re quite optimistic. I’m glad you brought that up, but we obviously have to demonstrate that.

Mike Matson: Okay. Understand. And then I think Dennis said the cash that you used about $30 million of cash in 2022, is that right? And then with the announcement earlier this year of the cost reductions, I think, you said, you’d reduce your cash burn by about 25%. So that seem — would seem to sort of imply like a low $20 million number for 2023. Is that reasonable?

Dennis McGrath: Yeah. The burn rate for the first half is going to be in the $7 million, $7.5 million range. And then should gradually decrease as operating expenses continue to remain flat and the collections, we are estimating will start to improve at a significantly higher rate that will bring the burn down for the second half of the year at a larger number.

Mike Matson: Sorry, the 7% to 7.5%, is that — that’s a quarterly number

Dennis McGrath: That’s the first half.

Mike Matson: That’s quarterly — that entire…

Dennis McGrath: Quarterly number. Yeah.

Mike Matson: Quarterly number. Okay.

Dennis McGrath: Yeah.

Mike Matson: All right. Got it. And then, yeah, so with MultiPlan, the covered lives there. How do those, I guess, the geographic concentration of that sort of match up to your sales force and test center locations?

Dr. Lishan Aklog: There they have MultiPlan with national.

Mike Matson: Okay.

Dr. Lishan Aklog: They are in every corner of the country. So we — our market access team does have a robust process, whereby they look at where payers are and how that aligns with our team. So that’s a process that we utilize. And some of the other contracts that we’ve had, those are regional and that has — that’s much more actionable that MultiPlan is really a national plan. They have their primary PPO network, a complementary PPO network. So there’s lots of opportunities to engage all across the country.

Mike Matson: Okay. Got it. And then, finally, I apologize if you’ve mentioned this earlier and I missed it, but MolDX, I mean, you discussed the clinical utility efforts, but when do you think you could make — take another shot at getting MolDX coverage?

Dr. Lishan Aklog: Oh! Just to be clear. No. There’s no other shot. The shot is already out there. We’re just waiting. Yeah. So there’s nothing more for us to do. We went through the process last year where upon publication of the draft LCD, we participated both with MolDX, as well as with Noridian, that covers our laboratory through the open meeting process, as well as the common period. Once that’s submitted, there’s nothing for us to do. It’s just a waiting game. So it’s on their desk. They’re looking at it and they’ll go back to it at their time. If you recall, it took quite a while from the ingrain submission to even get the draft LCD published. So we make no particular predictions about when that will happen. But you did — you made a good point in that linking at the clinical utility.

The — our ability to respond to an updated LCD and seek — remember these are foundational LCDs, they’re general LCDs for the category of testing to translate a foundational LCD into a specific LCD 4. Lucid for EsoGuard will require submission of clinical utility data. So until we have the fishing clinical utility data, which is to respond to the LCD, which we won’t have until midyear. The timing of the LCD right now is not actually hurting us, because we won’t be in a position to do the technical submission to convert it to a test LCD until midyear. But we’re waiting. But the good news is and the reason we’re focused on the commercial side is that, the demographics of the patients being ordered for testing remain — to remain strongly tilted towards commercial payers with 10%, 12% of the patients being Medicare.

So we’ll just continue to wait on the Medicare side, while we’re pushing really hard full steam ahead on the commercial side.

Mike Matson: Okay. Got it. Thank you.

Dr. Lishan Aklog: Okay. Thanks, Mike.

Operator: Thank you. And our next question comes from Mark Massaro from BTIG. Your line is open.

Dennis McGrath: Hi, Mark.

Mark Massaro: Hey, guys. Thank you for taking my question. So, yeah, you guys were very clear about what you need to do to show clinical utility. The positives just need to get a confirmatory endoscopy and the negatives just need to not get one based on the clinician suggestion. So can you give me a sense and maybe confirm that, Lishan, that you plan to submit the clinical utility, was that midyear 2023? And then can you give us a sense for the numbers, I mean, are we looking at like 100 patients, a couple of hundred patients?

Dr. Lishan Aklog: Yeah. I’m going to go back to the previous slide. I hope it was going to show. Yeah. So let’s do — let’s kind of do a deeper dive into this. So just use the model. Oh, hold on a second, Mark, there is technical glitch here. I want to push in the audience. Hopefully, you can see the numbers there. So one quick minor correction to your summary, which is otherwise excellent, what clinical utility mean? It doesn’t even mean that they have to actually get the endoscopy. People fall through, they fail to show up and so forth, loss of falls and things like that. We just have to document that that what the physician did, that the physician ordered the endoscopy or they did not order an endoscopy. And even in negative, there are going to be times where in our endoscopy order for other reasons, right?

But as long as endoscopy was not ordered for screening of — for esophageal precancer then that shows — that demonstrates clinical utility. The numbers I show here are really intended to give you a picture of sort of a number of ways we’re approaching this. I mean this is an all-out effort, multipronged five different areas that we’re focused on there. I like to be more, because each new CheckYourFoodTube event will be another batch of clinical utility data. The main — the ones that are the strongest are the two Lucid registry and CLUE study. Those are the truly prospective studies, which will garner us the most attention from the payers. But all of them are important and all of them will be useful. The — so those are our estimates and our targets for midyear and we will be submitting data as they come in.

We don’t have to wait for some specific number. While once we have a critical number of patients involved in each of these, we’ll be able to submit interim data for peer review. And so by — it’s a little bit hard to know until we have a little bit better trajectory on the projections here, but certainly by midyear, I would expect that we would have some of the, particularly, the retrospective and the CYFT data submitted and — for peer review and published. The other one may be a little bit more time. But right now with online journals, turnaround time for peer review is not kind of big issue. So these are just ballpark numbers, ballpark targets, where we look to end up and hopefully that makes sense.

Mark Massaro: Yeah. So, yeah, so MolDX is likely looking for approximately 200 individuals in a prospective observational study?

Dr. Lishan Aklog: I think that’s about right. We have right now targeted 400 patients in the true prospective studies that concluded in the listed registry. We certainly will be able to combine those. But you’re right, because if you think about it, our positivity rate is about 7% to 10% and that’s where you need the numbers, right? So if you have 400 patients, let’s say, at a 10% positivity rate, that means there will be 40 patients who are positive and you could show that those 40 patients did not get referred for — that they did get referred for endoscopy. And then the — obviously, the other 160 patients, that’s pretty large number to demonstrate that negatives or not, sorry, not 160, 360 patients that show that the negatives are not getting referred for positive.

Mark Massaro: All right. Perfect. Yeah. Thanks for clarifying that the physician just needs to order it rather than the patient needs to complete the procedure.

Dr. Lishan Aklog: Yeah.

Mark Massaro: Cool. All right. So my next question, the San Antonio Fire Department is really, really interesting, because that’s about one-fourth of your volumes in Q1 based on my math. And I think you noted in the press release that firefighters have a higher risk for GERD and esophageal cancer. So and I think you indicated that your near-term pipeline for future events is robust. I would love to hear just a little bit more about maybe what some of the other high risk groups are, what your funnel looks like and how many of these do you think you might be able to pull off in 2023.

Dr. Lishan Aklog: Great. So the pipeline is robust. We have — obviously, you’re going to focus on your successes first. So the initial focus has been on other fire departments. And as you mentioned, the key lynch men there is that is the published well-established data of a 65% increase risk of esophageal cancer in firefighters based presumably on environmental exposure. So there are a lot of firefighters who have fire departments. We’re picking up the phone and calling a lot of them, and we expect to start seeing more on those sites. But then as I mentioned, Mark, this sort of folds into kind of the broader — there are certainly other higher risk groups. You can think of other unions, truck drivers, other placement and other public service groups.

But this is — this starts to kind of fold in or meld into the overall approach to direct contracting, right, to engage with entities that are very — one of the things we learned from engaging with the firefighters is, as I mentioned, they’re very committed that the level of passion and commitment to their members is high. And so our ability to engage with entities that are self-insured, that — where the conversation is a very direct one and one that that drives — that’s driven by their the commitment to do right by their patients is a big opportunity for us and something that we’ll look forward to. I’m not really prepared to give you a sort of a number. I think right now, we’re going to stick with our trajectories with regard to test volume.

We continue — just to clarify something that comes up occasionally, but this is not a pivot, large traditional approach to primary care physicians, specialists and institutions, that’s unchanged and we continue to drive that hard. And we’re certainly working on for figuring out how to do both logistically, but so far so good. So we expect to see a good number, probably, in the next couple of quarters, you’ll be able to give you a little bit more fleshed out targets as to what we need to do.

Mark Massaro: Okay. Great. Maybe just my last question, as we think about the rest of the year, great to see MultiPlan coverage. Just curious if you think you’re getting — I know it sounds like the conversations with payers is improving and the fact that you’re getting paid on some of the denials is excellent. These are relatively small numbers in early days. But do you think as the year progresses, you might be able to sign whether it’s a large national commercial payer or at least some of the regional payers. How should we think

Dr. Lishan Aklog: Yeah.

Mark Massaro: about payer coverage?

Dr. Lishan Aklog: Yeah. I think the lessons — the main — there’s two lessons. One is, really, really want to get the point home that the price is holding. I mean, I really feel like we now have enough that we can feel confident about our — that the price between Medicare as a floor and our $2,500 list price based on out-of-network payments, based on payments from, as Dennis mentioned, larger plans that are out-of-network, that respect that price is really, like, we’re developing increasing confidence that our pricing is going to hold. On the larger plans, our expectation, we’ve had multiple advisory board meetings and conversations. So we have a good finger on the pulse as to what the larger plans are going to expect based on active and retired engagements with active and retired medical directors.

And the message is quite clear that the — that — in order to get a larger plan, it’s likely to require us to have that meaningful clinical utility data later in the year. But in the interim, our conversations with the secondary PPOs, like MultiPlan and smaller plans will continue. So I think it’s not a binary event. But I wouldn’t necessarily project that we’ll knock down one of the larger plans until we have some meaningful clinical utility data here.

Mark Massaro: Okay. That makes sense. Thanks so much.

Dr. Lishan Aklog: Great. Thanks, Mark.

Operator: And our final question comes from Edward Woo from Ascendiant Capital. Your line is open.

Dr. Lishan Aklog: Good morning, Ed.

Edward Woo: Good morning and congratulations on the quarter. In terms of the 40 salespeople that you have, what’s the average tenure and how do you characterize in terms of the productivity and whether there will be room for improvement?

Dr. Lishan Aklog: Yeah. So that’s a great question. I don’t have a hard number for you, but we are — it is certainly increasing, now that we’ve plateaued the number, probably, about six months to nine months is, I would say, would be the median. So we have a good median. The median rep has now had a decent time in the field. And as I mentioned on our previous calls, by plateauing our team, it’s freed up the sales leadership to be more active in the field and more active in strategic accounts. We closed a large strategic account a couple of weeks ago that will — and just more time with them, because they’re not spending all the time interviewing and recruiting. So that six-month to nine-month median number will obviously go up as the year progresses and we found that just more time in the field and more experience interacting with physicians and engaging with accounts and trying to make them stickier.

Obviously, an increasing experience will help and that number will go up steadily over the year.

Edward Woo: Great. Well, thank you for answering my questions and I wish you guys good luck. Thank you.

Dr. Lishan Aklog: Thank you. Thanks a lot, Ed.

Operator: And we have no further questions in queue. I’ll turn the call back over to our host.

Dr. Lishan Aklog: Great. So, hey, thank you everybody for taking the time and for spending the morning with us on our update call. We appreciate everybody’s effort and everybody’s support. Feel free to contact us with any further questions, you can get information on our website, luciddx.com or by contacting Mike Parks at mp@lucid — @pavmed.com for any further questions. So thank you very much.

Operator: This concludes today’s conference call. Thank you for attending and have a pleasant day.