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Operator: Good day, and welcome to the Lucid Diagnostics Second Quarter 2023 Business Update Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Michael Parks, VP, Investor Relations. Please go ahead.

Michael Parks : Thank you, Betsy. Good morning, everyone. Thank you for participating in today’s second quarter 2023 business update call. The press release announcing our business update for the company and financial results for the 3 and 6 months ended June 30, 2023, is available on the Lucid website. Please take a moment to read the disclaimer about forward-looking statements in the press release. The business update, press release and this conference call include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer in our filings with the U.S. Securities and Exchange Commission.

For a list and description of these and other important risks and uncertainties that may effect future operations, see Part I, Item 1A, entitled Risk Factors, and Lucid’s most recent annual report on Form 10-Q filed with the SEC and subsequent updates filed and quarterly reports on Form 10-Q and any subsequent Form 8-K filings. Except as required by law, Lucid disclaims any intentions or obligations to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, conditions or circumstances on which the expectations may be based or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. I would now like to turn the call over to Dr. Lishan Aklog, Chairman and CEO of Lucid Diagnostics.

Dr. Aklog?

Lishan Aklog : Thank you, Mike, and thank you, everyone, for joining us this morning. I appreciate you taking the time. We look forward to providing you an update of the last quarter. As we mentioned in the press release yesterday, we really closed out very strongly for the first half of this year. So let’s just start with some of the second quarter highlights. From a commercial execution side, we’re excited to have grown test volume to just over 2,200 EsoGuard tests. That’s 20% quarter-on-quarter. So another double-digit quarterly growth and 159% on an annual basis. We’ll talk in a little bit more detail later about the various aspects of our commercial execution, but the drivers of this growth were increased seller productivity and continuing increased activities through our satellite test centers and our high-volume testing events.

We also had some very important strategic accomplishments in the last quarter and in recent weeks that really bode well for us in the coming quarters. A very important milestone was that we upgraded our revenue cycle management infrastructure and provider. That was a process that took all of May and most of June, and that process is now completed. Again, I’ll talk about that in some more detail. And we certainly saw an immediate positive impact on our claims processing and payments, which Dennis and I will both review in some detail during the month of July. The prospective clinical utility studies that we’ve been talking about each quarter and are very critical for our engagement with payers reached its first enrollment milestone and actually surpassed it at over 500 patients between the two studies.

And those results will be — are being analyzed. They’ll be posted and the first manuscript will be submitted later this month. We also were excited to see the unprecedented results from the NCI-funded EsoGuard study for the BETRNet consortium. I’ll highlight some of these results a little bit later, but the headline of 100% detection of cancer and over 80% of pre-cancer, again, we’re unprecedented. And we just recently completed and executed our first direct employer contract, where, for the first time, a company will be offering EsoGuard as an employee benefit. So again, we’ll talk about those in a bit more detail. A few slides just to introduce those of you who are new to the story. Lucid has two key products: EsoGuard and EsoCheck. The EsoGuard molecular diagnostic test or EsoGuard Esophageal DNA test and the EsoCheck cell collection device.

They form the first and only commercially available test that’s capable of serving as a widespread tool to prevent cancer deaths through early detection of esophageal pre-cancer. Both of the major gastroenterology associations have supported non-endoscopic biomarker testing, which ours is the only one that’s commercially available as an acceptable alternative to endoscopy. Next slide. The enemy is esophageal cancer. esophageal cancer is highly lethal and, most importantly, for our purposes, it’s preventable. I won’t go through all the statistics here, but they’re pretty gruesome. The one that we like to highlight is the one in the middle that the mortality rate for Stage I cancer is over 40%, which is unlike any other cancer where a Stage I diagnosis is considerable — is considered an opportunity for a cure.

Therefore, the only way to actually have an impact on death is to detect the pre-cancer, and that’s just not happening. Less than 5% of those recommended for screening by guidelines are undergoing endoscopy. I thought today, I’d share a patient story. Because at the end of the day, this is about patients and saving lives and are using early detection to save lives. And I did touch on this during a testimony on Capitol Hill last month, but I thought I’d really tell a bit more of the story here to give you a sense as to how every day the work that our team does is driven by the opportunity to have an impact on patients’ lives, such as this patient who will call Steve. Steve is a 70-year-old white male, former smoker, lives in the Pacific Northwest.

Long-time sufferer of chronic heartburn. He was on PPI medication, such as Prilosec. And he had an endoscopy over 20 years ago, but no follow-ups since then. He was in his allergist’s waiting room, and he met Freddie, Freddie [indiscernible]. And you saw one of our educational posters of Freddie saying, “Check your food.” The poster had some criteria on it as to who should be considered. And he [indiscernible] check through the boxes and realized he had heartburn. He was over the right agent, who was a former smoker and therefore, had the risk factors. He asked the physician allergist to order the test, and they did. The cell collection procedure was performed at that physician office. So this is one of those offices that where the personnel are doing EsoCheck procedure themselves.

And the test came back positive. He had a follow-up endoscopy, as all patients who have a positive EsoGuard test are recommended to undergo. And the endoscopy showed that he had a 2-inch patch, which is quite a long segment as these things go, and it showed a late-stage pre-cancer, so-called high-grade dysplasia. This is the last step before developing this highly lethal cancer, and it was picked up only because he was — thought about his health, read the poster and was assertive about his health and asked for the test. I think we can unequivocally say that if he had not undergone the test, at some time in the coming years, that it’s very likely that his cancer — that his dysplasia would have progressed. The pre-cancer would have progressed to cancer.

So he underwent what patients with this diagnosis are recommended to undergo, which is — he was referred out of state and underwent a series of curative ablation procedures that are done using endoscopy, and that was completed last month. And I think really, I can’t say any better than had is a direct quote said, “I think I saved my own life by seeing the flyer and getting a test. I’m damn lucky that I caught it when I caught it. The more prevention the easier the cure. So that really says it all.” From a commercial point of view, the opportunity here is vast. We know the number of patients. This 30 million patient population is really the core group of those who have chronic heartburn and patients who are recommended for pre-cancer testing by guidelines.

Some of the guidelines have actually expanded that number beyond that. Medicare has set a price that of $1,938. And as we’ve said on several prior calls, that price does appear to be holding as we grow our activity and increase our engagement with payers. So that’s a very, very large market opportunity. And we are — we have a very high gross margin of over 90% at volumes that are close to where we are today. So how did we do in this past quarter from a commercial point of view? As I mentioned, EsoGuard testing volume grew 20% quarter-on-quarter to 2,200 tests. And you can see we’ve had just very nice, steady double-digit growth for a period of time, going back about 6 quarters. I did want to note because we get asked this a fair amount. As we’re growing test volume, are we approaching capacity with regard to our laboratory or manufacturing?

And that we are not. We have — our laboratory is able to perform over 10,000 tests per quarter, and we have sufficient manufacturing capacity to keep up with that. There are still some evolving trends with regard to who is — who are referring patients for this test and where is the cell collection portion of the test being performed? We’ve stabilized about 50% to 60% of the patients are being referred by primary care physicians, and the rest are being referred by a variety of specialists and institutions. One thing that is changing, as we continue to show increase in the number of patients that are being — where the cell collection procedure is being performed by our nurse practitioners, and an increasing number of those are being performed at the satellite Lucid test center.

So the physical Lucid test centers are the centers we have in 13 cities across the country, but we all — we have nurse practitioners who are based there. That’s their anchor. That’s their home, but they are able with the satellite test centers to branch out and travel to physician offices and hold sessions there where they spend a day doing the cell collection procedure in the physician office. And we still have about 1/3 of the time patients are undergoing to test by their own physician as Steve did with his allergists. So really great views on the commercial execution. Really proud at how the test volume is growing. If you noted that earlier in the year — at the beginning of the year, we actually froze our sales team. And that field team, which consists of both the sales representatives, sellers as well as the clinical team, the nurse practitioners, are — have shown increased productivity since the beginning of the year.

So same number of sellers are generating this growth. There’s improved coordination between the sales and clinical team. Some of that’s driven by these high-volume testing events, which put a demand on our system. And the nurse practitioners are folks who do the EsoCheck collection procedure continue to hit it out of the park with a 99% technical success rate and very high sufficient D&A rates. As I mentioned, the satellite Lucid test center model, the SLTC model is striving. It gives us a broader geographic reach from the home base of the physical location, much more flexibility, much more efficiency because we can assure that the nurses or nurse practitioners are there and days when there are multiple patients scheduled. And it helps with physician engagement, and it keeps the testing front and center.

And so that continues to be the case quarter-on-quarter, and we continue to see that positive impact. We launched our first mobile test unit in Florida. Florida is a state where the regulatory requirements required us to do that in order to have a satellite model. And the demand for that practices want us to bring demand to their parking lot where patients are tested. We get walk-ins, where patients ask for the tests that have the physician or their team order on the time. And it’s also that marketing tool to have our bandwidth Freddie and the marketing message driving around the carving of Florida. We’ve been asked about expanding that and moving that in other states, and that’s something we’re considering. But for now, we’re continuing to drive this volume here.

And in other states, we don’t have that mandatory need to have a mobile test unit, so we’ll continue to push forward as we’re doing. We announced the check your foot pre-cancer detection event. This started in the first quarter of this year. With firefighters, the growth in those activities continue. We continue to do many of these, some smaller, some larger. They continue to represent a significant — our volume. But importantly, again, people do inquire about this. That growth is not cannibalizing the growth in the traditional referral business from primary care physicians and other specialists. So it’s additive. It’s part of our philosophy of looking at every opportunity to increase access, patient access wherever it might be. We’ve moved from — although mostly firefighters, we’ve had police departments do this, and we’re continuing to expand that reach.

Again, also, it expands our geographic reach, get strong media exposure. There have been many examples where we’ve had a CYFT event and the physicians, including one major hospital center contacted us after hearing about a firefighter event in their region and led us to increase our activity there and divert resources there. All of this is complicated. It takes time and some effort to get these organized and we have a dedicated program manager that’s been installed and enhanced the operational efficiency substantially. So this will remain a significant part of our effort to get patients access to this test. And we’ve also had an increased focus on large health systems and IDNs. These are more difficult. They take more time. There’s a little more lead time.

But obviously, the payoff can be large. If you can get a large regional or even national health system in play, we’ve made progress in getting through technology clearance committees and so forth and working to translate that — those early successes into more systematic activity within a strategic account. So we have a large pipeline of accounts that we’ve engaged with, and we’re looking towards locking those down in the coming quarters. So a few comments about claims payment and coverage. These are topics that Dennis will talk about in some detail. I just wanted to highlight a few of the strategic aspects of this. If you look at the graphic on the right, I just want to remind you that there are multiple things that go towards our ability to collect payment for the tests that we perform, to get longer-term contracts that provide us coverage and ultimately, to drive revenue growth.

They include generating a claims history. You won’t get paid by commercial payers until they see your tests being ordered and claims being submitted and even passing through the process of appeals and so forth. It’s dependent on having a robust revenue cycle management process, dependent on generating clinical utility data, which I’ll talk about in a bit more detail later. But it’s a very, very critical part of our engagement with payers. The vast majority of time, their primary questions are around, have you demonstrated clinical utility. We’d like to see that. And then there’s a whole discipline around market access and engaging our medical policy and all of that is another important driver. So we made substantial progress on all of them.

The most important one, for the near term, is the upgrade we’ve made in our revenue cycle management infrastructure. We previewed this was about to happen on our last call, and that process has now been completed. We engaged the market leader in Diagnostics RCM. This is a company that has a significantly larger capacity than we had. And in fact, was the — for many years was the RCM provider for one of the largest multibillion-dollar molecular diagnostic companies. The — we — in order to facilitate the transition, we paused claim submissions of adjudication for about a 6-week period from the beginning of May to June 12. That had a near-term — short-term impact on claims and receipts from that. But the immediate positive impact in July really — was striking to all of us.

That impact was positive on all fronts, including the average allowed — the success allowed payments as well as the net average sale price. Again, Dennis will go through some of those numbers as a bit of a preview. These were obviously in this quarter, not in the prior quarter. The — another key element to being successful with the commercial payers is the appeals and prior authorization processes. These can be quite very important. You actually have to go through appeals to get in front of medical directors to get medical necessity and other aspects of their coverage decisions to engage with them on that. That process is much more robust than it was 6 weeks ago, and we’re very happy with our new partner in that regard. As I mentioned again, I’ll reiterate that the drivers of payment coverage and revenue growth are still claims history and clinical utility.

we’ve Also revamped our market access and medical policy team. We have a new strategically focused leader in this role that started yesterday, and we’re looking forward to a whole variety of initiatives and engagements with payers that — she will lead us to. A brief comment here on our direct contracting strategic initiative. Again, we’ve touched on this before. This is an effort for us to go directly to employers, unions, other self-insured entities and seek to directly contract for these EsoGuard services. With them, that process is more fruit. We have our first employer contract with a Texas-based automotive group. We’ll be providing more information on that in the coming weeks. But it’s the first time that EsoGuard is now — is being offered as an employee benefit through our satellite test program at 12 locations with this automotive group.

So we’re very, very happy that we’ve achieved that milestone, and we look forward to more. The timing on these, like, the strategic accounts can be longer and they can cycle with open enrollment periods and so forth, but we’re pushing forward quite aggressively. And we actually are hiring someone to be a director in this role. Okay. I’ve already mentioned clinical utility. Let me mention it again, because this is really at the heart of our efforts to engage with our commercial payers — with payers and in order to drive and network coverage. Clinical utility means that our test is — has an impact on medical decision-making. What a payer wants to know is that if our test is positive, that, that will result in a follow-up test, a follow-up endoscopy to demonstrate that — to confirm that — to confirm the diagnosis and generate a follow-up plan, either surveillance ablation or some other treatment.

They also want to know that if a test is negative, that the patient won’t more than likely not get another expensive test like an endoscopy. So that fork in the road is actually very straightforward for our test. It’s actually more complicated than some other diagnostic tests. It’s quite straightforward and it’s really the algorithm I just mentioned. The key type of data that the payers are looking for is prospective data. And so as we’ve discussed before, we have two studies, the CLUE study, which is a prospective multicenter study and the LUCIDregistry, which is dominated by our own patients coming through our listed test centers. Both of those are prospective. We had target enrollments for the mid-summer that we’ve exceeded both. We have a total of over 500 patients between the two.

That is sufficient for us to analyze the data, submit it for — posted on a preprint server and submit it for peer review by the end of this month, and we look forward to doing that. That is the process by which we will be able to highlight that data for payers and engaging in coverage discussions, demonstrations of medical necessity and negotiations for in-network contracting. So that process is ready to go. We’re going to have our first set of data, and we’re going to be able to present that to payers in the very near future. We also have the retrospective analysis from the very first high-volume testing event and the San Antonio Firefighters. That’s retrospective. So it’s not as powerful, but it is useful. And the data on that was excellent.

The percentage of very, very high concordance with the outcome of the test and the appropriate medical decision being made for the test, as I described previously. That manuscript was submitted, and it’s undergoing peer review in the gastroenterology journal. Another useful type of test that is commonly used in these kinds of discussions with payers are virtual patient studies where you recruit patients — you recruit physicians to give their decision as to what they would do in a very structured vignette fashion. That is a study ongoing recruitment, and we’re looking forward to closing that in the near future as well. That will be a nice supplemental piece of data, but the central data will be from the CLUE study and the registry. That’s clinical utility.

I won’t be talking in much depth about the clinical validity studies. Those are studies that just continue to document the performance of our test as was published originally in science translational medicine years ago. So there are five studies, the BETRNet study, the VA study, which we’ve previously announced. The BE study — BE-1 study, which is a study that we enrolled about 150 patients in before pausing. That data is being analyzed. The BE2 study is another case control study that we’re continuing to roll into, and we’ll likely have a readout in the first half of next year. And CaseWestern Reserve also has a non-DER study that’s ongoing in its enrollment. I won’t talk on the details of those except for a brief highlight of the BETRNet results from the NCI.

I’m just going to give a brief summary of that. We plan on providing more information on that in the coming weeks as well. So the BETRNet study — BETRNet is a consortium of major academic medical centers. They’re really the leading figures in esophageal disease and esophegeal pre-cancer. You can see generated names on the right there, Case Western, Mayo Clinic, Hopkins, WashiU, UHC and Cleveland Clinic all participated in the study. It was a case control study of endoscopy versus our EsoGuard test. This is the first study that used a real-world use of the tested with our standard room temperature preservative. The previous study was more of a research study and in frozen samples. So that was a very important milestone for us to achieve. 100% of the patients in the study underwent EsoCheck cell collection.

And again, that wasn’t true in the original Science Translational Medicine paper. You can see the numbers there. I won’t go through the full breakdown of the patients, but they started with about 365 patients that had at the end 242 that were evaluable. I will highlight two numbers on that, the 83% technical access rate and the 72% overall success rate. Just to note that these results, which are excellent, and I’ll show on the next slide, occurred despite the fact that the overall success rates were lower than we would like. These were centers that were doing this a bit earlier in our experience in centers that did not have the same rigorous competency training that we have now for academic centers, but predominantly for our own nurse practitioners.

So I highlighted earlier that our in-house Lucid test center technical success rate is 99%, which is substantially better than the 83% here, and our overall success is about 95%, again, substantially better than 72%. So we believe that the excellent results that are reported here are likely to be better given the current benchmark for the overall success of [indiscernible]. So one last slide here which has the results — the headline results from this test. And I’ll caveat before I go into some detail that we are showing some other comparable early cancer detection as targets. These are not head-to-head comparisons. What I’d like to show here is what other highly successful or expected to be successful or early cancer detection test, the metrics that were used — the performance metrics that were used that led to them being approved, FDA approved, getting coverage and being — will being certainly [corridor] case widely successful.

Many of those were screening studies in their intended use population. The EsoGuard results are a case-control study. That said, EsoGuard picked up 100% of the cancers, which is, as you can see there, obviously, Cologuard does quite well in that regard. The Garden, which is the liquid biopsy blood test that’s getting a lot of attention is at 83%. And in Stage one, those numbers are quite poor at 55%. All of the 100% cancers that were detected by EsoGuard were Stage I cancers. The greater picture is on the pre-cancer side. The 81% detection rate for pre-cancer is really unprecedented for a molecular diagnostic test. Cologuard picks up advanced at a moment at about a 42% clip. That number is a bit better in our most recent study. The blood test for cancer hardly at all 13% for garden.

So this 82% — this 81% number, and then the overall 85% number, which is dominated by the pre-cancers, is really, again, quite unprecedented and critical for this cancer. Picking up a Stage 1 colon cancer, as I mentioned, has an opportunity for a cure. We have to — we have no choice but to have the cancer detection rate in the 80% range, and we’re gratified that, that number is holding. There’s some additional numbers on the right, I won’t go through all three of them, but the negative predictive value is — it’s a good gut check. That’s an estimated number based on what we expect the prevalence to be. That’s at 99%. And that’s where it needs to be for a test that’s trying to pick up cancer or pre-cancer in the setting. You don’t want to miss any — so that 1% is the 1% overall miss rate, including pre-cancers.

Again, very comparable, if not better than what the benchmark is for others. So with that, I will hand the baton over to Dennis, who will give some summary of our financial results.

Dennis McGrath : Thanks, Lishan. The summary financial results for the second quarter and the first half of the year, we reported a press release that was published last night. On these next three slides, I’ll emphasize a few key highlights from the quarter, but I encourage you to consider those remarks in the context of the full disclosures covered in our quarterly report on Form 10-Q was filed with the SEC last night and is available on our website. So on Slide 16, here is our balance sheet. Cash, $32.6 million, reflects a sequential burn rate of $6.9 million. The burn rate in the first quarter was about the same at $6.6 million. Obviously, the simple math suggests that if this rate is sustained, it puts our runway to more than a year.

The burn rate is softened by the — by PAVmed’s currently deferring payment of the quarterly management services agreement, which creates optionality for paying the outstanding intercompany obligation in stock or cash. which is at PAVmed’s future election. Furthermore, as cash collections continue to accelerate, as we’ll talk about in a second. This can further throttle the burn rate for the upcoming quarters. Vendor payables were flat for the sequential quarter as was also the case in the first quarter. So the burn rate is not substantially influenced by changes in key net working capital balances. The intercompany debt to PAVmed increased by $3.1 million, for which $2.3 million is the quarterly shared services charges. The shares outstanding, including unvested restricted stock awards as of today, is 43.7 million shares, which is substantially unchanged from the first quarter.

The GAAP outstanding shares are reflected on the slide as well as the face of the balance sheet in the 10-Q. On the next slide, Slide 17, compares this year’s second quarter to last year’s second quarter and similarly for the 6-month totals on certain key items. Thus, I will review the information in my comments in light of the cautionary disclosure in the bottom of the slide about supplemental information, particularly non-GAAP information. I’m required to say that. Revenue for the second quarter reflects actual cash collections for the quarter, plus invoice EsoGuard test to the VA. With regard to the prior year, you will recall, there was a 6 monthly fee received from the third-party lab that we used before setting up our own lab, and that agreement terminated in February of ’22.

You’ll recall from our discussion on the last quarterly call and the comments that Lishan made that we made a major change in upgrade to our revenue cycle management company. We determined the best way to manage that transition was to stop submitting claims for reimbursement at the beginning of May to allow Quadax to come on board, which they did in mid-June, and more effectively handle processing and reporting on the claims we had in [indiscernible], and I’ll give you some statistics that we had here. So far in the short period of time, just since the beginning of the third quarter, collections for third-party reimbursement claims have tripled what was collected in the entire previous quarter. As a reminder, revenue recognition, a key determinant is the probability of collection.

And therefore, due to the fact that we are in the early stages of our reimbursement process, this means revenue recognition occurs when the claim is actually collected. First, when the patient report is invoicing submitted reimbursement. As you’ll see in our 10-Q, this is called variable consideration in the jargon of GAAP ASC 606 revenue recognition guidelines. And presently, there is insufficient predictive data to reflect revenue when the test report is delivered to the referring physician. However, Quadex is developing that database for us to eventually change from cash collection recognition to when the service is delivered. Our non-GAAP loss for the second quarter of $9.6 million reflects a 2.4% sequential decrease compared to the first quarter loss and approximately a 10% decrease from the fourth quarter of last year as a result of the cost control initiatives we put in place at the beginning of the year.

The next slide, Slide 18, is the graphic illustration of our operating expenses for the periods reflected. Total non-GAAP OpEx of $9.7 million for the second quarter of ’23 reflects a sequential decrease of 11.3%. However, in our last quarterly call, we mentioned that in the first quarter, there were approximately $1.2 million of certain onetime expenses as we rationalized our base level expenses. Taking into account these measures, the normalized OpEx levels for both first quarter and second quarter are about even with each other. And both reflect a 9% decrease from the fourth quarter of last year, again, as a result of the cost controls we put in place at the beginning of the year. Except for cost of revenue, all OpEx categories were flat or lower, contributing to the overall sequentially lower expenses.

Cost of revenue primarily consists of EsoCheck devices, lab supplies and fixed lab facility costs. The non-GAAP loss is slightly better sequentially by $0.01 per share and significantly lower than last year’s fourth quarter, about $0.10 per share, which was again the last quarter before putting the cost controls in place at the beginning of the year. On a GAAP basis, the net loss per share improved from $0.40 loss per share to $0.27 per share, reflecting a $4.9 million decrease in our sequential net loss. Contributing to this $4.9 million improvement, about 1/2 came from financing-related activities in the first quarter, and the remainder was a general reduction in OpEx, mainly stock-based comp and other noncash charges. Now as promise, some statistics in the market access.

First, the split between commercial and Medicare. Medicaid was in the past about 92%, 8% Medicare and Medicaid. Not significantly higher. It’s about 82%, 17% split. So a little bit higher on the Medicare, Medicaid, but not substantial change. Since Quadax took over an indication of some of the statistics that they provide us that we continue to monitor the performance since May 1 through August 14, a period of time that Quadax submitted claims. You remember we stopped submitting with Synergen on May 1. They submitted just over 2,000 claims, 2,100 claims. Of those, less than half, 943 have been adjudicated. And is a term we’re going to use a lot going forward. Out of the claims that were adjudicated, a decision or an allowance of the amount to be paid with 349 claims, 37%.

Importantly, the amount that was allowed when those claims that were adjudicated and determined to be allowed, has increased from past quarters, it presently is just under $1,900, $1,890. This represents the insurance company’s payment rate. It does not take into account individual patient’s deductible or co-pay. It’s the allowance. But it’s an indication that they are respecting the payment rate, the Medicare level. And so yes, a lot of payments are considered out of network, but we’re going to focus on allowance going forward because we think that levels the playing field from quarter-to-quarter to determine progress being made on the insurance level. So with that, operator, let’s open it up for questions.

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

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

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

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

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

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

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

Lishan Aklog: Yes. And that’s consistent with the strategy now, right? We said this and I would say it again that we’re not shifting on — from one strategy on the other. This is all of the above strategy. Any opportunity we have to get patients to access, we’re seeking them. And these high-volume events are very productive tool for us. It’s a different modality. It’s typically one physician where we find a physician champion we, find a group — as I said, we started with firefighters, but we’re diversified beyond that. And we find a real interest and need and demand for doing these tests, and we can do them in a very efficient way because our nurse practitioners can do 30 per MP per day. So it will remain an important role.

We’ve really fine-tuned our comp plans to make sure that we’re not cannibalizing more for the other. So there’s still the same incentive to drive the individual sort of boots on the ground, physician-driven referrals. And we expect to see growth in both.

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

Lishan Aklog: It’s multifaceted. As you know, these are the whole commercial payer process is very — can be complex. It could be very diverse with regard to how people engage I’ll just put at the top that for the larger sort of the kind of the big in-network contract, the wholly the home run, so to speak, that is the commentary is always about clinical utility, come back to us when you have sufficient clinical utility. But that’s not to say that, as Dennis said, we’re actually with an upgraded provider that’s helping us engage with payers on a claim-by-claim basis. Many of those interactions are, like you said, they involve even if they get denied initially, there’s an appeal. And the appeal often is — we see that as an opportunity to engage with the medical directors on a peer-to-peer basis and have an opportunity to educate them on the importance of the test and so forth.

So we’re having more engagement. The volume has gone up and more interaction with medical directors. And there’s certainly been great progress over the last 6 weeks in terms of how those conversations are going and the proportion of the — that are resulting in the lab claims. So early — still early, but it really does bode well and quite excited for the comp quarter.

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

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

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

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

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

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

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

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

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

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

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

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

Operator: The next question comes from Mark Massaro with BTIG.

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

Lishan Aklog: Let me — I’m glad you asked about that. Let’s dive into that a little bit further. So the straight answer to your question is no. that as we sort of were hinting at earlier and we’ll reiterate, the growth has been strong, both in the organic direct physician referral side as well as the testing event. And the testing of that volume is not just sort of individual events, testing event volume is — some of them are smaller. Some of them are hundreds of patients. Some of them are dozens of patients. So it’s just another channel, and it’s another channel that where we have identical growth, and that compared to the other quarter-to-quarter, maybe not. But it’s not like it’s so bulky and choppy in one that we would expect it to mask sort of the sluggishness or slowing down on the other side.

That said, I do want to — so I’m glad you mentioned this because I wanted to mention a little bit more about the increase in productivity, right? So we have, as I mentioned, we did freeze our sales team, the overall team at 38, 39 sellers, and we’ve kept it there. And this growth has been driven by what we expected to happen, which is that with more tenure, we would have increased productivity. And productivity is about double this year in terms of the number of tests per seller per week. And we have a whole variety of initiatives and very sort of structure and data-driven processes that we expect to continue to extract more and more productivity per seller. That said, that number is — can’t go up indefinitely. There are some level at which it will plateau, and we don’t really know yet what that is.

So given the encouraging news from — on the revenue cycle management side, I think there’s a good prospect that if we start seeing higher ASPs per test collections, that we might be in a position where we can say, “Well, we’ll release that cap on the number of sellers and increase the number of sellers to accommodate potential plateauing of the productivity.” But if we don’t increase the number of sellers, there will be some point at which will plateau and we won’t necessarily be able to continue to drive this kind of quarter-on-quarter growth without increasing the number of sellers. So we won’t do that until we have a little bit more traction on the payment side. Hopefully, that makes sense as a little bit of a comment there.

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

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

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

Lishan Aklog: Yes, thanks for giving me the opportunity to clarify that. So clinically show the studies enroll on an ongoing basis that you get a certain number, and you can publish them. It’s not like that it has prespecified endpoints and things like that, like you would need on what did you say? So what I should have been clear about is that the CLUE study has — which has enrolled 206 patients will be — is targeted to enroll up to 500 patients, and we expect to complete that enrollment by the end of the year. The Lucid registry is open-ended. It will continue to enroll as long as we find it useful, both from a clinical utility point of view, but the Lucid registry actually has the clinical validity component to it as well because we’re actually diving further down into the patient’s journey to get endoscopy data on those that are positive.

So in terms of a whole variety of other purposes as well. What I was trying to and hopefully maybe on a clear about it is that our goal with regard to our first submission of a clinical utility study was to get to a total of 300 patients by the mid-summer, we would see that at 500. So we are going to take the patients that we have enrolled to date and we’re analyzing that data and expect to submit that as a stand-alone manuscript, one for CLUE, one for registry by the end of this month. But they’ll both continue to enroll, and we’ll look to submit additional data as we get larger numbers and tweak the analysis accordingly. Assume you’ve seen that in other companies as well with regard to just sort of multiple increasing volume of the amount of clinical utility, the amount of patients under that.

We wanted to get to this kind of 400 number because that’s — you need enough positives to demonstrate that a positive we’ll get and endoscopy. And so we’ve definitely reached that number where that’s going to be a meaningful data point.

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

Lishan Aklog: Yes. More is better. We’ve learned that from monitoring other companies.

Operator: The next question comes from Ed Woo with Ascendiant Capital.

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

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

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

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

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