Lucid Diagnostics Inc.

Greetings. Welcome to the Lucid Diagnostics fourth quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Adrian Miller, Vice President of Investor Relations at Lucid Diagnostics. You may begin.

Thank you, operator. Good afternoon, everyone. This is Adrian Miller, Vice President of Best Relations at Lucid Diagnostics. Thank you for participating in today's business update. Joining me today on the call are Dr. LaShawn Acklaug, Chairman and Chief Executive Officer of Lucid Diagnostics, and Dennis McGrath, Chief Financial Officer of Lucid Diagnostics. The press release announcing our business update and financial results will be available shortly on Lucid's website. Please take a moment to read the disclaimer about the forward-looking statements in the press release. The business update press release and the conference call both include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from the statements made. Okay, factors that cause actual results to differ are described in the disclaimer and our filings with the Securities Exchange Commission. for a list and description of these and other important risks and uncertainties that may affect future operations, see Part 1, Item 1A, entitled Risk Factors, in Lucid's most recent annual report on Form 10-K, filed with the Security and Exchange Commissions, and any subsequent updates filed on quarterly reports on Form 10-Q and any subsequent Form 8-K filings. Except as required by law, Lucid This claims any intention or obligation to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, conditions, or circumstances on which those expectations may be based or that may affect the likelihood of the actual results will differ from those contained in the forward-looking statements. With that said, I would like to turn the call over to Lishan Aklog, Dr. Aklog.

Thank you, Adrian. Good afternoon, everyone. Thank you for joining us on our Lucid Diagnostics quarterly update call. If you've noticed, we've decided moving forward to hold a separate quarterly call focused entirely on Lucid. Really looking forward to having the time to tell the full Lucid Diagnostics story each quarter. Happy to report that Lucid Diagnostics is firing on all cylinders. Our rapidly growing team is making excellent progress on all fronts and is laying a solid foundation for us to continue driving our long-term growth strategies. Our strong balance sheet provides us with the resources to execute on this strategy. Before proceeding, I'd like to thank our long-term shareholders for your ongoing support and commitment. Every day, each member of our team is singularly focused on growing Lucid while enhancing long-term shareholder value. I'll start by providing an overview of our business, and I'll then pass the baton over to Dennis, who will provide our financial update before opening it up to questions. First, some background on our company and its mission. Lucid Diagnostics is a commercial stage cancer prevention diagnostics company focused on the millions of chronic heartburn patients who are at risk of developing highly lethal esophageal cancer. Unlike other common cancers, esophageal cancer mortality rates are high, even in its early stages. So preventing deaths requires us to detect esophageal precancer, which occurs in approximately 5% to 15% of the at-risk chronic heartburn patients. The good news is that esophageal precancer can be monitored in its early phase and cured with an endoscopic procedure in its late phase, which reliably halts progression to esophageal cancer. Although esophageal precancer screening is already recommended in millions of chronic heartburn patients, fewer than 10% undergo traditional invasive endoscopic screening. The profound tragedy of nearly every esophageal cancer diagnosis is that likely death could have been prevented if the patient had been screened. The missing element for a viable early detection program to prevent these thousands of tragic deaths has been the lack of a widespread screening tool. We believe our ESA-Guard next-generation sequencing methylated DNA test and our ESA-Check cell collection device together constitute the first and only commercially available diagnostic test capable of serving as such a screening tool. We believe ESA-Guard has the potential to become the standard of care to detect esophageal precancer in at-risk patients with a total addressable U.S. market opportunity greater than $25 billion based on an effective Medicare payment of $1,938 at a target U.S. population of at least 13 million patients already recommended for screening by clinical practice guidelines. Let's now review how e-cigarette commercialization has been going. The short answer is that it's going very well. We are very encouraged with the progress we are making as we are starting to see excellent traction with robust growth in e-cigarette testing volume. We processed 303 e-cigar tests in the fourth quarter of 2021. That represents an approximately 50% increase sequentially from the third quarter and a nearly 200% increase annually from the fourth quarter of 2020. This growth has continued nicely into the new year, both in referrals to our lucid test centers and tests performed at gastroenterology and foregrip practices. We're seeing broad growth across all geographic regions. Although our strong focus is on these two commercial channels, we are also making encouraging strides across multiple non-GI specialties, choosing to perform the procedures themselves, including family medicine and primary care practice, and even ear, nose, and throat specials. We've also made steady progress engaging with large practices and health systems. For example, we now, we have new ESAGARD programs underway at several academic medical centers in the Southeast, and will soon launch a program at multiple Florida locations of a major integrated health network. We are also getting traction of community-based hospitals, with multiple such hospitals having launched or in the process of launching ESAGARD programs. We've also gained favorable attention from a couple of large private equity-backed gastroenterology groups, such as GastroHealth, which has multiple locations which have begun ESAGARD testing. Across the board, these sites are embracing the potential for ESAGARD to increase engagement with GERD patients and create downstream revenue opportunities, including consults, confirmatory and surveillance endoscopy, adjunct diagnostics, such as manometry and pH testing, endoscopic interventions and surgical consults. The pillar of our growth strategy remains our expanding network of Lucid test centers. The Lucid test center program has completed its first stage, having advanced from a pilot program in Phoenix, launched in the third quarter of 2021, to a regional program covering, in addition to Phoenix, Denver, Salt Lake City, Las Vegas, Seattle, Portland, and Boise, Idaho. The Lucid test centers operate in leased medical office suites, each staffed by a Lucid-employed, ESO-CHECK-trained nurse practitioner and medical assistant. Chronic heartburn patients in these seven metropolitan areas across the Southwest and Pacific Northwest can now undergo a brief non-invasive office-based test to detect esophageal precancer before it progresses to deadly esophageal cancer. A single nurse practitioner can perform up to 20 ESOCHEC procedures per day. The test centers have very modest fixed costs and attractive margins. Each test center operates almost entirely as a marginal variable cost business, covering its personnel and medical office lease costs with only a couple of reimbursed tests per week. We're now in the process of launching the next stage of our leased test center program, with accelerated expansion into larger states across the nation. We have built a robust compliance program, which allows us to proceed with this expansion, including in states with more complex laboratory regulations. We've also hired a full-time experienced director of clinical services who will oversee this expansion. Our experience with the test centers over the past six months has clearly validated the test center model as a key driver of ESA Guard testing volume. Its greatest impact has been to simplify the engagement of our sales reps with primary care physicians. The reps simply educate the physicians on the relationship between chronic heartburn and esophageal cancer and on the availability of a new non-invasive alternative to screen at-risk patients. The physicians then simply order the test directly through the electronic medical record as possible, and the test is then performed at one of our lucid test centers. We have even encountered gastroenterologists in lucid test center cities, who have opted to send patients to our test centers instead of performing the ESO check procedure themselves. The Lucid Test Center model clearly works. We also continue to pilot our e-cigar telemedicine program, operated in partnership with our independent third-party telemedicine provider, Upscript, which we launched in December of last year. Patients who learn about e-cigar testing can request an online video visit with a telemedicine physician who can send the patient, if appropriate, to a Lucid Test Center for e-cigarette testing. Although patients in any Lucid test center city can access the telemedicine program, we're only actively pursuing a direct-to-consumer advertising program on a limited pilot basis in Phoenix. The program there is operating very smoothly, and a steady flow of self-referring patients have undergone telemedicine evaluation and e-cigarette testing at Phoenix area Lucid test centers. We've also significantly expanded our sales infrastructure and operations during the fourth quarter and recent months. Our very first employed sales rep started just in September of 2021. Our sales team has grown substantially since then. We've been able to attract high caliber personnel to feed this growth despite challenges of COVID-19 and broader economic forces facing all growth companies looking to hire. The team led by our national VP of sales, now consists of three area directors covering the east, central, and west, respectively, six market development managers, 10 sales reps, and several sales operations staff. The market development managers focus on establishing e-surgat testing at gastroenterology for gut surgeons, large primary care and multi-specialty practices, as well as large academic medical centers and integrated health networks. The sales reps, on the other hand, are focused on engaging with primary care physicians, including those within the referral networks of our gastroenterology and forecast surgeon practices. We expect the overall sales team to double in size and the number of sales reps to triple by the end of the year. During the fourth quarter and recent months, we have also made substantial progress in honing the sales process and sales training to assure that our outstanding team is well positioned for success. The sales reps are now armed with a very detailed, highly structured and field tested process to efficiently target primary care physicians to generate interest and convert interest into action, namely ordering e-cigar tech. The process has become entirely data and analytics-driven, utilizing Salesforce and other sophisticated tools. The team has also had good success leveraging peer-to-peer educational events to drive adoption. Our sales program has also become quite robust, combining an intense five-day educational course and extensive field training with established reps. I'd like to now discuss exciting important developments in our laboratory operation. Last month, we were thrilled to announce that LucidDx Labs, a wholly owned subsidiary of Lucid Diagnostics, had acquired certain licenses and other related assets from our longtime CLIA laboratory partner, ResearchDx, which allowed us to operate our own new CLIA certified CAP accredited clinical laboratory. The laboratory operates in a freestanding 20,000 square foot building in Lake Forest, California. And the laboratory has acquired, installed, and qualified all the necessary technology and equipment to perform the e-cigar assay, has completed the necessary assay validations to process clinical samples as a laboratory-developed test, completed a College of American Pathologists or CAP audit, and has begun performing e-cigar testing at the new facility. I'm so proud that the team was able to get the lab up and running and secure CAP accreditation in record time, and that the lab is now performing all e-cigar testing including DNA extraction and bisulfide-converted next-generation sequencing on ESOCHEC samples. I really can't overstate how critical a milestone securing our own CLIA laboratory has been. It markedly streamlines and simplifies numerous important ESAGARD testing processes. More fundamentally, it provides us with a strong, long-term, scalable infrastructure to accommodate accelerating growth and test volume from expanding ESAGARD commercialization activities. Perhaps most importantly in the short term, it simplifies our billing and collection process, eliminating some of the complexities we've had to previously accommodate, as Dennis will describe in more detail later. Speaking of reimbursement now, a brief update on where we stand with it. In conjunction with us taking over the laboratory and fully controlling the e-cigar billing and collection process, we have been able to upgrade all of our processes, including our revenue cycle management providers. With these boxes checked, we are now in a position to start submitting Medicare claims using the effective $1,938 Medicare payment rate. On the coverage side, on the Medicare coverage side, we continue an holding pattern. We're approaching now the two-year anniversary of our submission of the coverage technical file to the Moldex Program of Medicare Administrative Contractor, Palmetto GBA, the same group which issued our effective Medicare payment for ESAGARD in 2021. The processing of molecular diagnostic local coverage determinations really ground to a snail's pace during the peak of the pandemic and has not yet fully recovered. We remain encouraged, however, by the October 2021 Boldex Contractor Advisory Committee, or CAC, meeting on the topic of molecular testing for certain gastrointestinal cancers, including Visigart. The expert gastroenterologist panel voiced strong support for esophageal precancer testing in high-risk chronic heartburn patients. We believe that the CAT meeting was a strong indication that Moldex has actually started a technical review of our file and that a draft LCB should be forthcoming. We just can't say when. Unlike Medicare payment and coverage, which is binary, private payer payment and coverage is a marathon where one negotiates contracts with local, regional, and national private payer programs to steadily increase the number of covered lives for a test. The laboratory has been submitting claims to private payers and we have been encouraged that it has been receiving approximately $1,150 per test, representing approximately 60% out-of-network coverage. This percentage is consistent with the patient's policies and suggests that, at least for now, the payers are basing their out-of-network payments on the full price we are submitting. We're just reaching the critical threshold of submitted and processed claims in certain locales, which will allow us to begin having meaningful conversations with select private payers in these locales and network payment and coverage. We're beefing up our market access team to allow us to fully engage in these negotiations. We're also collecting the critical clinical utility data, demonstrating that e-Cigar positively impacts CARES that the payers are seeking as part of these negotiations. We believe, based on extensive outreach, that our lucid test centers will actually facilitate these discussions, including the potential to participate in more tightly controlled innovation projects which payers are increasingly pursuing in advance of broader coverage. Now let's move on to our clinical studies. As I have said on many occasions, expanding the clinical evidence for e-cigar testing is a pillar of our growth strategy and was a key impetus for us raising growth capital in the fall. We are significantly expanding our clinical trials infrastructure and the number of company and investor-initiated clinical studies. For the sake of time, I'll only be able to provide some highlights. We continue to actively enroll patients in the two international multicenter clinical trials, EsoGard BE1 and BE2, to support eventual FDA PMA approval of EsoGard used with EsoCheck as an in vitro diagnostic or IVD indicated to detect esophageal pre-cancer. The study has 68 sites in the US and Europe. Enrollment has been steady despite the winter Omicron surge, and we are still targeting completion of enrollment by the end of 2022. and PMA submission in 2023. We recently announced that investigators at the Cleveland VA have enrolled their first patient in a Department of Defense-funded ESAGARD study. I'm very excited to see this investigator-initiated study launch, as it'll add important clinical evidence on the impact of ESAGARD in enhancing early detection of esophageal precancer by reserving endoscopy for those with a positive ESAGARD test. The study will enroll up to 100 Cleveland VA patients who fulfill American College of Gastroenterology criteria for esophageal pre-cancer screen. As I mentioned, we've also launched multiple clinical utility studies at busy clinical sites to demonstrate that e-cigar positively impacts the care of at-risk GERD patients. These clinical utility studies and an e-cigar registry that we are launching will provide important data to support our private payer discussions, as well as ongoing improvements and modernization of the e-cigar assets. Finally, we continue to provide support for other investigator-initiated studies, including NIH-funded ones, which are generating positive data to be presented at upcoming meetings, and we believe will expand the peer-reviewed literature supporting e-secure testing. Let me close my portion of these remarks with a few business development updates. PavMed's e-secure device to endoscopically treat esophageal precancer continues to progress well. PavMed completed another successful animal study including head-to-head comparisons with Medtronic's barracks device. Feedback from key opinion leaders who are busy esophageal ablators has been universally positive and very encouraging. Given this progress, Lucid and PadMed decided to enter into a formal intercompany license agreement whereby Lucid will have the exclusive worldwide rights to commercialize eSecure, which is tightly synergistic with the eSoGuard and eSoCheck products. Last year, a PadMed subsidiary acquired Capnostics LLC, which manufactures Esophacam, a non-endoscopic sponge-based esophageal cell collection device, which has been used in pre-commercial clinical research of esophageal pre-cancer markers at major academic medical centers. The company has entered into discussions with these centers and has agreed to continue to support this research. It has closed a clinical trial agreement with Mayo Clinic and is close to doing the same with John Hopkins. Since this technology is firmly within Lucid's business, PadMed and Lucid entered into an agreement for Lucid to acquire the capnostic asset under the same terms that PadMed did in the fall. Finally, we continue to receive a steady inflow of business development opportunities and carefully assess each in terms of synergy with our current portfolio and the potential to be accretive in the near and medium terms. With that, I'll hand the reins over to Dennis to provide an update on our financials before proceeding with questions.