Lucid Diagnostics Inc.

Greetings. Welcome to the Lucid Diagnostics Business Update Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And please note that this conference is being recorded. I will now turn the conference over to Adrian Miller, Vice President of Investor Relations. Thank you, sir. You may begin.

Thanks, Barbara. Good afternoon, everyone. This is Adrian Miller, Vice President of Investor Relations at Lucid Diagnostics. Thank you for participating in today's business update call. Joining me today on the call are Dr. LaShawn Acklog, Chairman and CEO of Lucid Diagnostics, along with Dennis McGrath, Chief Financial Officer of Lucid Diagnostics. The press release announcing our business update and financial results is available on Lucid's 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 Securities and 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, and Lucid's most recent annual report on Form 10-K filed the SEC, and the subsequent update files quarterly reports of 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 those expectations may be based or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. So with that, I'd like to turn the call over to LaShawn Acklog, Dr. Acklog.

Thank you, Adrian, and good afternoon, everyone. I'm happy to report that Lucid Diagnostics is making excellent progress on all fronts and that we're laying a solid foundation for driving our long-term growth strategy. We continue to drive e-cigar commercialization, expand our sales infrastructure, execute the second stage of our Lucid test center rollout, transition to our own fully staffed laboratory, and update our clinical trial strategy to best serve our growth strategy. Our balance sheet remains strong, providing us with the resources to execute this growth strategy. Before proceeding, I'd like to thank our long-term shareholders for your ongoing support and commitment. We are singularly focused on growing Lucid while enhancing long-term shareholder value. I'll start by providing an overview of our business and then we'll pass the baton over to Dennis who will provide a financial update before opening it up to questions. Let me first provide 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, mortality rates are high even in their earlier stages. So preventing deaths requires us to detect esophageal precancer, which occurs in approximately five to 15% of at-risk chronic heartburn patients. Esophageal precancer can be monitored in its early phase and cured with an endoscopic ablation procedure in its late phase. Ablation 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 ESAGARD NGS methylated DNA test performed on samples collected in a brief, non-invasive, OFFICE PROCEDURE USING OUR ESA CHECK COLLECTION DEVICE IS THE FIRST AND ONLY COMMERCIALLY AVAILABLE DIAGNOSTIC TEST CAPABLE OF SERVING AS SUCH A WIDESPREAD SCREENING TOOL. WE BELIEVE ESAGUARD HAS THE POTENTIAL TO BECOME THE STANDARD OF CARE TO DETECT ESOPHAGEAL PRE-CANCER IN AT-RISK CHRONIC HEARTBURN PATIENTS WITH A TOTAL ADDRESSABLE MARKET GREATER THAN $25 BILLION. AS WE PREVIOUSLY ANNOUNCED, THE AMERICAN COLLEGE OF GASTRO NEUROLOGY RECENTLY UPDATED ITS CLINICAL GUIDELINE ON THE DIAGNOSIS AND MANAGEMENT OF ESOPHAGEAL PRE-CANCER the first such update since 2016. The guideline reiterates the longstanding recommendation that chronic heartburn patients should undergo esophageal pre-cancer screening if they have at least three of six defined risk factors, which include male sex, age over 50, obesity, smoking, and a family history. I would like to highlight two key updates that greatly enhance the commercial potential of elusive products contained in this guideline. The guideline no longer hedges on recommending screening for women. This more than doubles the target population for IsoGard testing to an estimated 30 million Americans. Second, and most importantly, for the first time, the guideline endorses non-endoscopic biomarker screening as an acceptable alternative to costly and invasive endoscopy. IsoGard and IsoCheck, which are described in the guideline, are currently the only such non-endoscopic biomarker screening tests. This is an exciting development for Lucid, and I can't overemphasize its importance in supporting our efforts to eradicate esophageal cancer. We look forward for other professional society guidelines to follow suit. Let's now review how eCigar commercialization has been going. We continue to see excellent traction with robust growth in eCigar testing volume. We processed 533 commercial eCigar tests in the first quarter of 2022. That represents a 76% sequential increase from the fourth quarter of 2021 and a nearly 500% increase annually from the first quarter of 2021. Testing volume growth was strong in both sales channels, primary care physician referrals to our Lucid test centers, as well as tests performed by gastroenterology and foregut surgeon specialty practices and institutions. Now that our sales process and sales training is well-honed and increasingly predictable, our near-term growth strategy is clearly defined. We are investing in sales infrastructure, training, and supporting resources sufficient to drive steady testing volume growth to demonstrate clinical utility and generate claims history to support our reimbursement efforts. Once reimbursement is more fully established, we will transition to full throttle efforts to drive testing volume and revenue growth. Our sales team consists of market development managers who focus on establishing e-cigarette testing at gastroenterology, foregut surgeons, large primary care and multi-specialty practices, as well as large academic medical centers and integrated health networks. Our sales reps are focused on engaging with primary care physicians, including those within the referral networks of our gastroenterology and foregut surgeon practices. 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, 17 sales reps, and several sales operations staff. We are hitting our hiring targets and are actually a bit ahead of schedule to hit our end-of-year goals. Our sales training process is continuing to be developed and is well-honed and quite intense. Our goal is to have new reps operating effectively within about four months of hire. Some of our growth strategy remains our expanding network of Lucid test centers. The test centers operate in leased medical office suites, each staffed by a Lucid-employed HESA-checked trained nurse practitioner or medical assistant, The centers support our primary care physician sales channel by providing a facility where a patient referred for e-cigar testing can undergo the e-cigar cell collection procedure. The reps work to educate the primary care physicians on the relationship between chronic heartburn and esophageal cancer and on e-cigar's availability as a new non-invasive alternative to screen at-risk patients. The physician then just orders a test, which is performed at one of our test Single nurse practitioner can reasonably perform 20 ESA check procedures in a normal workday. Each test center covers its personal and medical office lease costs with only a couple of reimbursed tests per week. The Lucid Test Center program completed its first stage during the first quarter of 2022, having advanced from a pilot program in Phoenix launched in the third quarter of 2021. The program has developed into a regional program covering seven metropolitan areas in Western states. We recently launched stage two of our Lucid Test Center program. We plan to open test centers in nine additional states this year, and last month we hired a director of clinical services with extensive experience operating dialysis facilities for Fresenius and DaVita to oversee this expansion. We continue to pilot our e-cigar telemedicine program, which we launched in December. Patients who learn about e-cigar testing can request an online visit with a telemedicine physician who can send the patient, if appropriate, to a Lucid test center for Eastern Guard testing. Although patients in any Lucid test center city can access the telemedicine program, we continue to only actively pursue direct-to-consumer advertising on a limited pilot basis in Phoenix, consistent with the near-term strategy I previously described. We're just over four months into the program and will soon have sufficient numbers to assess the efficacy of various modes of direct-to-consumer engagement. I'd like to now discuss our laboratory operations. The first quarter and recent months have been full of important developments in our laboratory operations, which are critical to the future success of the company. At the end of February, Lucid DX Labs, a wholly owned subsidiary of Lucid Diagnostics, acquired the assets necessary to operate its own, our own, CLIA-certified, CAP-accredited clinical laboratory. The laboratory operates in a freestanding 20,000 square foot building in Orange County, California, and last month we hired a new VP of laboratory operations with nearly two decades of clinical laboratory experience including at LabCorp, Abbott, and Rosetta Genomics. Under his and our chief scientific officer's leadership, we plan to accelerate the transition from the current management services agreement to the lab being fully staffed by Lucid employees. In parallel with the acquisition, we upgraded our revenue cycle management provider to CenterGene Solutions. CenterGene will be up and running this month and will begin billing and processing claims on behalf of Lucid DX Labs. This will be the first time a Lucid entity will be billing directly for e-cigarette testing. Claims held since the lab transition in February will be submitted once Senergy is active later this month. The transition from fixed monthly payments from our former laboratory partner to direct billing will result in a temporary pause of out-of-network receipts and recognized revenue, as Dennis will describe in more detail. Now a brief update on where we stand with reimbursement. On the private payer side, we were pleased to announce earlier this week that we executed our first commercial payer agreement. Lucid DX Labs entered into a participating provider agreement with MedIncrease Health Plans, LLC, a national directly contracted multi-specialty PPO provider network with over 8 million lives covered through its clients and payers. Persons covered by MedIncrease clients and payers will have in-network access to e-cigarette testing. The agreement provides rates of reimbursement as a percent of charges for services rendered, including performance of the ESAGARD test. We are pleased that the effective payment for ESAGARD under this agreement, which is based on a list price of approximately $2,500, is consistent with our goal of protecting the effective Medicare payment of just over $1,900. We will continue to work tirelessly to secure many more such participating provider agreements, covering millions and more lives in the coming quarters. In parallel, we continue to collect critical clinical utility data demonstrating that ESAGARD positively impacts patient care. Such data will be necessary for us to secure direct in-network coverage for major regional and national health plans. We've also seen progress on the Medicare reimbursement front. Last month, Medicare contractor Palmetto GBA's MOLD-DX program published a proposed Local Coverage Determination, or LCD, for tests designed to detect upper gastrointestinal pre-cancer and cancer. Consistent with its practice over the past couple of years, the proposed LCD is a foundational LCD. That means it provides criteria for a category of testing, not a specific test. Proposed LCDs are by definition works in progress for public review. We have been patiently awaiting this important next step in the process since we completed CMS's clinical laboratory fee schedule, or CLFS process, culminating in the important first step, namely final Medicare payment determination, which became effective on January 1st, 2021. The proposed LCD outlines criteria that MOL-DX expects upper gastrointestinal, precancer, and cancer molecular diagnostic tests to meet. These criteria include active GERD with at least two risk factors, as well as evidence of analytic validity, clinical validity, and clinical utility. Although it found that no currently existing test has fulfilled these criteria, It indicated that it will monitor the evidence and will provide coverage based on the pertinent literature and society recommendations. It's important to emphasize that the provisional LCD was published prior to the publication of the updated ACG guideline and as such does not take into consideration the recommendation supporting non-endoscopic biomarker testing such as e-cigar as an acceptable alternative to endoscopy for esophageal pre-cancer screening. The publication of the proposed LCD triggered a written comment period that extends until this Saturday. We, along with multiple other stakeholders, will be submitting comments suggesting important modifications to the proposed LCD. Moldex also held a substantive open meeting yesterday during which we, along with other stakeholders and interested parties, had the opportunity to address the proposed LCD. We previewed our suggested modifications to the proposed LCD. Subsequently, Dr. David Poppers of NYU, who has performed hundreds of e-cigar tests, discussed the clinical utility of e-cigar testing in his practice. And finally, Mindy Mordecai, founder of the Esophageal Cancer Action Network and a widow of an esophageal cancer victim, offered a moving and passionate statement on how critical non-endoscopic biomarker testing is to prevent esophageal cancer deaths. In addition, we recently learned that Noridian Healthcare Solutions, The Medicare contractor, which covers LucidDx Labs in California and participates in the Multi-X program, has scheduled its own open meeting on May 26th and a written comment period that extends through June 11th. We look forward to the opportunity to address the proposed LCD directly with Naridian as well. A final LCD will not be issued until the Medicare administrative contractors have had the opportunity to assess and consider the comments written and comments during the public meeting. Let's now wrap up with our clinical studies. As I've said on many occasions, expanding the clinical evidence for e-cigarette testing is a pillar of our growth strategy and was a key impetus for us raising capital in the fall. Over the past couple of months, our management team along with our board have been reviewing our clinical trial strategy to make sure that the substantial capital we are investing in clinical trials is being deployed in an optimal fashion consistent with our short and long-term strategic goals and situation on the ground. There are numerous factors we're considering in addition to optimal capital utilization. These include our current understanding from the trenches on what drives clinical adoption, the rapidly evolving reimbursement landscape I just described, promising research data on a next-generation version of the ESAGARD assay, and the opportunity to conform the clinical trial processes to current clinical practice. We expect this updated clinical strategy to be finalized in the coming months. One key aspect of our updated strategy is already underway. We are doubling down on our efforts to generate clinical utility data to support commercial and Medicare reimbursement. Clinical utility trials are designed to demonstrate that e-Cigar impacts medical decision making. We have multiple such studies which we expect to launch in the coming weeks, including a retrospective review of Dr. Popper's NYU experience focused on the impact of e-Cigar on medical decision making. Additionally, multiple prospective clinical utility studies, including a Lucid-sponsored registry at existing commercial sites, a prospective Lucid-sponsored clinical utility study named CLUE, C-L-U-E, and prospective clinical utility studies that are institutionally sponsored at Northwell Health and at St. Joseph's Health, New Jersey. With that, I'll pass the baton on to Dennis to provide an update on our financials before opening up for questions.

Thanks, Leishon, and good afternoon, everyone. Our preliminary and summary financial results for the first quarter ended March 31st, 2022. We reported our press release that was published earlier today. We plan to file our quarterly report for Lucid Diagnostics on Form 10-Q with the SEC on May 16th, the due date. At that time, it will be available at sec.gov and on the Lucid website. As you already know from our previous quarterly corporate update calls, that as a rule, e-cigar tests performed are recognized as GAAP revenue when cash is collected by the company. Also, as previously mentioned, this more than likely will be true during this transition period of negotiating third-party private payer reimbursement contracts and related coverage policies. As I reported to you in previous quarters, the compliance purposes during this reimbursement transition period, we negotiated a short-term month-to-month fixed payment arrangement with the contract laboratory that was processing the ESA Guard assay and was performing the insurance company billing and collections function. This commercial agreement became effective on August 1st, 2021 and terminated concurrently with the opening of our own lab on February 25th, just a couple weeks back. We recognized 189,000 of revenue as part of the ESA Guard commercial agreement with ResearchDx for the partial period from January 1st, 2022 through the end of the agreement. on February 25th. Now that we are operating our own laboratory during, following the February asset purchase agreement, we will be able to directly bill payers. As Leishon described, direct billing will occur in the second quarter once our new revenue cycle provider comes online. Future revenues will be recognized based upon actual collections until such time as the coverage policies are in place with CMS and payment contracts with the private payers. This obviously can result in timing of revenues recognized versus timing they are submitted for third-party reimbursement until these future conditions are met. The gap in claim submission from this transition will impact near-term gap revenue recognized until the system catches up with claims for tests performed during the transition. The number of ESAGAR tests performed and submitted for payment are provided in the press release and was discussed earlier by Leshawn. Obviously, we're in the early stages of our commercial launch, particularly with our test centers. We'll continue to evolve our reporting metrics as various sales and marketing efforts further influence adoption, particularly with the ramp-up of our Lucid test centers and our e-cigar telemedicine program in cooperation with Upscript. Presently, there are five banking analysts who have issued coverage on Lucid and others doing their diligence. The quantity of e-cigar tests payable at the CMS payment rate required to meet the 2022 revenue estimates provided by the analysts are achievable. The quantity of collections are highly dependent upon the evolving reimbursement landscape. With regard to revenue, Lucid recognized approximately $200,000 of revenues related to ESA Guard for the quarter ended March 31st. Despite the negative gross profit for this period, which reflects the initial test center startup related costs at modest volumes, incremental gross margins continue to be around 90%, and contribution margins can be north of 60%. These lower test volume amounts have a minimum level of fixed costs associated with just being operational. Now a few comments about operating expenses, sales, and marketing to start. For the quarter ended March 2022, sales and marketing expenses were approximately $3.3 million for the quarter, compared to $700,000 for the corresponding prior year. and also reflects an increase of about 12% sequentially, not including stock-based compensation charges. This largely reflects headcount increases and related costs. On the G&A front, G&A expenses were $5.7 million for the quarter ended March 31st, compared with $1.2 million for the corresponding period last year, and approximately a 13% increase sequentially. The increases are largely related to compensation and other outside consulting services related to patents, regulatory compliance, legal costs, and public company expenses. R&D expenses for the quarter, just to end it, were approximately $2.9 million as compared to $1.8 million for the corresponding period last year and are slightly lower sequentially with the changes between the periods largely tied to clinical trial expenses. There's a table we provide in the press release published earlier that adjusts each of these components of operating expenses for the embedded non-cash stock-based compensation expense. Without the stock-based compensation expense, total operating expenses for Lucid were $8.1 million compared to $2.9 million for the three months ended March 31st and 21st, respectively. With respect to the loss per share amounts, Lucid Diagnostics reported a first quarter 2022 net loss attributable to common stockholders of $12.3 million, or a loss of $0.35 per common share, versus the same period in the prior year of a loss of $3.7 million, or $0.26 per share. The press release also provides a table entitled Non-Gap, which highlights these amounts along with non-cash charges, namely depreciation, stock-based compensation, acquisition-related costs, all to enable a better understanding of the company's financial performance. You'll notice from the table, after adjusting the first quarter gap loss by approximately $4 million for non-cash charges, the company reported a non-gap adjusted loss for the first quarter of $8.2 million, or $0.23 per common share. Lucid had cash of $47.9 million as of March 31st. That compares to $53.7 million at December 31st. As you're aware from our last call, Lucid entered into a committed equity facility with an affiliate of Cantor Fitzgerald. Cantor committed to purchase up to $50 million in the company's common stock from time to time at the request of the company. Any future funding from this facility is completely at the discretion of the company, and if utilized, likely would extend the company's runway well into 2024. Unlike PadMed, Lucid is not eligible to put a shelf registration in action until after November 2022. or more than 12 months after the IPO. Like we described about the PAVMED shelf, the board considers having available financing options part of their governance duties, even if utilization would finance this well into 2024. So they consider it part of their duties to understand what the long-term opportunities of the company are, and this gives us that vehicle short of being able to put a shelf in place. There were no issuances of stock under this vehicle so far. With that, operator, let's open it up to questions.

Thank you, sir. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing any star keys. One moment, please, while we poll for any questions. Our first question comes from the line of Ross Osborne with Cantor Fitzgerald. Please proceed with your question.

Ross, good afternoon. Hi. Congrats on the progress. Thanks for taking our questions.

Hi, Ross. How are you?

I'm well. How are you all? Starting off, I'd love to hear what you're seeing in the operating environment. Are you seeing any lingering headwinds that are still limiting growth at this point?

I see you're referring to kind of macro issues like COVID and such?

Yeah.

No. I think we're – yeah, look, I think with the lifting of various restrictions and so forth, it's really no longer a significant issue. As I've emphasized in the past, because we're entirely outpatient-based, the sort of challenges associated with inpatient access are just something we don't deal with. So we're in good shape there.

Okay, great. And then could you provide a little bit more detail of where you stand in the commercialization process with regards to the Phase 2 of your plan?

Oh, you mean with regard to the test centers? Yes. Yeah, right. So we are – as we said, we announced the launch of the second stage. We've identified nine locations and nine metropolitan areas in the – across the country, and these include larger states such as California, Texas, Florida, and New York, and Ohio and Illinois. And we are in the process of doing what we do to open these centers, identifying geography, looking at various factors that impact that, proximity to health facilities and primary care practices, other demographic criteria. We are hiring, in the process of hiring, and have hired sales reps in these areas. I think I noted during our last call that actually in several of these states, for example, in Ohio and in Southern California, we actually already have a presence with market development managers and supporting reps who've been calling on gastroenterologists. So it's a little bit different, a little bit of a lower hurdle than in some of the states where we were coming in fresh during the first stage. So making solid progress at identifying locations and hiring nurse practitioners and sales reps, and we look forward to starting to bring these cities online very soon.

Okay, great. And then last one for me, regarding the ACG update, I realize it's only been a month, but have you seen any acceleration in testing volumes since that went out, or at least interest?

Yeah, you know, I don't – we never – I think I've said this before, so I'll reemphasize that our interactions with clinicians in the field has been relatively straightforward in terms of making the case based on the existing data and the actually existing ACG guidelines. So it's not like there was this big gap that we were trying to fill with these updated guidelines. And so that's not to, you know, in any way understate the importance of of EsoGuard and EsoCheck being explicitly mentioned, and literally a photograph of the EsoCheck device in the guideline, and the fact that the guideline really addresses us as the only existing test that serves as a non-endoscopic biomarker screening test. But the greatest impact from the guideline is certainly going to be around reimbursement. As I mentioned in my comments, The proposed LCD specifically references the importance of guidelines in making final coverage determinations and preceded the publication of this guideline. And also in our private payer engagement, the updated and more specific guidelines are extremely important. So will it have some effect? Is it a tool in our armamentarium as we move forward? talk to GIs and to primary care physicians, sure, but it's not like we've been struggling to get that message across without it, with the prior guidelines.

Okay, got it. Thanks for taking my questions, and congrats again.

And our next question comes from the line of Mike Mattson with Needham & Company. Please proceed with your question.

Thank you. Hey, guys. This is Joseph on for Mike. Quick question around, I guess, Phase 2. I'm doing very well. Thank you very much. Yeah, in terms of Phase 2 for the launch of the nine additional sites, is this, you know, I guess a full launch in 2022? You have nine additional sites that will be up and running and, you know, completing e-cigar tests. I guess, you know, part two to that, is there a certain cadence that you guys are expecting or is this going to be, you know, kind of one lump sum of site additions as we saw in phase one?

Yeah. Great. Thanks for the question. Yeah, this definitely is a 2022 plan. So our goal and our ramp up with regard to sales reps that will be driving cases to these test centers is consistent with a a ramp culminating in the fourth quarter of this year. And the cadence is we're moving forward on all nine simultaneously. In some locations, it's easier to add, to identify and hire those practitioners and reps than others. And so this is a parallel path across all nine states simultaneously in contrast to what we did in stage one where we started with Phoenix, then we did three, and then we did another three.

Okay, great. And I guess since you guys really only need a small office at the end of the day, there hasn't been any trouble finding space in these metro cities, correct? No.

I mean, we have high standards. We look for nice space and nice locations that are convenient for patients based on traffic patterns and so forth. But there are plenty of these. These are not big locations. There are two or three offices and they're not hard to find.

Yeah, okay, great. And then maybe just one around, I guess, revenue per test, you know, a big drop-off sequentially. Was this all based on cash collection timing, or did this, you know, did this have anything to do with the coverage, the inclusion of coverage from the MET increased health plans? I don't know if you guys have already started receiving payments for that.

Yeah, it has nothing to do with college. I'll just briefly comment and have Dennis add to it. It has nothing to do with the reimbursement issues around Medicare or otherwise. It's entirely timing with regard to the transition between the model where we were collecting a fixed amount of fixed payments from ResearchDX, which was the the provider of record and the billing entity going into February and that transition to us billing directly. It's entirely based on that. There's no issue with regard to sort of blips in volume or in reimbursement or anything like that. Dennis, do you want to maybe elaborate on that a little more?

Yeah, sure. Joseph was purely formulaic. We had been collecting $100,000 per month from ResearchDx. $189,000 recognized was $100,000 for January. and 25 of 28 days in February times 100,000 gives you $89,000. The tests that we can bill after February 25th because of our own lab have all been delayed until we have our own revenue cycle provider up and running. So all of the tests that were done in March, which were significant, will be billed, and that will occur. It's creating, obviously, a timing delay. But they will be billed, and we will collect if it's at the out-of-network rates. The past is kind of an indication of what the out-of-network rates are. It's somewhere between $1,000 and $1,300 per test, and we expect to be able to collect that. So purely formulaic in terms of the past arrangement and the transition from using a third-party lab provider to our own lab.

Okay, great. Yeah, that makes perfect sense. That's all from us. Thank you guys so much, and congrats on the quarter. Thanks, Joseph.

Thank you, and our next question comes from Kyle Mixon with Canaccord Genuity. Please proceed with your question.

Kyle, good afternoon.

Hi, Kyle.

There?

Kyle, you may be on mute.

Kyle, your line is live if you are there. Okay, I guess he is not with us at the moment. Our next question comes from Ed Wu with Ascendian Capital. Please proceed with your question.

Yeah, you know, in terms of, there's a lot of discussions about inflation. I'm sure it's hitting everybody, including you guys. How often do you guys get to change your reimbursement rate? Is this something that is revisited annually? And do you think that it's going to have any impact with rising costs, especially for personnel, you know, nurses or whatnot for your business?

Yeah, you know, that's a great question. I mean, you know, I think just at a high level, historically, you know, set reimbursement from payers, whether it be Medicare or private payers, are really not indexed for inflation, and, you know, we don't have sort of the luxury of going back to the well on an annual basis. So, you know, fortunately, we have really healthy margins with these rates, and, you you know, we'll be in a position. As it relates to sort of our COGS, hasn't been a cost of goods, sorry, you know, there hasn't been, you know, much in the way of an impact there, although we do see supply chain challenges on, you know, parts and subassemblies and things like that. So that's something we monitor carefully, and we try really hard to order long lead time items in a moment. But But on the payment side, we're lucky to get what we get, and we have a healthy margin built in.

Great. And then, you know, can you tell us a little bit about maybe some of your medical supplies? You don't see any impact near term because you guys have been able to order early enough in order to get whatever you need to.

We do our best, yeah. We have had some challenges that I've talked about on PatMed calls in the last couple of quarters. But with regard to – With regard to Lucid, it's really fairly, we haven't had any issues. The ESO check manufacturing, we have ordered plenty of long lead time items. Our team is very meticulous about that. I didn't mention it on our call, but we are making progress towards wrapping up the transition to our high volume ESO check manufacturer coastline in the coming months. And with regards to the laboratory itself, reagents and so forth, that hasn't been a challenge either yet. So fingers crossed it'll stay that way.

Great. Well, thanks for answering my questions, and I wish you guys good luck. Thank you.

Thanks, Ed.

And our next question is from Kyle Mixon with Canaccord. Please proceed with your question. Hey, Kyle. Welcome back. Hey, Kyle.

Hey, thanks. Hey. Sorry about that. I was just curious about the private payer coverage, like efforts in the quarter. We saw the CMS updates, and then there was definitely some – I don't want to say noise, but there was definitely some – it was kind of an exciting quarter for, I guess, like your space in particular. How did private payers kind of interact, or are you even having those discussions today?

Yeah, we are having those discussions, and the MedIncrease contract is the fruits of that, and we have more we're working on, and we expect to steadily, as I've said before, the private side is sort of blocking and tackling in order to work. order or combat, not to be overly dramatic about it. So, no, we've been, you know, again, I think that's the proof is in our first commercial payer contract, which happened after the proposed LCD was published.

Okay. And, yeah, apologies if you've mentioned any of this in advance. Obviously, I was having phone issues earlier. Maybe just with the test center kind of expansion and as those ramp up, I mean, any, like, incremental takeaways? Like, are you going to be making any changes to those centers, you know, going forward? I mean, are you going to accelerate efforts? I mean, just curious, like, if you take a step back, what you think at this point.

I tried to point out, but this maybe is a good opportunity to reemphasize a point that I did touch on in the comments in my prepared remarks, which is that, you know, right now we're kind of looking at sort of a mid-level trajectory, right? I mean, we could – Yeah, as I said, we really feel like the model's well-honed. The test center model works. Our training has become really good. We have some predictability now with regard to translating deployment of sales reps and opening of test centers to testing volume. And one of the trends we've noticed, we don't have enough data points to report this, but we will in the coming quarters, is that we have seen a nice increase in the proportion of our cases that are coming through from primary care physicians and test centers, and that's an important metric of how that's working. But, you know, we're trying to take a middle ground here. We want to obviously grow testing volume to generate data for clinical utility to support reimbursement and to generally prove that the model works. But we are also cognizant of the fact that right now we don't have predictable reimbursement. We are starting to bring some of that in, but we're not at the stage where we're getting a large portion of these cases are getting full reimbursement. So with an eye towards being protective of our cash and our capital, we're trying to take sort of a middle-of-the-road approach with regard to the throttle, to use a metaphor. But once we have more predictable reimbursement and we start getting more of these private payer agreements under our belt, then we have the ability to dial these up and to increase the cadence and so forth. But, you know, our plan really for the rest of this year is to stick with our targets with regard to the expansion of our Salesforce and the expansion of the test centers to give us time to start getting more predictable reimbursement. So hopefully that makes sense.

Sure. And maybe if I could ask another question. just on the LCD and maybe, you know, fully reflecting that the, they do not account for those guidelines yet. I just wanted to ask though, you know, it seems like the esophic cap type device is included in the LCD. I mean, I know the guidelines are unincluded. Maybe I can get, you know, ether check in there. When is the next kind of milestone or benchmark we should be looking for? I know there was a recent meeting, just like here is what is on the horizon. And yeah.

I just wanted to clarify. So the guidelines recommend non-endoscopic biomarker testing with a capsule device. That includes ESOCHEC, just to be clear. It's right there. There's a photograph of it. The results from the STM paper are in there. So although SOFACAP is there as well, ESOCHEC is featured, and we consider the guidelines, you know, supporting ESOGARD and ESOCHEC. So don't want there to be any confusion about that. That's for the guidelines. The open meeting, I thought, went well. It was substantive. It was serious. We had plenty of opportunity, us and other stakeholders, to describe what we think are useful modifications to the LCD. The goal is to have the LCD really be an operational foundational LCD so that the criteria are a bit clearer and that when we get the sufficient clinical utility data to submit as part of a technical assessment, it doesn't require revisiting and reopening the LCD, and that was really the focus of our comments as well as others, and the written comments are gonna really push that a lot harder from us as well as multiple other stakeholders. As I mentioned, the open meeting occurred yesterday, the written comments period for Palmetto, and on Saturday, but we were also notified that in Oridian, which is the Medicare contractor that covers California and covers the lab there and will be ultimately the contractor of record. Also scheduled an open meeting and a comment period. The open meeting there is going to be on May 26th and the comment period on June 11th. So that gives us another bite at the apple to really make the case and make sure that the final LCD that comes with this really gives this not just us but the field, the opportunity to get coverage for this really important and now guideline-based option to perform widespread testing in these adverse patients.

Okay. Yeah, I mean, we're all looking forward to seeing how the guidelines impact the APLCD hopefully, so we'll find out soon. Thanks, guys. Appreciate it.

Okay. Thanks a lot. Thanks, Kyle.

Thank you. At this time, we have reached the end of the question and answer session, and I will now turn the call back over to Lishan Akhlaq for closing remarks.

Great. Well, thank you, everyone, for joining us today, and as always, great questions. And as always, we look forward to keeping you abreast of our progress via press releases and these conference calls. The best way to keep up with Lucid news updates and events is to sign up for our email alerts on the Lucid Investor website. and to follow us on social media on LinkedIn, Twitter, and YouTube, as well as through our website. So you can also contact Adrian Miller, our VP of Investor Relations, at akm.padmit.com. So thanks again, and have a great rest of your day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.