Lucid Diagnostics Inc.

Greetings and welcome to Lucid Diagnostics second quarter 2022 business update conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and zero on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Adrian Miller. Please proceed, sir.

Thank you, operator. 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. Alishan Aklog, Chairman and CEO of Lucid Diagnostics, along with Dennis McGrath, the 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 the forward-looking statement in the press release. The business update press release and this conference call both include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from the statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the Securities Exchange Commissions 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 list its most recent annual report on Form 10-K, followed with the Securities Exchange Commissions, and any subsequent updates followed and quarterly reports on Form 10-Q and any subsequent Forms 8-K filings. Except as required by law, Lucic 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. With that said, I would like to turn the call over to Lishan Akhlaq, Dr. Akhlaq.

Thank you, Adrian. Good afternoon, everyone, and thank you for joining us today. Before proceeding, I'd like to thank our long-term shareholders for your ongoing support and commitment. Our team, as always, is singularly focused on growing Lucid while enhancing long-term shareholder value. The past quarter and recent weeks have been anything but routine. In fact, it has been a transformational period for Lucid, during which we have achieved key milestones, which represent the final bricks in the foundation upon which we are building this company and driving its long-term growth strategy. Since our inception, we've had an InisoGuard and InisoCheck groundbreaking technology to prevent cancer deaths through early pre-cancer detection, targeting a massive addressable market. We now have a consensus among the major specialty societies, which explicitly support the use of our products for this purpose and expand the addressable market even further. And for the first time, we are truly, from an operational perspective, an independent, full-service medical diagnostic company capable of fulfilling the clinical and economic potential of these products. For example, we have our own growing sales and marketing team with now well-honed, proven sales training and sales processes, targeting physicians and institutions through two well-defined sales channels. We have our own expanding network of sites, our Lucid test centers, where patients referred for testing can quickly and conveniently undergo non-invasive cell sample collections. This network now incorporates a new paradigm, satellite Lucid test centers, which are co-located with physician practices and institutions. And perhaps the most transformational milestone is that we have fully operationalized our own CLIA-certified and CAP-accredited laboratory, Lucid DX Lab, staffed by our own personnel, operating within our own quality standards and processes, and most importantly, capable of submitting and aggressively pursuing claims directly with payers, which we recently began doing. On the reimbursement front, we are starting to get traction in securing private payer participating provider network agreements, which we are hopeful will start bearing fruit in the coming quarters. And we have completed a public comment process for the Medicare draft foundational local coverage determination, or LCD. And we have intensified our efforts to collect the clinical utility data to support a technical submission once the LCD is finalized. taken important steps to solidify Lucid on the general corporate front. We, in partnership with our parent company, PadMed, have completed a nearly year-long effort to strengthen our own senior leadership team, securing high-caliber talent in critical areas such as business strategy, regulatory and quality, medical affairs, and laboratory operations. And finally, we have launched an ongoing company-wide initiative to confront perhaps the most challenging sector, national, and global market conditions in decades. uncharted waters with no clear path or a timeframe to full recovery. Our leadership team has been challenged to think critically, creatively, and systematically to maximize runway and strengthen our balance sheet and protect the long-term interests of our company while continuing to execute on strategic objectives and our mission. This has been a rewarding, even clarifying experience for our team, already resulting in streamlining and strategic reallocation of resources for this fiscal year. I'll now provide a more detailed business update and then pass the baton over to Dennis, who will provide our financial update before opening it up to questions. Let me first take a step back and provide a brief background on our company and its mission for those of you who are new to the Lucid story. Lucid Diagnostics is a commercial stage cancer prevention medical diagnostics company focused on the tens of 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 stage 1 cancer, so preventing death requires us to detect esophageal precancer, which occurs in approximately 5% to 15% of at-risk patients. Esophageal precancer can be monitored in the early phase and cured with an endoscopic ablation procedure in its late phase. Ablation reliably halts progression to esophageal cancer. Although esophageal pre-cancer screening has been recommended in millions of at-risk chronic heartburn patients for over a decade, 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, a collective tragedy which we are determined to eliminate. The missing element for a viable early detection program to prevent these thousands of tragic deaths has been the lack of a widespread early detection tool. We believe our IsoGuard NGS methylated DNA test performed on samples collected in a brief non-invasive office procedure using our IsoCheck cell collection device is the first and only commercially available diagnostic test capable of serving as such a widespread early detection tool. We believe IsoGuard has the potential to become the standard of care to affect esophageal pre-cancer and at-risk patients. Perhaps the most important step to date in achieving this long-term goal occurred in recent months. Both of the two major gastroenterology specialty societies, the American College of Gastroenterology, or ACG, and the American Gastroenterological Association, the AGA, published updated professional society clinical practice guidelines on the management of esophageal precancer for the first time in over five years. Although we have previously reported them in press releases I will spend some time today providing a fuller context. These updates strongly enhance the value proposition of ESAGARD and LUCID in at least two important ways. First and most directly, we now have a consensus with both leading specialty associations supporting, for the first time, the use of non-endoscopic tools as an acceptable alternative to endoscopy, which has, as I previously noted, unequivocally failed as a screening tool to detect esophageal in at-risk patients, despite over a decade of clinical guideline recommendation. Both the ACG and the AGA explicitly cite ESOCHEC along with LUCID's esophageal device as such non-endoscopic tools. The only such device is commercially available in the U.S. Both also cite the seminal NIH-sponsored case control study published in 2018 in Science Translational Medicine which demonstrated that EsoGuard is highly accurate at detecting esophageal pre-cancer and cancer, including on samples collected with EsoCheck. The AGA, in particular, goes out of its way to acknowledge the, quote, significant need for non-invasive screening tools that are easy to administer, patient-friendly, and cost-effective for the detection of BE, end quote. And that our EsoCheck and esophageal devices have demonstrated, quote, excellent tolerability, safety, and sensitivity for the diagnosis of Professional society guideline support can be an important driver of physician acceptance of new technology, and the AGA support in particular already appears to be resonating with one community gastroenterologist describing it as, quote, a big deal. Guideline support is also an important driver of both private and Medicare coverage, and we are working hard to educate payers on these updates. The second way these updates enhance our value propositions is through the expansion of the at-risk population targeted for early detection of esophageal precancer. Previously, the guidelines, the ACG in particular, hedged on recommending testing for women with risk factors. This is no longer the case. Although being male remains a risk factor, men and women that have the appropriate number of risk factors are now treated equally with regard to the recommendation for screening. Epidemiologic data indicates that actually slightly more women than men would qualify for screening by the updated ACG guideline, even though they're somewhat more stringent than the AGAs. We had previously excluded women in our estimates of the target population derived from work we engaged Deloitte to do for us a couple of years ago. Including women now increases the estimated target population of those over 50 with ACG risk factors from approximately 13 million to just over 30 million. and the associated estimated total addressable market opportunity from approximately 25 billion to around 60 billion. I should note, of course, that these TAM estimates are based on the estimated prevalence of patients with risk factors and not an annual incidence, since we do not yet know how often testing will be recommended once non-endoscopic testing is firmly established. The point of these estimates is to illustrate what we merely that we merely need to scratch the surface of the target population to generate substantial revenue and revenue growth in the coming years. These expanded target population estimates use the more stringent ACG criteria and do not take into account that the AGA, which has been more liberal in its criteria, extends this gap in dramatic fashion in its current update. It is estimated that about 40% of patients with GERD have silent, quote, silent GERD, without classic heartburn symptoms, and that over 50% of U.S. patients diagnosed with esophageal cancer would not have qualified for screening using traditional symptoms plus factors-based guidelines. The AGA seeks to close this gap by recommending for the first time screening in at-risk patients without symptoms. It does so by adding chronic heartburn symptoms as just another risk factor, now among seven to consider. As a result, symptoms are no longer a mandatory prerequisite, and asymptomatic patients with three other risk factors are now considered appropriate for screening, which significantly expands the target population for esophageal precancer screening, including by using EsoGard and EsoCheck. One important long-term nuance is that the AGA has really fundamentally shifted the paradigm for esophageal precancer screening from disease-based, namely GERD, to demographic or risk factor-based. This could have an important impact on future efforts to secure a recommendation from the U.S. Preventative Services Task Force, which has historically used the narrow statutory definition of preventative screening, which is not disease-based. With that, let's now move on to an update on ESAGARD commercialization. We continue solid, consistent growth in ESAGARD testing volume. We processed 850 commercial e-cigar tests in the second quarter of 2022. That represents an approximately 60% sequential increase from the first quarter of 2022 and an over 300% increase annually from the second quarter of 2021. Although testing volume growth was strong in both channels, i.e., primary care physician referrals to our Lucid test centers as well as tests performed at specialty practices and institutions, We continue to see a steady increase in the proportion of tests performed at our Lucid test centers, which now represent approximately two-thirds of the overall testing volume. This is a direct result of our investment in our expanding sales team, particularly sales representatives who call on primary care physicians. Despite a challenging labor market, we are making excellent progress towards reaching our year-end target of 39 such sales representatives and a total of 58 sales overall 58 sales professionals. I'm very proud of what our sales leadership has accomplished over the past year in terms of sales processes and sales training. The sales process, which includes standard operating procedures for targeting, talk tracks, objection handling, routing, and other key processes, is now well-honed, highly structured, and data-driven. The rigorous sales training process, which includes intensive field and classroom training, has also matured. An important high-yield part of this process are as peer-to-peer events utilizing key opinion leader physicians, which are being held across the country. The leadership has now firmly established a performance culture with clear, carefully tracked metrics for success. We set high expectations with new representatives and expect them to demonstrate independent traction in the field within four months of completing training. Although the team will continue to improve on these processes as we expand and grow, We believe we'll be increasingly able to correlate future test volume growth with investments in the sales infrastructure. I'll discuss this again later when I summarize our strategic priorities for the coming quarters and years. Let's now move on to an update on our expanding network of Lucid test centers, which remain a pillar of our growth strategy and, as I just noted, a leading driver of ESAGARD test volume growth. The test centers operate in leased medical office suites, each staffed by a lucid, employed, ESOCHEC-trained nurse practitioner and medical assistant. The centers support our primary care physician channel by providing a facility where a patient referred for ESOGARD testing can undergo the ESOCHEC cell collection procedure. The reps work to educate the primary care physicians on the relationship between chronic heartburn and esophageal cancer and on ESOGARD's availability as a new non-invasive alternative to screen at-risk patients. The physician then just orders a test to be performed at one of our test centers directly through the electronic health record when feasible. I have previously estimated that a nurse practitioner can perform up to 20 ESO check procedures in a normal workday. Well, we now know that to be true as one of our senior NPs recently performed 26 procedures in a day without, as Dennis likes to say, quote, breaking a sweat. Each test center covers its personnel and medical office lease costs with only a couple of reimbursed tests per week. Last week, we announced the launch of the second stage of our Lucid Test Center program in four new major metropolitan areas, including in the three largest U.S. states. During the first stage, which we completed earlier this year, we covered seven mostly medium-sized metro areas in the Southwest and Pacific Northwest, which gave us time to build and hone our sales processes and build a robust compliance program. With stage two, we're establishing a broader national footprint using demographic and other analytics to select high-value target locations across the country. We're also able to place test centers in locations where existing sales personnel are already having success calling on specialists and institutions and where our prospects for local private payer coverage is strongest as a result of our growing participation preferred provider networks. The first four Stage 2 centers are located in Orange County, California, the Dallas-Fort Worth metropolitan area, Palm Beach County, Florida, and Columbus, Ohio. The Orange County test center is co-located with our laboratory. We're seeking to launch five additional centers this year, targeting the Southeast and Midwest. I'd like to add one other element, which I hinted at earlier, which is that for the first time, our team has proceeded with what we're referring to as satellite LUCID test centers where our nurse practitioner co-locates within the practice of a gastroenterologist specialist or other institution and is able to provide testing services in direct collaboration with the practitioners. We're very excited about this prospect and look forward to reporting more on it as we get more traction. Let's now move on to an update on our laboratory operations. reasons i noted in my opening comments this is perhaps the most important update i have for you today in terms of its impact on our future business as i stated we are now truly from an operational perspective an independent full-service medical device medical diagnostic company capable of fulfilling the clinical economic potential of our products to illustrate this let me first remind you where we were at the end of 2021 we had just hired our own chief scientific officer to help us plan a transition but were otherwise entirely dependent on a third-party commercial laboratory to perform and bill for the e-SUHR test. This required a rather convoluted contractual arrangement, whereby Lucid was, in effect, a marketing and sample collection arm of the third-party laboratory, which paid Lucid fixed periodic payments for these services. The small amount of recognized revenue recorded during this period was entirely from these third-party payments, not receipts received by Lucid from payers. In addition to these contractual complexities, we were entirely dependent on the third party's quality standards and processes for performing the assay and billing for it, with limited ability to advance these consistent with our own strategic goals and high performance standards. During the first quarter, as we previously reported, we initiated a comprehensive effort to correct this deficiency by launching Lucid DX Labs as a wholly owned Lucid subsidiary. We started by acquiring the assets, including the appropriate certificates and licenses, to operate our own CLIA-certified and CAP-accredited laboratory, leased and built out a 20,000 square foot building in Lake Forest, California, and acquired the equipment necessary to run this next-generation sequencing assay. The laboratory passed our CAP, or College of American Pathologists, and New York State inspections soon thereafter. We contracted with the same third-party laboratory to manage the laboratory, until we hired and trained our own personnel. That process started with securing an outstanding VP of laboratory operations with nearly two decades of clinical laboratory experience, leadership experience in May. In less than three months, and despite labor market headwinds, we have hired a full team of outstanding clinical and research laboratory personnel to operate our laboratory. The team has already made significant strides in optimizing workflow and resolving startup issues as they arose. For the reasons I described, perhaps the most important upgrade has been in how we are now able to submit and collect claims for Easter card testing. Concurrent with the acquisition, we upgraded to our own revenue cycle management provider, Senergy, and to, for the first time, submit, prosecute, and collect claims directly on our behalf. After a transition that extended much longer than we'd hoped due to delays at the IRS and our commercial bank throughout the second quarter, Synergine is now fully up and running. Last week, we started submitting a backlog of claims held since the lab transition in February. Although the claim cycle and time from submission to receipt of payment can be long and unpredictable, especially for a new test, we should start seeing some out-of-network and PTO receipts, along with recognized revenue in the coming quarters, as Dennis will describe in more detail. So to summarize, we now have a fully operationalized Lucid DX lab, staffed by our own personnel, operating with our own quality standards and processes, and most importantly, capable of submitting and aggressively pursuing claims directly with payers, which we just recently began doing. Let's now move on to a brief update on where we stand with reimbursement. The short but sweet answer is steady, but still early progress on private payers, and the beginning of another waiting game of somewhat unknown duration with Medicare. On the private payer side, we have entered into participating provider agreements with four preferred provider organizations, MedIncrease, Prime Health, excuse me, five, MedIncrease, Prime Health Services, Three Rivers Provider Network, Galaxy Health, and Alevo Health, a specialized diagnostic laboratory network. Collectively, these organizations cover many millions of lives. The agreements provide attractive rates of reimbursement for the E-Cigar test as a percentage of charges or the Medicare rate of $1,900, $1,938. Since claims are just being submitted, it will take some time to get a sense of the revenue yield of these secondary PPO agreements. Our expanding market access team has been quite active, and we expect to secure many more such participating provider agreements covering millions more lives in the coming quarters. We're also laying the groundwork for in-network contracting discussions with larger, more traditional regional and national health plans. Full engagement and consummation of such contracts will require some additional time, to generate meaningful claims histories, as Lucid DX Labs, a process which, as I explained, just started, and to collect and report retrospective and prospective clinical utility data, which I will describe more in a bit. On the Medicare front, after a flurry of activity early in the second quarter, things are quiet and could remain that way for some time. Briefly, in April 2022, Medicare contractor Palmetto GBA's MOL-DX program published a proposed foundational local coverage determination, or LCD, for tests to detect esophageal pre-cancer and cancer. This triggered a public comment period, which included an open meeting on May 10th and written comments submitted soon thereafter. We had very strong participation in this public comment period, including recruiting over a dozen entities, such as key opinion leaders, NCI investigators, professional medical societies, patient and industry advocacy groups, and presented a unified, strong, evidence-based message on how to improve the draft LCD into one that can actually be operationalized, consistent with clinical evidence, updated guidelines, and precedent. A bit to our surprise, but in a move we welcome, Noridian Healthcare Solutions, the Medicare contractor which covers our laboratory, and will have the final say on eSAGARD coverage and Medicare beneficiaries, publish its own proposed draft LCD mirroring MUL-DXs. This triggered an identical public comment process with an open meeting on May 26th and written comments soon thereafter. We and our partners actively participated in the Noridian process with an identical strong message. We requested follow-up meetings with both MoldyX and Noridian to further discuss the draft LCD and the proposed changes we and our partners submitted. Moving forward, the MACs will review the comments and revise the draft LCD as warranted. a process whose duration is really impossible to predict, but given our experience to date with backlogs, will almost certainly extend into next year. When a final operational foundational LCD is published, we will have the opportunity to submit a technical file, including new data, clinical utility data, and information specifically requesting eSAGARD coverage under the LCD. The good news is that our case volume to date has skewed heavily towards private pay, not Medicare. This provides us with the opportunity to make steady incremental progress on the private pay side while awaiting the more binary opportunity for Medicare. With our own lab and revenue cycle manager now in place and operational, we hope to start seeing the fruits of these efforts in terms of receipts and revenue and have a sense of its trajectory sometime thereafter. Let's now move on to clinical research. Gathering the appropriate clinical evidence for e-cigar testing remains a pillar of our growth strategy. Given that clinical studies are very expensive and represent a substantial portion of our budget, it's important that we make sure that we are investing the right amount and the right studies at the right time. Accordingly, a key element of the company-wide initiative that I briefly described at the opening has been to take a careful look at our allocations of resources into clinical research to align with our near, medium, and long-term goals. With all parts of our commercial engine now in place, humming, and operational, our highest priority is to secure first private and then Medicare coverage. These require us to collect critical, real-world clinical utility data demonstrating to payers that ESA Guard positively impacts medical decision-making, that a positive test results in a follow-up endoscopy and a negative test does not. Such data will be necessary for us to secure direct in-network coverage from regional and national health plans and to convert a future foundational LCD into Medicare coverage for Eastern Garden. This effort is well underway. A retrospective clinical utility review of Dr. Popper's large NYU experience should yield data by the end of the year. 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 institution-sponsored clinical utility studies are underway. In parallel with this clinical utility study push, we have revised our strategy on our two prospective screening and case control studies, ESAGARD BE1 and BE2, in consultation with our board, principal investigators, and advisors to better align with our strategic needs. When we launched these studies, securing FDA PMA approval for ESAGARD and ESOCHEC as an FDA-registered in vitro diagnostic appeared to be a necessary near-term goal to secure commercial traction and reimbursement. We now see from our direct experience that this is not the case. We have a good understanding from the trenches of what drives clinical adoption and securing reimbursement. Although this data and associated PMA clearance will be valuable, it will be in supporting medium and long-term goals, such as expanding guideline support, including U.S. Preventative Services Task Force recommendations. There are numerous factors we considered in addition to being proven stewards of our capital. These include, most excitingly, promising research data on the next generation version of the ESAGARD assay, which our own research team is now executing, and the opportunity to conform the clinical trial process to current clinical practice and expand to target population to include women. So our current plan is to pause enrollment in BE1, the prospective screening study, and and rebooted under the breakthrough device umbrella at a later date when the next version of the assay is optimized and we can justify the capital investment. We are continuing BE2, the case control study, and will likely complete enrollment at a somewhat lower sample size in early 2023. We will hold those samples and wait to run them again until the next version of the assay is optimized. Before handing the reins over to Dennis, let me quickly summarize the strategic priorities from our company-wide initiative that I have touched on through the course of my remarks. With an increasingly predictable sales process and well-honed sales training, we will continue to invest in the necessary sales infrastructure, training and supporting resources to drive steady testing volume growth, to demonstrate clinical utility, and generate claims history to support our reimbursement efforts. This includes sticking to our trajectory for sales team and Lucid test center growth for this year Thereafter, we anticipate slowing or even flattening that curve, focusing on driving test volume growth within our existing infrastructure of approximately, end-year infrastructure of approximately 60 sales team members and 18 test centers. Once reimbursement is more fully established, we will transition to full-throttle efforts to drive testing volume and revenue growth nationwide. We will continue, number two, to aggressively seek to secure private and Medicare reimbursement investing whatever is necessary in that effort, including into generating clinical utility data. We will also not skimp in any way in terms of investing in our laboratory to make sure we have the most efficient, cost-effective, high-quality processes and are operating the revenue management cycle of claim submission and prosecution in a manner that maximizes effectiveness and efficiency. We will adjust our clinical trial strategy as described outside of the clinical utility studies, generating the best data we can from patients enrolled while preserving our capital to deploy at a later date. Finally, two areas I haven't yet mentioned, we will continue the process of transferring ESOcheck to our high-volume manufacturing partner to assure sufficient capacity for future growth, and we will continue to invest aggressively in getting ESOcure, our esophageal ablation device designed to supplant the Medtronic Barracks device, on the market in 2023. That work remains very promising. With that, I will pass the baton on to Dennis to provide an update on our financials before opening it up for questions. Dennis?