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spk07: 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.
spk02: 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.
spk04: 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?
spk05: Thanks, Leshawn, and good afternoon, everyone. Our preliminary and summary financial results for the second quarter and the June 30th were reported in our press release that was published earlier today. Plan to file our quarterly report for Lucid Diagnostics on Form 10-Q with the SEC later today, maybe even in a few minutes. At that time, it will be available at SEC.gov and also on the Lucid website. As you already know from our previous corporate update calls, that is a rule ESL Guard Performer recognizes gap 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 part of the transition to our company-owned commercial clinical laboratory, we also contracted with a revenue cycle management company, or RCM, as mentioned. the service provider, will submit third-party claims on our behalf. The RCM service provider will also oversee payer claims, fields processes, patient billing, online payment collection, and claims tracking. With the appropriate licenses and certifications for billing and credentialing secured and are recently having put in place 30 back-office systems, claims for approximately 1,000 tests performed since the establishment of our own lab are now being processed, including the 853 months into June 30, 2022. Presently, recognized revenue for GAAP purposes is subject to actual amounts collected during the period. Due to the delays, as Leishon pointed out, in receiving certain information from the IRS related to establishing required lockboxes at J.P. Morgan, our commercial bank, the initial batch of claims were submitted by our RCM on August 1. Accordingly, since the RCM and submitting processed from June 30th, there were no collections during the three months ended June 30th. 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 a disconnect between timing of revenues recognized versus the timing they are submitted for third-party reimbursement until these future conditions are met. The GAAP and claim submission transition near-term GAAP revenue reckoning until the system catches up with the claim for the test performed during the transition. The number of tests performed and submitted for payment are provided in the press release and was discussed earlier by Leishon. Obviously, in the early stages of our commercial launch, our test centers will 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 the e-cigar telemedicine program. Presently, there are five banking analysts with issued coverage on Lucid and others doing their diligence. We believe the quantity of e-cigar tests, assuming the related claims will be reimbursed and that's payment rate, we would need to perform to meet the 2022 revenue estimates provided by the analysts are achievable. The quantity of collections and therefore the recognized revenue for each accounting period are highly dependent upon the evolving reimbursement landscape. Since there was no revenue in the second quarter, costs for the test centers in our laboratory are reclassed to operating expenses. For the second quarter and excluding non-cash, non-cash of $38,000 expenses, test center costs were approximately $460,000 and are included in marketing expenses. For the second quarter and also excluding non-cash expenses of $375,000, Laboratory costs of approximately $745,000 are included in G&A expense. A few comments about our operating expenses. Sales and marketing start. With the quarter ended June 2022, sales and marketing expenses were approximately $3.9 million for the quarter, compared to $1 million for the corresponding prior year, and also reflects an increase of about 17% sequentially not including stock-based compensation charges. This largely reflects headcount increases in its related costs. On the G&A front, G&A expenses were $7.3 million for the quarter end of June 30th, compared with $3.1 for the corresponding period last year, and approximately a 28% increase sequentially. The increases are largely related to compensation other outside consulting services, related to patents, regulatory compliance, legal costs, and public company expenses. R&D expenses for the quarter just ended were approximately $3.4 million as compared to $1.9 million in the corresponding period last year, and are approximately a 19% increase sequentially, with the changes between the periods largely tied to clinical trial expenses. There's a table we provided in the press release published earlier that adjusts each component of operating expenses for the embedded non-cash based compensation expense. Without the stock based compensation expense, which are non-cash charges, total operating expenses for Lucid were $10.1 million compared to $3.4 million for the three months June 30th in 2021. With respect to the loss per share amounts, Lucid Diagnostics reported a second quarter 2022 net loss attributable common stockholders of $14.6 million or a loss of $0.41 per share. versus the same period in the prior year of a loss of $6.8 million or $0.44 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, and acquisition-related costs, all to better understand the company's financial performance. You'll notice from the table, after adjusting the second quarter gap loss by approximately $4.6 million for non-cash charges, The company reported a non-GAAP adjusted loss for the second quarter of $10.1 million, or $0.28 per common share. Lucid had cash of $32.7 million as of June 30th, compared to $53.7 million at December 31st. As you're aware from my last call, Lucid entered into a committed equity facility with an affiliate of Cantor Fitzgerald, where 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. As reported in the 10Q, we approximately 1 million from this facility subsequent to June 30th, 2022. With that operator, let's open it up for questions.
spk07: Thank you very much, sir. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star and one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from Ross Osborne from Cantor Fitzgerald. Please proceed with your question, Ross.
spk00: Hi. Congrats on the strong volumes, and thanks for taking our questions. I'm Will. How are you guys? Just starting off, given the updated guidelines to include women, have any women been screened at this point? And then how should we think about your marketing efforts going forward to drive awareness to the female population?
spk04: Great question. So it gives me an opportunity to make a bit of a distinction here. So for the sort of commercial experience for the tests that are being performed, we have not in any way limited tests or, frankly, you know, argued strongly that women should not be tested. I don't have the numbers in terms of the breakdown, but there are definitely women who have undergone the test within the commercial side, and we expect that we'll be able to make that distinction a little bit more clearly given the particularly that the ACG guideline is no longer hedging on that. It is important, and it is actually one of the aspects, the advantages of us pausing the BE1 study is that our clinical study, the BE1 and BE2 studies in particular, were actually designed only to enroll men because we felt it would give us the best shot. In our discussions with FDA, we knew that that would be an important consideration given those guidelines. So, When we eventually reboot the BE1 screening study, we will be able to expand. We'll work with FDA to expand the inclusion criteria to be consistent with the updated guidelines, which include women.
spk00: Okay, great. And then maybe switching over to market efforts, is there any feedback you can share on your advertising initiatives and existing markets? And then with the rollout of new geographies, you know, what market development initiatives do you plan to undertake based upon your learnings from the initial markets?
spk04: Great. And thanks for asking that because it gives me a chance to elaborate on something I didn't earlier, which is that, you know, one of the things that we are definitely sort of keeping at a low burn and being cautious about is our DTC effort. So as you know, we do have our e-cigar telemedicine program in place. It's actually quite useful because when we get – self-referrals from individuals who hear about us through various channels, through the grapevine, from the web. We have a mechanism by which they can secure testing if they're in the vicinity of a test center or a practice that does it, even if their primary care physician is not willing to order the test. So that's useful, and we're happy we have that in place. We have some data back from the efforts within Phoenix, and we know that, and as I mentioned, we've done that on a limited basis. And we've had good responses. We've had good response with regard to sort of general awareness as well as people who have come to the test centers through the telemedicine program having directly heard from that. All that being said, just one thing to emphasize, we are definitely looking to keep that in check, and that's one of the things from this company-wide initiative that we've chosen to not invest significant resources in because, frankly, that's paying for a test volume that's not reliably yet reimbursed. So we have the results in place. We have the collateral in place. We have the telemedicine program in place and is still useful at a low level. But our plans for the coming quarters, until reimbursement is more predictable, is to focus entirely on the other two sales channels, targeting primary care physicians and specialists and institutions.
spk00: Okay, got it. Congrats again on the progress, and thanks for taking my questions.
spk04: Thanks, Russ.
spk07: Thank you. The next question comes from Mike Matson from Needham & Company. Please proceed with your question, Mike.
spk05: Hey, Mike. Good afternoon. Hi. Just on the PPO agreements, I mean, I've never heard of these, so I'm assuming they're smaller. Is that kind of the strategy to start with some smaller ones and sort of work your way up? Or, you know, I guess just why these particular ones?
spk04: Yeah, so let me talk a little bit about them. So these are secondary PPOs, and there's an entire sort of market of secondary preferred provider organizations that are not small. Prime Health – is the second largest in the country and has, they don't fully report their numbers, but are in the 10 to 20 million covered lives. So they're not small, but they're really aggregators. They have providers within their network that they contract, like us, for set fees, and they have clients, which include health plans, employers, unions, and other entities that contract with them directly to provide services. to participate in these PPO services. So they're not, you know, at the Blue Cross, you know, large nationwide or even large regional traditional health care plans, but they do serve a purpose. And you hinted at the right thing, which is that they are lower-hanging fruit. So it's a little bit certainly easier to make these arrangements. We've been quite gratified that we've been able to hold the line on payment as a percentage of our charges and payment numbers that are quite attractive to us. And we'll see. You know, we'll obviously know in the coming quarters, you know, how much traction we get from these. But they're a place to start while we are getting our clinical utility data set up and the claims history so that we can have the more fulsome conversations with the more traditional health plans. And as we start to see how the added network payment trajectory plays out, as you know, we – our third-party laboratory was generating out-of-network receipts at a decent clip, at a 50% to 60% sort of typical out-of-network coverage level, and we're looking forward to seeing how, whether that, see if we can reproduce and increase that, particularly with, now that we have the ability to be more aggressive about pursuing those. So to simply ask you the question with regard to the secondary PPOs, we'll see how they translate into into receipts, but there are lots of them out there. We'll continue to report as we sign them up and continue to expand the number of covered lives that are covered within them. Okay, thanks.
spk05: I'm glad you mentioned that 50% to 60% number, so I want to make sure that I understand that correctly. So that was for the prior lab that you guys were using that was doing their own sort of billing. So, I mean, is that a reasonable kind of assumption for, you know, with this revenue cycle manager that you're now using that they could get maybe 50% to 60% of the tests paid for?
spk04: Just to be clear, not 50% to 60% of the tests. They were receiving 50% to 60% of the list price. Basically, we were charging two grand. They were charging $2,000. Okay. And that's kind of a standard out of network. We weren't balanced billing the patients, right? So those were, or they weren't balanced billing the patients. So that, you know, I think we were averaging about, they were averaging about $1,100, which represents a bit more than 50% of our charges. So that's gratifying, and we hope to reproduce that in terms of the percentage of tests that are actually generating that number and the trajectory. We certainly hope to do better than they are because we're in a much stronger position to be aggressive about pursuing those claims. But we need, you know, we need a couple quarters to see how that plays out.
spk05: Okay. And, I mean, is there any way to – you've got the Salesforce out there. You've got these test centers. Is there any way to try to target patients that are, you know, for example, in these PPOs or somehow more likely to actually result in you getting paid and getting a cash collection?
spk04: We actually mentioned that, and it was maybe kind of buried in the press release on the test centers, and I'm not sure. I don't remember if I reiterated that today, but absolutely, yeah, because many of these are somewhat regional and even semi-local. And so when we, now that we're kind of unshackled from the state that we had targeted because of low regulatory hurdles and we have the full regulatory program in place, we're free to pursue placement of test centers wherever we choose. And so absolutely, we have been selecting, we have a clear process where we're selecting the sites, the ones we've done so far, and the sites that we're looking to complete for the rest of the year in areas that overlap with coverage, as well as I mentioned, areas where we already have a presence with our sales force. So, yes, there's an opportunity to do that. We'll obviously have to see how that plays out in terms of yield. Okay.
spk05: And then just finally on the satellite test centers, you kind of explained what it was, but I guess I was wondering if kind of how that came about and why you opted to do that as opposed to just maintaining the existing kind of test center model that you've had.
spk04: Yeah. It's not because there was any issue, frankly, with the test center model. That's cranking along just as we've designed. It really arose from kind of spontaneously, and I give credit to the team on the ground for their creative thinking around this, from more the other channel, the engagements with specialty practices and institutions, particularly large primary care and multispecialty practices and, for example, community hospitals, where in discussions with, you know, that's a different, as I've mentioned before, that's a different engagement where we're not looking to just get them to order a test to send to our test center, but we're looking for them to kind of build a program. And as you go through the conversations around what that takes and how to put together the infrastructure and scheduling and so forth and who's going to do it, the conversation often comes up about, hey, we're trying to figure out who should do this within our team and which NP to allocate or other professional to allocate to do these to check procedures. And the question came up of could we be in a position, we have some extra capacity with our nurse practitioners in certain areas, could we provide a nurse practitioner to come in to a practice and utilize space that's provided to them to process patients, to do ESO check procedures that are referred from them, either as an interim step or maybe even potentially as a longer-term step. So it really was, you know, something that just came about creatively to facilitate the expansion of the second channel, the specialty and institutional channel. And when I first heard about it, I was, you know, really quite excited. Excited and interesting. It's something we had contemplated at the beginning, and we obviously this time went through an exhaustive compliance assessment with our in-house and external team to make sure that it was being done in a properly compliant way. And it's been gratifying so far. So early, early, early efforts. Again, it's not detracting from anything. It wasn't because other aspects of how we've been pursuing this have not worked or anything to do with our lucid test centers. It's just, frankly, another opportunity to get patients in a room and get them the test. Okay, got it. Thank you. Great. Thanks, Mike.
spk07: Thank you. The next question comes from Ed Wu from Ascendient Capital. Please proceed with your question, Ed.
spk03: Yeah, congratulations on all the progress. As you guys continue with stage two of moving out your test centers to bigger markets, bigger population markets, Are you having any issues finding, you know, labor nurse practitioners, or is the cost of these test centers going up as you go to, you know, bigger population areas?
spk04: So, great question. So, as I kind of hinted, both with regard to this and with regard to recruiting the personnel for the laboratory, you know, we are very much going to this with expecting headwinds. There's a, you know, tight labor market, particularly for skilled personnel. and I don't mean to minimize the effort that our team has had, and they've worked incredibly hard to fill these slots, but, you know, they've done pretty well, and we've been able to, you know, get high-caliber people. We have quite high standards. The interview process, particularly for the sales reps, is very rigorous now. We have a much better kind of profile of what these, particularly the primary care sales reps, will do. We know we have a much better sense over the past, you know, year as to what works and what doesn't, and so, you know, we just had a training event last week and, you know, high-caliber folks, and we've been able to get them in the door and excited about moving forward. So, you know, again, that's just kudos to the team to overcome the, you know, these sort of broader headwinds to be able to continue to fill those roles.
spk03: Great. And then, you know, you are starting to open these test centers, you know, at, you know, more bigger markets. Is your rental cost higher? Oh, yeah. Sorry.
spk04: I apologize. Yes. So, you know, I'll let Dennis comment on that, but the general answer is no. I mean, we, you know, those numbers, the kind of the two tests per week to break, two reimbursed tests per week to break even, you know, are based on, you know, even somewhat conservative estimates of lease costs. And, you know, even in these larger cities, sure, it costs more to rent a medical office in Orange County than it does in Boise, Idaho. But that difference does not substantially change the overall model or the return on investment from them. Dennis, did you want to add anything to that?
spk05: Yeah, I agree with that. In the smaller markets, the monthly rental is in the $1,000 to $1,500 a month range. In some cities, even lighter than that. In some of the bigger markets, with bigger regulations, it might range $1,500 to $2,500 a month. But as you can quickly see, you're talking about a handful of tests over the course of a year to kind of pay for that. So it really isn't a factor in the decision about where to place these. From a cost of labor standpoint, your bigger markets are probably still trades within a fairly narrow range. You might see a 10% to 50% variance. But again, the conclusion in terms of how to cover the overhead there with a handful of treatments still applies even in the bigger markets we're experiencing.
spk04: Yeah, it's really exciting because now it gives us the ability to do, just like any business, placing sites to do fairly sophisticated market analyses, demographics, traffic, just all the things that you need to look for to try to make it easy to get a good catchment area, to link it up with primary care and other health care institutions that you think are high-yield targets. And also, as I mentioned, for the first time, putting test centers in areas where we already have personnel. And as you might imagine, the personnel in Ohio and in Orange County who have been, and even in Texas, who have been working hard on the non-LTC side are ecstatic to have an LTC that will help them, will really help their efforts a lot. So it's a lot of fun now to try to figure those out.
spk03: Great. Well, I'm sure you can't wait until they open one in the Big Apple, because if you can make it to New York, you can make it anywhere. All right. Thanks a lot, guys. Thank you for answering my question. Thank you.
spk07: Thank you. The next question comes from Mark Massaro from BTIG. Please proceed with your question, Mark.
spk01: Hey, Mark. Hey, guys. It's going to be tough to follow up that last comment about New York, but anyway. Yeah, congratulations on the really strong Q2. Certainly your volumes beat my estimate, and I was not expecting revenue in Q2. And I apologize, I've been jumping around different calls and missed your prepared remarks, but do you think Q3 is the period where you can start recognizing revenue, or do you think it's going to take a little bit longer than that, just given some of the administrative items you guys have laid out?
spk04: Yeah, I'll refer that to Dennis.
spk05: So the second quarter had no revenue because of getting set up with the revenue cycle management company. That's in place. And largely it wasn't the revenue cycle management company. It was related to the IRS certain documents we needed to get so we could open up the lockbox, which was a condition for the revenue cycle management company to put certain things in place. That's done. We started submitting claims on August 1st. The overall guideline in terms of we'll recognize revenue upon collection. So we are submitting claims to payers. There's roughly 1,000 tests since we started our own lab, 850 in the most recent quarter, and we'll submit it. If we use the experience from ResearchDx as a proxy for what might happen, Those that got paid were being paid in out-of-network rates in the 50% to 60%. And actually, that was increasing time. One of the things that ResearchDx didn't do that CenterGene will do for us, and it's one of our overalls to push just policies and contracts with the larger is appeal those denials. which is a normal process for anybody at the early stages of reimbursement, could also help in terms of the overall payment per claim submitted. So in terms of the third quarter, it's reasonable to expect that there'll be some revenue. How much of those claims that are submitted will get paid is still somewhat of an uncertainty, and it will take some time to catch up. I think we all know that reimbursement, even from your personal experience, is always a little tiresome but it is our expectation in the second half we'll catch up on or have an explanation of benefit for many of those that we have submitted and understand where we stand with uh you know payments per claim submitted i didn't give you you know a full answer with what you asked but uh i gave you kind of the boundaries of what to expect
spk01: Okay, that's helpful. Obviously, you guys are scaling the organization, which is nice to see, especially at a time when other companies are shrinking their organizations. There's certainly some reps looking for jobs. Maybe can you just talk about, of the 850 volumes you had in the quarter, how much of that was repeat orders from existing physicians, and maybe how much of that was you know, whether you want to call it same store versus maybe additional reps contributing or volumes coming from territories that you didn't have set up like six months ago?
spk04: Yeah, I can't, I'm not, I'm not sure I can get, I certainly can't give you numbers on that. I can sort of qualitatively tell you that, you know, often the assumption is that it's, you know, that you're going to, again, even earlier in our experience where we had very, very chunky volume with, you know, a few large, you providers like the NYU folks representing a large portion. That's obviously spread out substantially, and we do have sites that are generating repeat business. But there is a meaningful amount of new account openings, and again, we're not really at the point where the noise in those numbers is sufficiently limited to report on it and make it useful. But we're seeing both. You know, you described, let me just sort of relate a point that you sort of opened on, which is that, you know, we are expanding, and we look to expand through the end of this year. But as I mentioned, you know, after we get to kind of that 60 total number and just under 40 reps, you know, we'll likely slow that growth down quite a bit and look to do what you're saying, which is to drive in our existing areas at our existing geographies with our existing team, both same store, as well as new account openings and kind of drive our volume with the existing team really because of the broader initiative and focus we have on our runway and being conscious of that.
spk01: Excellent.
spk05: Yeah, there are a couple other things that we've talked about that might help in terms of that, and we're still developing the – kind of, as you said, same-store metrics. But one of the things that in Leishon's prepared remarks is that the test centers out of the total tests are about two-thirds of the total. And Leishon also talked about how we're growing the sales force, and it takes about four months for them to be productive. We exited March the first quarter with 21 people in the sales force, 10 of which were designated as primary care folks. So if you think about four months, produce you know the same stores sales force of those these reps were producing a great portion of that now we presently in August about a headcount of 40 and the primary care for you know salespeople are at four so you know to look at who was producing in the second quarter predominantly those 10 folks in the primary area and driving tests to our test centers. So it's not completely responsive to your question, but it will give you a little bit more color in terms of why we're pretty optimistic about where we're heading.
spk04: Just to be clear, I just want to make one point to clarify that number just so people know. So the proportion of tests that are coming through our test centers has gone up, and it was 20 at one point. Now it's pushing 70%. So that's great because it's sort of consistent with where we think the long-term model is. But I want to make sure that that doesn't, people don't interpret from that, that the other channel, the institutions and the specialty practices, which are longer lead times, right, because that's program building. That's not, hey, could you order, you know, maybe we could order 10 tests for this month. That part of the business grew as well. And we think it's an important part of the business as well. So we're not shifting, you know, from that group, from that channel to the primary care channel. We're growing both. but the growth has expanded, and my guess is we'll probably settle somewhere in this two-thirds, three-quarter range, and we'll continue to have a reasonable proportion of the tests coming through these specialty practices and institutions.
spk01: Great. Thank you very much, and I will leave it there. Thanks, Mark. Appreciate it.
spk07: Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Dr. Lisan Eklag for closing remarks. Thank you, sir.
spk04: Great. Thank you, Operator. And, hey, thank you all for joining us today and for the great questions, as always. We look forward to keeping you abreast of our progress via news releases and periodic calls such as this one. And, as always, the best way to keep up with Lucid news updates and events is to sign up for our email alerts on the Lucid Investor Relations website and to follow us on social media on Twitter, LinkedIn, and YouTube. And you can also contact Adrian at akm.padmed.com. So thanks again, and everyone have a great evening.
spk07: Thank you very much, sir. This concludes today's conference. You may disconnect your lines at this time, and thank you very much for your participation.
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