Lucid Diagnostics Inc.

Greetings and welcome to Lucid Diagnostics third quarterly update conference call and webcast. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Adrian Miller, Vice President of Investor Relations. Thank you. You may begin.

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. Lee Sean Eklav, Chairman and Chief Executive Officer of Lucid Diagnostics, along with Dennis McGrath, Chief Financial Officer of Lucid Diagnostics. The press release announcing our business update and financial results will be available shortly on Lucid's website. Please take a moment to read the disclaimers about forward-looking statements in the press release. The business update press release and the conference call both include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer. and in our filings with the Securities and Exchange Commission. For a list and a description of these and other important risks and uncertainties that may affect future operations, see Part 1, Items 1A, entitled Risk Factors, and Lucid's most recent annual report on Forms 10-K, filed with the SEC, and any subsequent updates filed in quarterly reports in Forms 10-Q and subsequent Forms 8-K. Except as required by law, Lucid disclaims any intention or obligations to publicly update or revise any forward-looking statements to reflect changes in expectations or in the event of conditions or circumstances on which these expectations may be based or that may affect the likelihood of 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. So thank you, everyone, and welcome to our quarterly call. I'd like to first start by thanking our long-term shareholders for their ongoing support and commitment. As we discussed at our last quarterly call, we had some recent transformational milestones that we've put behind us, and the team is now, for this past quarter and moving forward, just intensely focused on executing on our long-term strategy. We're very satisfied with the solid results that they've delivered over this past quarter and are really particularly proud that they did so well under budget for the quarter of the year as we continue to keep a close eye on cash preservation. I will note that for the first time, we've changed the format here, moving from purely an audio conference call to a webcast. We did so in response to feedback, including one of our long-term PatMed investors suggested that this would be more useful and look forward to ongoing feedback to make sure that we are providing the type of transparent communications that we have always aspired to. Let me start with some quarterly highlights. eCigar testing volume has increased 28 percent sequentially, quarter to quarter, and 436 percent annually to 1,088 tests performed in the third quarter, and we're happy that we've gratified that we've cleared that 1,000 tests per quarter milestone. We now have 13 LUCID test centers that are operating in 11 states, and three more are due to open during this coming quarter, during this quarter. The satellite LTC activity, a concept that we introduced on our last call, and I'll describe more in detail later, has been increasing rapidly and now includes about 22% of the patients undergoing e-cigarette testing. Our laboratory, LUCID DX Labs, is operating independently with enhanced quality and efficiency metrics that I'll review. We're starting to receive payments and recognizing revenue on e-cigar claims that were submitted under Lucid DX Labs starting in August. We have clinical utility studies to support private and public payer reimbursement that are underway. We completed the transfer of TESO check to a high volume manufacturer. And as I mentioned, we're executing on our growth strategy while continuing to focus on preserving cash and are running well ahead of our budget for both the full year and for this past quarter. Recent introduction for those of you who are just learning about our company, Vucid Diagnostics is a commercial stage cancer prevention medical diagnostic company. We're focused on early pre-cancer detection in the tens of millions of patients with gastroesophageal reflux disease or chronic heartburn who are at risk of developing highly lethal esophageal cancer. And our mission is to prevent these, deaths from these cancers in at-risk patients with chronic heartburn. Esophageal cancer is highly lethal and is becoming more prevalent. About 16,000 patients die every year. You can see on the far right there, we've had a 500% increase in incidence over the last few decades, and it remains the second most lethal cancer with an 80% overall prior mortality. The key statistic on this slide, however, is that The stage one mortality rate at five years is 40%, unlike most other, nearly all other common cancers like colon cancer and breast cancer, where a stage one diagnosis is actually a victory. So because of this, early pre-cancer detection is really necessary to prevent these deaths. And unfortunately, less than 5% of those who have been recommended for screening for over a decade have historically undergone endoscopies. Lucid's products include two products, IsoGuard, our esophageal DNA test, and our IsoCheck cell collection device. And they are the first and only commercially available test capable of serving as a widespread screening tool to prevent these deaths through the early detection of esophageal pre-cancer. So, in a sense, they're the missing link to establishing a viable cancer prevention program for this particular type of cancer. We're really excited, and we've previously announced this, that the society guidelines from the major gastroenterology societies now recommend an ESO check in conjunction with ESO-GARD as an acceptable alternative to endoscopy. And the further updates also no longer consider having symptomatic heartburn as a mandatory prerequisite, which has significantly expanded the population of patients who are candidates for ESO-GARD testing.

The commercial opportunity here is very, very large.

As I mentioned, the target population, because of the updated guidelines, is now 30 million patients. These represent patients who are at risk, who have chronic heartburn, and are recommended for screening. I should note that this increase does not include the elimination of the need for GERD symptoms in the American Gastroenterology Association guidelines, but does reflect an expansion to include an unequivocal recommendation of women. Medicare payment has been established at $1,938, resulting in a very large multi-billion dollar market opportunity and an over 90% estimated growth margin of volume. Our sales strategy includes targeting primary care physicians and specialty and institutions. The specialists include gastroenterologists, foregut surgeons, and ear, nose, and throat doctors, as well as institutions, large practices, hospitals, and so forth. These two channels are somewhat different. When we talk to small PCP practices, our goal is to get them to order an e-cigarette test. However, with the specialties and institutions, we're looking to have them build an e-cigarette program, and by making the case that by bringing more patients with, detecting more patients with esophageal precancer, that will create downstream revenue opportunities for more endoscopies, ablations, pH monitoring, and other testing. They also have somewhat different locales. The PCP-referred patients are sent to one of our lucid test centers where one of our lucid nurse practitioners performs the ESO check cell collection procedure. With the practices and institutions, there are two options. We have some practices and institutions where their own nurse or nurse practitioner or physician assistant performs the test after we've trained them. But as I mentioned at the beginning, we're also increasingly utilizing our own nurse practitioners who are able to perform the cell collection procedure at the particular practice, typically allocating a day or so where patients are teed up for that day. We've had situations where up to a dozen patients have been set up for our nurse practitioner to perform their steps. And we're looking forward to continuing to expand this. We have established a robust compliance program around this, and there are a couple of states where we have some limitations, California and Florida being two, but we're figuring out ways to work around the compliance and the regulation challenges in those states for satellite test centers.

Hallucin test centers that we've established are not just physical locations where nurse practitioners can perform.

but they also tend to be sort of centers around which a lot of educational programs targeting patients as well as physicians are centers. The economics of our test centers are very attractive, as I've mentioned many times before. I won't go through all of the numbers today, but the bottom line is that we can cover the fixed cost of the personnel as well as the location by performing two reimbursed procedures per week. So, as I noted in the beginning, we continue to show steady growth in Eastern Guard testing volume, 1,088 tests performed in the third quarter, which represents a 28 percent increase from the second quarter and a 435 percent increase from the third quarter of 2021. I've described this as a mid-throttle strategy where we are deploying sufficient resources to get good, steady growth. but not going full throttle until we have more predictable reimbursement, which we hope to see in the coming quarters. This growth has been driven by a variety of factors. We have increased our personnel, as I'll show in the next slide. We've also dramatically improved our sales training and really data-driven sales processes. And we're now steadily, as we're growing our team, at developing increased experience, although I will note that the median rep has only been in the field for a month or two, and we look forward to continuing to extract improved performance from our existing team through increased experience in the field.

We are starting to track the testing volume by referral source and by operator.

We're still optimizing the tracking and reporting of both of these, so these are generally rough numbers, but you can see

approximately half of the patients, just under half the patients right now.

now are being referred by small individual or small PCP practices, and the remainder are coming from specialists or institutions. And as I noted earlier, the performance of the test is being done at, in a variety of settings, including our own nurse practitioners and the LTC or the satellite LTC, as well as the physician practices. But the important thing to note and the important trend from the last quarter on this slide is that 22% of the tests performed in the fourth quarter were in that satellite LTC model where our nurse practitioners are co-locating with, at a physician practice to perform tests on patients that were from that practice.

And we expect this to continue to, it's clearly making an impact now and we expect it to be a growth driver moving forward. This slide shows the expansion of our sales team.

I've shown this in previous slides. You can see we're making good steady progression month to month at expanding our team. We have 37 sales professionals across the full spectrum of sales reps all the way to senior to sales leadership. Our target where we intend to plateau for the near term is at 58. We could look to complete that by the end of this year, but likely we'll reach that target by the early part of the first quarter of 2023. Our plan, as we've described before, is to, at that point, to pause both the expansion of our sales team as well as the expansion of our test centers and continue through 2023 while we're establishing more predictable reimbursement by allowing the team to continue to grow volume through the measures and the effects that I described earlier. As previously mentioned, we now have We have 13 centers located in 11 states. You can see them here. A couple of notes. We did have a center in Seattle, which we pulled. The regulatory hurdles with regard to managing nurse practitioners there became a bit cumbersome, and we'll go back there at a different point, but we thought we would be better allocation of our resources elsewhere. Since our last announcement, we've added a center in Chicago. That's our most recent opening. You can see there in Illinois, and we continue to, as we described, previously are shooting for an additional three centers.

By the end of this year, we're on a good path to do so. Let me talk a little bit about our laboratory operations.

We're really quite proud of the progress that we've made. As you may recall, Lucid Diagnostics Lab or LucidDx Labs was run live in February of this year. And we've been gradually working our way, and now I can proudly say that we've transitioned to being fully independent with our own personnel, performing all aspects of the test and running the laboratory. You can see here that we've extracted substantial efficiencies. I won't go through all the details here, but I just thought I'd highlight a few, that our ability to extract the DNA from the sample as it arrives has improved in multiple parameters there. You can see by substantial amounts and we're actually garnering more DNA per sample, which has an impact on the performance of the test. And even a very somewhat obscure aspect of the test, the biself-like conversion phase, which is a critical step that's been incredibly time consuming and costly. You can see that the team in just a couple of months has dramatically the time and resources that go into that and that bodes well for our decreasing the overall cost. And there are opportunities to continue to extract efficiencies and cost savings through a variety of means, including automation. The team has also, from a really important patient and physician-facing point of view, has been able to get the turnaround times down. You can see when we took over the lab, times increased as there were some growing pains in the early couple of months. But now we've decreased the turnaround time to six days, which is a record for us.

Next, I'll talk a little bit about our reimbursement strategy and where we are with that.

If you look at the upper left, you can see that our payer mix for the thousands of tests that have been performed to date skew heavily towards private payers, with Medicare and Medicaid only representing about 11%. That is really important as we look at the near-term opportunities for securing reimbursement from private payers versus Medicare, and as it relates to the local coverage determination for Medicare. A quick update on that. Really, we don't have a lot of news. The Molde EX group, which is reviewing the local coverage determination comments that occurred in the second quarter of the year, that included us and about a dozen other entities that commented a draft foundational LCD. They are still working on it, but we haven't heard any response to that, although we did have a call with them. We weren't allowed to talk about the local coverage determination, but we did have a call with the team to discuss our plan for collecting the type of clinical utility data that's required, that will be required to translate a final foundational LCD into an actual coverage determination for ESOGAR at the appropriate time. And those conversations were quite fruitful and productive. On the private payer side, you see that we are steadily working our way through the, from the lower hanging fruit, which are the secondary PPOs, or preferred payer organizations, through increasingly increasing lives covered all the way to national plans. The key factor, and we continue to have ongoing discussions with private payers, with medical directors and so forth, remains as with the Medicare side, with collecting clinical utility data, and I'll talk a little bit more about that later. But our plan to do so, we've been vetting that through both retired and existing medical directors with multiple plans, and we believe we have, we're in a position to start collecting that data in a way that we should start being able to start securing the more, the plans further down on this chart here, and securing networks for that. As we discussed last quarter, we just completed in August the transition to our new revenue cycle management partner, which is the entity that submits claims on our behalf and then goes through the entire claims process, including a variety of adjudications and so forth, ultimately leading to payment or denial. That process was launched in August of this year, the beginning part of August. We have several thousand claims that we've been holding. These are claims that started all the way back to February when we took over the laboratory CLIA certificate and were able for the first time to theoretically bill on our behalf. And we did start billing once the revenue cycle management partner was in place in August. So, this is how it works, just a little primer on that. Once we bill, the payer can either pay directly, and the direct payment can be out-of-network as a percentage of charges billed, typically at some out-of-network rate, or if we're in-network on that particular payer, paid at a contracted rate. If a payment is denied, there's an opportunity to appeal and to secure payment after the appeal before final denial. This process is important, obviously, for securing payment, but it's also extremely important for the entire reimbursement process. I've described this many times that in order to actually have meaningful conversations with the larger payers, you actually have to generate a claims history where claims are being submitted, denied, paid, appealed, and so forth. And we're looking forward to starting to, now that we have all the elements in place, starting to build up those claims histories so we can start having substantive conversations to be in the work on these various plans that are shown on the slide. We have, as I said, we started submitting these payments in the second quarter. We did start to see some payments. They include a few internet and network payments, but the majority of them are out of network payments. where the payer paid us typically at a 50 to 60 percent standard out of network benefit rate, resulting in payments of about $1,200 to $1,300, which is gratifying because these payments do reflect the full list price that we charged the payer. So we don't really have enough data yet to know what percentage of the claims submitted will get paid. We need another couple of quarters to get a better picture of that, but we look forward to tracking that closely over the next couple of quarters to give you a better sense as to how it will do from out of network payments as we are waiting, going in network and securing the network contracts. So, as I've mentioned several times, the key factor for our securing reimbursement is establishing clinical utility. So, if you look at the clinical studies that are currently active, we've talked about this over several quarters, that we've substantially shifted our own internal resources from the performance studies that we had launched earlier, B1 and B2, to clinical utility studies. And I won't go through these in detail, but these are coming along. We are starting to enroll patients in them. We have a retrospective study from NYU that has hundreds of patients that should start generating data quite soon. the mid part of next year to have substantial meaningful amount of utility to engage private payers on. As I mentioned previously, we took the, we made the strategic decision to pause the screening portion of the performance studies, the E1 study, until such time that we have better predictability and frankly an improved asset. We've been, since we've transferred the test to our personnel, we've been making significant strides with regard to improving the assay itself. And so we're going to keep that on hold for now. We're continuing to enroll in the case control study and expect to do so for the next couple of quarters. And once we close that out, that'll be a nice piece of performance data that will supplement the excellent data that we currently have from the science translational medicine paper from a couple of years ago. As I mentioned, again, even for this study, we're benefiting from the fact that we've delay things a bit for cost control and cash preservation purposes because we're continuing to improve the assay and we'll be subjecting the samples collected to the best version of the assay. There are a lot of other studies out there. On the far right, you can see that other investigators are initiating, whether they be ongoing National Cancer Institute studies, American Forgot Society, VA, and others, and we're really excited as those studies continue to enroll and generate positive data for this. Finally, before handing it over to Dennis, just a quick comment about our manufacturing. This was a long process and I want to commend our team for completing what is a, you know, very technical process of transferring the manufacturing from our ESO check cell collection device to a high-volume manufacturer at Coastline, the manufacturer of the device that began there in October of this year. Just last month, the company that's headquartered in San Diego with plants in Tijuana, Mexico, will have an immediate impact by moving to the high-value provider of decreasing our per-unit manufacturing cost of ESO check by about 60 percent, and also the capacity with just the initial line will go to about 20,000 units a year. But what's really important with regard to this transfer is that we have fully scalable capacity at this facility by we can just add additional lines as demand dictates upwards of a million devices a year. So really, really unlimited for the near term. And so with that, I'll pass it on to Dennis to talk about our financials.

Thanks, Leshawn, and good evening, everyone. Our summary financial results for the third quarter were reported in our press release that was published earlier today. And on the next three slides, I'll emphasize a few key highlights from the quarter, but I encourage you to consider those remarks in the context of the full disclosures covered in our quarterly report on Form 10-Q that was filed with the SEC earlier today and is also available on our website. So, you see the balance sheet in front of us, cash between the quarters, sequentially decreased by $5.7 million. Our vendor payables decreased by $2.2 million when considering not only accounts payable that's reflected there, but other recurring accrued expenses. It is offset by intercompany debt to the parent company, PavMed, a $4.2 million increase. However, both boards have agreed that that could be settled up in stock in the coming weeks. We have a committed equity facility, as you're aware, up to $50 million of possibility of stock issuances. We did during the quarter record 1.8 million of proceeds, most of which we had already reported to you as part of our update in August. Our shares outstanding included unvested restricted stock awards as of today. It's 39.1 million shares. And we are now S3 eligible as previewed with you previously and similar to what we've done at PASNA at the Lucid Board considers it good governance to have a shelf registration with the embedded ATM on file with the SEC, and we plan to do so in due course.

Go back one slide.

So you see our P&L in front of us. So slide 20 here compares this year's third quarter to last year's third quarter on certain key items. I'll trust you'll review the information of my comments in light of the cautionary disclosure that's probably hard to read on the slide, but at the bottom of the slide and provides supplemental information, particularly about non-GAAP information. The revenue for the quarter reflects 39 tests and an average payment rate of $1,945 per test. The rate slightly higher than the Medicare rate of 1938 as we received one payment closer to our ASP of $24.99 than the Medicare rate, and that skewed things slightly higher. The prior year reflects the fixed monthly fee received from the third-party lab that we used before setting up our own lab earlier this year. Just a comment on revenue recognition that's consistent with our past discussions. A key determinant in revenue recognition is the probability of collection. For the vast majority of patient out-of-network claim submission, this means revenue recognition occurs when the claim is actually collected versus when the patient report is invoiced and submitted for reimbursement. As you'll see in our 10-Q, this is called variable consideration in the jargon of GAPS ASC 606. for revenue recognition guidelines. And presently, there is insufficient predictive data to recognize revenue when invoiced. That will occur in time as contracts start to come on board and the probability of what we invoice gets collected. We will shift to recognizing revenue when it is invoiced. Our gap and our non-gap loss for the third quarter of this year is fairly flat sequentially. Our non-GAAP loss per share is $0.28 for the third quarter and was also a loss of $0.28 per share in the previous quarter, in the second quarter. On slide 21 is a graphic illustration of our operating expenses presented in detail in our press release. The total non-GAAP OpEx was relatively flat sequentially. The cost of revenue primarily consists of ESO check devices, lab supplies, and fixed lab facility costs, and is now being presented in our 10-Q as an operating expense consistent with the practices of other diagnostic companies. Sales and marketing was relatively flat sequentially, and G&A decreased by 35%, primarily related to the allocation of almost $1 million of lab costs in the prior quarter As you'll recall, there was no revenue recognized in that quarter, and therefore, the typical cost of revenue-type expenses are required to be reclassified to G&A. And then R&D, consistent with Leishon's comments already, decreased sequentially by 22%.

So, with that, operator, let's open it up for questions.

Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question, please press star one on a telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from the line of Mike Madsen with Needham and Company. Please proceed with your question. Yeah, thanks.

Hi. So I guess just doing some rough math on the test centers and then some of the numbers you guys gave, I think that it's about 240 tests of the 1088 were at the test centers. That's about, you have 13 centers. That's about, by my math, 18 to 19 per center in the quarter, about one and a half per week. Does that sound right? And, you know, maybe you can just comment on kind of what you've seen at the centers that are, you know, I know some of them are newer, so maybe the ones that have been running longer, you know, what kind of volumes you've been seeing there? on a weekly or monthly basis.

Let me make a couple comments on that, Mike, and then let me try them in. So one thing is I did want to give a caveat that the numbers on that slide at the pie charts were still kind of improving our sort of tracking ability to understand tests that come through ultimately to the lab, who the referring physician was and who actually performed the procedure. So we're trying to capture that. There are, so, you know, we haven't actually broken that down, and I'd be a little bit careful to sort of confirm your extrapolations there, and I'll ask Dennis to chime in if you'd like. But you did note one thing, which is that we've had test centers in Arizona that have been in place for over a year that are quite a bit busier, and we have some that have just been getting off the ground as we've accelerated growth over the last couple of months. I don't think we have yet have the kind of data which I think you're seeking, which is sort of, you know, what is the productivity of a center. But I just, again, want to remind you and everyone that this is not sort of like a same store concept, right? The test centers are just like the bottoming labs, and they're just where the tests are performed, right? Ultimately, I do think the more useful information, which I think will capture some of the trends that you're trying to seek here, Mike, is the breakdown between primary care physician referrals and referrals coming from institutions that are trying to build their own program. And right now that number has been bouncing between about 50-50 between the two of them. So I do want to be cautious not to get ahead of ourselves in terms of the kinds of extrapolations you're looking for. But hopefully qualitatively that gives you a bit of a sense. Dennis, did you want to add anything to that?

Yeah, I would say that although that math is probably something that all of us want to ultimately do, the chunkiness of yet per center doesn't lead to the predictive value that's needed for future forecasting of what these test centers can result. Some because of the newness of how long some have been operating, but we're still pretty early in the game to be able to put trend lines to that. So that's what I just wanted to say.

Yeah, sorry. One of the challenges, just to add to that, Mike, is that we even have some locations where we have specialty practices. We have a gastroenterology practice that's building their own test program, but it's more convenient for them if they have a lucid test center in the vicinity, it's more convenient for them to send those patients to our test center. So we're still kind of grappling. It's sort of a three-dimensional matrix here about who the operator is, who the referral is, where it's actually being performed to try to capture that data in a way that's useful to understand more of the underlying substantive, you know, issues here with regard to referral patterns and so forth.

Okay, thanks. And, I mean, the volume number looks pretty good, the 1088. Just wondering, you know, on the backlog, you obviously have done a fair number. I don't know what the number is off the top of my head, but, you know, test to date since you started doing them. And, you know, a lot of them obviously haven't been paid for, but yet at least. So, You know, do you have any feel for, I mean, have any of them gotten to the point where, you know, it is sort of a write-off where you got to that, you put that little flowchart up there where you kind of got to that final denial stage or, you know, are all of them still kind of potentially going to get paid?

I don't, so just to give you a sense about how early we are in this process. So, you're right. If you kind of total the number of tests that have been performed, you include Q3, Q2, and I believe, Dennis, right, half of Q1. Here you're talking over 2,000 tests have been performed in claims that have been or need to be submitted and worked our way through the process. As you mentioned, that process just started in August. So we're just starting to see an initial trickle of payments and then initial denial. I don't believe we've seen any final denial. I'm quite sure we haven't because that would be quite early for a claim that was submitted in August. So we've gotten, as I said, we've been paid on a few in the second quarter. So test claims that were submitted in August got paid before the end of September. But the majority of them are still working their way through the system. So we don't have really a numerator, much less on the number that would lead to final denial. That'll take us a reasonable period of time to. Yeah, okay.

That makes sense. I guess I forgot how early it was in the process. The ones that have been paid, are those all coming from a single insurer? Have you actually been able to get paid from multiple insurers at this point?

Yeah, from multiple insurers. We don't have the numbers yet. Again, it wouldn't really be meaningful to give you numbers yet, but no, no, it's not a single payer. We were getting them, and as I mentioned, the most gratifying thing is that they're respecting the list price, not even the Medicare price, but the list of charges that we submit and are paying that at a standard kind of 50 to 60% out-of-network payment with an average payment around $12,000 to $13,000. So, yeah, but we really need a little bit of time to see how that holds in terms of the price, in terms of the number of payers that are paying out-of-network, and frankly, ultimately, for the near term, a useful metric that we're really looking forward to getting our heads up to get our head around, which is the percentage of the total claims submitted that eventually get paid out of the network. That will be an important number for us in the near term as we're trying to lock down long-term contracts.

Okay, great. Thank you.

Thanks, Mike.

Thank you. Our next question is from the line of Ross Osborne. with Canto Fitzgerald. Please proceed with your question.

Good evening, Rob.

Hi, guys. Congrats on the progress. So starting off, given last quarter's update that guidelines now include women, can you describe how the female population performed during the quarter and how you plan to drive awareness going forward?

We don't have a breakdown by gender yet. But I think qualitatively we're seeing men and women and sort of the proportions that you might see. So I don't have a number to report to you, but, you know, we're getting, we'll get, you know, a couple of things that were noted, and again, these are qualitative, that we are getting patients that are consistent with sort of guidelines, right? We're not getting the patients where someone's referring a, 15-year-old without, you know, or a 21-year-old without GERD that we pursue are far removed from qualifying for guidelines. It really does appear that the patients who qualify based on risk factors for guidelines is our typical patient, which, again, bodes well for us in our conversations with payers as, you know, if they're seeing patients where they believe it's not medically indicated based on guidelines would be difficult. I don't have hard numbers for you, but I think the... The ratio between men and women is consistent with what we'd expect from the broader population.

Okay. That makes perfect sense. And then I guess thinking about next year as you continue to expand geographically, do you expect any staffing headwinds with getting nursing practitioners in your testing centers? And if so, what are you doing to mitigate these risks ahead of broader commercialization?

So I'm glad you asked that question. It was a good opportunity for me to sort of reiterate what our plan actually is. So our plan is not to continue to grow the test centers, the nurse practitioner group, or the sales team through the year. Our plan previously articulated was to get to a level by the end of this year with 16 test centers and nurse practitioners sufficient to cover those test centers as well as 58 sales personnel. The 58 target will leak a bit into the first quarter of next year, but we've maintained that as sort of our plateau. And in the context of our kind of strategic assessment and cash preservation mode, we believe that we'll be able to continue to show steady kind of mid-throttle test volume growth with that team as they get more experience in the field and become individually more productive. So, you know, we may reassess that into the year as depending on sort of how some of these numbers play out with regard to reimbursement, amount of network payments, and so forth. We're not ruling out the possibility that we could pivot from that stance, but given our current stance where we're very much focused on resource utilization and cash restoration, we're looking to keep those plateaued. Now, we still have a ways to go on both of those, so the answer to your question is that I think I've said this before. We've been very gratified despite the challenges with workforce labor shortages and workforce limitations at our ability to recruit both nurse practitioners and sales personnel. There always takes time. It takes time to interview. We're very picky. We have a very robust process. We don't just sort of hire people without a very extensive process where they interview literally half a dozen people or more. So it takes time. But we've been able to secure candidates, the high-caliber candidates that we want. And that's true also on the sales side.

Sounds great.

Thank you for taking my questions. Thanks, Russ.

Thank you. Our next question is from the line of Kyle Mikeson with Canaccord. Please proceed with your question.

Hi, Kyle. Hi, this is Alex. I'm on the line for Kyle Nixon. Hi, Alex. Hi. Great quarter, guys. Just had a couple questions for you. So I guess a good place to start would be on the new high-volume manufacturer Coastline. I was wondering if you could dive into this a little bit more specifically. Were you feeling a bit capacity constrained before, or is this more so just a preemptive measure prior to ramping up the business? and this potentially becoming an issue in the future. Thank you. Oh, it's absolutely the latter.

So, we were just planning ahead. We knew it would take a while. It took about a year, honestly. There were a variety of delays. It's not a trivial thing to take a small batch manufacturing line and move it towards to a high volume manufacturer where, you know, these lines are easily reproducible and you can rapidly escalate a capacity over time. So our team, led by Katherine Howard, do a great job of working their way through that. But it's all and it was all anticipatory. You know, we also we haven't shut down the small volume manufacturing because it's always a good idea to have to have dual sourcing, you know, because a variety of you never know what issues could arise. But this is just planning ahead for a future volume.

Got it. And I know this is looking a little bit far ahead, but just thinking about 2023, Can you provide us any color on, you know, maybe like possibly like revenue breakdown, um, by, you know, customer type or, or any trends that you're seeing, you know, at the end of this year, possibly that could be going into next year. That'd be helpful. Thank you.

I think the only trends and I'll let Dennis to answer this. The only trends are really the ones we talked about where we are getting some out of network payments. We're, we're getting paid at, at that 50 to 60% to a 1200, $1,300 level. We're working through generating claims histories. We're, you know, we're getting good quarter-on-quarter, mid-throttle growth. But translating that into sort of predictable real revenue projections is going to take us several more quarters so we can get a sense as to what our out-of-network, what portion of claims submitted will get paid out-of-network and how we're progressing with regard to using our clinical utility data to secure in-network contracts. So I'm quite sure Dennis will concur with some. with just leaving it at that. I don't think we have anything more we can provide.

No, that's exactly right. Predictive value is what we're striving for, and we just don't have that as of yet.

Got it. Thank you very much. Great. Thanks a lot, Alex. Thank you.

Our next question is from the line of Ed Wu with Ascendian Capital, please proceed with your question.

Yeah, congratulations on a lot of progress. Have you noticed any significant either increases or decreases in either, you know, nurse practitioner or medical supplies or any input costs or office space? Thank you.

Yeah, sort of inflationary pressures. No, I mean, inflation's out there. I think, you know, we've you know, we've generally had, you know, both whether sales reps or, you know, the bulk of our team are well-paid professionals. But in terms of, you know, certainly in terms of our budgeting and our targeted expenses for personnel or for even for supplies, we've had supply chain issues, which we've described before, where we've had to work around challenges with regard to supply chain. But in terms of the, in terms of the, you know, from a cost point of view, I mean, they are, it is there, but it hasn't had a significant impact on our business move, you know, with the past reason moving forward. Dennis, would you agree with that?

Yeah, I agree. And that the inflationary pressure for the delivery side of our test centers is not as sensitive given the margin level of the next patient coming in the door in that test. So even if salaries or rents did creep up, as a percentage of the total revenue opportunity for us, it's still a small portion.

Great. Well, thank you for answering my questions, and I wish you guys good luck. Thank you. Thanks, Ed. Very good, Ed. Thank you. Operator, you have any more questions?

There are no further questions at this time.

Okay. With that, I'd... I'd like to thank all of you for taking the time and listening to our update today. Hopefully you found the webcast portion of this useful and informative. We look forward to feedback, any feedback that you might have. And we look forward to having you keep up abreast with our progress through our news releases and periodicals such as this. And also feel free to reach out to us, sign up for email alerts, use our investor relations website and on social media as well. And you can always contact us through Adrian Miller, our VP of Investor Relations at pkm.padmed.com. So thank you again and have a great evening.

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