Lucid Diagnostics Inc.

financial results conference call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question and answer session. I would now like to turn our I call over to your host, Michael Parks, Vice President, Investor Relations. Mr. Parks, you may begin, sir.

Thank you, Paul. Good morning, everyone. Thank you for participating in today's fourth quarter 2020 business update call. Fourth quarter 2020 business update call. The press release announcing our business update for the company and financial results for the year ended December 31st, 2022. is available on the Lucid website. Please take a moment to read the disclaimer about forward-looking statements in the press release. The business update, press release, and this conference call both include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the U.S. Securities and Exchange Commission. For elicit and description of these and other important risks and uncertainties that may affect future operations, see Part 1, Item 1A, entitled Risk Factors and Lucid's Most Recent Annual Report on Form Q10, filed with the SEC, and subsequent updates filed with quarterly reports on Form Q10Q and any subsequent Form 8K filings. Except as required by law, LUCID disclaims any intentions or obligations to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, conditions, or circumstances on which the expectations may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. I would like now to turn the call over to Dr. Lishan Akhlob, Chairman and CEO of LUCID Diagnostics. Dr. Akhlob?

Thank you, Mike, and thank you, everybody, for joining us this morning. I look forward to giving you a positive update on our activities for the past quarter and recent weeks. As those of you who have been with us for a while have noticed, we've changed the timing to hopefully better serve our shareholders to have our quarterly calls in the morning prior to the open and our press releases the evening prior. So I'll start with some recent highlights before doing a bit of background and then diving further into details. We're really excited about the steady significant strides we've made over the past quarter. As you'll see, the e-cigar test volume growth has remained strong, and we've seen some nice acceleration, particularly in this quarter, and a rapidly increasing satellite lucid test interactivity that is now driving nearly one-third of our testing volumes. We're very excited to report that we've secured an in-network e-cigar contract with the largest secondary PPO, multi-plan, and this provides access to e-cigar to approximately 60 million consumers that participate in their networks. Our commercial payer engagement and claims history is accelerating. In-network e-cigar contracts are now averaging over $2,000 per test, and all of the PPO contracts we've secured are priced at or above the Medicare rate. I'll dive into this a little bit further later, but we've launched a really important initiative for us. We're calling it our Direct Contract and Strategic Initiative, and the goal here is to engage directly with large ASO or administrative services-only self-insured employers, unions, and other such entities. As we reported in the press release, we had a successful launch of our high-volume Check Your Food Tube events. And we have a robust near-term pipeline of additional events coming up in the next month or two. Our laboratory, we're very proud to say, handled the unexpected record peak volumes from these events. And this reflects a lot of effort we've made in enhancing our operational efficiencies. We received FDA clearance to market a non-sterile version of ESA check. This increases MAR margins and mitigates potential supply chain issues associated with sterilization. We're making good progress collecting clinical utility data, which is a key driver of future in-network commercial payer contracting. And as we'll describe in more detail, we secured financing of just under $25 million, which extends our cash runway well into 2024.

For those of you who are new to the story, it's a few slides here to give you some background.

Lucid Diagnostics is a commercial stage cancer prevention medical diagnostics company, and we're focused on early pre-cancer detection, specifically in patients with long-standing chronic heartburn or gastroesophageal reflux disease, also known as GERD, who are at risk of developing highly lethal esophageal cancers. And our mission is very simple, which is to prevent deaths from this cancer in at-risk patients with chronic heart disease. The data on mesothelioma and carcinoma is awful. It's highly lethal, and it continues to become more prevalent. There are about 16,000 deaths in 2021, a similar number with a slight uptick in 2022.

It's our incidence of the increase.

500%, far outstripping all other cancers over the last four decades. And it's a very, very lethal condition. It's the second most lethal cancer with an over 80% five-year mortality rate. And most importantly, the stage one five-year mortality. So right at the early stages, it still carries at over 40% mortality rate. So in order to have an impact on those deaths, early pre-cancer detection is necessary. And that's not currently occurring. It hasn't historically occurred. And only less than 5% of those patients who are recommended for screening are undergoing traditional endoscopy. And that's where we come into play. So our lead products, EsoGuard and EsoCheck, are the first and only commercially available test that's capable of serving as a widespread screening tool to prevent esophageal cancer death through the early detection of esophageal precancer. EsoGuard is an esophageal DNA test that uses next-generation sequencing to detect early changes in the precancerous conditions as well as cancer. And EsoCheck is a non-invasive cell collection device that allows samples to be performed accurately in an in-office setting. We were very proud last year and very excited that both major gastroenterology societies, the American College of Gastroenterology and the American Gastroenterology Association, now support ESOCHEC as an alternative, an acceptable alternative to endoscopy for the early detection of this precancer to prevent death from this cancer.

The commercial opportunity here is large.

Minimum at-risk population defined by these guidelines, the most recent updated guidelines, is 30 million. Medicare has established payment of $1,938, and we'll show later that that payment flow is being respected. And that results in a very large addressable market in the tens of millions of dollars. We also have a very high gross margin at over 90%, and we've made some progress. We'll highlight Again, in getting our COGS down and getting us towards that 90% for greater numbers.

Our commercial strategy is now really very well-owned.

We have two referral sources that we target, primary care physicians and specialists and institutions. And you can see here that our interaction with them is different. When we discuss with primary care physicians, we're just encouraging them to – we're educating them and then encouraging them to order the test as they would any other cancer screening test or stool DNA testing or any other test. With the specialists and with the institutions, there's an opportunity to build a consolidated program centered around ESA-GARD that's focused on esophageal cancer, pre-cancer, and gastroesophageal reflexes. We also now have three modalities by which the – where the cell collection procedure is performed, where the ESA-CHECK procedure is performed. and the operators differ. We have our physical LUCID test centers, which are now at 13 locations in 11 states, and our own nurse practitioners perform testing there, and that continues to remain robust. In the last couple of quarters, we've steadily expanded what we refer to as our satellite LUCID test centers, where our nurse practitioners have scheduled days at physicians' offices, and they can perform tests the ESO check procedure on patients who are already scheduled at the physician's office, and this provides a very attractive expansion in our physical reach and our overall horizons. And then, of course, particularly at the specialists and the large institutions, the physician practice itself will often perform the procedure, either one of their nurses or nurse practitioners or their physician assistants.

continue to show nice, steady growth in Easter card testing volume. Here are the numbers by quarter. We're reporting the estimated numbers for this quarter, as we're now quite close to the end of the quarter.

And you can see, you know, on an annualized basis, we're at a steady approximately 200 percent per year.

compounded growth rate.

To dive in a little bit deeper on where this testing is occurring and where these referrals are coming from and who is performing the procedure, we continue to have about 60% of our referrals are coming from primary care physicians that we think that will continue to be the case and that might pick up over the over the coming quarters, and this is because that's where most of these patients are. Patients with gastroesophageal reflux, these are rarely seen by specialists or institutions, and they're generally managed by their primary care physicians. Another important trend is highlighted in the right chart. This is a breakdown of who's actually performing the esophageal cell collection procedure, and you can see that, and where, you can see that 29% of these are at our physical lucid test centers, 31% are in the satellite lucid test centers. If you recall, both of these, 60% of the samples being collected are being collected by our nurse practitioners in one of these venues. And the proportion of the overall number, that 31% that are being performed at satellite lucid test centers, is steadily increasing. It was 22% in the third quarter.

But we still have a robust activity as well in the individual physician practice.

We launched another horizon, another location and opportunity and model for our patients to bring e-cigarette testing directly to adverse patients in high-volume events that we're referring to as Check Your Food Tube pre-cancer testing events. The first event was highly successful. It was done in partnership with the San Antonio Fire Department. You can see in the images there, that's our nurse practitioner working with the fire department, our nurse practitioner team and others working with the fire departments to test 391 at-risk firefighters over two weekends. And this was quite successful. The tests were all performed. And we've seen positives. We've seen positive results that are leading to endoscopies in including patients in their 40s and a few in their 30s. So we're excited that those patients have had the opportunity to get a non-invasive biomarker test that, if confirmed on endoscopy, will put them in the proper surveillance and monitoring regimen to prevent them from developing esophageal cancer. So we're taking this model and we're rinsing and repeating. We have a robust near-term pipeline of future events targeting unions and other groups across the country. We expect to be updating you on these in the coming months. This, as I mentioned, is a very important area of focus for us, and we'll be doing this in conjunction with the direct contracting strategic initiatives that I appreciate. As I mentioned, we're very excited to have signed an in-network agreement with Multiplan. Multiplan is the largest secondary preferred provider organization and one of the largest independent providers outside of the large health plans. This expands e-cigarette access to approximately 60 million customers, multi-plan partners with 700 payers across the country, including all of the top 10 payers, and 1.2 million healthcare providers. They processed $74 billion in commercial health plan medical charges in 2022. If you look overall at our contracting and payment status, really solid progress in this regard. The engagement we're having with commercial payers is accelerating. As you see on the right in the pie chart, we continue to have nearly 90% of the tests being ordered and performed on commercial payers. So that's where our immediate focus is. We have 13 commercial payer in-network contracts for e-cigar that we've secured. And the really gratifying point here now, we've done enough of these, is that the price is holding. Our average Contracted price is over $2,000. Our list price is $2,500. And all of our contracts are somewhere between the Medicare, the PPO contracts are somewhere between the Medicare payment rate of $738 and our $2,500 list price. Those are for in-network contracts. For out-of-network contracts, the out-of-network payments, they continue to respect our charges. The average payment is $1,440. And that lines up nicely with about a 50% to 60% out-of-network benefit that's typical with most plants. The key drivers to expanding future in-network commercial payer contracting are progressing well. These two primary drivers are generating claims histories. We are now generating claims histories. We have hundreds of claims with many of the larger plants. And this is how you, once you reach a threshold, this is how you have the opportunity to engage with these plans on potential in-network coverage and what data they need in order for us to secure that in-network coverage. We're also starting to see claims that are working their way through the denial process and appeals process, and we have been seeing some payments that were initially denied paid on appeal. I'll remind you that this entire process of submitting claims through our own laboratory only started in mid-third quarter, so we're just Still in the early stages of this, but the progress is really gratifying. We're also in the process of generating the primary focus of the commercial payers, which is demonstrating clinical utility. I'll show a little bit later what that entails. So good solid progress on that. And as I mentioned, we've launched a direct contracting strategic initiative. This involves engaging directly with entities, self-insured entities, such as employers, unions, public service departments, and others. who are under the ASO umbrella. So they have only administrative services through one of the plans, but they control their own destiny. And directly engaging with them provides the opportunity to secure contracts that are outside of the traditional commercial payer contract and an opportunity for meaningful revenue. This model of targeting ASO entities has been used successfully by other cancer detection companies such as Grail, and we're studying their models and working closely with their alumni as well as with other consultants to help us quickly drive this initiative, which we think will be an important part of our future activity. I mentioned clinical utility data. Again, this is extremely important. The larger plans do want to see that there is clinical utility in performing the e-cigarette test. The definition of clinical utility is very straightforward in this case. They want to know that if a physician orders the test, and it comes back positive, that the physician will, it'll change, whether it comes back positive or negative, will alter medical decision-making, specifically that if it's positive, the physician will order a confirmatory endoscopy, and if it's negative, that the physician will not order an endoscopy. And so documenting this very simple fork in the medical decision-making algorithm is very important to justify the coverage of this test for payers. And so we're in the process of collecting a multi-pronged approach to collecting both retrospective and prospective data, documenting positive clinical utility with the e-cigar test. I start with the, these are in rough order of when we expect the results to come out. One of the nice things about these Check Your Food Tube events is that we have an instant shot of hundreds of patients that we can analyze. This initial one is retrospective analysis of prospectively collected data on what happened to the firefighters who got tested and how did their testing lead to the appropriate medical decision making. So this study has completed IRB approval. The data is now all in place and it's being analyzed and will be submitted shortly for peer review. We also have a retrospective study that's well on its way and nearly completed. This is a single center study from NYU that had 374 patients that were collected, and we'll analyze decision-making and clinical utility, and we expect that to be completed and submitted for peer review shortly. The two prospective efforts that we have is our elusive registry. We had some significant breakthroughs in terms of streamlining that process, and we expect Now, every patient that is tested by one of our nurse practitioners to be offered the opportunity to enter into the registry, this will allow us to collect both clinical utility data, but also clinical validity data into the future. And then the CLU study is a prospective multi-center clinical utility study as well, which has started enrolling. We're looking to get a critical mass, a critical number of patients of patients across these studies. You can see the numbers on the right here by mid-year next year. And then finally, there's a prospective virtual patient randomized controlled trial where physicians are interviewed and receive case vignettes, and they're asked how they would respond to that. That's a well-validated approach that payers have accepted in the past for clinic utility. So we're adding that to the mix as well, and we'll expect to enroll about 100 to 200 patients in that.

I apologize, I understand that the slides were not showing.

Okay, let me just spend 20 seconds on each of the slides just to highlight again. This slide, the commercial payer mix, 90% commercial payers and 12% Medicare and Medicaid. I apologize for that. Here is the slide on the clinical utility data that I just summarized, showing the retrospective and prospective

studies and the number of patients that were by mid-year this year. I apologize for that. A quick summary on our lab operations.

Again, very proud and excited that our laboratory continues to show enhanced operational efficiencies. Probably the most important number from this slide is the proportion of samples that have sufficient DNA. That number has plummeted. It's running around 6% now from a much higher number when we first took over the laboratory from the third party, and we look forward to continuing that low rate moving forward that provides much more utility when we get those numbers down low. Our turnaround times have remained solid over the last couple of quarters at nine days, and the Check Your Food Team event with the San Antonio Firefighters was sort of a spontaneous stress test for our system, and the team passed with blind colors. They were able to perform hundreds of check procedures in a day with 50 per day by the nurse practitioners, and the laboratory received on one day 200 samples and was able to process that all in one day with our current infrastructure. And just finally, some updates on the manufacturing side. As I mentioned at the beginning, we submitted a check for market approval, market clearance, and received a 510K to be able to market it without sterilizing. This is a non-sterile procedure. It's just going into the mouth and the esophagus. And the purpose of this was to enhance many aspects of our operations. As you see, it further reduces our COGS by approximately 10% after a substantial decrease in our cost of goods from transferring to high-volume manufacturer. Our lead times have been cut dramatically. The sterilization has come across the industry, a major source of supply chain issues and constraints that's been eliminated. And ETO sterilization is a hot topic right now with environmental issues, and we've obviated that being a factor in our testing. We also have a new e-cigar cell collection kit. with a new manufacturer in place, a new improved design, and the cost of goods for manufacturing these is also decreased by approximately 20 percent. So, with that, I'll pass on the slides to Dennis to talk about a financial statement.

Thanks, Lee, Sean, and good morning, everyone. So, if you go to the next slide, Sean. The board has authorized a $20 million preferred offering and an $11 million secured convertible debt. We completed the initial closing of the preferred in the amount of $14 million and have until the end of May to complete the remaining $6 million. The financing was priced in accordance with NASDAQ's at-the-market closing bid price rules. The accredited investors were led by a family office familiar to our IR firm and some long-term high net worth shareholders, four participants in total that share a long-term vision for the company. After exploring a variety of alternatives, this preferred structure created a mutual win for the company and the investors by matching an attractive dividend with a strong incentive to hold the stock for more than two years. Additionally, yesterday we entered into a securities purchase agreement to issue $11 million in convertible debt securities with an accredited investor that has provided the same type of structures for PabMed over the years and currently holds PabMed's existing debt with similar terms. We expect to close the funding in the coming days. interest is only for six months. The note is interest only for six months and has a $5 voluntary conversion price and a 7.9% interest rate. Amortization does not begin until the six-month anniversary, which we can then pay in cash or in stock. Both structures keep stock out of the market for long periods of time, likely two years in the case of the preferred and which allows the company to complete its work on clinical utility studies and improving reimbursements. A runway is substantially elongated through defense 2024. On a pro forma basis, when combined with our cash at the beginning of the year, results in pro forma cash of approximately $46 million. For the fourth quarter, the change in cash from the third quarter was $4.5 million. Please refer to the two Form 8Ks that were published last evening for additional details on both finances. So the summary financial results for the fourth quarter and the year that were reported in our press release that was published last night will be corrected as the tables reflect PABBED's consolidated operations instead of the standalone lucid financials. We apologize for that. We will be publishing PatMeds released this afternoon, which include both PatMed Consolidated and Lucid Standalone. 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 disclosure covered in our annual report on Form 10-K that was filed with the SEC last night and is available on our website. So on the balance sheet, you see the year-on-year changes. but the cash is mentioned from the third quarter to the fourth quarter was a $4.5 million sequential decrease, and it was $31 million for the year. Vendor payables were relatively flat for the sequential quarter and for the year, offset by intercompany debt to PadMed, which increased to $3.3 million at 1231, and both boards have authorized the ability for Lucid to pay that in stock rather than cash to preserve the cash at the Lucid level. Shares outstanding including unvested RSAs as of today is 43.4 million shares. The GAAP outstanding shares are reflected on the slide as well as the face of the balance sheet in 10-K. Next slide. Slide 20 compares this year's fourth quarter and last year's fourth quarter of certain key items as well as year-over-year comparison. I trust you'll review the information in my comments in light of the cautionary disclosure at the bottom of the slide about supplemental information, particularly the non-GAAP information. Revenue for the fourth quarter reflects actual cash collections for the quarter. The prior year reflects the fixed monthly fee received from the third-party lab that we used before setting up our own lab earlier last year. Revenue recognition. A key determinant is the probability of collection, as we've mentioned in our calls in the past. The vast majority of patient out-of-network claim submission means revenue recognition occurs when the claim is actually collected, and we're in the early innings of that, versus when the patient report is invoiced and submitted for reimbursement. As you will see in our 10-K, this is called variable consideration in the jargon of gaps, ASC 606, revenue recognition guidelines. And presently, there is insufficient predictive data to reflect revenue when . Our gap and our non-gap loss for the fourth quarter, $10.5 million, is fairly flat compared to the third quarter loss of $10.2 million. Slide 21. is a graphic illustration of our operating expenses for the periods reflected. Total non-GAAP OpEx was relatively flat sequentially. Cost of revenue primarily consists of ESO check devices, lab supplies, and fixed lab facility costs. It is being presented in our 10-K and 10-Qs as operating expense consistent with practices of other diagnostic companies. Sales and marketing increases were offset by decreases in R&D and G&A, which allow the operating expenses to be relatively flat.

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

If you would like to ask a question, please press star 1 on your telephone keypad now. You'll be placed into the queue in the order receipt. Please be prepared to ask your question when prompted. Once again, if you have a question, please press star 1 on your phone now. And our first question comes from Kyle Mixon from Kenacord Genuity.

Your line is open. Kyle, good morning. Good morning, Kyle. Just one moment. I seem to be having a little technical difficulty. All right, Mr. Mixon, your line is open.

Hey, guys, can you hear me now?

Yeah, we can.

All right, perfect. That's interesting. Yeah, so congrats on the results. Thanks for the questions. The effective ASP here was $95. It seems like the denial rate for every reimbursement seems like, you know, still pretty high. Cash collection is pretty low. It's not like super surprising, I guess. But, you know, the ASP dynamics, though, you're talking about out of nowhere, 1,400 payment and then commercial payers, 2,000. PPO is at the Medicare rate, which is like, you know, almost 2,000 as well. So would you mind just walking through why the revenue per test is so low and when that inflection point occurs and what kind of like catalyzes that?

I'll let Dennis dive into that deeper, but maybe just provide a high level. You know, this is a bit of a moving target, right? Because The average life cycle of the cycle for a payment can run up to 90 days. There's claims adjudications and so forth. So what we're seeing in any particular quarter of revenue is really a snapshot of what was going on with claims submissions a while back. But I'll let Dennis dive a little bit further into detail there.

Correct. So as Leishon indicated, the submitted claims do take some time to process. And beginning in the fourth quarter, those amounts start to trickle in. There was more than 200 insurers that were billed claims leading up to the fourth quarter and into the early part of the first quarter. In the first quarter, we are starting to collect at an accelerated pace. It's still early in the game, and claims are being adjudicated both from a denial and appeal as well as asking for additional information. That steam will pick up as the year unfolds. The fourth quarter is not indicative of what the first quarter results are so far, and we expect that the coming quarters, that reimbursement will improve. Multi-plan certainly helps with that endeavor, as well as we are getting paid from some of the larger players, United particularly, and we're getting paid out-of-network rates. That backlog should continue to pick up, and so that Ultimately, we're hoping that in time when we get to fuller reimbursement, there'll be a match in terms of when the claims are submitted and the cash is collected. But for now, there is a large gap between those timeframes.

If I could just add a couple of things, just to, again, emphasize the sort of the phase shift here. We started submitting claims in the end of August, so basically mid to late third quarter. So the fourth quarter results, if you kind of take that typical 90-day period, And those cycles are longer for due tests. When those tests are more established, the turnaround times tend to be longer. So the fourth quarter numbers really reflect a small portion of the claims that were submitted in only half of the third quarter. The other point I would make is, again, these are early numbers. We don't have good denominators on this, but we don't have – you know, the number of – you sort of mentioned the denial rate. There really isn't a denial rate yet because the number – Most of claims that have gone through the full adjudication process that have been denied is very low right now. So most of the claims have either been paid or more likely the vast majority of them are still working their way through the process.

Okay. That was really helpful, guys. And it sounds promising too. Maybe just sticking on a similar kind of subject, it's really good to see the kind of projection for the first quarter test performed here, like 1,600. I believe that's 36% growth sequentially, so that's awesome. Any reason why that type of sequential growth can't continue going forward or potentially accelerate from there? And is there anything about maybe seasonality or other dynamics that could maybe inflate that 1Q number? I mean, it sounds very reasonable, but just trying to think about how that progresses throughout 2023.

Yeah, no, I think, you know, if you look at that slide, there's a bit of seasonality you saw in the fourth quarter, and that's common, as you know, Kyle, from other companies. We also, in the fourth quarter, had to work through some compliance structure, establishing some compliance structure in a couple of our larger states as it relates to how to do the satellite lucid test centers, so there's some pent-up demand in both Florida and California there that we're addressing. But if you kind of look at the overall trend on the line, that 36%, you know, something like that quarter on quarter, about, you know, 200% or so compounded growth rate, I think is sustainable for some period of time. And obviously the goal is to continue to grow that. I think, you know, as we've said in the past, we're not on full throttle, right? We've decided to plateau our sales team and that sales expense that Dennis showed, we expect that to be flat. for this year, and we think our current team can continue to drive test volume growth as we start getting more predictable payment and improve on our contracting. And we think these initiatives, such as the high-volume testing events, as well as direct contracting with ASO-type entities, will play an important role in that growth over time.

Okay. All right. That was great. And, yeah, similarly, just thinking about test ordered per you know, ordering physician, I guess. And I know it's, you know, your test center strategy is not on hold, but you're just sort of investing in your current number, I guess, of centers. And in the multi-plan, you add some providers there as well. And so some physicians will get on board it, I suppose, and start ordering more and more. So, I mean, that denominator number is sort of, you know, it's still pretty healthy. I'm just wondering if test per doc is increasing. Have that progressed since the launch in 2021? Is there a plateauing, like just any kind of trends?

Yeah, I mean, what we're focused on, I don't have sort of a single number to give you to capture that. What we're focusing on, we have a good number of providers. We have, as you mentioned, threats geographically now, and the fact that we can do satellite test centers has given us, you know, again, we're not, just to be clear, we're not putting the physical locations on hold. They still remain an important anchor and are key in areas where we, as sort of the headquarters for our clinical team, our nurse practitioner team. But the fact that they can branch out both within their local geography and literally get on a plane to go to San Antonio and do four times a few weekends, all of that is enhancing our geographic reach and the number of providers. But we have a very focused effort right now by our sales team to focus on stickier business, on having accounts continue to order on a clip. The reps are now increasingly incentivized along those lines. And it's working. So we have figured out ways. You know, the issue with repeat ordering and stickier business is not about sort of loss of interest. It's just more a matter of attention. And I think I've mentioned this before, but I'll reiterate it. One of the things that we really like about the satellite model is by having a day where the lucid nurse practitioner is going to come to the practice on a particular day does bring the whole issue of esophageal precancer testing front and center back And if they know that the NP is going to be there next week or in a couple of weeks, it's much more front and center than previously where we had to just have multiple contact points by our reps to keep it front and center. So, yeah, I don't have hard data on you on that, but the trends are actually good. We are getting stickier business, but we're doing both. We're trying to get breadth and depth at the same time while keeping kind of a mid-throttle approach until we get more predictable reimbursement.

Okay, just one last one before I hop off. So I guess on FDA, obviously there's been a lot of back and forth, but it does seem like FDA is going to push towards regulating LDTs like in the near future, I guess. And I know you delayed the BE1, BE2 trials, but what would happen to your ability to offer a cigar in the event that the FDA starts to kind of crack down on tests in the next, you know, one or two years, 24 months? What's the plan B here?

Yeah, we're monitoring the VALID Act as well as the FDA's recent declaration around rulemaking in this area carefully. We don't have any concerns in the near term. These are all long-term. That's certainly not one or two-year events. There are grandfathering clauses. We have confidence with regard to where our risk, where we will rely in our risk assessment, and we think we'll have the appropriate data to be able to to continue uninterrupted. And so we're monitoring closely. We've established long-term strategies to mitigate that. On the clinical validity side, we will start getting clinical validity data. I should mention that there are other sources of clinical validity data from the BetterNet study, the NCI-sponsored studies that were anchored by the BetterNet Consortium, the Senator Brown Case Western Reserve. Those studies are collecting data. They're starting to get critical masses of data with good results. And we should start to see those come online in meetings and in peer review publications well before we have our BE-2 data out. So, we'll monitor that, but we don't have any concerns in the near future about it.

Perfect. That's great, LaShawn.

Thanks, guys, for the questions. Appreciate it. Thanks a lot, Kyle.

Thank you. And our next question comes from Ross Osborne. of Cantor Fitzgerald.

Good morning, Rob. Hi, Rob. Hi. Good morning, everyone. So, generally, a couple of calls. I may have missed this, but where did you end the year in terms of sales reps, and what are the hiring plans for 2023?

So, we had 40, which is what we had said we would target in our strategic update call in January that reflects some some layoffs and some backfilling, but we've settled in our 40 sales personnel, as well as the clinical support team, the nurse practitioners and clinical specialists. We've added a couple to that to make sure we have sufficient coverage there. And the plan right now is to maintain that flat through the year and to allow this team to continue to drive the type of test growth volume that I just talked about with Kyle. Certainly, there'll be opportunities to dial that up if the reimbursement side accelerates more quickly, but we're prepared to keep that flat for now.

Okay, great. And then I realize the focus is now on satellite testing, at least for the near term, but could you discuss your geographic presence relative to your original stage geographic rollout? And then as a follow-up, what can you do to accelerate satellite testing activity?

Yeah, I just want to maybe restate, just to make sure there's no misunderstanding here, that there isn't We're not shifting or we're not pausing the physical test center model. It still remains our anchor. That's where our nurse practitioners are physically based, but they have the opportunity to move and do tests in a broader geographic area. It really is sales coverage right now, and our sales team coverage is broader than the 11 states and the 13 states. test centers, the physical locations that we currently have. And so there are opportunities, for example, in Georgia and other states where we don't have physical test centers where there is increasing activity that we could support using nurse practitioners using the satellite test center model. So we're not, certainly we're not, with 40 reps, we're not covering the entire, you know, every single state or every single metropolitan area, but the geographic coverage is broader and it certainly covers the major states, particularly California, Texas, And Florida, Ohio, those remain big locations for us.

Okay, great. Thanks for your questions. Okay, thanks, Ross.

And our next question comes from Mike Mattson of Needham & Co. You're live.

Good morning, Mike.

Hi, Mike.

Yeah, good morning. Just a question on... So the CYFT event, you said you did, like, 391 tests there. Is that included in the test number, and do you expect to get paid for those tests?

That's a good question. So, yes, they're included in those numbers, and they're, you know, these are commercial patients who have commercial insurance, and so it's not a research project or anything like that, so we do count them in the commercial numbers. We don't know yet. It's an interesting dynamic because, generally speaking, For example, typically with a firefighter group, the firefighter union is often an ASO, so they have their own decision-making opportunities. So you might expect that our ability to engage with them directly, that's why I was saying that the CYFT events are tightly linked to our direct contracting initiative, right? Because we're dealing with typically in organizing these on the logistical side, dealing with the firefighter team and the unions in particular. And so as we're expanding what's a quite robust pipeline, we're being much more proactive at the beginning about understanding the payer structure within each of these and working closely with the self-insured entity, typically, to set these things up. So we don't know yet, but there's certainly some hope and some promise that the prospects of the payment rates, the percentage of claims that get paid as a result of these tests could be higher. That's our hope, obviously. And so it's an attractive aspect of this business because it's a large, high-volume event. It's a good chunk of testing. We can handle that chunk of testing, and it's with a single entity. And our engagements with these entities, with the firefighters in particular, have been extraordinarily positive. They understand the need. They're very focused on protecting their members. And it's a very different dynamic than an engage with a typical health plan. So we're quite optimistic. I'm glad you brought that up. But we obviously have to demonstrate that.

Okay. I understand. And then I think Dennis said the cash that you used, about $30 million of cash in 2022. Is that right? And then With the announcement earlier this year of the cost reductions, I think you said you'd reduce your cash burn by about 25%. So that would seem to sort of imply like a low $20 million number for 2023. Is that reasonable?

Yeah, the burn rate for the first half is going to be in the $7, $7.5 million range and then should gradually decrease as operating expenses continue to remain flat. and the collections we are estimating will start to improve at a significantly higher rate that will bring the burn down for the second half of the year at a larger number.

Sorry, the seven to seven and a half, that's a quarterly number? That's a quarterly number. Quarterly number, okay. All right, got it. And then... So with multi-plan, the covered lives, how do those, I guess, the geographic concentration of that sort of match up to your sales force and test center locations?

Multi-plan is national. They're in every corner of the country. So our market access team does have a robust process whereby they look at where payers are and how that aligns with our team. So that's a process that we utilize. And some of the other contracts that we've had, those are regional and that's much more actionable, but multi-plan is really a national plan. They have their primary PPO network, a complementary PPO network. So there's lots of opportunities to engage all across the country.

Okay, got it. And then finally, I apologize if you mentioned this earlier and I missed it, but MoldDx, I mean, you discussed the clinical utility efforts, but, you know, when do you think you could take another shot at getting MoldDx coverage?

Oh, just to be clear, there's no other shot. The shot is already out there. We're just waiting. There's nothing more for us to do. We went through the process last year where upon approval, publication of the draft LCD. We participated both with MoldyX as well as with Meridian, the MAC that covers our laboratory, through the open meeting process as well as the common period. Once that's submitted, there's nothing for us to do. It's just a waiting game. So it's on their desk. They're looking at it. And they'll get back to us at their time. If you recall, it took quite a while from the original submission to even get the draft LCD published. So we make no particular predictions about when that will happen. But you made a good point in linking it to clinical utility. Our ability to respond to an updated LCD and seek, remember these are foundational LCDs, they're general LCDs for the category of testing, to translate a foundational LCD into a specific LCD for Lucid, for ESAGARD, will require submission of clinical utility data. So until we have sufficient clinical utility data to respond to the LCD, which we won't have until mid-year, the timing of the LCD right now is not actually hurting us because we won't be in a position to do the technical submission to convert it to a test LCD until mid-year. But, you know, we're waiting, but the good news is and the reason we're focused on the commercial side is that the demographics of the patients being ordered for testing remains to remain strongly tilted towards commercial payers, you know, with 10, 12% of the patients being Medicare. So we'll just continue to wait on the Medicare side while we're pushing really hard, full steam ahead on the commercial side.

Okay, got it. Thank you. Okay, thanks, Mike.

Thank you. And our next question comes from Mark Macero from BTIG.

Hey, guys. Thank you for taking my questions. So, yeah, you guys were very clear about what you need to do to show clinical utility. You know, the positives just need to get a confirmatory endoscopy, and the negatives just need to not get one, you know, based on the clinician suggestion. So, can you give me a sense and maybe confirm that, Lishan, that you plan to submit the clinical utility Was that mid-year 2023? And then can you give us a sense for the numbers? I mean, are we looking at like 100 patients, a couple hundred patients?

I'm going to go back to the previous slide. I hope it'll still show. Yeah, so let's kind of do a deeper dive into this. Hold on a second. I'm going to take this technical glitch here. I'm going to push it to the audience. Hopefully you can see the numbers there. So one quick minor correction to your summary, which is otherwise excellent, what clinical utility means. It doesn't even mean that they have to actually get the endoscopy. People fall through, they fail to show up, and so forth, loss of falls and things like that. We just have to document what the physician did, that the physician ordered the endoscopy or they did not order an endoscopy. And even in negatives, there are going to be times where an endoscopy is ordered for other reasons, right? But as long as an endoscopy was not ordered for screening for soft-shell pre-cancer, then that demonstrates that. clinical utility. The numbers I show here are really intended to give you a picture of sort of the number of ways we're approaching this. I mean, this is an all-out effort, multi-pronged, you know, five different areas that we're focused on here. It'll actually be more because each new check your food tube event will be another batch of clinical utility data. The main, the ones that are the strongest are the two, the lucid registry and the clue study. Those are the truly prospective studies, which will garner us the the most attention from the payers, but all of them are important and all of them will be useful. So those are our estimates and our targets for mid-year, and we will be submitting data as they come in. We don't have to wait for some specific number. Once we have a critical number of patients involved in each of these, we'll be able to submit interim data for peer reviews. It's a little bit hard to know until we have a little bit better trajectory on the projections here, but certainly by mid-year, I would expect that we would have some of the, particularly the retrospective and the CYFT data submitted for peer review and published. The other ones may need a little bit more time, but right now with online journals, turnaround time for peer review is not terribly long. These are just ballpark numbers, ballpark targets, where we look to end up, and hopefully that makes sense.

Yeah, so Moldex is likely looking for approximately 200 individuals in a prospective observational study.

I think that's about right. You know that we have right now targeted 400 patients in the true prospective studies that conclude in the lucid registry. We certainly will be able to combine those. But you're right, because if you think about it, our our positivity rate is about 7% to 10%, and that's where you need the numbers from, right? So if you have 400 patients, let's say, and a 10% positivity rate, that means there will be 40 patients who are positive, and you can show that those 40 patients did not get referred for – that they did get referred for endoscopy. And then obviously the other 160 patients, that's a plenty large number to demonstrate that negatives are not – sorry, not 160, it would be 360 patients. to show that the negatives are not getting referred for testing.

All right, perfect. Yeah, thanks for clarifying that the physician just needs to order it rather than the patient needs to complete the procedure. Cool. All right, so my next question, the San Antonio Fire Department is really, really interesting because that's about one-fourth of your volumes in Q1 based on my math, and I think you noted in the press release that firefighters have a higher risk for GERD and esophageal cancer. And I think you indicated that your near-term pipeline for future events is robust. I would love to hear just a little bit more about maybe what some of the other high-risk groups are, what your funnel looks like, and how many of these you think you might be able to pull off in 2023.

Great. So the pipeline is robust. Obviously, you're going to focus on your successes first. So the initial focus has been on other fire departments. And as you mentioned, the key linchpin there is the published, well-established data of a 65% increased risk of soft-shell cancer in firefighters based presumably on environmental exposure. So there are a lot of firefighters, a lot of fire departments, We're picking up the phone and calling a lot of them and we expect to start seeing more on those sides. But then, as I mentioned, Mark, this sort of folds into kind of the broader... There are certainly other higher risk groups. You can think of other unions, truck drivers, other policemen and other public service groups. But this starts to kind of fold in or meld into the overall approach to direct contracting, right? To engage with entities that One of the things we've learned from engaging with the firefighters is, as I mentioned, they're very committed. The level of passion and commitment to their members is high. And so our ability to engage with entities that are self-insured, where the conversation is a very direct one and one that's driven by the commitment to do right by their patients is high. is a big opportunity for us and something that we'll look forward to. I'm not really prepared to give you sort of a number. I think right now we're going to stick with our trajectories with regard to test volume. Just to clarify something that comes up occasionally, but this is not a pivot. Our traditional approach to primary care physicians and specialists and institutions, that's unchanged and we continue to drive that hard. and we're certainly working on figuring out how to do both logistically, but so far so good. So we expect to see a good number probably in the next couple quarters and be able to give you a little bit more flashed out targets as to what we need to do.

Okay, great. Maybe just my last question. As we think about the rest of the year, great to see multi-plan coverage. I'm just curious if you think you're getting I know it sounds like the conversations with payers is improving, and the fact that you're getting paid on some of the denials is excellent. These are relatively small numbers in early days, but do you think as the year progresses, you might be able to sign, whether it's a large national commercial payer or at least some of the regional payers? How should we think about payer coverage today?

Yeah, I think the lessons, there's two lessons. One is I really, really want to get the point home that the price is holding. I really feel like we now have enough that we can feel confident about the price between Medicare as a floor and our $2,500 price based on out-of-network payments, based on payments from, as Dennis mentioned, larger plans that are out of network that respect that price is really we're developing increasing confidence that our pricing is going to hold. On the larger plans, our expectation, we've had multiple advisory board meetings and conversations, so we have a good finger on the pulse as to what the larger plans are going to expect based on active and retired engagement with active and retired medical directors. And the message is quite clear that in order to get larger plans, it's likely to require us to have that meaningful clinical utilization later in the year. But in the interim, you know, our conversations with the secondary PPOs, like multi-plan and smaller plans, will continue. So I think it's not a binary event. But I wouldn't necessarily project that we'll lock down one of the larger plants until we have some meaningful facilities here.

Okay. That makes sense. Thanks so much.

Great. Thanks, Mark. Okay.

And as a final reminder, if there are any final questions, please press star 1 on your telephone cue pad now. And our final question comes from Edward Wu from Ascendant Capital. Your line is open.

Congratulations on the quarter. In terms of the 40 salespeople that you have, what's the average tenure, and how do you characterize in terms of the productivity and whether there will be room for improvement?

Yeah, so that's a great question. I don't have a hard number for you, but we're – And it's certainly increasing now that we've plateaued the number, probably about six to nine months, I would say, would be the median. So we have a good median. The median rep has now had a decent time in the field. And as I mentioned on our previous calls, by plateauing our team, it's freed up the sales leadership to be more active in the field and more active in strategic accounts. We closed a large strategic account a couple weeks ago that will – and just more time with them because they're not spending all the time interviewing and recruiting. So that six- to nine-month median number will obviously go up as the year progresses, and we found that just more time in the field and more experience interacting with physicians and engaging with accounts and trying to make them stickier, obviously increasing experience will help with that, and that number will go up steadily over the year.

Great, well thank you for answering my questions and I wish you guys good luck. Thank you. Thanks, thanks a lot Ed.

And we have no further questions in queue. I'll turn the call back over to our host.

Great, so hey thank you everybody for taking the time and for spending the morning with us on our update call. We appreciate everybody's effort and everybody's support. Feel free to contact us with any further questions. You can get information on our website, luciddx.com, or by contacting Mike Parks at MEP at padmed.com for any further questions. So thank you very much.

This concludes today's conference call. Thank you for attending, and have a pleasant day.