This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk00: Greetings. Welcome to PavMed Inc. Second Quarter 2022 Business Update Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Adrian Miller, Vice President of Investor Relations. Thank you. You may begin.
spk05: Thank you, Operator. Good afternoon, everyone. This is Adrian Miller, Vice President of Investor Relations at PadMed. Thank you for participating in today's business update call. Joining me today on the call are Dr. Alishan Akhlaq, Chairman and Chief Executive Officer of PadMed, along with Dennis McGrath, President and Chief Financial Officer of PadMed. The press release announcing our business update and financial results will be available shortly on PadMed's website. Please take a moment to lead read the disclaimer about the 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 the 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 or a list of those descriptions and other risks and uncertainties that may affect the future operations, see Part 1, Item 1A, Entitled Risk Factors in PABMED's most recent annual report on Form 10-K, filed with the Securities and Exchange Commission, and any subsequent update filed in quarterly reports on Form 10-Q and subsequent Form 10-8-K filings. Except as required by law, PABMED disclaims any intentions or obligations to publicly update or revise any future forward-looking statements to reflect changes in expectations or in events, conditions, or circumstances on which those expectations may be based or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. With that, I would like to turn the call over to Elisha and Akhlaq. Back to Akhlaq.
spk07: Thank you, Adrian, and good afternoon, everyone. Thank you for joining our quarterly update call. Before proceeding, I would like to thank our long-term shareholders for your ongoing support and commitment. Our combined team has grown to over 150 employees and is singularly focused on growing the PadMed enterprise while enhancing long-term shareholder value. PadMed and its subsidiaries continue to make solid progress as we push forward on our long-term growth strategy and mission to create a leading diversified medical technology company across all three sectors, medical devices, diagnostics, and digital health. Our subsidiary, Lucid Diagnostics, has completed a transformational period during which it has contributed completed its transition to an independent full-service medical diagnostic company with its own CLIA-certified fully operational laboratory, Lucid DX Labs. Lucid is getting steady commercial traction from an expanding sales team and network of testing centers and secured critical practice guideline recommendations. Our digital health subsidiary, Veris Health, is also progressing well towards an exciting initial commercial launch this year. Other products in our recently streamlined portfolio are moving steadily forward along their development path. And we have completed a nearly year-long effort to strengthen our senior leadership team, securing high-caliber talent in critical areas such as business strategy and development, regulatory and quality, medical affairs, laboratory operations, and systems integration and customer support. And finally, during this past quarter and in recent weeks, we have launched an ongoing company-wide initiative to confront perhaps the most challenging challenges sector, national, and global market conditions in decades to uncharted waters with no clear path or timeframe to recovery. Our leadership team has been challenged to think critically, creatively, and systematically to maximize runaway and strengthen our balance sheet to protect the long-term interests of our company while continuing to execute on strategic objectives and mission. We have sought to find the right balance between preserving our long-term growth trajectory and maintaining a cash preservation posture during a period of volatility and uncertainty. This has been a rewarding, even clarifying experience for our team, already resulting in streamlining and strategic reallocation of resources for this fiscal year and a significant rationalization and prioritization of our pipeline. So I'll start by providing an overview of our business, and then we'll pass the baton over to Dennis who will provide a financial update before we open it up to questions. Let me first take a step back and provide a brief background on our company and its mission for those of you who are new to the PadMed story. PadMed is a diversified commercial stage medical technology company operating in the medical device, diagnostics, and digital health sectors. Our mission is to utilize state-of-the-art technologies in the service of patients by providing innovative and disruptive products and solutions which significantly improve or save lives while enhancing healthcare quality, efficiency, and cost effectiveness. Our vision is to build a growing and profitable, diversified medical technology leader across the three major sectors. The Padmet Enterprise today consists of two majority-owned subsidiaries, Lucid Diagnostics and Varis Health, and internal business units with a portfolio of near-commercial products and research and development projects. Lucid is a NASDAQ-listed commercial-stage cancer prevention medical diagnostics company that markets ESO-guarded ESO checks the first and only commercial tools for widespread early detection of esophageal pre-cancer to prevent esophageal cancer death. Cirrus Health is a privately held digital health company developing a digital cancer care platform to improve personalized cancer care through remote patient monitoring using smart devices with biologic sensors and wireless communication, including the first intelligent and planable vascular access port. PABMED operates as the central engine, which provides a broad range of shared services to its subsidiaries and internal business units. These include general administration, finance, product design and development, regulatory affairs, quality management, clinical research, manufacturing, and medical affairs. This centralized shared services model allows each subsidiary and business unit to be laser focused on the development, commercialization, and clinical evidence for its product or product. The model provides numerous benefits to facilitate value creation across the enterprise, including economies of scale, risk mitigation through diversification, a lower cost of capital, and much greater growth potential. During the past year or so, we have undergone a major transition focused on expanding our internal human resources, systems, and physical infrastructure, laying the foundation for commercial success, as well as optimizing and rationalizing our portfolio. Our team has grown to approximately 150 talented and committed individuals, This transition is really now complete, as is an expanded infrastructure that's in place. For the coming quarters and years, we're now entirely focused on commercial expansion, execution, reimbursement, and revenue growth. We have honed our strategy over the past quarter to focus the bulk of our efforts and resources on Lucid, Zara, Carpex Ultrasound, and eSecure, while remaining opportunistic with regard to our R&D pipeline and new groundbreaking technologies. I'll now provide a more detailed business update, and then pass the panel over to Dennis in a second. My discussion of LUCID will be a distillation of my remarks during yesterday's LUCID quarterly call, and I would encourage you to read the transcript or listen to the recording of the LUCID call for additional details. Feel free to contact Adrian to help with this. In recent months, both major gastroenterology specialty societies, the ECG and AGA, published updated clinical practice guidelines which support, for the first time, the use of non-endoscopic tools as an acceptable alternative to endoscopy to screen at-risk patients for esophageal pre-cancer. Both explicitly cite insert check-ins as such non-esophageal diagnostic tools. The only such device is commercially available in the U.S. In addition, both expand the at-risk target population by treating men and women with the appropriate number of risk factors equal. This enhances the lucid value proposition by increasing target population from 13 to 30 million, and it's addressable market opportunity from 25 to 60 billion. Finally, the AGA, for the first time, recommends esophageal precancerous screening in patients without symptoms, further expanding the target population. Our e-cigar commercialization efforts are going very well. We continue solid, consistent growth in e-cigar testing volume. Lucid processed 850 commercial tests in the second quarter of 2022. That represents an approximately 60% sequential increase from the first quarter of 2022. and an over 300% increase annually from the second quarter of 2021. We continue to see a steady increase in the proportion of tests performed at our Lucid test centers, which now represent approximately two-thirds of the overall testing volume. This is a direct result of our investment in our expanding sales team focused on primary care physicians, and we are making excellent progress towards reaching our year-end target of 39th of sales representatives and a total of 58 sales professionals. Our expanding network of Lucid Test Center supports our primary care channel by providing a facility where patients referred for e-cellar testing by primary care physicians can undergo the e-cellar check cell collection procedure. The test centers have very modest fixed cost and attractive margins operating almost entirely as a marginal variable cost business. The second stage of Lucid, of the Lucid Test Center program is now underway. We recently launched in four new metropolitan areas in Orange County, the Dallas-Fort Worth area, Palm Beach County, and Columbus, Ohio. During the first stage, which we completed earlier this year, we covered seven mostly medium-sized metropolitan areas in the Southwest and Pacific Northwest. We're seeking to launch five additional centers this year, targeting the Southeast and Midwest. On the laboratory front, we now have fully operationalized our CLIA-certified CAP-accredited laboratory with the DXLAB. staffed by our own personnel, operating with our own quality standards and processes, and most importantly, capable of submitting and aggressively pursuing claims directly with payers. Last week, our new revenue cycle management provider started submitting a backlog of claims held since the lab transition in February, and we should start seeing some out-of-network and PPO or preferred provider organization receipts, along with recognized revenue in the coming quarter. On the private payer reimbursement front, we have entered into participating provider agreements with four secondary PPOs and a specialized diagnostic laboratory network, which collectively cover many millions of lives. Full engagement with traditional, regional, and national health plans and the consummation of in-network contracts will require some additional time to generate meaningful claims histories and to collect and report retrospective and prospective clinical utility data. With regard to Medicare, we, along with over a dozen diverse partners, completed a public comment period for the proposed Foundational Local Coverage Determination, or LCD, published by two Medicare contractors, delivering a strong, evidence-based message on how to improve the draft LCD into one that can be operationalized, consistent with clinical evidence, updated guidelines, and precedent. We now wait for a response. From the Clinical Research Fund, we've made some significant changes to our strategy, A key element of the company-wide initiative is to take a careful look at our allocation of resources for clinical research to align with our near, medium, and long-term goals. Our updated strategy to heavily focus our clinical research efforts and resources toward generating critical clinical utility data to support private payer and Medicare reimbursement. Multiple retrospective and prospective clinical utility studies are underway. Towards the same end, we have adjusted each of our DE1 and DE2 studies. We're pausing enrollment in DE1, prospective screening study, and we'll reboot it under the breakthrough device umbrella at a later date. We are continuing DE2, the case control study, and will likely complete enrollment at a somewhat lower sample size in early 2023. Let's now move on to Padman's other majority-owned subsidiary, Verifil. Veris is developing a digital cancer care platform with symptom reporting, telehealth functions, and advanced data analytics designed to improve personalized cancer care through remote patient monitoring using smart devices with biologic sensors and wireless communication, including the first intelligent and plannable vascular access port. The Veris Health Cancer Care Platform will allow the cancer care team to detect early signs of common cancer-related complications provide longitudinal trends of physiologic and clinical data, offer data-driven risk management tools for precision oncology, and incorporate additional prospects for substantial value creation through data monetization and biotherapeutic clinical trial support. The VAERS model is an attractive software-as-a-service recurring revenue business model. It leverages existing remote patient monitoring, or RPM codes, which the providers can utilize to bill for review and interpretation of the patient data that our system provides. The model provides a healthy margin for the providers and the company without the need for new codes or other regulatory hurdles. The model also leverages supplemental payments to providers for improved outcomes, including preventing hospitalizations as provided through the Medicare ER program. Ferris is advancing its mission on three fronts, software, device, and data. On the software front, our team and our partner, LOCA, are on schedule to complete development of the software platform in the coming weeks. This includes the patient-facing smartphone applications, as well as the clinician-facing mobile and desktop applications. The team continues to work closely with the Microsoft Digital Healthcare team as a member of its global partner program, as well as teams from other vendors providing the tools for integration with electronic health records, data analytics, and cybersecurity. The completed software platform will then be subjected to rigorous compliance audits and will be available for commercial launch by the end of the year. In anticipation of the upcoming commercial launch, we have filled out the VAERS commercial team, including our chief commercial officer, director of product management, and director of systems integration and customer support. The initial launch will be in conjunction with a package we are dubbing a VAERS box with VAERS-branded OEM Bluetooth-enabled connected healthcare devices. The VAERS box of external connected devices is the first step of a three-step device development process. The next product, which we've dubbed Varus Mercury, is an implantable physiologic monitor designed to be implanted in conjunction with a traditional vascular access port for chemotherapy or other treatment. The Varus Mercury development process is progressing well. We have completed a successful FDA pre-submission meeting during which the FDA provided us with a clear path to 510 clearance. Several animal studies have demonstrated the device's ability to continuously collect and wirelessly transmit physiological parameters, and we expect the device to proceed through design-free development testing and FDA submission and clearance next year. The third step in the device development process, a product we have dubbed the Varis Venus, takes the design a step further with full integration of the implantable monitor within the port. We are working with FDA to finalize its regulatory path i.e., whether it will be a 510K or a de novo pathway. Design and development work on this version will accelerate once we've had experience with the modular Veris Mercury device. Finally, Veris is all about the data. The system will be generating a substantial amount of clinical and physiologic data, which will provide a rich substrate for monetizable data analytics using machine learning and AI. Veris has filled out its data science team with two full-time data sciences and two data engineers. Let's now move on to CARPEX. CARPEX is our 510K cleared minimally invasive device to treat carpal tunnel syndrome. Key opinion leaders and surgical partners have been using CARPEX in a limited commercial release, focused on generating user experience to drive procedural and product improvements. This experience led us to explore the possibility of incorporating intraluminal ultrasound into the device to provide real-time imaging of the ligament to be cut along with critical anatomic structures. Initial exploratory efforts have advanced to a full-blown product development project, which we've dubbed CARPEX Ultrasound. In addition to integrated ultrasound imaging, the design incorporates additional features that we believe will enhance the clinical and commercial attractiveness to the product, including much of the electronics to a handheld device and console, decreasing the per-case cost of goods, and the gross margin opportunity. The design and development work, including cadaver testing, is ongoing. and we expect the device to proceed through design-free development, testing, FDA conventional clearance next year. Given these projected timelines for the next-generation CARB-X ultrasound device, we've decided not to expand commercialization of the current first-generation product. We have plenty of inventory, and now we'll continue to have our KOLs perform procedures and grow our experience and inform the product development until the CARB-X ultrasound version is ready for commercial launch. Next up is Yusuf here. Our eSecure device is designed to endoscopically treat esophageal pre-cancer and is also progressing well. The device is designed to compete with Medtronic's market-leading Xerix device by offering the advantages of direct thermal ablation of the esophagus through the working port of the endoscope and without the need for a quarter-of-million-dollar console. Development work is progressing well, and head-to-head chronic animal studies continue to show promising results. We expect the device to proceed through design freeze, development, testing, FDA submission, and clearance next year. A quick reminder that Lucid has licenses here from Padma for future commercialization, as it is highly synergistic with E-Cigar and Zip-Zip. The remainder of our pipeline consists of research and development projects whose commercial path is not yet fully established. Port IO is our implantable intraosseous vascular access device, which we believe which does not require flushing and is the first maintenance-free long-term vascular access device. Port IO's first in-human study is progressing well with three new sites approved in Columbia, South America. One new site recently performed successful implantation of the device in seven patients, all of whom have completed seven days of infusion after implantation and successful explantation. They are currently in the 30-day follow-up period with no complications or other issues. These patients close out the initial group of patients in the protocol that underwent seven-day implantation and now allows us to move on to the next set of patients that have had the device implanted for 60 days. Recruitment of these patients is well underway with procedures expected in September. Once we have established some success with the 50-day implants, we'll reassess our regulatory pathway and decide whether to pursue CE Mark in Europe or pursue with the U.S. IDE trials. Next one is our platform infusion technology. The first product incorporating it is our NEXLA IV-TEP, which seeks to revolutionize care by eliminating the need for complex, sensitive, and air-prone electronic infusion pumps for most of the 1 million infusions performed in the country every day. NEXLA was on the verge of progressing to verification and validation testing and FDA submission when the team encountered difficulty with repeatability despite good flow regulations. This required relegating MixFlow to a research and development redesign project. The flow regulation features work, but we need to crack the code with regard to repeatability. We're committed to trying to solve this design issue, but we do not yet have a solution. Finally, as part of the company-wide initiative I mentioned earlier, over the past couple of months, we've taken a very aggressive approach to pipeline rationalization and pruning to make sure that we are allocating capital efficiently. As a result of this analysis, we have either terminated certain development projects or shelved them for the foreseeable future, including Solus, Disappear, Flexmo, and Nexfit. Although we continue to pursue active, attractive, excuse me, business development opportunities and have some promising prospects in the pipeline, again, we have raised the bar with regard to the types of projects we will consider pursuing and investing resources in. Before handing the reins over to Dennis, let me quickly summarize the strategic priorities from our company-wide initiative that I've touched down through the course of our remarks. Number one, clearly, is to advance Lucid's commercial activities. This includes completing the expansion of the sales team at Lucid test centers this year, driving steady testing volume growth to demonstrate clinical utility and generate claims history, secure private and Medicare reimbursements, optimize our laboratory operations, including claims submission and prosecution, and generating critical clinical utility data. Number two is to launch the Veris platform with the Verisbox connected devices later this year. And number three is to advance our three pre-commercial products, Carpex Ultrasound, Veris Mercury, and eSecure through development, regulatory clearance, and commercial launch next year. With that, I'll hand the reins over to Dennis to provide an update on our financials before proceeding with with questions. Thank you.
spk04: Thanks, Leshauna. Good afternoon, everyone. Our preliminary and summary financial results for the three months into June 30th, 2022 were reported in our press release that was published earlier this afternoon. We filed our quarterly report for PAVMED on Form 10-Q with the SEC last night, August 15th, the due date. The report is available at SEC.gov and on the PAVMED website. As we outlined during Lucid's earnings call yesterday, as a rule, e-cigar tests perform a recognized gap revenue when cash is actually collected by the company. As previously mentioned, this will more than likely be true during this transition period of negotiating third-party private payer reimbursement contracts and related coverage policies. As I reported to you in previous quarters, for compliance purposes during this reimbursement transition period, We initially negotiated a short-term month-to-month fixed payment arrangement with the contract laboratory who was previously processing the ESAGARD assay and was performing the insurance company billing and collections function. This commercial agreement terminated concurrently with the opening of our own laboratory on February 25th. We recognized $189,000 of revenue as part of that ESAGARD commercial agreement with ResearchDx for the partial period from January 1st, 2022 through the end of the agreement on February 25th. Part of the transition to our company-owned commercial clinical laboratory, we contracted with a revenue cycle management company, or briefly abbreviated RCM, RCM service provider, to submit third-party reimbursement claims on our behalf. The RCM service provider will oversee payer claims, appeals, processes, patient billing, online payment collection, and claims tracking. With the appropriate licenses and certifications for billing and credentials secured and recently completing the necessary back office systems, claims for approximately 1,000 tests performed since the establishment of our own lab are now being processed, including 850 tests in the three months end of June 30th, 2022. Presently, recognized revenue for GAAP purposes is subject to actual amounts collected during the period. Due to delays receiving certain information needed from the IRS related to establishing a required lockbox at J.P. Morgan, our commercial bank, the initial batch of claims were submitted by the RCM on August 1st. Accordingly, since the RCM began submitting claims processed for our own lab subsequent to June 30th, There are no collections during the three months ended June 30, 2022. Future revenues will be recognized based upon actual collections until such time as the coverage policy is in place with CMS and payment contracts with the private payers. This obviously can result in a disconnect between the timing of revenues recognized versus the timing they are submitted for third-party reimbursement until all of these future conditions are met. The gap in claim submission from this transition will impact near-term GAAP recognized revenue until the system catches up with claims or tests performed during the transition. It is our expectation that we will begin to recognize GAAP revenue related to our Lucid DX labs as we progress through the second half of this year, and recognized revenue will be adjusted based upon actual collections received for tests submitted for reimbursement by the laboratory. The number of e-cigar tests performed and submitted for payment are provided in the press release and were discussed earlier by Lishan. Obviously, we're still in the early stages of our commercial launch, particularly with our test centers. We continue to evolve our reporting metrics as various sales and marketing efforts further influence adoption, particularly with the ramp-up of our lucid test centers and our e-cigar telemedicine program. Presently, there are four banking analysts who have issued coverage on PadMed, and others doing their diligence. The quantity of e-cigar tests, assuming the related claims will be reimbursed at the CMS payment rate, we would need to perform to meet the 2022 revenue estimates provided by the analysts are achievable. The collections and therefore the recognized revenue in each accounting period are highly dependent upon the evolving reimbursement landscape. Since there was no revenue in the second quarter, costs for the test centers and our laboratory are reclassified to operating expenses. For the second quarter and excluding $38,000 of non-cash expenses, test center costs were approximately $460,000 and are included in marketing expense. For the second quarter and also excluding non-cash expenses of about $375,000, laboratory costs of approximately $745,000 are included in G&A expense. PABMED remains Lucid's controlling shareholder, holding approximately 72.4% of the voting interest of Lucid. Lucid operating results will continue to be consolidated into PABMED's financial results. The statement of operations will reflect a live item to show the non-controlling interest, profits or losses to non-PABMED shareholders of its majority-owned subsidiaries. As well, there will be a corresponding offset in the equity section of the balance sheet for amounts attributable to minority interest equity. With regard to operating expenses, since there was no revenue in the quarter, cost centers were reallocated, as I mentioned. During yesterday's earnings call, we discussed the three components that make up Lucid's operating expense, namely sales and marketing, general administration, administrative, and research and development. Since Lucid's operating expenses represent approximately 60% of PavMed's non-GAAP consolidating operating expense for the second quarter, I'll summarize the consolidated operating expense as a total. With a three-month end at June 30, 2022, PavMed's consolidated operating expenses were $23.4 million, compared to $13 million during the same period in 2021, and reflects a quarterly increase of 22% sequentially. There is a table in the PAVMED press release published today and the Lucid press release published yesterday that adjusts each of these three components of operating expense for the embedded non-cash stock-based compensation expense. Without including the SBC or the stock-based compensation expense, operating expenses for PAVMED, operating expenses were $18.5 million, inclusive of $10.1 million of Lucid's operating expense. PavMed reported the second quarter net loss attributable to common shareholders of $25.6 million, or a loss of $0.29 per common share, versus a loss of $11.5 million, or $0.14 a share, in 2021. The press release provides a table entitled Non-Gap, which highlights these amounts along with other non-cash charges, namely depreciation, stock-based compensation, financing, and acquisition-related costs. to enable a better understanding of the company's performance. You'll notice from the table that after adjusting the second quarter loss by approximately $11 million for these charges, the company reported a non-GAAP adjusted loss for the second quarter of 2022 of $14.5 million, or $0.17 per common share. PadMed had consolidated cash of $65.2 million as of June 30th. which compares to 77.3 million as of December 31st, 2021. During the quarter, we realized approximately 24.5 million of net proceeds from the convertible debt financing announced in April. With that operator, we can now open up the call to questions.
spk00: Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Ross Osborne with Cantor Fitzgerald. Please proceed.
spk03: Hi. Thanks for taking my questions. Congrats on the progress. So starting off, could you please spend some time discussing the use cases with the first iteration of the VAERS health platform? and then what the scale of the launch later this year and early next year looks like.
spk07: Yeah. So, yeah, thanks. I appreciate the opportunity to dive a little bit deeper in that. So just to step back again to reiterate, the overall goal of the VAERS platform is to provide physiologic data parameters from a patient that are communicated in real time through a wireless and cloud-based connection to the providers. to facilitate detection of early signs of complications that can result in morbidity, mortality, and cost. We're providing that, and that data can be of any form for the purposes of remote patient monitoring codes. So as long as there's an FDA device, clear device that is generating that data, the clinician can go for that. So we're... going to be providing that data in three different steps. So the first launch is to give us the opportunity to launch the software platform. And in order to do so, we're providing a bundle of Bluetooth-connected external devices that will communicate with our platform and generate the five data points, including activity oxygen saturation, weight, blood pressure. And so that data and that information, along with symptom reporting, which we have a fairly robust system reporting, and other quality of life methods will be provided to the caregivers. We are starting, we'll obviously start with a modest launch with targeting a spectrum of providers of different sizes, including smaller practices, including in rural areas where we think this will particularly resonate to the larger cancer centers. And of course, this initial effort is to get experience with some of the complexities of getting the platform on the IT networks of the providers. to establish connections with the electronic health record, to establish connections with, to be able to turn on the telehealth functions and other factors. So we are excited. We have the team we've built. We have a gentleman joining us who did customer integration at Epic, the electronic healthcare record, and he'll be overseeing the systems integration and customer support aspects of this. And then just to advance forward, once we have the first version of the implantable part, then some of those devices like the tail and the blood pressure pump will remain, but many of the parameters will then move towards being collected and transmitted from the long-term implantable device. Hopefully that answers that a little bit.
spk03: Yes, that's great. Thank you. And then just one more from me on Port EO. I believe you mentioned there were seven patients included in the first phase with no complications. Correct me if I'm wrong, please.
spk07: I think we're more than that. We had seven in the most recent group. I think we're over 10. I'll get back to you on that number. The first wave, I believe we did four, and I think this is seven. But something right around that. And what's most important, as I mentioned, is that the protocol required us to have the first group have a seven-day implantation with explantation. And that was to demonstrate that the infusions worked, they were safe, and that you could explant the device and that there wasn't a fracture or other complications associated with the implantation. Now that that part is complete, we really get to the important part, which is to demonstrate seven days with an implantable port is not really clinically that useful. But what is useful is to get out to longer periods of time than the orders of weeks to months. So this next phase, which we're excited to launch, the device will be implanted per 60 days. And our expectation is to prove for the first time in humans what we demonstrated a while ago in animals that we have an implantable vascular access port, the first ever that is maintenance-free. So in the animal study, once we implanted them, they didn't require any flushing, any blood thinners, or anything like that, and they were functional and patent at 60 days. Obviously, our goal here is to replicate that, and we have every reason to believe that we'll be able to replicate that in humans. So that's the current state of the first human study. And as I said, we're still not – I don't have this on our sort of roster of full-bore pre-commercial products because we're still trying to figure out the regulatory path. We have an outstanding new head of regulatory and quality, and there's some thought and some hope that we could re-engage with FDA about this being potentially a quicker path, potentially still with the de novo, but a quicker path than we had previously were facing with an IDE in the U.S. We'll get the first human study done, and then we'll kind of iron out the longer-term plans after we get that data.
spk03: Okay, understood. And then with the second phase, can you disclose how many implants you're targeting?
spk07: I have to get back to you with that. I forgot what the number is, but it's in the couple dozen.
spk03: Okay, great. That does it for me. Congrats again on the progress, and thanks for taking my questions. Yeah, thanks.
spk00: Our next question is from Frank Takakin with Lake Street Capital Markets. Please proceed.
spk07: Hey, Frank. Hi, Frank. Actually, I just got a text. The number is 30, up to 30 patients for that second. Thanks, Dr. Guzman. How are you doing, Frank? Thanks for that.
spk02: Good, good. Thanks for taking the questions. I wanted to start with just a question on your comments around the reprioritization or rationalization of It sounds like it's all longer term opportunities that won't impact really the short or intermediate term story here. So that's kind of one confirmation of that except for the first part of the question. And then second part of that is just can you quantify expected cost savings by putting some of these initiatives on hold on an annualized basis?
spk07: Yeah, so the answer, of course, the answer to the first question is yes, that's exactly the point, is to try to, you know, this is a very sort of collaborative, concerted effort over a couple of months with, you know, a dozen or more members of our senior leadership team. And the goal was, in fact, as you said, to make sure that, you know, given the landscape that what we are investing in today and where we're deploying our resources today have the most, the nearest term opportunity to be accretive and to lead to commercial success. traction, commercial growth, and so forth. So 100% correct with your first question. In terms of the, I'll let Dennis comment a little bit more granularly, but this is a process that we started a couple months ago, and it did lead to some reallocations within the second half budget of this year. Not a significant total savings, but more reallocations within the program. So for example, on the Lucid side, we shifted costs from the longer-term studies to clinical utility studies. And even unwinding the longer-term studies still require some costs. You can't shut that figure off immediately. But we certainly expect to have some cost savings going into next year. One good example there, again, qualitatively, is looking to kind of plateau, grow our sales team through this year, but then once we get to that sort of 60 total commercial team number and approximately 18 lucid test centers to pause and to keep a flat team, keep our costs sort of relatively flat, focused on growing test volume through the team we already have. So, Dennis, would you like to add any more comments to that?
spk04: Yeah. Sure, thank you. So, Frank, in the sales and marketing space, given the comments that Lishan made about we intend to increase our sales force, going through the end of the year, there will be some increases in sales and marketing costs between now and the end of the year. However, with that and the targeted number of test centers, we expect 2023 to be fairly flat to that second half cost level, as the landscape for reimbursement starts to evolve. And we probably won't put more resources towards that end until we get clarity there. We believe by increasing the resources between now and the end of the year, we'll gain critical mass by the end of the year such that we can drive reimbursement, we can drive claims to get attention from payers, we can facilitate adoption, and then when reimbursement comes in play, that will start contributing, and we can then decide whether or not we are going to step on the accelerator again. Leishon pointed out that on the clinical research, there is a shift between longer-term, more expensive, to shorter studies that are focused more on reimbursement. There will be some overlap between now and the end of the year, but what we see through 2023 and 24, those costs will be relatively flat. And they're flat somewhat because of the shift in priorities with some of our products here that would have had a higher level of development cost or clinical cost in those time periods. We think that is the wise thing to do given the overall economic climate and the longer term priority there. As far as the administrative expenses, They should be relatively flat between now and the end of the year, and we intend to keep them relatively flat through most of 2023. We do – Lishan's comments earlier indicated that we've rounded out the infrastructure, the management team that we believe can sustain us through continued growth at the top line. You know, we had a number of pretty healthy growth in tests during the last quarter, and that was done with only a fraction of the sales force that we expect to have by the end of the year, keeping in mind that it takes about four months for a new hire to actually start to carry the weight and contribute. And, you know, the numbers are such that if we entered this quarter, with only a handful of folks calling on the primary care physician area, and we are going to increase that sizably. We think that gives us that initiative to drive reimbursement. So that's how we see over the, call it the next 18 to 30 months. There'll be some increases between now and the end of the year to get to those levels of critical mass, and then should be fairly flat until we see that inflection from reimbursement, which will then signal us to put more resources behind the commercial efforts.
spk10: That's great, Culler. Then I wanted to ask one on CMS.
spk02: I understand you're kind of in that wait and see stage, but any estimation you guys are comfortable putting out there when you could potentially hear back from either Palmetto or Neridian on next steps?
spk07: I'm a little bit wary because I think, you know, Frank, when we submitted the first techno file in May of 2018, you know, we certainly thought it was coming soon, coming soon, and 18 months, actually a little bit more than that, later we were still waiting. So, you know, I think, let me just first sort of couch it in maybe a bit of a qualitative way. You know, honestly, if we heard back and we had a cleaned up and nice operational foundational LCD tomorrow, we wouldn't be in a position to be able to to convert that into e-cigarette coverage because we clearly need more clinical utility data to check that final box as was articulated towards the end of the draft LCD. So my hope and, you know, gut is that we will, the time it will take us to, you know, we're going to complete a fairly large retrospective clinical utility study with our NYU experience. hopefully by the end of this year, and we should start seeing the sample sizes for the other prospective studies to start to kick in in the first half of next year. So, you know, my kind of ideal situation is once we've reached threshold numbers and substantial, you know, a solid critical mass of clinical utility data in the first half of next year, that that'll coincide with the the publication of a final LCD that gives us the opportunity to file a technical, file for a technical assessment and convert that foundational LCD into coverage-free cigar. So, you know, that's kind of roughly the, you know, the to-be would be sort of the ideal timeline, but, you know, you never know.
spk10: Okay. That's helpful. Thanks for taking the questions. Congrats on the progress. I'll stop there. Thanks a lot. Appreciate it.
spk00: Our next question is from Ed Wu with Ascendant Capital. Please proceed.
spk06: Yeah, thank you for taking my question. My question is on CARPEX ultrasound. What is the thinking in terms of why you guys decided to focus on this new product? And will there be significant investment required or any regulatory approval requirements?
spk05: Great.
spk07: Thanks for, again, the opportunity to flesh that out a little bit. So we're really pretty excited about this CARPEX ultrasound because we have experience now obviously in hundreds of cadavers and in dozens of patients with the current device. And the function of the balloon dilatation, all the key principles, the bipolar RF cutting and so forth, work quite well. But the one element that has kept us with this first-generation device in this kind of what felt like a perpetual limited commercial release is that there are some procedural challenges that, based on feedback, would clearly benefit from the ability of the surgeon to kind of see what they're doing. Right now, they can obviously see what they're doing when they insert the device, but after the balloon is inflated, it is blind at that point. To be clear, with other techniques, a lot of the cutting is also blind, even with endoscopic techniques. But we challenge ourselves to come up with a way to improve what functionally works well, but to improve the procedural point of view from the physician, from the surgeon's perspective, by incorporating ultrasound. And, you know, I want to be clear that people understand that this is not like an external ultrasound probe that the surgeon has to sort of, you know, learn how to use in conjunction with the device. What we're talking about here is intraluminal ultrasound. So the ultrasound probe actually goes right down the shaft of the CARPEX device, similar to anyone who has, you may have seen something called intravascular ultrasound, where you can put a catheter in a blood vessel and visualize 2D circumferential cuts of the vessel. So that's a similar quality image. So that's an image that a surgeon can be taught to interpret quite easily. It's very intuitive, and they can learn to identify the various structures, And after inflating the balloon, before firing to cut the ligament, they can feel a high level of confidence that everything is in good position, that the critical structures are out of the way. So that was the impetus for it. And we spent some time with kind of exploratory work and development and some initial challenges with getting some ultrasonic images. But we were fortunate enough to partner with a firm that has an ultrasound-guided device for anesthesia. so they've done some of the kind of the baseline red circuitry work for us and have a lot of experience with this type of imaging and so we're starting to get some some decent images so we have a pretty good feeling where this is going it is going to take some time certainly not a trivial development process you know we've allocated sufficient capital within our within our budget to think this is a high priority along with the others. And so we've decided to go full bore on this and to invest the capital necessary to get this product on the market and frankly realize the commercial opportunity that we've been all patiently waiting for Carpex over these years. It's still a very prevalent condition and the current options are not great. So we're really hopeful that this will be the and the product that gives us the opportunity to take advantage of that commercial opportunity. So, yeah, we're excited about that.
spk04: We should comment on the regulatory path.
spk07: Oh, yeah, I'm sorry, Ed. So, yeah, the regulatory path, we'll just be filing this as a – use our current device as a predicate for a new 510K, likely a new 510K. and we don't expect there to be significant hurdles with that because the fundamentals, the things that took us quite a while to get through FDA, which had to do with the cutting and the thermal spread and all these things that we had to deal with in the past, the working part of this, the distal end, is almost identical to the current device. We are moving, as I mentioned in my comments, we're moving a lot of the electronics to a handheld device, non-disposable device and a console. That's actually quite exciting from the point of view of economics because it lowers the per case cost and gives us a better margin and a better opportunity to compete from a price point of view with existing technologies. So we expect the regular path to be fairly straightforward. Then we'll leverage the existing 510k for the current first generation.
spk06: Great. Well, thank you for answering my questions, and I wish you guys good luck. Thank you.
spk10: Thank you, Len.
spk00: Our next question is from Anthony Venedetti with Maxim Group. Please proceed.
spk08: Hello, Anthony. Thanks. Hi, Dennis.
spk09: Hi, Lushan. How are you doing? So, just wanted to talk a little bit about the number of tests performed in the second quarter at your Lucid Test Center. I think you mentioned 850 just in the second quarter alone. Is there anything you would attribute that significant pickup in the number of tests to, and is that a good baseline, or was there anything extra in the second quarter that you don't think is repeatable going forward?
spk07: Let me take a first crack at that. I'll let Dennis fill in some of the numbers there. So I think as Dennis mentioned, we've had now two nice consecutive percentage growths quarter on quarter. If you remember, we're about a year into the first Lucid test centers launched in September of last year, so we're not even barely a full year in. And as Dennis mentioned, we hired literally our first sales rep calling on primary care physicians in the third quarter of last year. So now we are, as of belief today, we're at 20 and we're moving towards 40 for the end of the year. So I think the simple answer to your question, Anthony, is that the steady growth quarter on quarter we've seen for the last few quarters is directly attributable to allocation of resources to building a sales channel, a group of sales reps, expanding the number of test centers and the support of to allow these sales reps to generate referrals to those test centers. And it's directly a reflection of that. It's also a reflection of something I talked about a little bit more depth on the LUSA call, which is that we have, you know, our sales leadership has done a really great job of honing the sales process, which, you know, you think about just kind of walking in and talking to a doctor and getting them to do the test. But it's actually quite a sophisticated process process here with how we target, how we route, all the talk tracks around that, and it's quite sophisticated, organized, data-driven, and that process has definitely helped. Sales training has gotten much more intense. We just finished one a couple weeks ago. It's in-depth, really intense field training, field rides, along with an entire week of of classroom training, so that's been helpful. So I think our productivity and the time from the reps starting to them being productive in terms of generating test volume I think will shrink. And, you know, I think that really is the – those are really the key factors, and we obviously are expecting to continue to grow. That's why we're investing in this team. We'd like to – we think kind of 60 for the end of the year is a good number to kind of pause at. and then allow the, you know, the sort of run with those horses for a bit to grow within those territories and with those reps in place. So, yeah, I think hopefully that's all kind of a long-winded yes. I don't know, Dennis, if you wanted to elaborate any further on that.
spk04: Yeah, just maybe a few more details. So, Anthony, it's almost all organic growth projects. And it's driven simply by more accounts, which is driven by more feet on the street. We entered the quarter with 21 total people in the sales organization as of April 1st. And that included 10 sales representatives that were primarily focusing on the primary care physician. At the end of June, we had 29. total in the sales organization, 16 of which were focused on the primary care physician. And presently, we have 40 total people in the organization as of August. That includes 24 people that are dedicated principally to primary care physicians. So we've steadily increased that. We continue to hire. We've improved our sales processes. and more accounts referring more patients to our test centers. And another stat, and I think, Alicia, I'm touched upon this in your prepared remarks, is that out of the 850 tests in the quarter, about two-thirds were coming through the test centers, which are tied directly to the increase in calling on primary care physicians. We still had an increase in the institutions and hospitals. but the more telling increase was in the referrals into our test centers.
spk09: Okay, great. And then just last question on the overall business review, focusing on, you know, costs and projects. Was there anything that came out in terms of direct costs cost savings other than pausing some programs, any cost cuts specifically?
spk07: Yeah, I mean, I think the way I would summarize it is that we're very conscious with this effort and one of my points to this team is that, look, this is not an austerity program. We can't cut our way to growth. We're not going to fundamentally change kind of our stance with regard to growing this So the effort was very much driven, obviously, from a general posture of cash preservation, but more kind of rationalizing and streamlining and maybe pruning. I was looking for a word today that would say that. So, for example, on the sales growth, we had projected to continue to grow in 2023, and this decision – to not scale, not dial back our growth this year, but plan on plateauing this year and riding that team for a little while was basically, you know, that will result in flattened costs, as Dennis mentioned, on the sale costs into next year. We did a pretty aggressive rationalization and prioritization of our – the product development side, some which were a little bit tough. There were some projects in there that were, you know, a bit moonshotty, but we thought had big opportunities, but we just couldn't justify the investments in capital, at least at this point in time. And so we settled on, you know, the three products, Carpex, Ultrasound, eSecure, and the first implantable version of the VAERS device with, you know, with Port IO kind of hanging out a little bit one step behind. And on the personnel headcount, as Dennis said, we've grown, and certainly since you've been following us, we've grown this company quite a bit and a lot at that senior leadership team. And, you know, really what I would say as a general matter, I mean, that's not 100%, but, you know, from this point on, we kind of have the team. And we, you know, increases on our headcount moving forward are going to be, you know, almost entirely commercial teams members of a commercial team ramping up consistent with, you know, the commercial, you know, the traction we're getting, reimbursement and all that. So we'll be hiring people on the various commercial team after we see some traction there and so forth. But in terms of more of the, you know, the base team, the infrastructure, the leadership and so forth, you know, I think we got the team. And then it's fantastic.
spk08: Okay, great. That's a special color. I appreciate it. I'll hop back in the queue. Thanks, guys. Great, thanks, Anthony.
spk00: We have reached the end of our question and answer session. I would like to turn the conference back over to Dr. Eklund for closing comments.
spk07: Great. Thank you very much, everybody, for taking the time to join us today and for all the great questions from our colleagues. As always, we look forward to keeping you abreast of our progress via news releases and conference calls. Just encourage you to keep up with PadMed news, updates, and events. to sign up for our email alerts. That's the best way to keep in touch. You can do that on our PadMed Investor Relations website. To follow us on social media, we're fairly active on Twitter, LinkedIn, and YouTube. And also to feel free to contact Adrienne at akm.padmed.com with any questions. So thanks again, everyone, and have a great rest of your day.
spk00: Thank you. This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.
Disclaimer