Lucid Diagnostics - Q1 2024

Transcript

Operator (participant)

For the operator. Please note that this event is being recorded. I would now like to turn the conference over to Matt Riley, Lucid Diagnostics Director of Investor Relations. Please go ahead.

Matt Riley (Head of Investor Relations)

Thank you, operator, and good morning, everyone. Thank you for participating in today's business update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and Chief Executive Officer of Lucid Diagnostics, along with Dennis McGrath, Chief Financial Officer of Lucid Diagnostics. The press release announcing our business update and financial results is available on Lucid's website. Please take a moment to read the disclaimers about forward-looking statements in the press release. The business update, press release, and the conference call all include forward-looking statements, and these forward looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the Securities and Exchange Commission.

For a list and a description of these and other important risks and uncertainties that may affect future operations, see Part 1, Item 1A, entitled Risk Factors in Lucid's most recent annual report on Form 10-K filed with the SEC, and any subsequent updates filed in the quarterly reports on Form 10-Q and subsequent Forms 8-K. 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 now like to turn the call over to Dr. Lishan Aklog, Chairman and CEO of Lucid Diagnostics. Lishan, take it away.

Lishan Aklog (Chairman and CEO)

Thank you, Matt, and good afternoon, everyone. Thank you for joining our quarterly update call today. I also like to thank our long-term shareholders for your ongoing support and commitment. Our team here at Lucid is singularly focused on driving our enterprise towards what we believe is a massive commercial potential and to enhance our long-term shareholder value. Very pleased with the excellent progress the team has made over on multiple fronts during the Q1 and the start of this year, and really look forward to very exciting, very near term milestones for our business. In particular, really excited about the fact that we were able to strengthen our balance sheet, closing out our $30 million for first stock financing to long term investors that extends our runway well past these near term milestones and keeps stock out of the market even further into the future.

Okay, so let's start off as usual with some highlights. First, with regard to our commercial execution, we collected approximately just over $1 million in revenue for this quarter, just flat quarter-over-quarter, and about a 124% increase on an annual basis. As we had noted last call, our first-quarter test volume remained also in approximately the same range, about a 10% increase at 2,420 tests. That's also a 31% increase on an annualized basis. We do still see increased productivity from a seller point of view, improving. CYFT events are thriving. We had 32 such high volume healthcare events, and we have now implemented a very streamlined, centralized telehealth operation as part of it.

We're very much focused and engaged on our robust pipeline of direct contracting engagements, as we'll talk in more detail later, that involve benefits brokers, third-party administrators, and self insured entities offering EsoGuard as a covered benefit. Our efforts over the past six to nine months with revenue cycle management improvements continue to pay dividends. We continue to work on a variety of initiatives to improve this process further, including prior authorization, appeals, physician advocacy, and others, while maintaining stable out-of-network allowed amounts averaging about $1,800. Some key strategic accomplishments for the quarter include, as I mentioned, strengthening our balance sheet by completing a $29.8 million Series B preferred stock offering. A very key landmark accomplishment from this quarter was the peer-reviewed publication of positive data from a landmark National Cancer Institute-sponsored clinical validation study of EsoGuard esophageal precancer testing that demonstrated unprecedented early precancer detection.

We'll cover those details a little bit later. This study strengthened EsoGuard's clinical data, supporting ongoing engagement to secure both commercial and Medicare payer coverage. We've now secured a date, July 17th, for our MolDX pre-submission meeting, which will be our opportunity to review data with the MolDX group for a technical assessment seeking coverage of EsoGuard under its foundational local coverage determination for Medicare coverage. We're actively executing on what's an aggressive market access strategy that's focused on securing medical policy coverage with regional plans and biomarker legislation states. We'll cover that in some more detail later, as well as pilots with national plans. So for those who are new with the story, just a few slides to tell you about Lucid. Lucid Diagnostics is a commercial-stage cancer prevention medical diagnostics company.

We're focused on early precancer detection, and our goal is to prevent esophageal cancer deaths in at-risk patients. We have two technologies, our EsoGuard esophageal DNA test and the EsoCheck cell collection device. The EsoGuard test is the first and only commercially available test that's capable of serving as a widespread screening tool to prevent esophageal cancer deaths through the early detection of esophageal precancer. As I said previously, and I'll say it again, the performance of this test is really unprecedented for a molecular diagnostic test. That statement is highlighted here in a comparison of EsoGuard's performance to some other sample tests in the colorectal cancer screening space. Cologuard, which is widely successful and widely available, has been for many years, and liquid biopsy tests from Guardant that have published data recently and that's gotten a lot of attention.

It's important when you understand the performance of these types of tests to document it in a variety of different categories. So when it comes to cancer, you don't want to miss cancer, and we have very similar, if not superior, sensitivity for detecting esophageal cancer at or above Cologuard and other such tests, and certainly superior to the blood test like Guardant. But the real differentiation, the reason why I comfortably use the term unprecedented, is when you talk about precancer. Remember, that's what we're focused on and what we need to accomplish. So in the precancer stage, we're still at that 90% plus or minus, very close to 90% sensitivity rate, and that's just unprecedented. Cologuard does a pretty good job at picking up late-stage precancers, but that percentage sensitivity is about 40%-50%.

The blood tests are just not really in the code when it comes to that. Even more impressive is that we're not just picking up late stage precancers, but we're picking up early precancers, and that is truly unprecedented. Similar sensitivities for that early precancer, those early precancer numbers, and there's no ability in these other tests to pick up the earliest stage precancer, which gives us the opportunity to have a real impact on these patients. So even within that early precancer stage, we have a sensitivity still maintained even if you only have a short segment of disease, which is actually the most common presentation of these patients that we're trying to pick up and the most common scenario that leads to cancer, and that's at 89%. So false negative rates, false positive rates are all really in the excellent range for tests of this kind.

So this results in a very large market opportunity for Lucid. There are 30 million patients, actually more than 30 million patients, that are at risk and are recommended for testing, for precancer testing, by the Professional Society guidelines. Medicare has established a mark for payment for this test at $1,938, and as I've said, and we'll show further, that price point has been holding up quite well without in-network payments. So that translates into an approximately $50 billion total of addressable market opportunity. So we have a lot of opportunity even with low levels of penetration to generate substantial revenue. Our gross margin at our current volumes is approximately 90%, which also facilitates our ability to derive this business. We have developed over the years a multi-pronged commercial strategy, which is focused on getting patients access to this test in a variety of settings.

We have our own physical test centers in about 13 cities. Our primary approach to testing is our satellite Lucid Test Center model, which partners with physician practices, primarily primary care physicians, where our clinicians will schedule days in their office to test scheduled patients, 10, 15, 20, even 30 patients in a day. That's the dominant form of our testing right now. We also partner with physician practices, especially specialty practices, for us to work with them and their personnel to do testing in their office, and that model extends to smaller hospitals as well as larger integrated delivery networks. We have a mobile Lucid Test Center that serves us well in the state of Florida where that's necessary to do this kind of testing.

A big part of our activity, commercial activity, remains our CYFT or Check Your Food Tube, healthcare type events, focusing primarily on firefighters but expanding to other targets as well. Let's talk a little bit about how this quarter went. Our test volume has remained flat, approximately, as we mentioned, 2,420 tests for the Q1. That's consistent with what we described last quarter, where we have frozen our sales team, actually going back to the early part of 2023. Although we're extracting some increases in productivity, we have some unfilled positions and have transferred some of those resources into market access and direct contracting.

This is where we expect to be until we reach points with regard to realization of revenue that justify us increasing our sales team and driving our test volume, which we're confident we can do at the appropriate time. Revenue, again, was flat quarter to quarter. Dennis will be talking a bit more about those trajectories and the realization of revenue as a function of test volume and revenue opportunity. On the commercial execution side, we've had, as I said, our Check Your Food Tube events are thriving. We held 32 such events during the Q1.

We've implemented a really streamlined, centralized telehealth operation where people can, for example, if we're testing at a fire department, prior to the day of the event, can actually register through our telehealth operation, get their telehealth visit with the physician, confirm that they qualify for the test, and actually have that referral made all prior to them arriving. Our engagement with the firefighter community is strengthening every quarter and is very powerful and very gratifying. Our team attended the FDIC International Conference, the leading firefighter conference in the country. It was in Indianapolis with 30,000 firefighters. We did onsite EsoGuard testing and engaged with fire chiefs from all around the country. Another major push, as I hinted at, remains our direct contracting initiative. We have a robust pipeline of direct contracting engagements with benefit brokers, third-party administrators, and self-insured entities. Again, how does this work?

In this pathway, we are offering EsoGuard as a covered benefit to drive contractually guaranteed revenues. We've targeted these three groups: benefit brokers, third-party administrators, and such. Self-insured entities such as employers and unions. And other partners where there are large groups of patients such as the 9/11 funds. And others where there's an opportunity to access and contract directly with these entities that cover these patients. There are a variety of ways that we're engaging with these entities. With some, we're negotiating direct ongoing contracts where we charge on a per-patient basis. Where we enter through a benefit plan, we can charge for a lifetime benefit per member, and then we also offer testing days, either full or half testing days, at a fixed price.

So we're really looking forward to ramping this up during the second half of the year and feel we have the opportunity to do so as a supplement to the traditional pathways. So an update on our overall experience with claims and payment and coverage. Revenue cycle management remains critical. We continue to have ongoing improvements in our process in partnership with Quadax, our RCM provider. These improvements include we're going to start a prior authorization program, which accounts for approximately a quarter of the denials, and we're hoping to eliminate those through prior authorization. Our appeals process is getting much more sophisticated and targeted, and the percentage of appeals that we win is improving steadily. We're recruiting, and this is actually gratifying. We're recruiting physicians, local physicians, to advocate on our behalf with regard to local payers, which is something that can have a big impact.

Dennis will talk about the numbers in a little bit more detail, but we continue to have about half of our adjudicated claims allowed by the payers. This is all out-of-network, and the payment is remaining stable at just under the Medicare rate. Some big developments on the medical policy and coverage side, particularly with MolDX. Upon publication of the National Cancer Institute-sponsored study and the outstanding results from that, we pulled the trigger and asked for and secured a meeting with the MolDX group that's scheduled for July 17th. This is a pre-submission meeting where we get an opportunity to discuss the body of clinical evidence.

These are categorized as clinical validity data, clinical utility data, and analytical validity data, and review that data with them, get their feedback, and proceed thereafter to submit what's called a technical assessment or a TA that seeks coverage under the existing foundational local coverage determination or LCD that MolDX and other Medicare contractors published last year for tests in this category of esophageal testing. On the private side, we are, again, actively executing on this strategy. We're focused on securing medical policy, positive medical policy coverage with regional plans and have engagements with a number of them.

A high area of focus for us are Biomarker Legislation states, which I'll talk about a little bit more, as well as pilots with the national plans where we seek coverage with evidence development, where we are able to demonstrate the clinical utility of our study to that particular payer, as well as the potential economic benefits to that payer in a study while getting covered and paid over that time. So those are things that we continue to actively pursue. The biomarker initiatives really we think will have a big impact. There are multiple states now that you can see here that have passed Biomarker Legislation that effectively mandates by statute that they're different from state to state but effectively mandate that local payers cover these kinds of tests and ours.

And we're going state by state and working with each state to confirm that we are covered under this legislation and use that to seek coverage, at a minimum, coverage under the biomarker legislation for individual payers. So it gives us a great opportunity to do that. I'm going to provide a brief overview. We had a press release about this. The results of this exciting, what I believe is a landmark study from a National Cancer Institute-sponsored group called Betternet Consortium, sponsored by the NCI, and they published a landmark paper a few weeks ago in the American Journal of Gastroenterology on EsoGuard performed on samples collected with EsoCheck compared to upper endoscopy and its performance in detecting esophageal precancer and cancer and the conditions along that spectrum. The highlights are impressive and, again, unprecedented. The sensitivity for cancer was 100%. All of the cancers were detected.

The overall sensitivity and specificity was 85% each, a very, very key number that we believe is critical to demonstrating the value of this test is something called SSBE or short segment BE sensitivity. That's your ability to detect this short segment, less than 3 centimeters, 1-3 centimeters of disease. That's the hardest thing to detect because it's just a small patch of disease down by the far end of the esophagus, and it's the one that's most challenging for any type of molecular test. The reason why this is important is that about 70% of the cases we're trying to identify in the screening population as defined by the guidelines are short segments. So if you can't detect, and they account for about half of the cancers.

So if you can't detect short segment BE with a high level of sensitivity, then you're not going to have the ability to have an impact on cancer death because that's where most of this disease is, and we're hitting that at a really high rate, an 89% rate, and a negative predictive value, so a really low false negative rate, NPV of 98%. They documented something that we continue to see, which is the average procedure time of 2.5 minutes. That's an average. We're seeing times less than that. Some of us in the office were tested last month, and it took 30 seconds for the test to be completed. So really outstanding, and particularly in comparison to potential alternatives, it's a critical part, we believe, of having a highly efficient screening test. We have.

The study has shown no adverse consequences, adverse events from the testing consistent with other studies that we've shown to date. I'd also like to spend a minute or two reviewing the results of a paper that was published last month on a technology from an academic institution on a test that's been called Oncoguard Esophagus. The group used a sponge on a string device called EsophaCap to sample cells from the lower esophagus and apply a new molecular test with methylation markers on it. I'll note that the EsophaCap device is a device that we acquired and supplied for a portion of the study, although we no longer supply that.

Some highlights to note, particularly in contrast, are that the test showed poor sensitivity for short segment BE, which, as I mentioned last time, is really the most critical number in having an effective screening test for esophageal precancer, 63%. There were also some troubling complications. About 20% had mild abrasions of the esophagus. About 2% had serious abrasions with bleeding, and there were two catastrophic device failures in the form of detachments. So I thought it was worth summarizing. I had to add comparison of our results. These are pulled results, although they're pretty consistent across the various studies of EsoGuard and EsoCheck with the results that were reported in this publication on the Oncoguard test in combination with a sponge and a string test.

So again, let me emphasize the importance of short segment BE as critical because these are the patients that account for about half of the cancers. A 63% sensitivity in that category, it just is not going to be sufficient to serve as a commercial test. And again, that data is from this publication that was published last year. Also note that that level, that approximately 60% sensitivity in this critical category, is about the same as the sensitivity that was published in the paper on that used the Medtronic Cytosponge, another sponge on a string, an old technology sponge on a string that led Medtronic to withdraw that technology from the market. The variety of ways that a variety of areas to contrast.

If you look at the device effectiveness, as I noted, EsoCheck gives you anatomic targeting of the area, just the very small area where this abnormality occurs. Sponge-on-string devices do not. EsoCheck provides protected sampling, so there's no dilution and no contamination from cells elsewhere, only in the targeted area sponge-on-string devices do not. Lots of issues with regard to procedural efficiencies. The paper showed that the SOS device required topical anesthesia, essentially numbing medicine applied to the mouth. EsoCheck does not require that. The SOS devices have to sit in the stomach and dissolve for 8 minutes, again, as reported in the study. There is no dwell time. EsoCheck does not require that. They had 2 devices that failed to deploy. They didn't dissolve. They pulled them out, and they were still not fully deployed. We don't have that issue at all with EsoCheck.

If you take the 8 minutes and the time to swallow them back, the time to actually complete the procedure is about 15 minutes. As I mentioned, we're doing them in 1-2 minutes or less, as little as 30 seconds. That's really important if you're doing these large events like one of these Check Your Food Tube events. We've tested 100 patients in a day at a firehouse. You can't do that if it takes 15 minutes or more per patient. The only reason we could do that is because of these low procedure times.

The technical failure rate, or sort of being able to complete the test without patients being able to swallow and get a sample, our numbers in data that was presented at a big GI conference on 1,500 patients was 98%, which is a 2% technical failure, much higher in the sponge-on-string devices. But the key area here, and one that I think is going to be ultimately the message here, is on device safety. There were two detachments that are serious, if not catastrophic. The sponge detached from the string. In one case, it had to be retrieved endoscopically, and another passed through the intestine, but putting the patient at risk of a serious obstruction and serious health risk.

As a result of these detachments, we actually initiated a recall of the EsophaCap device that was used in the study after notifying the FDA about this, and it was something that was mandatory. So that's going to be a significant issue that we just don't have to address. We've never had any device failures from EsoCheck in over 10,000 tests. And the abrasions and the serious abrasions are not surprising but a significant contrast here. The sponge-on-string devices are literally like a sponge, like a Brillo pad that scrapes the esophagus. So it's not surprising that you would see patients who have these abrasions, including 2% that have a serious abrasion. EsoCheck is a balloon that has a soft sort of cushioned surface to it with soft ridges on it, and we just simply don't see these issues with EsoCheck.

With that, I'm going to pass the baton on to Dennis to talk about our financial results.

Dennis McGrath (CFO)

Thanks, Lishan, and good morning, everyone. Summary financial results for the Q1. We reported in our press release that was published earlier today. On the next three slides, I'll emphasize a few key financial highlights from the quarter, but I encourage you to consider those remarks in the context of full disclosures covered in our quarterly report on Form 10-Q. Balance sheet cash at quarter end, March 31st, was $24.8 million. We added $11.6 million to that amount with financing completed last week for pro forma cash of $36.4 million. The average quarterly burn for the trailing four quarters is $9.5 million per quarter. The burn in the Q1 included $7 million from ongoing operations and $2.5 million from the quarterly management service agreement with PAVmed.

Additionally, the company paid down the intercompany debt to PAVmed, with PAVmed accepting 3.3 million shares for a $4.8 million debt reduction as previously disclosed in connection with the dividend distributed by PAVmed to the PAVmed shareholders of Lucid Stock, plus $2.8 million in cash payments. We disclosed in the 10-Q that our ability to fund operations beyond one year from today is largely dependent upon how revenues ramp over the next four quarters, which is, of course, dependent on how the reimbursement landscape for both government and private health insurance continues to improve. Additionally, our direct contracting efforts with self-insured employers and/or corporate finance activities, including refinancing the outstanding debt at that time, can also work to exceed that threshold. Beyond that, there is nothing substantively remarkable about the remainder of the March 31st balance sheet.

Shares outstanding, including unvested restricted stock awards as of last week, are 52.2 million shares, which includes 1.1 million issued subsequent to quarter end in connection with conversion notices received from the convertible debt holder. The GAAP shares outstanding as of March 31st of 46.7 million are reflected on the slide as well as on the face of the balance sheet in the 10-Q. GAAP shares do not reflect unvested restricted stock awards. On slide 20, it compares this year's Q1 to last year's Q1 on certain key items. I'll also review the information, my comments, in light of the cautionary disclosure in the bottom of the slide about supplemental information, particularly non-GAAP information. I'm required to say that.

As previewed in our Q4 earnings call, revenue of just over $1 million for the Q1 is sequentially about even with the Q4 and reflects more than a twofold increase over the prior year Q1. The amount reflects actual cash collections for the quarter, plus a small amount of invoiced EsoGuard tests delivered to the VA, plus about $25,000 for direct contracting. Test volume at 2,420 tests for the quarter represents just over $6 million in submitted claims at our $2,499 ASP. Revenue recognition, and I know this gets repeated each quarter, but it's important. A key determinant is the probability of collection.

Therefore, due to the fact that we are in early stages of our reimbursement process, it means revenue recognition for claims submitted to traditional government or private health insurers will be recognized when the claim is actually collected versus when the patient report is invoiced and submitted for reimbursement. As you'll see and disclose in our 10-Q, this is called variable consideration in the jargon of GAAP's ASC 606 revenue recognition guidelines. Presently, there is insufficient predictive data to reflect revenue when the test report is delivered to the referring physician. For billable amounts contracted directly with employers and that are fixed and determinable, they will be recognized as revenue when the contracted service is delivered. That generally means when the report is delivered to the referring physician.

Our non-GAAP loss for the Q1 of $9.4 million reflects about a $500,000 sequential improvement compared to the Q4 loss and about a $400,000 improvement year-over-year from the prior year Q1. Slide 21 is a graphic illustration of our operating expenses for the periods reflected. Total non-GAAP OpEx is $10.4 million for the Q1 of 2024 and reflects about a $500,000 decrease sequentially and is fairly flat year-over-year. Cost of revenue primarily consists of EsoCheck devices, lab supplies, and fixed lab facility costs, and it is in line with the last couple of quarters where the test volume has ranged between 2,200 and 2,600 tests. The non-GAAP net loss per share has been relatively flat for each of the last five quarters, plus or minus a penny between each of those five quarters.

On a GAAP EPS basis, non-cash charges accounted for approximately $0.19 per share in the Q1, of which $0.17 was directly related to the non-cash deemed dividend connected to the March financing of $18.2 million. A couple of reimbursement highlights. Focus on the last two quarters, the Q1 of this year and the last quarter of last year. Collectively, there were just under 4,000 claims, 3,975 claims representing just under $10 million in pro forma revenue that were submitted for reimbursement. About 75% have been adjudicated. 25% are pending. Out of the 75% that have been adjudicated, about 46%, almost half, resulted in an allowable amount by the insurance company with a mean average of about $1,700 per test.

As you collect these things over a longer period of time, with a longer aging time horizon with appeals, approximately $1,800 per test, which is in line with previous quarters. We report this same statistic. Of those denied, about 53% of the denials are deemed not medically necessary or require a prior authorization, and about 28% were deemed to be non-covered. With that, operator, let's open it up for questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press followed by the number 2. If you are using a speakerphone, please lift the handset before pressing any keys. One moment while we prepare the Q&A roster for you. Your first question is from the line of Mike Matson from Needham. Please go ahead.

Dennis McGrath (CFO)

Good morning, Mike.

Mike Matson (CFA)

Yeah, thanks.

Lishan Aklog (Chairman and CEO)

Hi, Mike.

Mike Matson (CFA)

Good morning. I wanted to start with this MolDX pre-submission meeting. So can you maybe just tell us more about what you're expecting to happen there and kind of what the potential outcomes of the meeting would be?

Dennis McGrath (CFO)

So just to be clear, these are pre-submission meetings. I think the analogy for those who have had experience or heard about descriptions of FDA pre-submission meetings is not quite as structured and formal, but similar. The purpose of these meetings is to meet with the key personnel, the medical directors at MolDX, and to review the full evidence base consisting of clinical validity, clinical utility, and analytic validity data, and to do so in the context of the elements of the already published and finalized foundational LCD, and simply to have a conversation about that also in the context of new information such as guidelines and so forth. So we expect to be well represented with both ourselves and others who can describe the context of our data and that result.

The goal of that is to be able to inform the actual document, the technical assessment that would be submitted following that meeting to formally seek coverage under the foundational LCD. In addition to personnel from the company in various key roles, we expect to have other key experts. Stan Lapidus, our Vice Chairman, who's an expert in diagnostics, will be contributing, as well as one of our medical advisors who is an expert and an author on the guidelines that we expect to provide some additional support. That's the nature of the meeting. We would leave with that, with a sense of where we stand with our data, and it'll inform the actual formal process, which is to submit the technical assessment and have that clock start following the meeting.

Mike Matson (CFA)

Okay. Thanks.

Lishan Aklog (Chairman and CEO)

The clock starts following the submission. Excuse me.

Mike Matson (CFA)

Yeah, got it. And then just in terms of the so you've been running at kind of like this 2,500, 2,400 tests per quarter now for a few quarters, and your revenue's been growing a little as you get more you're able to collect more payments, I guess. So how long should we expect you to remain in this sort of holding pattern? And at what point would you start to try to grow the tests? What point would you need to get to in terms of the coverage or the payment rate before you would start to really try to drive more test volume again?

Lishan Aklog (Chairman and CEO)

Yeah, great question. So I'll talk about a little bit on the test volume side. I'll have Dennis chime in on the translating test volume into revenue. So we talked about this a bit on our last call, which is that we've had a fixed level of personnel on the sales side. We obviously have been and remain in a posture where we're trying to maintain our OpEx as flat to the best of our ability during a period of time. And as I also mentioned last time, but I'll reiterate, the test volume we have has been sufficient to drive claims history and to drive our engagement with private payers. Again, just sort of reiterate a bit from our last call, this level, kind of in the 2,400+ range, is a level that we think we can maintain with our current team.

We did actually have fewer sellers in the field this quarter as we transported some resources and did not fill certain open positions in order to make sure we had sufficient resources under the same overall OpEx in our key market access and direct contracting initiatives. So certainly, there is a possibility that even at this current level, we may continue to see some modest growth. We saw about 10% quarter-on-quarter as a result of increasing Check Your Food Tube events, which tend to be more efficient in terms of the amount of personnel, sales personnel in the field per test. And obviously, if we start seeing some traction on the direct contracting side, which can drive test volume essentially independent of the sales activity.

So I'll transfer to Dennis to talk a bit about where our thresholds are and at what point in the realization of revenue from test volume, would we consider increasing our OpEx and adding resources in order to drive test volume as a method of driving as a lever to drive revenue?

Dennis McGrath (CFO)

Mike, I think those decisions are going to be on a quarter-by-quarter basis as we see realization, meaning cash collections as a percentage of billable claims, increases. As Lishan's pointed out, there are a couple of influences there that we will start to make those investment decisions at the time some of these events start to show themselves, maybe even in advance of actually collecting. They are direct contracting because the price is guaranteed. As we see that start to increase, that will give us reason. In fact, we're already putting some additional resources behind that. In addition, I think we've previously mentioned we have submitted some formal applications for some of the larger regional insurers to move from out-of-network to in-network. As those decisions become available, that will influence making those investments.

Clearly, that's an indication of what realization will become in the subsequent quarters after those approvals. Obviously, in response to the Medicare upcoming decisions, that will influence timing as well. We're also in the process of trying to fully understand the biomarker legislation, and one influence that might have is both the states that are requiring coverage with insurers operating within their states, how that plays itself out. We're staying pretty closely in tune with that in terms of does that make sense for us to put additional resources in those states as they work out those logistics between the state legislation and the actual carriers covering biomarkers. They're all the influences that will have us step on the accelerator to do so. Obviously, with the recent financing, we have the resources to be able to be responsive to those events. So pretty much stay tuned.

As I indicated at the outset, it's a quarter-by-quarter basis, and we have and are ready to put these things in place, be responsive to these events.

Mike Matson (CFA)

Okay. Got it. Thank you.

Dennis McGrath (CFO)

Thanks, Mike.

Operator (participant)

Your next question is from the line of Anthony Vendetti from Maxim Group. Please go ahead.

Lishan Aklog (Chairman and CEO)

Anthony, good morning.

Dennis McGrath (CFO)

Hi, Anthony.

Anthony Vendetti (Director of Research and Senior Healthcare Analyst)

Good morning, Lishan. Good morning, Dennis. Yeah, some of those questions were around some of mine, but maybe just further talk about the process. You did mention that you're hoping that some of the coverage benefit goes from out-of-network to in-network. That obviously would be significant. Can you just remind us where we're at in terms of the number of insurers that will reimburse, excuse me, maybe the number of maybe the large insurers, if we talk about the Cignas, the Aetnas, UnitedHealthcares of the world, where are they in terms of their reimbursement coverage, and what's the likelihood that they sign up either this year or within the next 12 months as either an in-network, out-of-network?

Lishan Aklog (Chairman and CEO)

Yeah, let me outline that a bit at a high level. So you asked about the larger payers. So just to be clear, on the out-of-network side, we do get paid. We do get paid out-of-network. Dennis went through those numbers. We do get allowed claims, and allowed claims at just under the Medicare rate on average. And some of those larger payers are actually doing that. There's a distribution, and some of those are doing that at a higher clip. Our focus with regard to getting near-term changes in positive medical policy for coverage is not focused on the large payers. Our engagement with the large payers is focused more on pilots seeking coverage with evidence development because it's our understanding and expectation that the larger payers generally will wait for positive coverage by MolDX and Medicare in general.

However, there's very fertile ground that we're actively pursuing on the regional plans. We mentioned last time that we're engaged with the Blue Cross Blue Shield Association, which is a national association that assists us, and they've been quite remarkable in doing so in our engagements with individual state plans. We're chipping away at those, and we're having some success. As Dennis mentioned, in particular, those that are in states with biomarker legislation, we really believe we can actually make progress in coverage under those regional plans in the near term, independent of the MolDX process. Then there, of course, are these direct contracts, which are completely independent of the entire payer process. One example of that is in the slide that I showed over on the right.

There are entities that have a large number of patients under that have where they cover their expenses for covered conditions. And one that we'd already given a preview of is the World Trade Center 9/11 Fund. We have active discussions with them. We are opting to stick that we'll be able to have a final engagement with that group through one of their centers of excellence, which we're talking to right now. And so that's a pathway to provide patients within who are covered by that, of which there are about 100,000, access to our test as a covered benefit without completely independent of the insurer payer process.

Anthony Vendetti (Director of Research and Senior Healthcare Analyst)

Okay. That's helpful. Maybe just more very big picture here. You had a great investor day with a couple of gastroenterologists and a thought leader that talked about how the Pap smear changed cervical cancer and obviously Cologuard. As you see this process continuing to unfold and some of your competitors having a recall, is there a tipping point? Do you think it's a 3-5-year process before EsoGuard/EsoCheck becomes a standard and it becomes more well-known? Because when I was speaking to one of the gastroenterologists that was at this investor conference, and he was just saying that it is difficult to get the word out there because not everyone associates esophageal cancer as a major cancer, even though we know it's one of the most lethal. How long do you think this process takes before you hit that tipping point?

I'm just curious what your view is on that.

Lishan Aklog (Chairman and CEO)

Yeah. I think that's a great question. And let me start with the latter part. So it's not going to be that hard because there is a lot of attention and a lot of increasing attention on esophageal cancer. And you're correct that over the decades, it's been under we focus on breast and colon and prostate and some common cancers. But our efforts and our ability to get that message out and for that to resonate without a lot of effort across the physician community, both primary carers and specialists, is straightforward because we have a straightforward story. We have a well-defined target population. We have a methodology and an understanding of the biology. We know what to do in patients who come back positive. And so the message you heard from the physicians, for example, at the investor day is resonating across the country.

And that's actually playing itself out in local markets across the country. In news media, the firefighter events have been very helpful for us. We were at a great piece on ABC News in L.A., and we have a variety of those that are happening, and we expect that pipeline to translate into national awareness for this. And it's a process, but it's not a process that I believe will take years because all the pieces are in place. We don't have to define the population. We don't have to make all of the elements for us to tell the story, which is a very compelling story, are straight. I can tell you, in every interview I've ever done in a lay population, we were on NPR recently. It's been a very straightforward aha moment conversation.

It's actually quite amazing to me how frequently I think it happens once a week or so where we're talking to folks, and they just sort of objectively about the business, and we hear about a family member or a friend or a colleague who suffered from esophageal cancer. In the physician community, the GI community, that's actually also quite straightforward because it's already in their guidelines. We didn't write their guidelines. They did. And so the need to identify precancer and to do so as a methodology to prevent cancer, that's well established. We don't have the hurdle to overcome to suggest that detecting precancer in this condition is something that's controversial. It's not. It's been in guidelines in the last three guidelines.

Unlike Cologuard, for example, which was operating in an environment where there was already about 50%-70% of patients who were getting colonoscopy, very few, less than 5%, essentially no patients in our target population are getting endoscopies. So we're completely allied with the gastroenterologists in our ability to talk to them about going out and expanding their funnel and identifying patients that they're not seeing and increasing the yields of their number of endoscopies and the yields of their endoscopies. So we have great relations with the leadership in the GI community, all of the KOLs. We're really excited. We have a big presence coming up at the biggest GI meeting in the country every year, which is the DDW meeting, which starts this weekend.

Our medical advisory board is meeting there, and it consists of who's who in the GI community of esophageal disease. We're going to be meeting for a couple of hours on Friday and talking about all of the key issues that I already highlighted earlier, such as the importance of short-segment Barrett's Esophagus, the importance of having a cell collection device that has excellent device safety, and the features of EsoCheck. So that story is, we're already getting that out. When will actually the expansion of the activity will be a result of the triggers that we mentioned with regard to coverage and so forth. But the story is getting out there, and it's not going to take that long once we're on full throttle to have that spread nationwide. It just hasn't been a hard story to tell them, Anthony.

Anthony Vendetti (Director of Research and Senior Healthcare Analyst)

Great. No, that's excellent, Paul or Lishan. Thanks so much. I'll hop back in the queue. Appreciate it.

Lishan Aklog (Chairman and CEO)

Thanks, Anthony.

Operator (participant)

Your next question is from the line of Mark Massaro from BTIG. Your line is now open.

Lishan Aklog (Chairman and CEO)

Mark, good morning. Hi, Mark.

Speaker 8

Hey, guys. This is actually Vivian Ohm for Mark. Thanks for taking the questions.

Lishan Aklog (Chairman and CEO)

Hey, Vivian.

Speaker 8

Hey. So it's great to hear the dates of the pre-sub. You touched on this a little bit, but just remind us what the average time for the technical assessment process is and just when you would expect that final CMS coverage decision.

Lishan Aklog (Chairman and CEO)

Well, we can predict the latter. The turnaround time for a response to the TA is a minimum of 60-90 days, typically, but that period can get extended if there are questions along the way. Again, for those who are familiar with the FDA process, it's not dissimilar to that in that once the data's submitted once the TA's submitted and they've had a chance to review that, there may be opportunities to come back with questions or questions about the data and so forth. So it's really impossible to say how long it'll take for that process to be completed and result in a final decision. But we think we're going in well-armed with great data. We have literally multiple consultants that we're working with who are experts in this, who've done advanced tests through the MolDX process.

There's quite a bit of optimism among the group around that. But in terms of timing, it's only possible to predict at this point. But we go in with a lot of confidence in the substance and the quality of our data.

Speaker 8

Perfect. Understood. And then I just wanted to follow up on last quarter. I think you had discussed a $5 million or $6 million revenue bonus within the pipeline. Are you seeing any success in realizing that revenue and just how we should think about maybe any contribution and pacing throughout the year?

Dennis McGrath (CFO)

Yeah. Thanks, Viv, for that. So yes, there is the backlog of pending amounts to be adjudicated, and the appeals process is picking up from an intensity standpoint with our revenue cycle manager. It's hard to predict the timing of that. The appeals process is a longer period of time. The statistics that we gave on our prepared remarks, there's 25% or so of them still waiting to be adjudicated. That backlog is still about that same amount, and it's hard to match up that phasing. But we know what the appeals look like. We know that we're having some success there, and it's starting to gain some momentum. So no additional color to offer just yet.

Speaker 8

Great. Thanks for taking the questions.

Lishan Aklog (Chairman and CEO)

Thanks, Vivian.

Operator (participant)

Your next question is from the line of Kyle Mixon from Canaccord. Your line is now open.

Lishan Aklog (Chairman and CEO)

Hi, Kyle. Good morning. How are you?

Kyle Mixon (Managing Director and Senior Analyst)

Hey, guys. Hey, guys. Thanks for the questions. Hope you're doing well. So just starting with the esophagus class II FDA recall, I wanted to ask a few things about this. Basically, first of all, just kind of rewind back to 2021, around the time of the IPO when you made that acquisition of CapNostics. Why did you do that? What kind of commercial agreements or manufacturing agreements were sort of signed that now are irrelevant or sort of impacting expenses that aren't really useful? I mean, just kind of update us on that maybe. And then secondarily, if you could just talk about the competitive dynamics here and how maybe certain companies or vendors were using EsophaCap, and now, obviously, that doesn't look great for them, and maybe this is advantageous for you. Thanks.

Lishan Aklog (Chairman and CEO)

Thanks, Kyle. So yeah, Phil, we're happy to rewind back. It's good to give some of the history for those who are not fully so in 2021, we had the opportunity. We engaged with the small company, CapNostics, that was making the sponge and the string device, and we acquired it. We had an interest in it as a research tool. There are potentially other applications that we were considering looking at. And after we acquired it, we had discussions with the two institutions that had ongoing research that were being supplied by it, and we agreed to supply it for that research. We had really no concern about doing so at the time. And really, because we were quite confident at the time that EsoCheck was a superior device for this particular application, and we were well aware of the limitations of the sponge and the string.

We had some interest in potentially using it as a research tool and had no problem providing it to these studies because we were quite sure where the results would land based on prior experiences with Cytosponge. That continued until early last year. We were unable to come up with a business agreement with the two institutions around how to continue supplying it, so we stopped supplying the sponges approximately a year ago, in the early part of 2023. It was only after the publication of the most recent publication that the data which I highlighted, that we became aware of the two detachments.

We were aware that Cytosponge, the other sponge and the string, which again, both of these technologies have been around for years, EsophaCap is essentially identical to technology that was developed in the early 1990s by the same company that we acquired it from. We were aware that Cytosponge had numerous detachments as well, but EsophaCap hadn't. Cytosponge is, as we mentioned in the press release, under a global recall right now, specifically for those detachments. If you read the Medtronic language that we highlighted in the press release, it was specifically for potential serious risks associated with these detachments. So when we saw the report of the two detachments in the manuscript that was published, we were a bit alarmed because they were not reported. They had not been reported to the FDA database.

So we inquired with the FDA and concluded that we had to initiate a recall of that. How this played out is where we thought it would play out, which is that the technology, the molecular tests, are one thing, but at the end of the day, the cell collection device matters. All of the head-to-head features that I showed in the table there are critical to get the level of performance, particularly the sensitivity of the short segment. The features of EsoCheck, particularly the Collect+Protect features of EsoCheck that allow for targeted sampling, is critical for that. So we weren't really that surprised with the results of the study and using the sponge where we supplied a portion of it.

In that category in particular, it's really no different than the Medtronic data, the data on Cytosponge and TFF-3 that was published by Nick Shaheen in the U.S. a few years ago that led to Medtronic withdrawing that. With regard to the competitive landscape, I'll leave that for you guys. In terms of the overall business, we have enormous confidence in both the cell collection and the molecular diagnostic test. The published data is what it is. I think the most recent data really highlights the fact that if you're going to have a test that can be efficacious in detecting precancer to prevent cancer, you have to pick up the short-segment precancers if you're going to have any kind of an impact because they account for about half the cancers.

At the end of the day, I'll leave it up to you guys to sort of look at the data and so forth. From our point of view, we are proceeding with profound confidence in our technology.

Dennis McGrath (CFO)

Hey, Kyle. It's important to understand, even if a re-engineering effort could figure out how the safety issues could be overcome, this study pointed clearly to the contamination because of the lack of the ability to protect the sample. So they'd have to figure out how to put the sponge back in the wrapper, which is physically impossible, to overcome that design limitation. So we think unless there is a way to engineer around our patents on EsoCheck, it's going to be really difficult for someone with a nice biomarker to be able to sample in a way that's going to allow the biomarker to perform similar to what our combination of EsoCheck and EsoGuard does.

Just to be clear, there's no evidence of that, and we have strong issued and pending IP on that. And so we don't really, we have no concerns because there's nothing out there that would suggest that there's another technology out there that's not again, that was not invented in the 1990s that can do the kind of targeted sampling you need for this very, very specific purpose of collecting cells in a very small portion of the lower esophagus.

Kyle Mixon (Managing Director and Senior Analyst)

Okay. That was a really comprehensive answer. I'm sure one day, if someone's going to make the argument that a blood-based test could be useful here, but we can wait for another day to do that discussion.

Lishan Aklog (Chairman and CEO)

I need to touch on that real quick. So yeah, well, we won't debate sort of how the blood-based tests are doing as a whole. Again, I'll leave that for you. You write very informative reports on that on a regular basis. But let's talk about blood-based tests for esophageal cancer, right? So to whatever extent there may be ongoing progress or good data now or ongoing progress with regard to detecting cancer in the blood, there's been little or no progress in detecting precancers. And as we've stated before, you cannot have an impact on esophageal cancer deaths unless you are picking it up at the precancer stage because unlike colon and other cancers, the stage I diagnosis of esophageal cancer still carries about a 50% mortality. And the biology of trying to detect I mean, I showed those slides of sort of how Guardant does.

Guardant does okay with cancers. But as you've highlighted in your reports, the results even in late-stage precancers for Guardant and even the Freenome data, which suggests that it's even lower. So the biology of picking up the abnormalities that are required to pick up early-stage precancer, which you have to do in order to prevent esophageal cancer, there's not any inkling yet today that you can do that with a blood test. So for our little corner of the world here in esophageal cancer, I feel very confident that liquid biopsy tests are not a threat in any way anytime in the foreseeable future. Thanks for letting me highlight that, Kyle.

Kyle Mixon (Managing Director and Senior Analyst)

Helpful. All right. We have a final one for both of you guys, but maybe Dennis specifically was thinking about the model. The $1 million in revenue this quarter, flat compared to last quarter. I guess the volume kind of increased sequentially pretty nicely, actually. How should we think about the seasonality in this business? In other screening businesses, there is seasonality kind of early in the year. It kind of gets better throughout the year. There's flu season, etc. Is there anything to consider as we kind of go ahead here in terms of sequential increases in revenue growth?

Dennis McGrath (CFO)

Yeah. I think the only seasonality to consider is the times. First off, our test is very conveniently administered. And so the times of the year where it's not convenient for patients to get tested, the holiday season in December, physicians are just not going to schedule this. The large Check Your Food Tube events are probably not going to happen Christmas week. They're probably going to be in around that. It's probably the only time that we see it. People think about seasonality during the summer and the last two weeks of August, maybe, but September tends to overcome that whatever time period is. So I don't think seasonality, particularly while we're in this kind of mid-throttle range, is something for us to consider.

It really is. The volume is directly related to the realization on submitting claims and our reaction to that momentum that we're expecting to pick up in the coming quarters.

Kyle Mixon (Managing Director and Senior Analyst)

Great. Perfect. Thanks, Dennis. Thanks, guys. Appreciate the time.

Lishan Aklog (Chairman and CEO)

Thanks, Kyle.

Operator (participant)

Ladies and gentlemen, just a reminder, if you have a question, please press star then the number one on your telephone keypad. Your next question is from the line of Ed Woo from Ascendiant Capital. Please go ahead.

Ed Woo (Director of Research and Senior Analyst)

Yeah. Congratulations on the progress in the quarter. I know you're all focused on the U.S. business, but have you thought about international opportunities?

Lishan Aklog (Chairman and CEO)

So we have, over time I think we've talked about it on occasion, inquired with. I've had inquiries, actually, from commercial entities outside looking to potentially partner with us. The current business model around reimbursement in Europe for screening tests is not attractive. And so we haven't made any particular effort. But there are other groups in South America and in Asia that have contacted us. It would have to be sort of essentially a licensed type agreement where we have no plans, and we don't think it's consistent with our current strategic approach to put resources in other countries. But there are market opportunities there. We do occasionally get inquiries, and we have one actively that we're discussing with right now. But I don't expect that to be a significant contributor in the near term.

Ed Woo (Director of Research and Senior Analyst)

Just a quick question. Esophageal cancer is obviously very deadly. I assume it's similar globally as it is in the U.S. in terms of people getting it and death rates.

Lishan Aklog (Chairman and CEO)

Great question. There are two types of esophageal cancer. The one we see here in the U.S. and in the West is Esophageal Adenocarcinoma. There's Esophageal Squamous Cell Carcinoma, which used to actually, even in this country, be the dominant factor and more associated with smoking and tobacco and other things as opposed to adenocarcinoma, which is what's related to GERD or heartburn. In Asia, the numbers for squamous cell carcinoma remain higher. Although, as is true with many things, there's sort of a homogenization across the world because of Western diets and the lifestyle and the diseases that come with that, obesity, etc., that there is plenty of opportunity for Esophageal Adenocarcinoma worldwide. So hopefully, that gives you a sense.

Ed Woo (Director of Research and Senior Analyst)

Yes, it does. Thank you very much, and I wish you guys good luck. Thank you.

Lishan Aklog (Chairman and CEO)

Thanks, Ed.

Operator (participant)

There are no further questions at this time. I would like to hand the call back to Dr. Lishan Aklog for some closing remarks. Please go ahead.

Lishan Aklog (Chairman and CEO)

Great. So hey, thanks, everybody, for taking the time. As always, thanks for all the great questions. I really believe we had a great discussion. Hopefully, you can get the sense that we're really excited. We have a bunch of near-term activity and milestones, starting with the DDLB meeting this week and followed with a bunch of activity or engagements with brokers, the MolDX meeting coming up, more data, which we didn't really talk about. That's forthcoming beyond the data package that we're already putting together. So we look forward to keeping you abreast of our progress via news releases and periodic calls such as this one.

As always, the best way to keep up with our news updates and events is to sign up for email alerts on the Lucid Investor Relations website, follow us on social media, including Twitter, LinkedIn, on our website, and always feel free to contact Matt with any direct questions. Thank you, everybody, and have a great day.

Operator (participant)

Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.