Lucid Diagnostics - Q4 2023

Transcript

Operator (participant)

Good morning, and welcome to the Lucid Diagnostics fourth quarter and full year 2023 business update conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Please note, this event is being recorded. I would now like to turn the conference over to Dennis McGrath, Lucid Diagnostics' Chief Financial Officer. Please go ahead.

Dennis McGrath (CFO)

Thank you, Lucy. Good morning, everyone. Thank you for participating in today's fourth quarter and full year 2023 Lucid Diagnostics business update call. The press release announcing our business update for the company and financial results for the fourth quarter and the year ending December 31, 2023, is available on our Lucid website. Please take a moment and read the disclaimer about forward-looking statements in the press release. Business update, the press release, and this conference call include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the U.S. Securities and Exchange Commission.

For a list, description of these and other important risk factors and uncertainties that may affect future operations, see Part One, Item 1A, entitled Risk Factors, in Lucid's most recent annual report on Form 10-K, filed with the SEC, and subsequent updates filed in quarterly reports on Form 10-Q, and any subsequent filings on Form 8-K. Except as required by law, Lucid disclaims any intentions or obligation 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 they may affect the likelihood that actual results will differ from those contained in the forward-looking statements. I'd like to turn it all, the call over to Dr. Lishan Aklog, our Chairman and CEO of Lucid Diagnostics. Lishan?

Lishan Aklog (CEO)

Thank you, Dennis, and good afternoon, everyone. Thank you for joining our quarterly update call today. Before proceeding, a couple of things. First, I'd like to apologize. I have a bit of a scratchy throat. I'm feeling under the weather, so sorry about that. And I'd also like to thank our long-term shareholders for your ongoing support and commitment. Hopefully you know our team is singularly focused on driving the Lucid enterprise towards its massive commercial potential and to enhance our long-term shareholder value. So I'm very pleased with the excellent progress Lucid has made on multiple fronts during the fourth quarter and the start of this year, including strengthening our balance sheet with a $18 million financing from long-standing fundamental shareholders. We saw solid revenue growth on stable test volume, improving allowances, and stable out-of-network pricing.

Our CYFT program, health fair events, is thriving. Our now robust clinical validity and clinical utility, evidence base are poised to drive positive medical coverage and what I believe is, line of sight to Medicare coverage. I'm also particularly excited about our accelerating direct contracting initiatives. Let me offer a few highlights, and then I'll do a quick overview of the company for those of you who are new. On the commercial execution side, fourth quarter revenues were just a hair over $1 million. That's up 33% quarterly and 800.9% annually. EsoGuard test volume was 2,200 tests. I'll talk a bit more about those trends later.

Our high-volume health fair CYFT testing events continue to gain traction and we're fully booked right now through July. We have active EsoGuard testing programs now in over a dozen strategic accounts, which include health systems, academic centers, and other related entities, and we have engagements with several dozen more. Our revenue cycle management process continues to deliver solid results for out-of-network payments. About 50% of adjudicated claims are now coming back as allowed, with stable payments averaging about $1,800. Next slide. Some key strategic accomplishments, as I mentioned. We strengthened our balance sheet with the $18.1 million preferred stock financing.

We've had a significant expansion of our clinical validity, or CV, and our clinical utility, or CU, data to support broad EsoGuard medical policy coverage, including engaging, re-engaging with MolDX for our Medicare, for the Medicare side, which I'll talk about a little bit later. We have now three clinical validity studies that document excellent EsoGuard sensitivity and negative predictive value. We have three clinical utility studies that document near perfect concordance with physician decision-making. Using that data, we're now starting to hold meetings. We've held meetings now over the last couple months with medical directors of major commercial payers to now, for the first time, formally request positive medical policy determination for EsoGuard.

Similar to those efforts, we held a Blue Cross Blue Shield Association webinar that was attended by dozens of medical directors to advocate for EsoGuard coverage. And then finally, we'll talk a bit more about this later. We've launched our direct contracting program, with EsoGuard now offered as a benefit, and this as a means to drive contractually guaranteed revenues. So just a few intro slides for those of you who are new, or to update you on our company overall. Lucid is a commercial-stage cancer prevention medical diagnostics company. We're focused on early pre-cancer detection to prevent esophageal cancer deaths in targeted at-risk patients. Next slide.

The EsoGuard esophageal DNA test is the first and only commercially available test that's capable of serving as a widespread screening tool to prevent these deaths through the early detection of esophageal pre-cancer.... Right. So now we have, as I mentioned, we have really solid clinical validity data that documents EsoGuard's performance. This is a bit of a summary slide here, EsoGuard's in blue, and comparing it to sort of the standards that we see with for performance with other tests, particularly in the colorectal space, with Cologuard and the new blood test, Guardant. Cancer sensitivity remains extremely high, as does precancer sensitivity and early precancer sensitivity. And those two numbers, I'll note, are really unprecedented.

So to have a 90% precancer sensitivity, again, you can note, compared to other tests in the space, is unprecedented. There is no other molecular diagnostic test that can claim that. And most notably, our early precancer numbers also holding in that 90% range. Again, no other tests molecular tests can detect an early precancer with any sensitivity, much less at that 90% level. That results in an overall negative predictive value of 99%, so just a 1% false negative rate, and an estimated positive predictive value of 30%, which increases the yield of endoscopies between two and threefold. Next slide. So just two slides summarizing this data.

Again, this is the absolute foundation, the backbone of our future, is documenting the performance of the study. Clinical validity, again, is the performance of the assay here. I won't go through each detail here, but you can see that we have three studies. The Case, the original Case Western paper, the BETRNet study in Cleveland VA. One is published, two are in preprint, and coming soon, we have a manuscript completed for the BE-1 study, which is now heading towards a posting on preprint and submission for publication. Next slide.

Similarly, on the clinical utility side, we have now three studies that are published in the peer review literature and form, again, the foundation of our engagements with payers, commercial payers, and in the near term, with Medicare. Next slide. The market opportunity here is really fantastic. It's massive. There are absolutely 30 million patients who are at risk are recommended for precancer testing by existing guidelines, which now include non-endoscopic biomarker testing, such as EsoGuard. We have Medicare payment established at $1,938. As I noted, our out-of-network payments are matching up, matching that quite closely at about $1,800, so the pricing is holding, and that results in an approximately $60 billion true total addressable market opportunity.

Our gross margin is 90% at our current volumes, so at our current levels of efficiency. Next slide. And our commercial strategy is multi-prong. So patients, our goal is to provide patients access, wherever we can. So we have our own physical Lucid Test Centers. A backbone, a major pathway for patient access is the satellite Lucid Test Centers, where our practitioners go to physicians' offices on scheduled days and test patients in their offices. We also have physician practices, particularly GI practices and other specialists who perform the EsoGuard test using their own staff. That accounts for about 30% of our total volume. In Florida, we have a mobile Lucid Test Center, a van that can go to physician practices, park in the parking lot, pitch a tent, and offer testing on the spot.

As we'll talk about a little bit more, we have our Check Your Food Tube health fair events, which have been focused initially over the past year. We've reached our one-year anniversary at these health fair-type events and are expanding into other areas as well. Next slide. So this slide shows the progress over the last approximately three years with regard to revenue and test volume growth. So you can see revenue has been growing nicely since our transition in the late second quarter to our new revenue cycle management provider, so the late second quarter of 2023. The test volume growth has stabilized. We think this is likely going to be approximately where things stabilize in sort of the 2,300-2,500 range.

I will note and remind you that we have not added any salespeople since the fourth quarter of 2022, so that growth from about 1,000 tests to this 2,400 plus or minus level has been with the same sales force. As I hinted earlier, we've had increases in productivity; however, we have no plans at this point to expand our sales force until we continue to see some progress on the reimbursement side. So, that's our expectation. The fourth quarter, we had three weeks that were where we weren't able to do testing between two holidays and one week for our national sales meeting, and so we feel pretty comfortable that these volumes will hold and will show potentially modest growth over the coming, over the coming quarters.

I didn't indicate an estimated number for the quarter that's just about to close. Next slide. So a little bit deeper dive on our commercial execution. The Check Your Food Tube, these are health fair-type precancer detection events, remain a significant contributor to our activity. You can see on the right there that these have been heavily focused on firefighters since we've had our first event, now just over a year ago, in San Antonio. We've had steady growth, we have a very strong pipeline, and we're fully booked through July. Right now, our rate-limiting factor is the number of clinical personnel we have to run these events, and we have a really great demand from entities, particularly the firefighters....

We're expanding our testing beyond just holding healthcare events at firehouses to now targeted conferences. We actually had an event at the National Conference for Firefighter Chiefs and tested several dozen firefighter chiefs on the spot during the conference and other types of symposium. We're increasing the efficiency of these events and the capacity by utilizing UpScript, our telehealth partner. So we no longer have to identify a local physician champion to get one of these off of the ground. We can just jump in and get started with our telehealth partner. And really, perhaps most importantly, is the last bullet here. We're now, as we launch these events, we're now initiating contracting discussions in parallel with planning for the initial inaugural event.

We've found that the leaders are strongly motivated to engage. For example, with the unions, there's very much a particularly the firefighter side, a strong motivation to offer testing and to show that they're providing something of value, and they're focused on cancer prevention amongst their brothers and sisters. And that's been, you know, really encouraging and promising with regard to our ability to engage on contracts moving forward. As I mentioned, last quarter, we've been pushing harder now with our commercial team on strategic accounts. These include integrated health systems, a large multi-location group practices, academic medical centers. And now we have over a dozen such strategic accounts, including big academic medical centers that are testing, offering EsoGuard testing.

These are typically in the context of a structured overall program for esophageal cancer awareness, for GERD and so forth. And we have several dozen that remain in the pipeline. On the next slide, the next big area for us right now is direct contracting. As we mentioned in our last call, we are just getting started with this. We hired a VP of employer markets, and we actually are now expanding that team. So let me just give a few more details on the next slide of what this is. Next slide. So when we talk about direct contracting, we're talking about offering EsoGuard as a covered benefit to drive contractually guaranteed revenue. So this is different than the traditional path.

The traditional path being a physician prescribes a test, and we submit a claim to the insurance policy and work with the insurers to get coverage and payment for that. This essentially bypasses that, and we go directly to entities that with whom we can engage, with whom we can contract to offer testing as a covered benefit, typically within a health and wellness benefit program. Our team that's now about to expand is engaged with this on multiple fronts. There's a whole network of benefit brokers that work with third-party administrators to offer benefit packages to employers across the country.

And we have now deep engagement with the, with these entities to offer EsoGuard within the benefit packages that these brokers and ultimately the third-party administrators are both providing to employers, so to offer EsoGuard as a benefit. A subset of that are self-insured entities. So with them, we can actually go directly to those entities. These, again, involve employers, and then entities, other similar entities such as unions, who can offer our test as a service directly for their employees or members, really separate from the benefit, from the benefit process. And we're active in that. We've previously announced we've had our first contract there. Testing has proceeded.

These tests, these testing events are very similar to the Check Your Food Tube events, where our team shows up at sites for the employers and offers testing on site to subgroups of employees or members who are candidates for testing. And then there are other partners that we're working with. We had previously announced that we are engaged with the 9/11 Fund that has a large number of patients in the greater New York area who receive treatment for conditions that are related to their exposure during 9/11. That process, there was we had to navigate a sort of clerical issue back a couple of months ago, but that process is now back in full swing.

We've formally engaged with one of their clinical centers of excellence, Mount Sinai, and we look forward to starting to engage and test patients within... who are covered by the fund. And there are a variety of other entities, for example, like residential communities in various parts, particularly in the Sun Belt, where that have concierge medicine practices that again offer specialized testing as a benefit for the residents of their community. And we're engaged in several of those right now and look forward to consummating contracts there. What we offer with this direct contracting are really three flavors. One is a direct ongoing contract, so we would basically charge per patient tested under the umbrella of one of these contracts.

The second model is, particularly when it's in the context of a benefit plan and offer EsoGuard as a covered benefit. It's a charge for a lifetime benefit per member, not necessarily those who are tested. And then we also are in discussions in several examples of just a service agreement, where we charge for a full or half-day screening event, that's up to a certain number, that can handle up to a certain number of patients in the other day, and those are scheduled accordingly. So that's our direct contracting initiative. Big deal. We're pushing hard on this, and we really do expect there to, this to be a meaningful contributor to test volume as well as the revenue in the coming quarters. Next slide.

Just an update on the entire process by which we submit claims, payments, receive payments on those claims, and generally pursue in-network coverage on the revenue cycle management side. Again, this represents out-of-network payment for out-of-network claims. And we've submitted now since we made our transition to Quadax, our new revenue cycle management provider in June, about $20 million in pro forma revenue, the claims submitted represent that. We're now quite stable, at about 80% are getting adjudicated. And of those that are adjudicated, an increasing percentage, now a bit over 50%, are being allowed. So those, the claim is allowed, and the average allowed payment is $1,800, and we can actually go and collect that either from the payer, from the payers or ultimately from the patients.

We're also working very hard with Quadax on the appeals process. We're starting to yield some wins. We're winning about 25% of our appeals, and there's an entire process by which we're strengthening and optimizing, and that includes, for example, leveraging providers. So, in certain examples, we'll get a dozen or so providers, physicians in the local area, to submit to the local payer as part of an appeal to indicate that this is medically necessary and important for them to cover. And we're also working for the first time on a prior authorization program, since about 18% of the denials are for lack of a prior authorization. So we're incorporating a streamlined way for physicians to seek a prior authorization. So the big push, of course, is on medical policy coverage.

I mean, it's one thing for us to be collecting, and the revenue that we're generating now is on out-of-network, but ultimately, to take advantage of the full potential here, we need to get coverage, in-network coverage, both from commercial payers and Medicare. So in the last month or two, as I hinted earlier, we've held meetings with medical directors of the major commercial payers, names you would recognize, to formally request for the first time, a positive medical policy determination for EsoGuard based on now the data that we have. Now, the result of those will be varied and will. But at least it initiates a discussion, either, you know, if we're fortunate, we'll get coverage.

If we don't get immediate coverage, then our, our secondary goal is to get, engaged in pilot programs to collect clinical utility data within that particular payer, and we have some really good prospects on that. We were really excited, just last week, that we participated in a Blue Cross Blue Shield Association of America webinar, where dozens of medical directors were in attendance, and our, lead advisor and head of our medical advisory board, Dr. Nick Shaheen, who's the lead author of the American College of Gastroenterology Guidelines, really, gave an excellent presentation, making a very strong argument based on guidelines that EsoGuard should be, covered, by the plans. And so that was a very positive engagement.

On the Medicare side, we are targeting reengagement with the MolDX program, which is the entity that finalizes local coverage determinations. We are able to operate within the construct of a local final and effective local coverage determination that's foundational for the category of tests, that's in effect. We're now believe we've collected sufficient clinical validity and clinical utility data to make that reengagement. The timing of that, of our meeting, a pre-submission meeting with them, is triggered on the publication of one of the key clinical validity studies, the BETRNet study, and that we expect to happen any day now, at which point we will ask for a meeting, and based on that meeting, proceed to a Technical Assessment submission.

So based on what's now a very concrete timeline and based on the completion of what we believe is sufficient data to convert the foundational LCD into a coverage determination for Medicare, we really do believe that we now have a line of sight to Medicare coverage. And then one final area that's been an area of strong focus is there is now biomarker legislation in over a dozen states, where by state statute there is mandatory commercial coverage for certain biomarker tests, and that gives us the opportunity. Next slide, please. Next slide. So that gives us the opportunity to operate in these states. So these are the 16 states with biomarker legislation, including two that are limited to cancer. We believe we...

And we're getting feedback that we are covered under this legislation in certain states. And we're gonna push, continue to push hard on that. Again, it guarantees mandatory commercial coverage of where this legislation occurs. And by achieving this, we're able to actually work on targeting our resources, whether they be our commercial team or other activities in those states. And that's something we're looking forward to yielding results in the next couple of quarters. So with that, I'll hand the reins over to Dennis to provide an update on our financials. So Dennis, take over.

Dennis McGrath (CFO)

Thanks, Lishan. The summary financial results for the fourth quarter and the year were reported. Our press release was published last night on the next three slides. I'll emphasize a few key highlights from the quarter, but encourage you to consider those remarks in the context of the full disclosures covered in our annual report on Form 10-K, which was filed with the SEC last night, is available on our website. So, on slide 18 here, you see the balance sheet cash at year-end was $18.9 million. We supplemented that balance with the financing that we completed just two weeks ago in the amount of $18.1 million. The average quarterly burn rate for last year was $8.2 million per quarter, as you can see in the statement of cash flows in our 10-K.

Burn in the fourth quarter was $6.7 million from operations and $3.4 million from paydown of intercompany debt. We disclosed in the 10-K that our ability to fund operations beyond 1 year from today is largely dependent upon how revenues ramp over the next 5 quarters, which is highly dependent on how the reimbursement landscape for both government and private health insurers, as well as successful efforts for direct contracting with self-insured employers, shapes increases in payment realization of submitted claims and or corporate finance activities. Beyond that, there's nothing substantively remarkable about the remainder of the December 31 balance sheet. However, subsequent to year-end, in addition to the incremental $18 million in cash infusion, Lucid settled approximately $4.7 million in debt to PAVmed by the issuance of approximately 3.3 million shares of common stock.

Shares outstanding, including unvested, restricted stock awards, as of today, is 48.2 million shares, which includes 242,000 shares issued subsequent to year-end in connection with conversion notices received from the convertible debt holder. The GAAP shares outstanding, of 42.3 million are reflected on the slide as well as on the face of the balance sheet in 10-K. GAAP shares do not reflect unvested, restricted stock awards. With regard to the P&L on slide 19, it compares this year's fourth quarter to last year's fourth quarter and similarly for the yearly totals on certain key items. Plus, you'll review the information on comments in light of the cautionary disclosure at the bottom of the slide about supplemental information, particularly non-GAAP information.

Revenue of $1.04 million for the quarter, a 33% sequential increase over the third quarter and is in line with what was previously previewed. The amount reflects actual cash collections for the quarter, plus a small amount of invoiced EsoGuard tests delivered to the Veterans Administration, plus about $26,000 in initial building billings under the direct contract with the Ancira Auto Group. The revenue increase reflects about a 9-fold increase over the prior year quarter and about a 6-fold annual increase over the prior year. Test volume at 2,200 tests for the quarter represented just over $5 million in submitted claims for the fourth quarter at our $2,499 standard pricing for the test. For the first quarter of 2024, revenue is tracking to be on par with the fourth quarter.

Revenue recognition is a key determinant in the probability of collections. And therefore, due to the fact that we are in the early stages of the reimbursement process, means revenue recognition for submitted claims submitted to traditional government or private health insurance will be recognized when the claim is actually collected versus when the patient report is invoiced and submitted for reimbursement. As you'll see in our 10-K, this is called variable consideration. It's in the jargon of GAAP's ASC 606 revenue recognition guidelines, and 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 are fixed and determinable, they will be recognized as revenue when the contracted service is delivered. Generally, that means when the report is delivered to the referring physician.

Our non-GAAP loss for the quarter of $9.9 million reflects about $600,000 in sequential increase compared to the third quarter, and about $700,000 decrease year-over-year. The increase in the fourth quarter was related to three specific one-time events, some clinical research costs of about $300,000, mostly related to the events leading up to the published clinical utility studies, $300,000 in sales and marketing, and some G&A patent expenses, of about $250,000. These amounts were offset by the quarterly increase in revenue. On the next slide, slide 20, is a graphic illustration of our operating expenses for the periods reflected. Total non-GAAP OpEx is $10.9 million for the fourth quarter, 2023, and it's fairly flat year-over-year.

An increase from the third quarter reflects the clinical research, the one-time patent expense, and that sales expense that I just mentioned. The cost of revenue primarily consists of EsoCheck devices, lab supplies, and fixed lab facility costs. The variable cost for each test is approximately $200, or effectively at 10%-11% marginal cost of sales for changes in test volume quarter to quarter. The non-GAAP net loss per share has been relatively flat for each of the last four quarters, ±$0.01 between each of the four quarters of 2023. On a GAAP EPS basis, non-cash charges accounted for approximately $0.03 per share in the fourth quarter. A little bit more about reimbursement details. So since the new revenue cycle manager, Quadax, took over in mid-June, we've given you some details.

There were 7,800 claims, representing approximately $20 million in pro forma revenue, have been submitted for reimbursement, either to government or to traditional health insurers. About 82% have been adjudicated, 18% are still pending.... Out of the 82% that have been adjudicated, about 46% resulted in an allowable amount. That's basically what the insurance company says we should be entitled to be paid, with an average of $1,828 per test. Now, out of that amount, still has to be reviewed with the patient, what's their out-of-pocket, what's their deductible, which could lower that effective amount, but the insurance companies are holding to the general pricing line and all out of network, $1,828. That should be viewed very positively in terms of the benchmark Medicare 1,938.

Of those denied, about 51% require one of three things, either additional information, that was about 7% of those denials, or deemed not medically necessary, which is a bit puzzling considering that the patients are meeting the guidelines. That was 26% of those denials, or require a prior authorization. That's 18% of those denials. About 29% were deemed to be non-covered. So 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 the star followed by the number 1 on your telephone keypad. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number 2. If you're using a speakerphone, please keep the handset before pressing any keys. One moment, please, for your first question. Your first question comes from the line of Kyle Mikson from Canaccord. Your line is open.

Lishan Aklog (CEO)

Good morning, Kyle.

Kyle Mikson (Senior Equity Research Analyst)

Hey, guys. Thanks for the question. Congrats on the year and the quarter. So just looking at the volume and the revenue. So volume decreased quarter-over-quarter a little bit, maybe 15%. You think you can kind of maintain these quarterly levels, you know, but around 2,400 or so claims? I guess that makes some sense given the sales force situation, but the effective ASP, that increased like, you know, over 50%. That's great. So how should we think about maybe volume and ASP dynamics and metrics going forward, given you're now kind of hitting like a nice kind of stable rate for both of those? I feel like, honestly, kind of progressing nicely, maybe on an upper trajectory, especially on the ASP side.

Lishan Aklog (CEO)

Let me start with volume, and then I'll hand it over to Dennis. I think you summarized it well, Kyle, that we, you know, we've sort of peaking on our productivity of our existing sales force. Again, that doesn't mean that we want your test volume growth, but test volume growth is going to be driven more by other aspects as opposed to our sales force that's calling directly on physicians.

So they will be driven by these Check Your Food Tube testing events, which are more efficient, as you might imagine, in terms of the person power that's required to run an event that can, you know, generate 100 or more tests without as much activity on the sales side, and importantly, on the direct contracting side, right? So those could yield a significant test volume growth without depending on the productivity and the size of our sales force. So I think you're right. I think we, at the current size of our baseline activity, traditional sales and marketing activity, I think these numbers we expect them to hold.

But we will obviously hope to see growth from the other pathways as that I mentioned. I'll let Dennis talk a bit more about.

Dennis McGrath (CFO)

Yeah, so on the collection realization, the trajectory and sector over the first quarter, to the extent it's dependent upon the government and private health insurance that is tied to our sales force, that level should stay relatively flat with acceleration in the second half. To the extent that the volume picks up with the direct contracting, and again, that is not as limited as Lishan just pointed out, by the amount of time and selling opportunity of our sales force, there is a, you know, a multiplying effect with direct contracting.

The fact that payment is guaranteed as part of that contract, not dependent upon, you know, independent third-party insurance companies that you know is not as predictable. That will increase realization as we move forward. You know, if you just look at two data points, second quarter and the fourth quarter, where volumes were about the same, in terms of test volume, the increase in realization is significantly higher from those two periods. That's a reflection of the improvements with our revenue cycle manager, and the appeals process is just starting to take root. In those examples where the appeals have been submitted, we are being successful with them. That will also help with the realization.

So we see, as a general statement, on the third-party insurance collection, where revenue is depending upon actual cash collections, timing is an issue there, in terms of how quickly from a submitted claim do we actually get cash, and that's less predictable for us. Kind of maintaining that as a view of fairly flat. As the direct contracting picks up, the realization will obviously go up because, again, the payment's guaranteed, and we can recognize revenue when we deliver the reports or deliver the service that's been contracted for, which will help speed the revenue ramp. We see all of them converging in the second half, having greater momentum. So hopefully that gives you enough color on that particular topic.

Kyle Mikson (Senior Equity Research Analyst)

Yeah, that was fantastic, guys. Thanks so much for that. And then just on the Check Your Food Tube events, you know, clearly those are going pretty well. Originally, you know, some of us may view that as like a risk, creating some lumpiness with the volume and so forth. Maybe like if there was, you know, some concentration there. I mean, you have, like, a 2-3-month backlog, and it's pretty nice visibility, and you're expanding. Is it fair that it's definitely not like, you know, just for lack of a better word, like an artificial or, like, inflated volume at this point? How does that evolve over time? How could that funnel into, like, deeper penetration among the clinician base over time?

Lishan Aklog (CEO)

Yeah. So that, so that's a great, great insight, Kyle, and, definitely, yeah. I think in the early stages when we had our first event and there were sort of 400, 400, patients who were tested over two weekends, representing, what was that? 20% of our or even more of our volume for that quarter. Certainly, there was an opportunity for to be lumpy. That's just not true anymore. So we're doing dozens of events, smaller events, larger events, and everything in between. And right now, we're limited, the demand is high, and we're really limited by our, our, clinical team. You know, that we have a certain number of, of, clinicians, nurse practitioners, nurses, and other device administrators, and we are sort of, you know, me- the efficiencies to which...

We're utilizing them in an efficient way, but getting them around to these events does limit—we have a sort of cap on how many we can do in a given month. So I think it's correct for you to perceive this as just, you know, another source of organic volume and growth, and the ability to grow that volume is going to... I guess what I would say is the way our willingness to invest in more clinicians to drive more events will be directly related to our success at converting these events from we go do, you know, test 100-200 firefighters, and submit for their insurance policy, and we're sort of at the mercy of the claims process there.

As we convert from that process, which has been how we've been focused in the early stages over the last year, to, as I mentioned, now we are at the same time, sort of typical scenario is we, we engage with the fire department. Now with, now they're soliciting us because there's good visibility at the conferences and so forth. And we talk at the same time as we're arranging our first event, we talk about engaging in a contract, particularly since most of these, unions are self-insured. And those dialogues are going really well. The, the leaders, particularly the union leaders, are motivated to offer a service to their, to their personnel. They're very focused on cancer prevention, and particularly in the firefighter group. And so as we start seeing...

It's really similar in some, in many ways, Kyle, to, as we start seeing increases in realization of revenue from these events, then we'll be justified in investing in more personnel to drive our capacity to do these events.

Kyle Mikson (Senior Equity Research Analyst)

Okay. Yeah, that was great. That was a really good, good color there. Maybe just finally, wondering about some of the timelines for the, clinical validity studies, particularly maybe the, the VA study. Look, I know, pending publication, everything, but I mean, just like the relevance of that, I feel like that's kind of, like, important. Like, it's a good, you know, proof point. And then with, BE-101 and BE-102, I guess 101 is, like, kind of close to being, you know, announced and everything, with 102 is a little bit further.

Lishan Aklog (CEO)

Yeah.

Kyle Mikson (Senior Equity Research Analyst)

So what's... Yeah, just like, are these important? What's the timeline, and, like, when do we-

Lishan Aklog (CEO)

Yeah.

Kyle Mikson (Senior Equity Research Analyst)

kind of expect some color?

Lishan Aklog (CEO)

Yeah. Why don't I talk about the timelines relative to our, our plans with, with MolDX? So on the clinical validity study, there's the original STM paper. There's the BETRNet study, which has released data. It's on preprint. It's gone through multiple cycles of review at a leading journal, and we really expect that to be clear for peer review publication very, very shortly. We're just kind of waiting on what we think is the last round of, of responses to reviewers' comments. As soon as that is published in the, you know, in, in online, then we will request a meeting with MolDX. So that's what we, we believe that that is sort of the linchpin gating item for the publication of that, of that clinical release study.

You mentioned the VA study as being a really important complement to that, which it got posted on preprint. It's been submitted. We're not going to wait for that for being for peer review. I expect that there, there's a good chance that when we have our meeting, it will either be in peer review and certainly for any technical, by the time we get around to doing a Technical Assessment submission, it would be peer-reviewed. The key thing I think you were hinting at with the VA study, it's our, it's our first study in a screening population.

So the original STM paper, as well as the, BETRNet study, were both case-control studies, and you always want to be able to show that you can replicate your performance in the actual intended use population in a real-world situation where you're taking people off the street who've never had endoscopy before, that are categorized as having, at risk and, and recommended for screening by guidelines, and showing that you can actually, identify disease with a high, with a high performance, with a high negative predictive value and really, you know, good, solid, positive predictive value. So that is on preprint, and has been submitted, and, we'll wait for that to be, to be published. On the clinical utility side...

Sorry, the remaining clinical validity studies, the next in line is the BE-1 study, which is our study in a screening population. That study, the manuscript is complete. The data is been tabulated. I'll give a preview, and that the data is nearly identical to the VA study. So both studies in a screening population have really nearly identical and otherwise excellent results. So that manuscript is being finalized. The lead author is Dr. Shaheen, and so we're just getting final sign-off on that, and it should be posted on preprint soon and submitted for publication. Again, we're not gonna wait for that, but the screening population studies will be an important supplement to our discussions with MolDX and with payers in general.

The BE-2 study, we're continuing to enroll in that study. That's not a linchpin at this point of our market access efforts. We still, enrollment's picked up a bit, and it slowed down a little bit. We've shifted to entirely U.S. studies, U.S. centers, and we've added a few. And that'll be just sort of additional complementary. That'll be a third case-control study on top of the San Antonio and Veteran studies that will be supplemental, but it's not sort of a linchpin of our market access strategy.

Kyle Mikson (Senior Equity Research Analyst)

Okay. You know what, Lishan, on what the BE-2, is that case control or is that the screening population?

Lishan Aklog (CEO)

That's case-control. Yeah, that's case-control.

Kyle Mikson (Senior Equity Research Analyst)

Okay.

Lishan Aklog (CEO)

So that's why it'll just be sort of a third such case-control study, and it'll be supplementary, but it's not sort of the, at the heart of what we think we have sufficient case-control CV data and now two screening population CU data to drive our market access efforts.

Kyle Mikson (Senior Equity Research Analyst)

Yeah. All right, I'll, I'll hop off. Thanks so much, guys. Appreciate the time.

Lishan Aklog (CEO)

All right. Thanks a lot, Kyle. Mm-hmm. Great questions.

Operator (participant)

Your next question comes from the line of Joseph Conway from Needham. Your line is open.

Dennis McGrath (CFO)

Joseph, good morning.

Lishan Aklog (CEO)

Hey, Joseph. Are you there, Joseph? Can't hear you.

Dennis McGrath (CFO)

Operator, why don't you put Joseph back in the queue-

Joseph Conway (Equity Research Associate)

My, my-

Dennis McGrath (CFO)

Take the next question.

Joseph Conway (Equity Research Associate)

My apologies. Can you guys hear me?

Lishan Aklog (CEO)

Oh, you're back. Good. Yeah, I can hear you now. How you doing?

Joseph Conway (Equity Research Associate)

My apologies. I was on, I was on mute. Good morning, everyone. Thanks for taking our questions. Maybe just one on, on, you know, operating expenses. If you guys are, you know, planning on keeping volume fairly leveled as well as, you know, the sales force before, you know, reimbursement comes in, but, you know, maybe seeing more traction on, these, you know, Check Your Food Tube events and, and what have you. I guess with all of that together, is it safe to say that we should expect a, a, a modest, increase maybe in operating expenses just on a runway, maybe on the last two quarters? Do you think that's maybe stabilized, I guess, is a better way to, to answer, ask that?

Dennis McGrath (CFO)

Yeah. So, the OpEx, on a GAAP basis for the last couple quarters has been in the, you know, the $12 million or so range. And the triggers for us are clearly, on realization of payment. And so with the multiple streams, revenue streams, they will have different influences on where that OpEx goes. To the extent that, policy, insurance policy changes positively at a quicker rate, we will start adding additional sales people because that means calling on physicians. On the direct contracting side, that typically requires less selling resources. Now, we've added to expanded that group from one to two, or in the process of expanding from one to two, because that pipeline is growing rather fast.

The sales cycle there is a little bit longer, but once it gets started, the test volume, the ability to increase test volume and therefore payment associated with that, is more dependent upon the clinical side of things. And we will add resources directly related to that because that payment is guaranteed. We're not guessing in terms of what we're gonna get paid during that period of time. So they—those two streams will influence what happens in sales and marketing. I think on the marketing side, we're still a couple quarters away from stepping on the gas pedal, where advertising will be a component of OpEx. That's probably more of a 25 event.

So modest increases for the next quarter or 2, the second half of the year. I think that you could start seeing some acceleration in the sales cost line. I think from a research and development or regulatory or, you know, clinical research standpoint, I think our level that we're presently at stays fairly flat for the next couple quarters.

Joseph Conway (Equity Research Associate)

Okay, great. Yeah, that's super helpful. Thanks for that color. Maybe one on Medicare, the Technical Assessment process. I guess you guys are expecting that, you know, after submission, and that starts to take anywhere from six-12 months. I don't know if you have, like, more narrow timing on that, just given your relationships, you know, the meetings that you've already had with Medicare. But I guess just maybe some more color on that final approval date or final reimbursement decision that you think.

Lishan Aklog (CEO)

Yeah, certainly we're not in a position to make sort of any kind of hard prediction as to when that happens. I sort of mapped out how, you know, what the triggers are for us to request a pre-submission meeting, and then based on the results of that meeting, we'll be ready to submit the Technical Assessment immediately following the pre-submission meeting with MolDX, and we intend that to be an in-person meeting in Houston. So, so technically, the TA process is to turn around in 60-90 days. Now, like FDA, anybody who's been involved in an FDA process, which, you know, says it's 90 days, there's an opportunity to stop that clock, right? They can stop the clock and ask for more information and so forth. So-...

It's a cumulative 60-90 days that can stretch on for a period of time, but it's very hard to say. But, you know, once that process starts, just like with an FDA submission, whether you know you've sort of blitzed through that 60-90-day window or, as a result of, inquiries along the way and pauses, that stretches out beyond that. So really no way for us to predict that at this point.

Joseph Conway (Equity Research Associate)

Okay, great. Yeah, thanks for, thanks for taking our questions.

Lishan Aklog (CEO)

Great. Thanks, Joseph.

Operator (participant)

Your next question comes from the line of Anthony Vendetti from Maxim Group. Your line is open.

Anthony Vendetti (Director and Senior Healthcare Analyst)

Anthony, good morning.

Lishan Aklog (CEO)

Thank you, Anthony.

Anthony Vendetti (Director and Senior Healthcare Analyst)

Hey, Lishan. Hey, hey, Dennis, how you doing?

Lishan Aklog (CEO)

Great.

Anthony Vendetti (Director and Senior Healthcare Analyst)

So I just wanted to. So I know you switched to a new revenue cycle manager, I believe, mid-last year, and, doing a much better job in terms of being able to get, reimbursed. I think, I think in the, you've submitted approximately the commercial and government payers, $20 million, and the vast majority of those have been adjudicated, with half resulting, nearly half, in the allowable amount of $1,800 per test, which seems very, very positive and much better than, than what you were doing originally. Does that mean if we... You know, and, and I guess the definition of vast majority, does that mean there's maybe $8 million, maybe in, in, revenue that you would expect in the pipeline, $8 million plus? Or, or how should we look at, what's left to be adjudicated?

Dennis McGrath (CFO)

Yeah.

Lishan Aklog (CEO)

So remember- No, go ahead, Dennis. Sorry. Yeah.

Dennis McGrath (CFO)

So your thesis is correct. So when you look at $20 million of submitted claims and the adjudication of 80%, 40% in allowable amount, you're talking about $8 million or $9 million of a possibility. That can be diminished by what the patient's share of that will be. It also should be reduced from what we have collected so far, which is nearly $2 million. There is a backlog of amounts awaiting for collection that could be as much as $9 million. I think, you know, looking at that in the range of $5 million-$6 million is probably more of a realistic view, but there's uncertainty about it. So, you know, what gets paid of that?

You know, we've got this average that the information we're getting from Quadax puts the allowable amount right at $1,828 in the last quarter, which is holding. I think the prior quarter was just slightly higher than that, maybe by 10 or 20 dollars more. So it's in that range, but there's still some uncertainty about that to try and figure out exactly what we're gonna collect because of the patient's contribution and the timing related to when we'll get it.

Lishan Aklog (CEO)

Can I reemphasize that? I think the way we look at that $1,800 is pricing, right? So we feel like, okay, you know, we're getting allowed claims about half the time and the price that they, they're sort of acknowledging, pricing in the vicinity of Medicare, which is great. Now, if this is a high deductible patient, you know, patient with a high deductible plan in January, you know, that's the patient responsibility could be all of that. And so that's not necessarily what we're going to... You know, the proportion of that average $1,800 that gets converted into revenue is really highly uncertain at this point. But what we're gratified by and what we're gratified in terms of the stability of, is that pricing, the acknowledgment, sort of that that's an acceptable price.

That's an allowed price, which we can, which we can build our models around. But we still have to see where, what the, you know, how much that allowed amount translates into payment. And it's not easy to track, right? Because the stuff is a bit out of phase, so.

Anthony Vendetti (Director and Senior Healthcare Analyst)

Sure, sure. That's definitely helpful color. And then, my last question is around your marketing efforts. I looked at it as a three-pronged effort between the Check Your Food Tube events that you've discussed, your Lucid Test Centers, and then your satellite offices. As you move, you know, as we move through 2024 and go into 2025, how would you look at, as best you can forecast, the breakout and what's driving more patients?

Lishan Aklog (CEO)

Yeah, sure. Go ahead. Thanks. Great. Yeah, no, that's great. I'll maybe tweak it a little bit just to focus on, you know, what is the patient acquisition strategy in those cases, right? So what you described is really sort of more the cell collection location, like how, where are we actually doing the cell collection? And they're very much interrelated. And as you'll sort of note from my comment here, that some of this is kind of starting to meld together. But the patient acquisition around our sales force, calling on physicians in various settings and getting them to order the test, that's that still represents a you know, 70% or so of our activity.

Of that, about 70% of that is being performed in the satellite test center model, where our practitioners will show up at a physician's office on a regularly scheduled basis and do the testing there. So think about the patient acquisition and sort of how is the cell collection stuff being handled. That's that. About a third of our volume right now is in these, where the patient acquisition is centered around a Check Your Food Tube event, where we are engaged with a firehouse or now increasingly other types of entities, where we schedule a health fair type event and do the testing accordingly. It's not a result of a direct sales call by our sales folks, right?

And there, the cell collection is in this, in the Check Your Food Tube setting. Now, the third area, which I would encourage you to think of as a separate area, but it's now starting to kind of meld with the Check Your Food Tube events, is the direct contracting side. So when we engage with, let's say, an employer, that through a direct contract, that, the patient acquisition is done. That's the we have the contract, and there's a certain number of people who are indicated for testing based on guidelines. We base it strictly on guidelines and we proceed to test them in a way that's very similar to the Check Your Food Tube events. We literally show up at the physical employer locations and test people at, in a health care structure.

So the patient acquisition side, it's direct contract with the direct contact and engagement with physicians, the traditional sales process, looking for Check Your Food Tube events, through our engagement with fire departments and others, and then this broader direct contracting pathway. Does that, does that make sense? Again, slight difference between patient-

Anthony Vendetti (Director and Senior Healthcare Analyst)

Yeah.

Lishan Aklog (CEO)

acquisition and the site where the cell collection is actually occurring. There's sort of a matrix of how-

Anthony Vendetti (Director and Senior Healthcare Analyst)

Actual collection occur. Yeah. No, Lishan, that's a very helpful color. Just lastly, on the contracts with employers or commercial insurers, is that—would you still say that, is that in the nascent stage? And is that something? I know it takes sometimes a while because they each have their own processes, but is that something that you expect to accelerate as you move through this year and into 2025?

Lishan Aklog (CEO)

I think the answer to all is yes. So it's in the early stages. We hired our first person dedicated to this just in November. It seems like longer than that, but in November. And he's filled up the pipeline with regard to engagements with brokers, third-party administrators, entities like the 9/11 Fund and the residential communities. That pipeline is filling up very fast. So to the point where we actually are going to hire a second person to help him with that. But the cycle, as Dennis mentioned, the cycles for these are longer than just converting an individual physician account, right? And so, and to some degree, they can be a little bit lumpy around open enrollment periods twice a year. Particularly those that are related to benefit packages, right?

Where you have to, you know, line up, it has to align with open enrollment. So, very busy. Pipeline is filling up, putting more resources into it, but longer lead times. But despite all that, we really do expect to start seeing some runs across the plate in the coming quarters, both in terms of test volume and revenue and contracts executed.

Anthony Vendetti (Director and Senior Healthcare Analyst)

Excellent. Thank you so much for the call. I appreciate it. I'll hop back in the queue.

Lishan Aklog (CEO)

Thanks, Anthony.

Operator (participant)

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

Vidyun Bais (Analyst)

Hey, guys. Hey, guys, this is Vidyun Bais in for Mark.

Lishan Aklog (CEO)

Hi, Vidyun. How are you doing?

Vidyun Bais (Analyst)

Good. Thanks for taking the questions. I'll actually maybe just keep it to one. So just as far as ASP, we've talked about a history of denials and appeals being needed to kind of lay the groundwork for commercial pay. Could you just reiterate some of your comments on the progress that you're seeing there? I think you also called out for the first time, prior auth being somewhat of a hurdle. So just how you're thinking about some of the puts and takes to ASP? Thanks.

Lishan Aklog (CEO)

All right. So, let me just jump in a bit on the process side, and maybe Dennis has some additional comments. So, the prior auth issue is simply one of when you look at the denials and the percentage, you know, the breakdown, Dennis mentioned about 50% of those are informational or medical necessity. Those are, there's a standard appeals process for that, but some, about 18% are prior auth. So remember, this has nothing to do with our. With, it's not directly related to our efforts to impact medical policy. It's what. It's, it's through the out-of-network process.

So we figured there's enough of a percentage on the denials, that 18%, that it was worth our while to put a streamlined prior auth process together so that physicians could easily seek a prior auth for what is typically a non-urgent test. So that's just simply a way to have access to the 18% of denials that are related to the lack of a prior authorization. That's different than I think what the first part of your question was, which is around the engagement with commercial payers on medical policy, which is something that's now starting to accelerate now that we have what we believe is sufficient CV and CU data to have those conversations.

We just up until, you know, three, four months ago, we didn't really have enough data to be legitimately involved in those conversations. So as I mentioned earlier, we've actually started directly making inquiries and requests for changes in medical policy with some of the brand name, larger payers, with the hope that if it doesn't lead to an immediate change, that we can engage in pilot programs and so forth. So I would see that as. I would consider that as somewhat different than what we're doing on the prior auth side, which is really a revenue cycle management process. Dennis, did you want to add anything to that?

Anthony Vendetti (Director and Senior Healthcare Analyst)

Yeah, just, Vidyun Bais, just go back through the stats in case that's what you were looking at. 54, 54% of those adjudicated were denied, and I gave some color on what half of them, the reasons for half of them, and they were three buckets, right? Seven percent just needed additional information. Twenty-six percent-

Dennis McGrath (CFO)

... were deemed not medically necessary. And the question you asked about prior auth, authorization was 18%. That said, they would like prior authorization before reviewing the claim. So it was a smaller portion of the total, but nonetheless, it is showing up as one of the reasons for an initial denial.

Vidyun Bais (Analyst)

Okay, perfect. Understood. Thanks for taking the question.

Lishan Aklog (CEO)

Great. Thanks, Vidyun.

Dennis McGrath (CFO)

Thanks, Vidyun.

Operator (participant)

Your next question comes from the line of Edward Woo from Ascendiant Capital Markets. Your line is open.

Lishan Aklog (CEO)

Hi, Edward.

Edward Woo (Senior Research Analyst)

Yeah, thank you for taking my call. Yeah, thank you for taking my question. On the high volume, you know, Check Your Food Tube type events, have you gone to any event more than once? And do you anticipate being some of these events being annual events, or what's your time period for, you know, going back to these events?

Lishan Aklog (CEO)

That's a great question, Edward, and the answer is yes. We definitely have gone back. Like, for example, the original San Antonio firefighter event that we did almost exactly a year ago, we went back and retested. Because, you know, the logistics, if you set up, let's say, three or four days, you're not gonna necessarily get 100% of those who are interested in getting tested and are qualified or recommended for testing based on their risk factors. So we definitely have gone back. We've even had times where we've gone back and focused on retirees or different shifts and so forth. So that's that. We've done that.

What I may just again use this opportunity to emphasize, which is that one of the aspects of this that we're starting to push a lot harder on is, as we get started, to talk about how we can enter into a contractual arrangement for further testing after the inaugural event, so to your point. And we do see that as something that could be on a regular periodic basis. Certainly, some of the conversations we're having on the direct contracting side would be periodic.

Edward Woo (Senior Research Analyst)

Great. Well, thank you for answering my questions, and I wish you guys good luck. Thank you.

Lishan Aklog (CEO)

All right. Thanks, Edward. Take care.

Dennis McGrath (CFO)

Thanks, Edward.

Operator (participant)

Thank you. There are no further questions at this time. I would like to hand it over to Dr. Lishan Aklog for closing comments.

Lishan Aklog (CEO)

So, thank you all for joining us today and for the great questions. I did actually have one additional comment that came from one of our investors that they asked a question of EsoCure, 'cause the PAVmed release had a press release recently that indicated that it was reviving some projects which included EsoCure. And just wanted to confirm and remind folks that EsoCure, which is a esophageal ablation technology that fits very nicely within the portfolio of products. It's used to treat the later-stage pre-cancers that we discover with EsoGuard, that Lucid continues to have a fully exclusive license to commercialize that.

So although it's being revived at the PAVmed level, and PAVmed is seeking financing to complete its development, including some non-dilutive financing, Lucid remains the will be the commercial entity that commercializes it if and when we're able to get that across the finish line. So with that, as always, we look forward to keeping you abreast of our progress via news releases and periodic calls such as this one. 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 and to follow us on Twitter, LinkedIn, and on our website. So thank you, everybody, and have a great day.

Operator (participant)

Thank you, presenters, and ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.