Welcome to the Lucid Diagnostics Business Update and Fourth Quarter 2022 Financial Results Conference Call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. I would now like to turn the call over to your host, Michael Parks, Vice President, Investor Relations. Mr. Parks, you may begin, sir.

Thank you, Paul. Good morning, everyone. Thank you for joining today’s fourth quarter 2022 business update call. The press release announcing our business update and financial results for the year ending December 31, 2022, is available on the Lucid website. Please take a moment to read the disclaimer regarding forward-looking statements in the press release. Both the business update, press release, and this conference call contain forward-looking statements, which are subject to known and unknown risks and uncertainties that may lead to actual results differing significantly from what is stated. Factors that could cause actual results to vary are described in the disclaimer as well as in our filings with the U.S. Securities and Exchange Commission. For a list and explanation of these and other important risks and uncertainties that may influence future operations, refer to Part I Item 1A titled Risk Factors in Lucid’s most recent annual report on Form Q-10 filed with the SEC and subsequent updates in the quarterly report on Form Q-10-Q and any later Form 8-K filings. Except as required by law, Lucid does not have any intention or obligation to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, conditions, or circumstances that may influence the likelihood of actual results differing from those reflected in the forward-looking statements. I would now like to turn the call over to Dr. Lishan Aklog, Chairman and CEO of Lucid Diagnostics. Dr. Aklog?

Thank you, Mike, and thank you everyone for joining us this morning. I look forward to providing you with a positive update on our activities from the past quarter and recent weeks. As many of you know, we've adjusted the timing of our quarterly calls to better serve our shareholders by holding them in the morning and our press releases in the evening prior. I'll begin with some recent highlights before giving some background and then going into further details. We’re excited about the significant progress we've made over the past quarter. As you will see, the EsoGuard test volume growth has continued to be strong, particularly accelerating this quarter, along with a rapidly increasing activity at our satellite Lucid Test Centers now driving nearly one-third of our testing volumes. We’re pleased to announce that we've secured an in-network EsoGuard contract with MultiPlan, the largest secondary PPO, which gives access to EsoGuard for approximately 60 million consumers in the networks. Our engagement with commercial payers and claims history is progressing rapidly. The average in-network EsoGuard contracts are now over $2,000 per test, with all secured PPO contracts priced at or above the Medicare rate. I’ll get into more detail about this later, but we’ve launched a crucial initiative called our Direct Contracting Strategic Initiative aimed at directly engaging large self-insured employers, unions, and similar entities. As noted in our press release, our high-volume CheckYourFoodTube events launched successfully, and we anticipate a strong pipeline of additional events in the upcoming months. We’re proud that our laboratory managed the unexpectedly high peak volumes from these events, reflecting our improved operational efficiencies. We received FDA clearance to market a non-sterile version of EsoCheck, enhancing our margins and alleviating potential supply chain challenges linked to sterilization. We’re making solid progress in collecting clinical utility data, key for future in-network commercial payer contracts, and as we will explain in detail, we've secured financing of nearly $25 million, extending our cash runway into 2024. For those unfamiliar with our story, I will provide a brief overview of Lucid Diagnostics as a commercial stage cancer prevention medical diagnostics company, focused on early precancer detection in patients with chronic heartburn or GERD who are at risk for developing lethal gastroesophageal cancer. Our mission is straightforward: to prevent deaths from this cancer in at-risk patients with chronic heartburn. The statistics on esophageal adenocarcinoma are alarming. This cancer is highly lethal, and its prevalence has been rising, with around 16,000 deaths in 2021 and a similar number in 2022. The incidence has increased by 500% over the past four decades, making it the second most lethal cancer with an over 80% five-year mortality rate. Importantly, even at Stage 1, the five-year mortality rate exceeds 40%. To reduce these deaths, early precancer detection is essential, yet historically, less than 5% of patients recommended for screening undergo traditional endoscopy. This is where our products, EsoGuard and EsoCheck, come into play. They are the first and only commercially available tests that can serve as a widespread screening tool to prevent esophageal cancer deaths through early detection of precancer. EsoGuard is an esophageal DNA test utilizing next-generation sequencing to identify early changes in precancerous conditions and cancer. EsoCheck is a non-invasive cell collection device that enables accurate sample collection in an office setting. We are thrilled that both major gastroenterology societies support EsoCheck as an acceptable alternative to endoscopy for early detection of this precancer. The commercial opportunity is substantial, with the at-risk population estimated at $30 million based on the latest guidelines. Medicare has set a payment rate of $1,938, and we will demonstrate that this payment flow is respected, representing a significant addressable market in the tens of millions. With a gross margin over 90%, we are working towards reducing our cost of goods sold to reach that figure. Our commercial strategy is well-defined, targeting two referral sources: primary care physicians and specialists. Our interaction with primary care physicians focuses on education to encourage them to order tests as they would any other cancer screening. With specialists and institutions, there is an opportunity to establish comprehensive programs centered on EsoGuard that focus on esophageal cancer, precancer, and GERD. We now have three methods for performing the EsoCheck procedure, including 13 physical Lucid test centers in 11 states where our nurse practitioners conduct tests. Recently, we have expanded our satellite Lucid Test Centers where nurse practitioners perform tests at physicians' offices, enhancing our physical reach. We continue to see consistent growth in EsoGuard testing volume. As we approach the end of the quarter, we estimate an annualized growth rate of about 200%. Regarding test referrals, 60% continue to come from primary care physicians, and this is expected to remain consistent or possibly increase. In addition, 29% of tests are conducted at our physical test centers while 31% take place at satellite locations, showing an increase from the previous quarter. We have also launched high-volume events called CheckYourFoodTube Precancer Detection Events, partnering with the San Antonio Fire Department, successfully testing 391 at-risk firefighters. These events are yielding positive results, leading to endoscopies for some patients, and we will replicate this model across the country with future events targeting unions and other groups. We are thrilled to enter an in-network agreement with MultiPlan, increasing EsoGuard access to approximately 60 million consumers. MultiPlan is a major player in processing commercial health plan medical charges. Our contracting and payment status has seen solid advancements, with 13 in-network contracts for EsoGuard now secured and an average contract price exceeding $2,000, which falls between the Medicare payment rate and our list price of $2,500. We are generating claims histories and seeing claims move through the appeals process, with some previously denied claims now being paid. This process of submitting claims began in mid-third quarter, so we are in the early stages, but the progress is encouraging. Our Direct Contracting Strategic Initiative aims to engage directly with self-insured entities, providing opportunities for contracts beyond traditional commercial payer agreements and significant revenue potential.

Thanks, Lishan, and good morning, everyone. The Board has authorized a $20 million preferred offering at an $11 million secured convertible debt. We completed the initial closing of the preferred in the amount of $14 million and have until the end of May to complete the remaining $6 million. The financing was priced in accordance with NASDAQ market closing bid price rules. The accredited investors were led by a family office familiar with our IR firm and some long-term high net worth shareholders. After exploring a variety of alternatives, this preferred structure created a mutual win for the company and the investors by matching an attractive dividend with a strong incentive to hold the stock for more than two years. Additionally, yesterday, we entered into a securities purchase agreement to issue $11 million in convertible debt securities with an accredited investor that has provided the same types of structures for PAVmed over the years and currently holds PAVmed’s existing debt with similar terms. We expect to close the funding in the coming days. The note interest is only for six months and has a $5 voluntary conversion price and a 7.9% interest rate. Amortization does not begin until the six-month anniversary, at which point we can then pay in cash or in stock. Both structures keep stock out of the market for long periods of time, likely two years in the case of the preferred, which allows the company to complete its work on clinical utility studies and improving reimbursement.

And our first question comes from Kyle Mikson from Canaccord Genuity. Your line is open.

Hey, guys. Can you hear me now?

Yeah. We can.

All right. Perfect. Interesting. Yeah. So congrats on the results. Thanks for the questions. On the effect of ASP here was $95, it seems like the denial rate for reimbursement seems like still pretty high. Cash collection is pretty low. It’s not like super surprising, I guess. But just the ASP dynamics, you’re talking about out-of-network $1,400 payment and then commercial payers, $2,000, PPOs at the Medicare rate, which is like almost $2,000 as well. So would you mind just walking through why the revenue per test is so low and when that inflection point occurs and what kind of like catalyzes that?

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

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

If I could just add a couple of things, just to, again, emphasize the sort of the phase shift here. We started submitting claims in the end of August. So basically mid-to-late third quarter. So the fourth quarter results, if you kind of take that typical 90-day cycle and those cycles take longer for new tests. One of those tests are more established, the turnaround time tends to be shorter. Therefore, the fourth-quarter numbers really reflect a small portion of the claims submitted in only half of the third quarter. The other point I would make is that we don’t have good denominators at this point to provide insights on this matter. In terms of your concerns over the denial rate, we can stress that there really isn’t a significant denial rate yet. The number of claims that have gone through the full adjudication process is quite low currently. So most of the claims have either been paid or the vast majority are still working their way through the process.

That was really helpful, and it sounds promising, too. It's great to see the projection for the first quarter with about 1,500 tests performed. It seems like there is a 36% sequential growth, which is fantastic. Do you think that kind of sequential growth can continue and possibly accelerate? Also, are there any seasonal effects or other factors that could boost that first-quarter number? It seems quite reasonable, but I'm curious about how that might evolve through 2023.

Yeah. No. I think if you look at that slide, there’s a bit of seasonality you saw in the fourth quarter, and that’s common, as you know, Kyle, from other companies. We also in the fourth quarter had to work through some compliance structure, establishing some compliance in a couple of our larger states, which relates to our satellite Lucid Test Centers. So there’s some pent-up demand in both Florida and California that we’re addressing. But if you kind of look at the overall trend in the line, is that 36% growth, something like that quarter-on-quarter, about 200% or so compounded growth rate, I think is sustainable for some period of time, and obviously, the goal is to continue to grow that. As we’ve said in the past, we’re not at full throttle, right? We’ve decided to plateau our sales team, and that sales expense is something that will remain flat for this year. Our current team can continue to drive test volume growth as we start getting more predictable payment and improving our contracting, and we think these initiatives play an important role in that growth over time.

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

We are focused on expanding our number of providers and geographical reach. Although I don't have a specific number to share, our ability to utilize satellite Lucid Test Centers has been beneficial. It's important to note that while we have physical locations that serve as the base for our clinical and nurse practitioner teams, our nurse practitioners are also able to expand their reach locally and travel to places like San Antonio to conduct tests for many people. Our sales team is actively working to increase repeat orders and create a more loyal customer base by incentivizing sales reps, and this strategy is proving effective. We've faced some logistical challenges, but there’s a strong interest in esophageal precancer testing when nurse practitioners coordinate directly with physicians. Overall, while I may not have concrete data, I see positive trends towards building a more engaged business while broadening our presence and service depth.

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

Yeah. We’re monitoring the valid act, as well as the FDA’s recent declaration around rule making in this area carefully. We don’t have any concerns in the near-term. These are all long-term events. There are grandfathering clauses. We are confident with regard to our risk assessment and think we will have the right data to maintain our operations uninterrupted. We will have strategies to mitigate any potential risks. On the clinical utility side, we will start generating clinical utility data. I should mention that there are sources of clinical utility data from the BETRNet study, which is NCI-sponsored and anchored by the BETRNet consortium centered around Case Western Reserve. Those studies are collecting data, and we expect results to start coming online in meetings and peer-reviewed publications well before we have our BE2 data out.

Perfect. That’s great, Lishan. Thanks guys for the question. Appreciate it.

Thanks. Thanks a lot, Kyle.

Thank you. And our next question comes from Ross Osborn of Cantor Fitzgerald. Your line is open.

Good morning, Ross.

Hi, Ross.

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

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

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

Yeah. Just to clarify, we’re not shifting or pausing the physical test center model; it still remains our anchor. That’s where our nurse practitioners are physically based, but they have the opportunity to move and perform tests in broader geographic areas. We have very good sales coverage right now; our sales team coverage is broader than the 11 states and 13 test centers with physical locations that we currently have. There are also opportunities, for example, in Georgia and other states where we don’t have physical test centers, where there is increasing activity using nurse practitioners under the satellite model. We’re not covering every single state or metropolitan area, but the geographic coverage is broader and covers major states, particularly, California, Texas, and Florida.

Okay. Great. Thanks for taking our questions.

Okay. Thanks, Ross.

And our next question comes from Mike Matson of Needham & Co. Your line is open.

Good morning, Mike.

Hi, Mike.

Good morning. I have a question regarding the CYFT event. You mentioned that you conducted 391 tests there. Is that included in the total test number, and will you be compensated for those tests?

That’s an interesting question. Yes, they are included in those numbers, and these are commercial patients with commercial insurance, so they’re not part of a research project. We do consider them in the commercial numbers. We don’t know yet. It’s an interesting dynamic because typically firefighter groups, the Firefighter Union, are often self-insured, giving them their own decision-making opportunities. Our ability to engage with them directly supports that. That’s why I was stressing that the CYFT events are closely linked to our Direct Contracting Initiative. As we expand this robust pipeline, we’re being much more proactive about understanding the payer structure within each of these and working closely with the self-insured entity to coordinate. So we don’t know yet, but there’s certainly excitement and promise that the prospects for payment rates on these tests could be higher. It’s a compelling aspect of this business due to the volume of testing along with a single entity. Engagements with firefighters have been extraordinarily positive as they understand the need and are committed to protecting their members.

Okay. I understand. So, Dennis mentioned that the cash used was about $30 million in 2022, correct? With the cost reductions announced earlier this year, you indicated that you would lower your cash burn by about 25%. This would suggest a cash burn of around $20 million for 2023. Does that sound reasonable?

Yeah. The burn rate for the first half is going to be in the $7 million to $7.5 million range. It should gradually decrease as operating expenses continue to remain flat and collections start to improve at a significantly higher rate, bringing the burn down for the second half of the year.

Sorry, is that $7 million to $7.5 million a quarterly number?

That’s the first half.

That’s a quarterly number.

Yeah.

All right. Got it. And then, yeah, so with MultiPlan, the covered lives there, how do those geographic concentrations match up to your sales force and test center locations?

They are national. They have a presence in every corner of the country. Our market access team does have a robust process to identify where payers are and how that aligns with our team. Some of the other contracts we’ve had, those are regional, that has proved to be actionable, but MultiPlan is a really national plan. They have a primary PPO network and a complementary PPO network.

Okay, got it. Finally, I apologize if you mentioned this earlier and I missed it, but regarding MolDX, you discussed the clinical utility efforts. When do you think you could make another attempt at securing MolDX coverage?

Oh! Just to be clear. No. There’s no other shot. The shot is already out there. We’re just waiting. We participated in the process last year where upon publication of the draft LCD, we engaged with MolDX and Noridian through the open meeting process, as well as the comment period. Once that’s submitted, there’s nothing for us to do; it’s just a waiting game. It’s on their desk, and they’ll review it at their time. If you recall, it took quite a while from the in-depth submission to even get the draft LCD published. So we make no predictions about when that will happen. It’s worth noting that the timing of the LCD is not actually hurting us because we won’t be in a position to technically respond to the LCD until we have clinical utility data later in the year. But we’re pushing hard on the commercial side, where the demographics of patients being ordered remain tilted toward commercial payers with only 10% or 12% being Medicare, so we’ll continue to push there while we wait on Medicare.

Okay. Got it. Thank you.

Okay. Thanks, Mike.

And our next question comes from Mark Massaro from BTIG. Your line is open.

Hi, Mark.

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

Yeah. I’m going to go back to the previous slide. I hope it was going to show. Yeah. So let’s do a deeper dive into this. So just use the model. Oh, hold on a second, Mark, there is a technical glitch here. I want to push in the audience. Hopefully, you can see the numbers there. One quick minor correction to your summary, which is otherwise excellent, what clinical utility means, it doesn’t even mean that they have to actually get the endoscopy. People fall through; they fail to show up and so forth. We just have to document what the physician did, whether it was an order for the endoscopy or not. Even in negative outcomes, there are going to be situations where an endoscopy is ordered for other reasons. As long as an endoscopy was not ordered for screening of esophageal precancer, then that documents the clinical utility. The numbers I present are intended to give you a picture of our various approaches. I’m aiming for the first cumulative stress test several CheckYourFoodTube events with hundreds of patients can yield clinical utility data. Our primary focus is on a two-pronged approach targeting a combined 400 patients for our data collection efforts. This will yield a solid critical mass of insights to demonstrate the utility of our offerings to payers. This goal underscores the importance of collecting both retrospective and prospective data while remaining cognizant of the significance of real-world applications. Our target is midyear to have a first landmark number where we can analyze our progress and begin preparations for the corresponding submission. The results aim to be actively utilized in engagement efforts with payers that focus on clinical utility and high-quality outcomes.

Yeah, so MolDX is likely looking for approximately 200 individuals in a prospective observational study?

I think that’s about right. We have presently targeted 400 patients in the true prospective studies that are included in the registry. But you’re correct, our positivity rates are approximately 7% to 10%, which is a statistical consideration that we are addressing. So, if we have 400 patients, let’s say, at a 10% positivity rate, we can expect to retrieve 40 patients who are positive and demonstrate that those 40 patients did get sent for a confirmatory endoscopy. The balance of critical volume will enable a robust understanding of negatives.

All right. Perfect. Yeah. Thanks for clarifying that the physician just needs to order it rather than the patient needs to complete the procedure.

Yeah.

Cool. All right. So my next question, the San Antonio Fire Department is really interesting, because that accounts for about one-fourth of your volumes in Q1 based on my understanding. And I think you noted in the press release that firefighters have a higher risk for GERD and esophageal cancer. So, and I think you indicated that your near-term pipeline for future events is robust. I would love to hear just a little bit more about maybe what some of the other high-risk groups are, what your funnel looks like, and how many of these do you think you might be able to pull off in 2023.

The pipeline is robust. We have, as I mentioned, firefighters which serves as our initial focus. The published well-established data indicates that they exhibit a 65% increased risk of esophageal cancer, which presumably comes from environmental exposure. There are quite a number of firefighters in different departments, and we are undertaking proactive outreach to bolster their testing options. Other high-risk groups you can consider include additional unions, such as truck drivers and other public service groups. The focus is on engaging with entities that are self-insured, enabling direct testing initiatives that leverage our commitment to ensuring the welfare of those invested in our work. While I’m not prepared to outline specific figures at this stage, I suggest we concentrate on the trajectory of test volumes first. In upcoming quarters, I anticipate we’ll communicate more comprehensive strategies regarding our objectives.

Okay, great. For my last question, as we consider the remainder of the year, it's encouraging to see the coverage from MultiPlan. I'm curious if you believe that your discussions with payers are improving, especially given that you've started receiving payments on some of the denials, which is fantastic. Although these figures are relatively small at this early stage, do you think that as the year continues, you might be able to secure contracts with a large national commercial payer or at least some regional payers? How should we view the situation regarding payer coverage?

Yeah. I think the lessons learned from our recent activities are clear. The price integrity has been reinforced; I believe we’re developing increasing confidence in sustaining our pricing model. Compared to Medicare, which lays a foundational rate, our market price of $2,500 is validated by out-of-network payments. Conversations with larger plans, including several advisory board meetings, underscore the importance of clinical utility data for securing large payers. We anticipate there won’t be a binary outcome, but rather a spectrum of opportunities to engage with both smaller regional plans and larger agreements highe benchmarks. The key is generating strong clinical utility data and the timelines we’ve established will play into how we can better achieve contracts as we move further down the year.

Okay. That makes sense. Thanks so much.

Great. Thanks, Mark.

And our final question comes from Edward Woo from Ascendiant Capital. Your line is open.

Good morning, Ed.

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

Yeah. So that’s a great question. I don’t have a hard number for you, but we are seeing an increase in productivity. The median tenure for our sales personnel is about six to nine months. This means we have experienced individuals in the field. I mentioned on previous calls that with our decision to plateau our sales team, this gives the sales leadership the opportunity to be more active in the field and more engaged with strategic accounts. By empowering our teams, we have focused on driving existing relationships, leading to the closure of significant strategic accounts recently. So, we expect that median number to increase as time goes on, enhancing interactions with clients and renewing opportunities for heightened engagement.

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

Thank you. Thanks a lot, Ed.

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

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

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