Welcome to the Lucid Diagnostics Business Update and First Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder this conference is being recorded. I would now like to turn the call over to your host, Michael Parks, Vice President, Investor Relations. Mr. Parks, you may begin.

Thank you, Betsy. Good morning, everyone. Thank you for participating in today’s first quarter 2023 business and financial update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and Chief Executive Officer of Lucid Diagnostics along with Dennis McGrath, Chief Financial Officer of Lucid Diagnostics. The press release announcing the business update and first quarter results is available on the Lucid website. Please take a moment to read the disclaimer about forward-looking statements in the press release. The first quarter business update press release and this conference call, both include forward-looking statements and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the SEC. For a list and description of these and other important risks and uncertainties that may affect future operations, see Part I Item 1A entitled Risk Factors in Lucid’s most recent annual report on Form 10-Q filed with the SEC and subsequent updates filed in quarterly reports on Form 10-Q and any subsequent Form 8-K fillings. Except as required by law, Lucid disclaims any intentions or obligations to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, conditions or circumstances on which those expectations may be based or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. I would now like to turn the call over to Dr. Lishan Aklog, Chairman and CEO of Lucid Diagnostics. Dr. Aklog?

Thanks, Mike, and good morning, everyone. It’s good to be here. Thank you for taking the time. I look forward to giving you an update on our business in the first quarter of this year, 2023. Let’s just start with some highlights. These were highlighted in the press release as well. We performed 1,841 commercially EsoGuard tests in the first quarter. That’s a 57% increase on a quarterly basis over the fourth quarter of 2022 and a 245% annual increase. We’ve seen substantial increases in the satellite Lucid Test Center activity, now they represent about 50% of the samples collected for testing in the first quarter. We’ll dive into that a little bit further later. Our CheckYourFoodTube Precancer Detection Events that were launched earlier this year. That program is now in full gear and is expanding across the country. And we had an excellent DDW or Digestive Disease Week meeting in Chicago this week. That’s the premier gastroenterology meeting. Two studies with compelling data were presented for EsoGuard and EsoCheck. I’m going to start with some background for those of you who are new to the story, before diving into our results. So, Lucid Diagnostics, we’re a commercial-stage cancer prevention medical diagnostics company, and we’re focused on early precancer detection, specifically in patients with chronic heartburn or gastroesophageal disease, GERD, who are at risk for a highly lethal form of esophageal cancer, called esophageal adenocarcinoma. Our mission is very straightforward, which is to prevent deaths from this awful cancer in at-risk patients. Just a couple of facts about esophageal cancer. It is highly lethal, it’s a really bad actor and has become quite prevalent with an increase of over 500% over the last four decades, in contrast to all the other common cancers, which have remained flat or gone down, making it the second most lethal cancer, with an approximately 80% five-year mortality rate and accounting for about 16,000 deaths per year. The key statistic is really right there in the middle of the slide, which is that even stage one disease carries over a 40% mortality rate, unlike other common cancers where identifying the cancer at stage one gives you an excellent opportunity for a cure. That’s not the case with this cancer. It’s one of the rare examples of that. As a result, early precancer detection is necessary to prevent deaths. Although screening is recommended for a well-defined target population, less than 5% of those patients who are recommended for screening with endoscopy actually undergo it. Our lead products are EsoGuard and EsoCheck, which collectively form the first and only commercially available test capable of serving as a widespread screening tool to prevent esophageal cancer deaths through early detection of esophageal precancer. Both major gastroenterology societies, the American College of Gastroenterology and the American Gastroenterological Association, recently updated their guidelines and now support non-endoscopic biomarker testing, such as EsoGuard and EsoCheck, as an acceptable alternative to endoscopy for early detection of esophageal cancer. The market opportunity here is extremely large, based on the fact that there’s a large population recommended for screening. Approximately 30 million patients with chronic heartburn are recommended for screening and are at risk, according to established guidelines. That number is actually somewhat conservative, as one of the two guidelines expanded the target population to include patients who don’t exhibit symptomatic heartburn. Therefore, that number is moderately higher under those guidelines. Medicare has established a nationwide payment rate of $1,930. As you’ll see, that has been reflected in our engagements with private payers as well. This leads to a very large total addressable U.S. market of approximately $60 billion. The gross margin at volume exceeds 90%. Just one quick slide on our commercial strategy: we target two separate groups, primary care physicians and specialists/institutions, with distinct approaches for each. Our goal for primary care physicians is to encourage them to order EsoGuard tests as they would for any other test. The performance of the cell collection procedure, which results in the performance of EsoGuard tests, is conducted by a Lucid nurse practitioner, either at a Lucid facility, Lucid test center, or in the physician’s office in the form of our satellite Lucid Test Center. The data reflects that our satellite test center model is rapidly expanding. To elaborate, we have a nurse practitioner scheduled regularly at a physician’s office to collect samples for testing on-site. They can perform up to 30 tests each day. For the specialists and institutions, the approach is slightly different, aiming to establish an EsoGuard program for them to benefit from downstream opportunities like growing their practice through increased endoscopy and surgeries. The procedure can be conducted by their own clinician, nurse practitioner, or using the satellite Lucid Test Center model as well. Moving on to our commercial results, we had an excellent quarter. For the first quarter, our total number of tests continues to increase steadily. We saw a 57% increase over the prior quarter and a 245% increase compared to a year ago. Two pie charts reflect some distribution of this testing volume. The referral source now comprises about two-thirds of our tests from primary care physicians, with the remaining one-third from specialists and institutions. As you can see on the right slide, 60% of the EsoCheck collection procedures are performed by Lucid personnel. However, the proportion of the total tests conducted at a satellite test center alongside a physician’s office has now exceeded 50%. About 40% of these tests are still performed directly by the physician's practice with their personnel. Last time we announced we had launched our CheckYourFoodTube Precancer Detection Events. These events are designed to host high-volume testing, where our nurse practitioners arrive at a location with a scheduled group for testing. The first event was with the San Antonio firefighters earlier this year, testing approximately 400 firefighters over two weekends. This program, as we announced, is expanding. We have completed several events across the country, with a robust pipeline of nine more already scheduled for the coming weeks and months. A few comments on contracts and payments: the right side shows that the proportion of patients who are Medicare-Medicaid remains stable at around 10%. Other aspects have remained relatively stable as well. We continue to maintain an average contracted price above the Medicare rate, all contracts are above the Medicare rate, and the average contracted price for in-network contracts exceeds $2,000. We continue to receive out-of-network payments, which respect our charges, averaging about $1,400, based on a typical 50% to 60% out-of-network benefit. We are actively working to drive future in-network commercial payer contracting, with key drivers being the generation of claims history, which we have submitted claims to almost 200 insurers thus far. A critical element in this process is generating clinical utility data, which is vital for engaging with in-network commercial payers and I will discuss that in the next slide. Additionally, we are transitioning to a new revenue cycle management provider, which we are excited about and expect will provide significantly more actionable data to facilitate our engagement with private payers over the next month or so. Previously, we announced the launch of a Direct Contracting Strategic Initiative aimed at engaging in the diagnostic space directly with ASO, self-insured employers, unions, and other entities instead of through insurers. We believe there’s a meaningful revenue opportunity here outside of traditional commercial payer contracts. We are hiring a dedicated individual to lead this initiative, with events being part of this plan. As I mentioned earlier, collecting clinical utility data is a critical component in our efforts to secure predictable reimbursement and secure in-network contracts. Clinical utility data demonstrates that our test has an impact on medical decision-making; more specifically, that if a physician orders a test, they act upon the result. A positive test leads to confirmatory endoscopy, while a negative test does not. We are documenting this specific data across four active studies, which include retrospective and prospective studies. The firefighter events have provided an opportunity for retrospective analysis of prospectively collected data, encompassing approximately 390 patients. This data collection has been completed, and the manuscript is in preparation for peer review. In addition to this, we have two prospective studies, the Lucid Registry and a multicenter study called the CLUE study, aiming for approximately 200 enrollments by midyear. We are currently on target in both studies, and the firefighter events have helped boost enrollment. Additionally, we have a virtual randomized controlled study where physicians are provided clinical scenarios to document their decision-making process. This well-established methodology will be used for submitting clinical utility data to payers, and this study is also ongoing and currently on target. We are very excited about this, as we anticipate having our first batch of prospective data, which can supplement the retrospective data from the firefighter events, available by midyear for submission for peer review. This will subsequently aid in our engagements with commercial payers. A few highlights from the Digestive Diseases Week meeting: we had two excellent presentations, including one by VA faculty in Cleveland who performed EsoCheck with follow-up endoscopy on 69 veterans, reporting a 99% technical success rate, equivalent to the technical success rate noted for our nurse practitioners. They demonstrated an overall sensitivity of 100%, reflecting an estimated negative predictive value of 100% and a 37% estimated positive predictive value, both being optimal for a screening test. Seven patients were identified with either precancer or cancer, with four of these being short segments of less than 3 centimeters of abnormality—the most critical category and also the most challenging to identify. We were gratified that they could detect all these cases. Two patients had longer segments of earlier precancer non-dysplastic BE. We were especially excited to report the identification of a patient with silent Stage III esophageal cancer who subsequently entered treatment with chemotherapy and radiation—excellent results indeed from the VA. Additionally, we reported on an expanded cohort of patients using the EsoCheck device for sampling esophageal cells, involving approximately 1,500 patients. The technical success rate we reported previously was 98%, with an average procedure time of less than 3 minutes. The DNA yield continued to improve, with the 'not sufficient' rate—which indicates the percentage of patients with inadequate DNA—already quite low at 6% before decreasing to 2%, which is outstanding. We are proud of our effort during the poster presentation at DDW, which received distinction by ranking in the top 10%. Finally, a summary of our lab operations shows that the insufficient quantity rates have dramatically dropped since we took over laboratory operations early last year and are now consistently below 5%. Turnaround times have also significantly decreased, currently holding steady. I’m going to hand it over to Dennis for the financial update.

Thanks, Lishan. In the first quarter, the Board authorized a $20 million preferred offering and $11 million senior convertible debt, as seen on slide 18. Previously mentioned, we completed the initial closing of the preferred at $13.6 million. After exploring various alternatives, this preferred structure created a mutual win for the company and investors by matching an attractive dividend with a strong incentive to hold the stock for more than two years. Additionally, in the first quarter, we issued $11 million in convertible debt securities with an accredited investor, who has a history of providing similar structures with PAVmed, and currently holds PAVmed’s existing debt under similar terms. The note interest is applicable only for six months, has a $5 voluntary conversion price, and a 7.9% interest rate. Amortization does not commence until the six-month anniversary in October. Both structures keep stock off the market for extended periods—potentially two years in the case of the preferred. This allows the company to complete its clinical utility studies and improve reimbursement. Our cash runway has been significantly extended through June 2024. Combining these financings with our cash at the beginning of the quarter results in pro forma cash of $46.1 million, while the ending quarter cash balance was $39.5 million. The pro forma burn rate for the first quarter was $6.6 million. On the next few slides, I will summarize financial results for the first quarter as reported in our press release published last night, but I encourage you to review those remarks in the context of a full disclosure covered in our Form 10-Q filed with the SEC last night and available on our website. On slide 19, regarding the balance sheet, cash stands at $17 million, showing a sequential net increase in the first quarter. Our vendor payables remained relatively flat with the sequential quarter. This is offset by a $2.7 million increase in intercompany debt to PAVmed, reflecting the management services agreement. As of today, the total shares outstanding, including unvested restricted stock awards, stands at 43.7 million shares. The GAAP outstanding shares are reflected on the slide, as well as on the face of the balance sheet in the 10-Q. Slide 20 compares this year’s first quarter to last year’s first quarter on several key items, and I will review this while reminding listeners about the cautionary disclosure on the slide regarding supplemental information, particularly non-GAAP information. Revenue for the first quarter reflects actual cash collections for the quarter. The previous year’s figures reflect the fixed monthly fee from the third-party lab we used before establishing our lab at the end of last year’s first quarter. Revenue recognition, dictated by the probability of collection, means that most patient out-of-network claim submissions lead to recognition upon actual collection, as opposed to when the claim is submitted. In our 10-Q, this is classified as variable consideration under GAAP's ASC 606 revenue recognition guidelines, and currently, we lack the predictive data to recognize revenue at the time of invoicing. Our non-GAAP loss for the first quarter was $9.8 million, reflecting a 7.5% sequential decrease from the fourth-quarter loss of $10.6 million. On slide 21, the total non-GAAP operating expense in the first quarter of 2023 was $10.9 million and remained relatively flat sequentially. That figure includes approximately $1.2 million of one-time expenses due to reduction in severance costs, concluding the acquisition of ResearchDx, and terminating associated earnout payments and consulting agreements. Excluding these one-time costs, non-GAAP operating expenses would have been approximately $9.7 million, reflecting about a 9% decrease sequentially. The cost of revenue mainly involves EsoCheck devices, lab supplies, and fixed lab facility costs. Sequential declines in R&D and marketing expenses were offset somewhat by $1.2 million in one-time costs mentioned previously, allowing us to avoid approximately $2.7 million in future costs associated with ResearchDx. These one-time first quarter costs, along with highly variable quarter-to-quarter debt non-cash charges, contributed roughly $0.07 of the $0.40 GAAP loss. So, with that, operator, let’s turn it over to questions.

We will now begin the question-and-answer session. Your first question today comes from Kyle Mikson with Canaccord Genuity.

This is actually Alex Vukasin, I’m on for Kyle Mikson. Good morning. So, really quick question for me. Just kind of on what you’re seeing in terms of the claims process. It seems like you had a really solid quarter in terms of revenue. I was just curious if it seems like the process has kind of been trending upwards towards that level that you’re expecting to reach maybe a few quarters earlier, and maybe others after that. Thanks.

I’ll have Dennis flesh it out. But just at a high level, just a reminder that the first time that LucidDx Labs, our clear laboratory started submitting claims was at the end of the third quarter of last year. We’ve now had two full quarters of claims submissions since that process kicked off. The data is still in its early phases, though we have a positive trajectory, and I’ll let Dennis elaborate on the details.

Yes, the claims collection continues to be choppy, which is why the predictive value regarding collections remains uncertain. We must recognize revenue on a cash basis. However, we also believe we can improve this process and have taken steps to do so by changing our revenue cycle management company, which is set to come on board in early June. We expect that to benefit us on many fronts, particularly in handling non-payment charges and navigating through the denial process, which we believe will help accelerate payments in the second half of the year.

Got it. Thank you. Another question, kind of changing gears here. Looking at your overall commercial strategy, it seems like the satellite testing centers are gaining prominence. I was just curious if over time this could potentially become the primary revenue driver for the business going forward?

Yes. I think it’s key to address this question by clarifying some details. The vital factor here is that we’ve chosen to build a team of highly skilled nurse practitioners to perform the cell collection procedure. They have been shown to demonstrate outstanding success rates in technical performance. We’ve done this to effectively engage primary care physicians to order the EsoGuard tests, as the economics and logistics of individual primary care practices performing these procedures are not feasible. While we have designed this model, the evolution I highlighted reflects a steady shift from tests being conducted exclusively at physical locations we lease to occurring more frequently in physician’s offices, and you are correct to note that. The proportion of referrals from primary care physicians relative to specialists and institutions appears stabilized, with both sides growing at about 2:1, which is favorable. However, we’re seeing a steady increase in the share of tests performed by our nurse practitioners and those conducted in physician’s offices, rather than in our leased office spaces. We view this as a significant and positive trend.

One last question here. So just looking at the LucidDx lab operations, it seems like your ability to acquire sufficient DNA and improve average turnaround time is showing strong positive trends. Regarding average turnaround time, do you believe you’ve reached the peak of your expectations, or is there still room for improvement? And concerning the quality of DNA samples, has the trend plateaued, or can you foresee further efficiencies?

Yes. Those are both excellent questions. Let me first address the DNA question. Our dedicated team has substantially improved the DNA extraction process since we took over the laboratory, so that figure—just 3% last quarter—is a result of those improvements, alongside the 98% technical success rates achieved by our nurse practitioners. If the cell collection isn’t executed correctly, there won’t be enough cells for reliable DNA. So, we’re currently seeing around 95% of patients who will not only undergo a technically successful collection but will also provide enough DNA for the test. While there may always be some room for improvement, we believe we have reached a very high standard in terms of outcome. As for turnaround times, which currently average approximately one week, that is likely where we need to be. There are various steps in the assay process that require hours over multiple days, so significantly reducing that time is unlikely. One week is acceptable since this is an elective test—not urgent. Patients have time to wait for results, and we aim to keep this turnaround time consistent, particularly as we experience increased volume during high-volume testing events.

The next question comes from Mike Matson with Needham. Please go ahead.

I want to ask about the strong test volume in the quarter. Can you tell us how much of that was attributed to the CheckYourFoodTube event with the firefighters in the quarter?

Yes. The first quarter reflected just that one event, the San Antonio gathering, which accounted for just under 400 tests. There was growth recorded both in our organic numbers and from the testing events to CYFT events. Additionally, I’d like to use this opportunity to note that we view these testing events, along with other direct contracting efforts, as part of our comprehensive strategy. I want to emphasize that we are not merely substituting one strategy for another; we are adding new avenues for patient testing and outreach.

Okay. Following up on that—what's the expectation for payment from those tests? Is it more likely you’ll receive payment from these events compared to your other distribution channels, or is it similar?

It's a bit early to predict. We just completed our first event about two months ago. Purely speculating, it might be easier to initiate in-network discussions with the entities involved. They typically tend to be self-insured entities, such as unions. Having an audience with them during these events could facilitate quicker initiation into talks, unlike the standard model with traditional payers, where claims often take time to get noticed. We are aware of this potential, and we are focusing our engagement strategies to capitalize on it, but still too early to derive any conclusions as to actual payments or in-network contracting.

Okay. Regarding tests completed to date, while you’re attempting to receive payment, when do you typically cut losses on pursuing payment for a test? Have you already written off any volume, or are you still working to collect payment?

I’ll let Dennis elaborate on this further, but in terms of individual claims, the adjudication process is often lengthy, and we don't give up until we exhaust the appeals process, which can take many months. The number of claims we’ve reached the end of that process on is relatively low thus far, and even those might not have been successful. However, we recognize that it might take time, just as others have experienced, to engage insurers, go through submissions and denials, and that whole history is important for securing in-network contracts down the line. So, Dennis, feel free to add any clarifications.

Yes, during the early phases we are in now, claims history and the denial procedure hold significant value in achieving full reimbursement. Ultimately, I would define full reimbursement as occurring when you exceed an 80% collection rate. At that point, we may consider writing off claims after a year of unsuccessful attempts. However, we are not giving up on any claims currently. The revenue cycle management firm we work with handles this process, allowing us to outsource and stay focused on the core operations while they specialize in maximizing collection rates.

The next question comes from Mark Massaro with BTIG.

Hi guys. This is actually Vivian on Mark. Could you share your thoughts on volume pacing for ‘23? It is probably safe to assume sequential volume growth for the remainder of the year, but I’d like your thoughts regarding ASP traction as well. Thanks.

Yes. I’ll let Dennis address that.

We expect continuous quarter-to-quarter growth. In the previous quarter, we provided a preview for the first quarter, having only 17 days left in the quarter. This quarter is still in development, and while we are optimistic, we have not provided guidance for the second, third, or fourth quarters. However, we are confident about ongoing growth.

Apologies if this was already addressed earlier in the call, but could you remind us where you stand in the technical assessment process? Also, can you update us on the timing for securing Medicare coverage under the umbrella LCD?

Sure. There are no new updates regarding the MolDX final and effective local coverage determinations, which occurred at the end of March. These determinations are foundational to the tests under which EsoGuard falls. Moving forward, we need to collect adequate clinical utility data to meet the outlined criteria. We believe we can achieve this with the improvements to the final LCD over the direct LCD last year, which align with our requests for operational consistency. As concluded, while some large payers appreciate a Medicare LCD, we believe we’ll gain traction with private payers, representing 90% of our volume. Thus, our activity remains vital while waiting to finalize clinical utility data.

If I can squeeze in one more, can you provide the number of commercial payer contracts and those covered lives at Q1? Also, what was the number of tests you were paid for in Q1?

We have just under 15 in-network contracts; the most significant being MultiPlan, which recently contracted with us, covering 60 million consumers. Revenues collected in the quarter totaled $446,000, with an average claim resolved at $1,440.

The next question comes from Edward Woo with Ascendiant Capital. Please go ahead.

Congratulations on the quarter. My question is regarding the CheckYourFoodTube detection events. They seem to be high-value yet low-cost events for patient outreach. Have you considered making that your primary marketing event? How feasible would it be to expand these events across the country?

Yes. I’ll reiterate that we view these events as efficient ways to access targeted populations. We expect them to expedite our reimbursement process as well. Our commitment to these events is solid, and over a short period, we’ve expanded from one to completing multiple events, with many more in the pipeline across various geographic regions. While we see their potential, we are not planning to make them our sole focus. We’re pursuing a holistic strategy that combines multiple methodologies for outreach, including traditional physician engagement. It’s crucial for us to have physician adoption for long-term growth since these events generally engage a limited number of physicians. They have demonstrated efficiency, but we still aim to establish our tests as the standard of care through broad physician engagement.

To amplify Lishan’s points, many of our target patients self-medicate. As reimbursement progresses, our testing centers will retain a significant position alongside direct patient education efforts, telemedicine, and other components of our strategy. Each has considerable patient pools, and variations in focus will emerge over time. We are targeting substantial volumes from all market approaches.

To summarize, our overall patient pool is vast, as mentioned repeatedly, with estimates of at least 30 million. We are not segmenting our focus narrowly; rather, we are pursuing diverse avenues to reach that pool effectively.

I believe, operator, we can conclude now. I’d like to thank everyone for taking the time this morning. We found this informative. We encourage you to follow us on our websites and social media channels, but feel free to reach out to Michael Parks for any inquiries. His email address is [email protected]. Thank you very much, and have a great day. The conference has concluded. Thank you for attending today’s presentation. You may now disconnect.