Earnings Call Transcript - LUCD Q4 2023

Operator, Operator

Good morning, and welcome to the Lucid Diagnostics Fourth Quarter and Full Year 2023 Business Update Conference Call. 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, Ludy. 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 and description of these and other important risk factors 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 filings on Form 8-K. Except as required by law, Lucid disclaims any intentions or obligations to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, conditions or circumstances on which the expectations may be based or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements. I'd like to turn 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, as 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 that Lucid has made on multiple fronts during the fourth quarter and the start of this year, including strengthening our balance sheet with about $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, the health fair events are thriving, with now robust clinical validity and clinical utility evidence poised to drive positive medical coverage, and what I believe is in line of sight to Medicare coverage. I’m also particularly excited about our accelerating direct contracting initiatives. Let me just 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, the fourth quarter revenues were just a hair over $1 million. That's up 33% quarterly and 829% annually. EsoGuard test volume was 2,200 tests. I'll talk a bit more about those trends later. 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 at 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, with about 50% of adjudicated claims now coming back as allowed with stable payments averaging about $1,800. Some key strategic accomplishments. As I mentioned, we restrengthened 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 reengaging with MolDX for the Medicare side, which I'll talk about a little bit later. We've seen 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 of months with medical directors of major commercial payers to formally request positive medical policy determination for EsoGuard. Similar to these efforts, we held a Blue Cross Blue Shield Association of America webinar that was attended by dozens of medical directors to advocate for EsoGuard coverage. We've launched our direct contracting program with EsoGuard now offered as a benefit as a means to drive contractually guaranteed revenues. Just a few intro slides for those of you who are newer 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. 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. So now we have, as I mentioned, really solid clinical validity data that documents EsoGuard's performance. This is a bit of a summary slide here. EsoGuard is in blue and comparing it to sort of the standards that we see for performance with other tests, particularly in the colorectal space, with Cologuard and the new blood test at Guardant. Cancer sensitivity remains extremely high as does pre-cancer sensitivity and early pre-cancer sensitivity. And those two numbers, I'll note, are really unprecedented. So to have a 90% pre-cancer sensitivity, again, you can now compare to other tests in the space, is unprecedented. There is no other molecular diagnostic test that can claim that and most notably, our early pre-cancer numbers also holding in at that 90% range. Again, no other tests, molecular tests can detect early pre-cancer with any sensitivity much lesser than 90%. 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 three fold. We have two slides summarizing the data. This documentation of study performance is crucial for our future. The clinical validity is reflected in the assay's performance. We have three studies: the original Case Western paper, the BETRNet study, and the Cleveland VA study, with one published and two in preprint. A manuscript for the BE-1 study is complete and is on its way to preprint posting and publication submission. On the clinical utility side, we have three studies published in peer-reviewed literature that support our interactions with payers, particularly commercial payers and soon Medicare. The market opportunity is significant, with around 30 million patients recommended for pre-cancer testing according to existing guidelines that now include non-endoscopic biomarker tests like EsoGuard. Medicare's payment is set at $1,938, and our out-of-network payments are closely aligned at about $1,800, showing that the pricing is stable. This leads to an estimated total addressable market of approximately $60 billion. Currently, our gross margin stands at 90% at our existing volumes and levels of efficiency. And our commercial strategy is multi-pronged. Our goal is to provide patients access wherever we can. We have our own physical Lucid test centers. 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 CheckYourFoodTube health fair events, which have been focused initially over the past year. We've reached our 1-year anniversary at these health fair events and are expanding into other areas as well. This slide shows our progress over the last approximately two years with regard to revenue and test volume growth. Revenue has been growing nicely since our transition in the late second quarter to our new revenue cycle management provider. The test volume growth has stabilized. We think this is likely going to be approximately where things stabilize at sort of the 2,300 to 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. That's our expectation. In the fourth quarter, we had three weeks where we weren't able to do testing, between two holidays and one week for our national sales meeting. We feel pretty comfortable that these volumes will hold and we’ll show potentially modest growth over the coming quarters. A deeper dive on our commercial execution. The CheckYourFoodTube, our health fair type pre-cancer detection event remains a significant contributor to our activity. These have been heavily focused on firefighters since we had our first event a year ago in San Antonio, and we've had steady growth. We have a 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 great demand from entities, particularly the firefighters. We're expanding our testing beyond just holding health fair events at firehouses to 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 Texas symposium. We're increasing the efficiency of these events and their capacity by utilizing UpScript, our telehealth partner, so we no longer have to identify a local physician champion to get one off the ground. And perhaps most importantly, as we launch these events, we're now initiating contracting discussions in parallel with planning for the initial inaugural event. The leaders are strongly motivated to engage, particularly with the unions, focusing on offering testing and showing that they're providing value and focused on cancer prevention among their members. That’s been encouraging and promising regarding our ability to engage in contracts moving forward. As I mentioned last quarter, we’ve been pushing harder now with our commercial team on strategic accounts. These include health systems and large multi-location group practices. We have over a dozen such strategic accounts, including big academic medical centers that are offering EsoGuard testing. The next big area for us right now is direct contracting. We are just getting started with this. We hired a VP of Employer Markets and are now expanding that team. When we talk about direct contracting, we're offering EsoGuard as a covered benefit to drive contractually guaranteed revenue. This is different than the traditional path being a physician prescribing a test and submitting a claim to the insurance policy. This essentially bypasses that, and we go directly to entities with whom we can engage 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 on multiple fronts. There’s a network of benefit brokers that work with third-party administrators to offer benefit packages to employers across the country. We have deep engagement with these entities to offer EsoGuard within the benefit packages. A subset of that are self-insured entities. With them, we can go directly to those entities. We previously announced our first contract there. Testing has proceeded, and these testing events are similar to the CheckYourFoodTube events, where our team shows up at sites for employers and offers testing onsite to subgroups of employees or members who are candidates for testing. We've formally engaged with one of the Clinical Centers of Excellence, Mount Sinai, to test patients covered by the fund, and we look forward to consummating contracts with various entities. The way we offer direct contracting has 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 in the context of a benefit plan where we offer EsoGuard as a covered benefit for a lifetime benefit per member, not necessarily those who are tested. We are in discussions in several examples of a service agreement where we charge for a full or half-day screening event that's scheduled accordingly. This direct contracting initiative is a big deal. We're pushing hard on this and really expect it to be a meaningful contributor to test volume as well as revenue in the coming quarters. Just an update on the process by which we submit claims and receive payments on those claims. We’ve submitted now about $20 million of pro forma revenue in the claims submitted, representing that. We're stable at about 80% of claims being adjudicated with an increasing percentage now, over 50% being allowed. The average allowed payment is $1,800. We're working with Quadax on the appeals process, starting to yield some wins. We're winning about 25% of our appeals. We're focusing on getting medical policy coverage. Ultimately, we need to get in-network coverage both from commercial payers and Medicare. We’ve held meetings with medical directors of major commercial payers to request positive medical policy determination for EsoGuard. We participated in a Blue Cross Blue Shield Association of America webinar where dozens of medical directors were in attendance, presenting a strong argument for EsoGuard coverage. On the Medicare side, we’re targeting reengagement with the MolDX program, which finalizes local coverage determination. We believe we've collected sufficient clinical validity and utility data to make that reengagement. The timing of our meeting and pre-submission meeting has been triggered by the publication of one key clinical validity study.

Dennis McGrath, CFO

Thanks, Lishan. The summary financial results for the fourth quarter and the year were reported on our press release that was published last night. On the next three slides, I'll emphasize a few key highlights from the quarter. I’d encourage you to consider those remarks in the context of the full disclosures in our annual report. The balance sheet cash at year-end was $18.9 million, supplemented by the financing completed in the amount of $18.1 million. The average quarterly burn rate for last year was $8.2 million per quarter. Burn in the fourth quarter was $6.7 million from operations and $3.4 million from the paydown of intercompany debt. Our ability to fund operations beyond one year from today is dependent on how revenues ramp over the next five quarters, which is highly dependent on the reimbursement landscape for both government and private health insurers. Beyond that, there's nothing substantively remarkable about the remainder of the September 31 balance sheet. However, subsequent to year-end, Lucid settled approximately $4.7 million in debt to PAVmed by the issuance of approximately 3.3 million shares of common stock. 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 billings under the direct contract with the Ancira Auto Group. The revenue increase reflects about a ninefold increase over the prior year quarter and about a sixfold 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 $24.99 standard pricing for the test. For the first quarter of 2024, revenue is tracking to be on par with the fourth quarter. As you'll see in our 10-K, revenue recognition is tied to the probability of collections. Currently, 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 that will be recognized as revenue when the contracted service is delivered. 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 a $700,000 decrease year-over-year. The increase in the fourth quarter was related to three specific one-time events and clinical research costs of about $300,000 and some G&A patent expenses of about $250,000. These amounts were offset by the quarterly increase in revenue. Total non-GAAP OpEx was $10.9 million for the fourth quarter and this is fairly flat year-over-year. 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, effectively at a 10% to 11% marginal cost of sales. The non-GAAP net loss per share has been relatively flat for each of the last four quarters, plus or minus $0.01 between each of the four quarters of 2023. We see - I would expect that collection realization will maintain flat as the direct contracting picks up, the realization will increase because the payment is guaranteed. In terms of how quickly from a submitted claim do we actually get cash, that is less predictable for us. The average allowed payment is $1,828 per test, holding to the general pricing line of all out of network. Of those denied, about 51% require one of three things, either additional information, deemed not medically necessary, or require a prior authorization. About 29% were deemed to be noncovered.

Operator, Operator

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

Kyle Mikson, Analyst

Hi, guys, thanks for the question. Congrats on the year and the quarter. Looking at the volume and the revenues, volume decreased quarter-over-quarter, a little bit, maybe 15%. Do you think you can maintain these quarterly levels around 2,400 or so claims? The effective ASP increased by over 50%, that's great. How should we think about volume in ASP dynamics going forward?

Lishan Aklog, CEO

Let me start with volume and then I'll hand it over to Dennis. I think you summarized it well, Kyle. The test volume growth is going to be driven more by other aspects as opposed to our sales force that's calling directly on physicians. It will be driven by these CheckYourFoodTube testing events, which are more efficient. I think you're right. At the current size of our baseline activity, traditional sales and marketing activity, I think these numbers are expected to hold but we hope to see growth from the other pathways that I mentioned.

Dennis McGrath, CFO

So on collection realization, the trajectory and effect on the first quarter is tied to our sales force that should stay relatively flat, with acceleration in the second half. To the extent that the volume picks up with direct contracting, that is not as limited by the sales force. There’s a multiplying effect with direct contracting since payment is guaranteed within that process. We see greater momentum in the second half.

Kyle Mikson, Analyst

Yes, that was fantastic, guys. Thanks so much for that. On the CheckYourFoodTube events, do you anticipate some of these being annual events? How does that funnel into deeper penetration among the clinician base over time?

Lishan Aklog, CEO

That's a great insight, Kyle. We definitely have gone back to events. We have a good visibility and are actively discussing initial inaugural events and contracting. The union leaders are motivated to offer cancer prevention services. As we see revenue growth from these events, this will justify investing in more personnel.

Kyle Mikson, Analyst

I was wondering about the timelines for the clinical validity studies, particularly maybe the VA study. What are the timelines for announcements?

Lishan Aklog, CEO

The BETRNet study is on preprint and has gone through multiple cycles of review. We expect that to finalize for peer review publication. The VA study is important; it’s our first study in a screening population. This study is in preprint and will be submitted soon. We will not wait for it to be peer-reviewed.

Joseph Conway, Analyst

Good morning, everyone. Thanks for taking our questions. With your plans to stabilize operations and sales, should we expect modest increases in operating expenses based on the last two quarters?

Dennis McGrath, CFO

Yes. The OpEx over the last couple of quarters has been in the $12 million range. The triggers are clearly tied to realization of payments. To the extent that policy insurance changes positively at a quicker rate, we will start adding additional salespeople. But there will be modest increases for the next couple of quarters.

Joseph Conway, Analyst

On Medicare and the technical assessment process, I guess you're expecting the process to take anywhere from six to 12 months. Do you have a more narrow timing on that?

Lishan Aklog, CEO

The technical assessment process has a turnaround of 60 to 90 days, but they can stop that clock and ask for more information. It's very hard to say once that process starts, whether we see a clean 60 to 90 days or it stretches. We’re not in a position to predict.

Anthony Vendetti, Analyst

It seems you're doing a much better job in terms of getting reimbursed. You submitted approximately $20 million in claims and the majority has been adjudicated. Does that mean there might be around $8 million in revenue that you expect to receive in the pipeline?

Dennis McGrath, CFO

Yes, the thesis is correct. You’re looking at $20 million in submitted claims. There could be around $5 million to $6 million, but it’s more about payment shares related to patient contributions and timing.

Lishan Aklog, CEO

The pricing is stable, and we can build models around the average allowed amount, but the patient responsibility might affect what is collected.

Operator, Operator

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

Vidyun Bais, Analyst

Good morning, can you reiterate comments on the progress you're seeing with commercial payers? I believe prior auth is a hurdle. How are you thinking about ASP?

Lishan Aklog, CEO

The prior auth issue shows that there is a 18% denial rate for lack of prior authorization. We're focused on streamlining that process to access those denials. We're engaging commercial payers now with sufficient CV and CU data to initiate those conversations.

Dennis McGrath, CFO

Out of denied claims, about 54% were denied due to needing additional information or were considered not medically necessary, prior auth made up 18%, while 29% were deemed as noncovered.

Operator, Operator

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

Thank you for joining us today and for the great questions. I do have one additional comment about EsoCure because PAVmed recently indicated that it was reviving some projects, including EsoCure. I want to confirm that Lucid continues to have a fully exclusive license to commercialize that. Lucid remains the commercial entity that will commercialize it when able. We look forward to keeping you informed of our progress via news releases and calls like this one. Thank you, everybody, and have a great day.

Operator, Operator

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