Canaccord Genuity Growth Conference. I'm Kyle Mixon. I cover Lifestyle and Sewells and Diagnostics for Canaccord. Please welcome you to a fireside chat with Lucid Diagnostics. The company offers the first of its kind diagnostic test for a pre-cancer to estival genital cancer called Baird Esophagus. From the company, we have Lee Sean Eklag, CEO. Thanks, Lee Sean, for joining us today. Thanks for having me. So maybe just for investors who aren't as familiar with the story, could you just kind of quickly give a brief overview of the company and how your platform kind of fits the overall diagnostic landscape?

Yeah, great. So thanks again. Great to be here. Thank you all for joining. So Lucid Diagnostics is a cancer prevention company. We're in the esophageal cancer space. Esophageal cancer is a very deadly cancer. It's the second most deadly cancer, highly lethal. It's essentially a death sentence with about an 80% mortality rate. The only way to actually prevent cancer deaths is to actually detect the pre-cancerous condition. conditions, a condition, as Kyle mentioned, called Barrett's esophagus. When you do that, you can actually do surveillance and treat the late precancerous conditions and actually prevent cancer. So Lucid has a test called ESOGARD. It's a noninvasive electrodiagnostic test, an NGS test that is performed on a sample collected in about a 45-second procedure that can be done in an office setting. That test has been, has extensive clinical evidence base that demonstrates very high negative predictive value at ruling out the precancerous conditions as well as cancer. And it is utilized as a triage test in a well-defined population who are at risk of having this precancerous condition. And it, as part of a broader program, serves as an early detection program that can prevent esophageal cancer.

Excellent. Maybe just quickly, like the standard of care today, what's the current paradigm to do this type of, you know?

So what's great about this and why this has been a great opportunity from the beginning is that the entire paradigm has actually been well-established prior to the introduction of this technology. So the target population has been well-defined. As I mentioned, the algorithms for surveillance and for treatment of pre-cancer, all of that had been very well-established. the standard of care was upper endoscopy. And the limitation at that time over the last couple of decades, and the reason why this cancer is still exacts a heavy burden, is that compliance with upper endoscopy, which is established in guidelines, is extremely poor. It's less than 10%, probably closer to zero, actually. And so that's where we fit in. That was the one missing link. And so as an alternative to standard of care that's underutilized upper endoscopy, we offer this molecular diagnostic test in a non-invasive setting that fills in that final gap.

Gotcha. Okay. What about the other ways to manage this kind of area of disease, like PPIs, part of it?

Yeah. So there's really no other effective way to reverse this precancerous condition, Barrett's esophagus. There is some evidence that PPIs, you know, Nexium, proton pump inhibitors that can be obtained over the counter, that lower acid have some effect at slowing the progression, but they certainly don't eliminate it, and they don't eliminate the risk of developing later stage pre-cancer dysplasia as well as cancer. So the only opportunity really to prevent this cancer is to identify these patients in the pre-cancerous stage and to do surveillance and do treatment before they develop cancer. As you just know, one of the things in our clinical evidence that is unique, it's very hard. It's not very common to have molecular tests that can detect precancerous conditions, particularly early precancerous conditions, at that high level of performance, 99% predictive value. You can detect advanced adenomas at sort of 50% sensitivity and levels like that, but it actually is quite unprecedented to be able to detect this early precancerous condition using an electric test.

Awesome. Now to maybe like the results and the performance, your ability to kind of like, you know, drive adoption of this test. So, you know, you report your 2Q results, I think, on Thursday. But like, you know, your first quarter results and your, it's been pretty consistent in terms of like the volume. You've been kind of like throttling the volume until you get Medicare coverage, which we'll totally get to later. But like, what has been the strategy, I guess, to maintain test volume at maybe, you know, $2,000 to $3,000 a quarter, basically? What's the sales team doing right now if you have a material team?

Yeah, so the way we decided to approach this, knowing full well that the path to reimbursement in this space is that can be difficult and prolonged, was that we decided to proceed with building a commercial team, but at a very sort of established, like you said, a fixed kind of low-throttle level where we can begin engaging with commercial payers, generating test volume. You've done about 60,000 tests to date and targeting about 2,500 to 3,000 tests per quarter. What you're hinting at is that our early efforts in this, in order to generate volume and to have enough commercial activity that we could engage with commercial payers, we utilized a strategy that was focused on health fairs, testing events, particularly with fire departments and others, which gave us the ability with a relatively limited sales force to generate that steady volume that we've been seeking. As time has come on and as we believe we're sort of have near-term reimbursement milestones, we have made some changes to that, and we're slowly shifting our, while trying to maintain that level of volume, shifting the approach towards more traditional physician engagements so that we're prepared once we get Medicare coverage.

Gotcha. Okay. And now on to the coverage stuff. So first recently, this is very interesting, you announced that CONCERT, this organization, this entity, has kind of granted coverage. What exactly does that announcement really mean for you and how material could that be?

So, you know, in the diagnostic space, because the assessment and writing of coverage policies can be technically complicated, there are these entities that are often referred to as laboratory benefit managers, sort of analogous to pharmacy benefit managers on the pharma side, and Concert is one of those. And what they do is they sort of concentrate technical expertise to review technologies and to write coverage policies on behalf of their client plans. So Concert has a number of client plans underneath them. I think they cover about 9 million lives total amongst them. And so we often have to go to the laboratory benefit managers. We also engage with the individual plans. But the most efficient way to get commercial coverage, particularly with regional plans, is to engage with these laboratory benefit managers. So CONCERT did issue, and we announced last week, a positive coverage policy for ESAGARD based on established criteria, screening criteria, based on guidelines. Three of their plans have adopted that policy and have publicly posted those, and we know that there's several more along the way.

Got it. And then similarly, I think Sigma and United recently had some endoscopy policies that included E-Sigard as a like a triage tool, basically. Why is that?

So what's interesting is that, you know, we have the molecular diagnostic side of this, which typically goes through laboratory benefit managers, but our test is also intimately linked to the endoscopy procedure, right? It's a triage test for upper endoscopy. And we've been excited that, you know, obviously two of the larger plans, United and Cigna, have on their own accord published guidelines, not about the molecular test, but about guidelines for endoscopy, for upper endoscopy, that explicitly noted that a positive ESOGuard test was an appropriate indication for an endoscopy. And so we're utilizing that finding and engage with those larger payers, and we'll be seeking out contracting with them.

Got it. And then on the VA kind of partnership there, maybe just walk through what that was, but also if that's driving any volume or any collections, I guess.

Yeah. So the VA is a really important line of business for us right now. The VA issued, the national VA issued ESAGARD on the federal supply schedule, the FSS. We were fortunate that that occurred at the Medicare rate. We have a very solid Medicare rate at $1,900. And we've been working to now engage with VA centers. There are obviously hundreds of VA centers across the country. Being on the FSS gives us the opportunity to engage with individual centers, and we're doing so. So we have a very robust pipeline with dozens of VA centers. We're starting to secure plans. The process of doing that does take a bit of time, and it is somewhat subject to the federal budget schedule. So since we're now on the FSS, we have the opportunity for our sales teams to enter to try to identify physician champions and get clinician engagement, which has been excellent. We really had no pushback across the country with the clinicians. and then you have to get contracted with individual centers, and that's starting to come along. So we do expect in the coming quarters to start seeing revenue directly from that activity as contracts start coming in. I mentioned the federal budget cycle. That starts October 1st, and so a big push right now is to get onto the next fiscal years with contracts into the next fiscal year, and that will really start paying dividends.

Yeah. Yeah, do you think that the payment rates, really out of all these kind of one-off plans and like Concert and United and stuff, and then VA, would the rate be similar to your The VA is the same, yeah.

So the VA is a national payment. So we're on the FSS at the Medicare rate. So that's solid. With individual commercial plans, you do negotiate individually on a contracted basis, and it depends a little bit on their size and the impact they can have, although we really expect to be quite protective of our Medicare rate, even in our commercial engagements.

Now, any of these, like, technically non-Medicare coverage policies and plans and payers and stuff, would that maybe help impact CMS's decision to kind of include you guys?

No, we don't. I mean, I think it's a—let me just say this. There's no direct connection between the two. It's an indication, clearly, that the clinical evidence is well-established. It's solid. Guidelines, you know, it's really a reflection of that. And we felt confident about that with regard to Medicare all along. We can ultimately talk a little bit about why we feel confident with regard to that. But there's no direct connection between the two. The commercial side doesn't particularly influence the Medicare side.

And then on the first quarter call, you were talking about your first LVM. Was that concert? That was concerted, yeah. We just couldn't announce it at the time. So on the LCD with Medicare, so it's been like a multi-year saga. I even remember the rate you got, what, 2020, the payment rate? Oh, well, let's see.

We got the payment rate in 21.

It became official in 21.

It was announced in 2020.

And you were, yeah, but you weren't quite getting, you know, paid on it, I suppose. You obviously needed, like, you know, like, reversing coverage. So that's where we're at now. You didn't, there's an LCD that's a policy made, but you're not really, like, you know, included in there. You had the, there was a CAC meeting in September.

So, yeah, let's summarize all things. So this is, as you mentioned, this has been quite a marathon starting in 2020. The point there at that point when we first engaged with Molde-X and the processes, we didn't have our full body of evidence at the time. And Medicare was willing to engage with us based on the promise of the technology and the opportunity. So they wrote a coverage policy well before we had sufficient data. Really, the clock really starts in 2024 when we had our full clinical evidence package. We entered into a pre-submission meeting. we had clinical utility, clinical validity, a really solid package that I had mentioned earlier that checked all the boxes. And at that point in 2024, there was this coverage policy, but we were not covered because we were not, we didn't have the date at the time that policy went through as a final policy. But it very well outlined what we would want in a coverage policy with regard to the criteria of patients who qualify for payment. So the clock really started ticking in the fall early winter of 2024 in November when we submitted a request for reconsideration, which is basically saying, now we have all this data, let's take this local coverage determination and we would like to be covered under this local coverage determination based on the totality of the evidence. That request for reconsideration was reviewed, and in September of last year, a CAC meeting was held. The CAC meeting is a meeting of key experts, physicians, as well as physicians from the community to discuss and answer questions from the MoldiX group on the technology. That CAC meeting was in September of last year. Eleven physicians participated, including all the major folks in the field, the writers of the guidelines and other prominent people in the field. And it went extremely well. The 17 questions that were asked covered the full range of the technology. And there was widespread consensus amongst the physicians that IssaGard had sufficient evidence to serve in its role as a triage test to prevent, to identify these precancerous conditions. The hope and expectation at that point after that meeting was that things would move quickly. And obviously they've been, they've dragged on. We've had quite a bit of ongoing engagement with MULDX during that period of time. And really feel confident that the data is the data. The evidence is there. The CAC meeting is there. The fact that this has taken longer to convert that CAC meeting into a draft policy is really a reflective of just sort of a logjam and bureaucratic obstacles, both at Moldyx and at CMS. So we're waiting. It's been longer than we had expected, but we're waiting. There is some sense that things may be clearing up. So as you probably know, Kyle, there have been a couple of LCDs that have been processed. The ones that we expected would kind of be at the top of the list over the last few weeks. And so there's generally a sense that things are loosening up and some of the backlog that has built up over the last year is starting to clear out. So we have obviously hope and expect that we're, you know, we'd be towards the top of that list.

Yeah, it usually takes a year for these, like for example, for a draft LCD to be finalized or like all these sorts of, I feel like a year is a good period of time, so we'll see what happens. But, yeah, I mean, let's say you get coverage tomorrow or something. What can you do? How much, like, you know, booked kind of space are you built for?

Just to be clear that what we're waiting for is the draft LCD that takes the previous final LCD and flips it from a non-coverage LCD to a coverage LCD. That's a draft. We expect that's the milestone, that basically saying that they expect to cover us. There are some steps along the way. A draft has to go through a comment period and to a final, ultimately, before you actually start getting paid. But really, the gun for us kind of goes off once the draft is published. I think, as you know, Kyle, we've been preparing for that over the last few quarters. We've been making some tweaks to our commercial team, increasing the seniority of the team, so that when we have the opportunity to put our foot on the gas, we're able to scale the commercial team appropriately. And we've been moving from, as you know, what you started with, our earlier approach to the commercial side has been heavily focused on these health fairs and fire department events. We're shifting that now increasingly to the VA as well as to increasing or making an effort to increase the proportion of our patients that are Medicare. The proportion of the whole target population that's Medicare is about 50 percent. And so, you know, we've really made no particular effort to cover that, to get to those levels prior. And that's going well. So those are the preparatory steps. Once we have the draft, we'll start pushing harder on that to continue to drive that business. And ultimately, there's a one-year look back. So from the time we get a final, we'll be able to submit claims for a year looking back.

Didn't you have like a roughly maybe $10 million backlog? No, it wasn't quite that.

It's in the several-million-dollar range, yeah.

Yeah, by single-deasers. All right. Sounds good. But, yeah, I guess, you know, is there – I mean, like, do you have enough kind of capital to – Yeah, so we've obviously had to raise capital to extend our runway as things have pushed forward.

We've been able to do that. We've had good, strong support from existing investors who have continued to support us along the way. And, you know, we can do the math. We'll probably need to continue to extend our runway if this drags on.

Yeah, all right. Well, I guess I was saying more like, you know, if you get this draft and then the final and all that, then you'll definitely need much more investment. Yeah, I apologize.

Yeah, no, certainly once we get coverage and we have a clear path and clear trajectory and a clear opportunity to put our foot on the gas, then certainly there'll be an opportunity to raise growth capital and to really expand our team and expand our push in the commercial space.

So since, you know, reimbursement coverage seems, like, pretty imminent, what are the next, like, what does Lucid look like in 2027, for example? Do you focus on maybe, like, adjacent use cases or channels or something?

Yeah, I think, because one area that we haven't talked about briefly is our push into health systems, you know, because you know the lead times on that are long, and we've been pushing hard on health systems. That includes a lot of work at the EHR integration program building and so forth. And that activity is really picking up and will ultimately benefit from Medicare coverage. So, translating the work that we've put into these health systems into volume and into revenue will obviously be triggered by Medicare, but the groundwork is being laid for that. So, assuming that we do are in a position where we have Medicare coverage and we're starting to make progress on the commercial side, I see us pushing hard at the VA, continuing to push on the commercial side to expand the—because many commercial payers are waiting for Medicare. So, once we have Medicare, that'll help. And then on the health system side as well. And I think it's a multi-pronged approach to, you know, start really accelerating our attack on this very, very large, totally addressable market.

Yeah. And what gives you confidence that the volume can actually really expand meaningfully from the 3,000? Yeah.

The confidence comes from two things. One is just the sort of our understanding, obviously, of the target population and what we're dealing with with regard to that. There are 30 million patients under the most conservative estimates that are recommended for testing based on existing guidelines. So that's a very large target population that's established. It's also based on our experience. We've been at this now. That's one of the advantages of our strategies. We have a ton of experience, over tens of thousands, you know, 50,000, 60,000 tests. And so we're engaged with, you know, hundreds of physicians, both GIs and surgeons as well as primary care physicians. So we know that there's an appetite for this, that the willingness of physicians to adopt this technology as a way to identify this precancerous condition. Physicians are very attuned to early detection programs more broadly, and we really fit nicely within that slot. So both a combination of our experience on the ground over the years and just the actual identifiable target population based on guidelines really give us a lot of confidence. um any any kind of you know pushback from patients to yeah patients have been been been uh um uh really not at all we have published uh data and have more data coming with that's in um like adherence yeah in terms of compliance yeah so the compliance it's about 95 percent of patients are able to swallow the cell collection device about five percent have trouble swallowing pills. Patient satisfaction scores are very high. Patient satisfaction relative to the alternative endoscopy is very high. And so, yeah, patients are really not an obstacle. And by the way, one other aspect of this is patients like having the opportunity to have a non-invasive test as an alternative to an endoscopy. And that's demonstrated by the fact that when patients have a positive ESAGAR test, the compliance to get the follow-up endoscopy is extremely high. It's 85 percent plus. One thing I forgot to mention, another area of focus that will be a big part of 2027. I think, as you know, on the commercial side, health care economics is really important. So Medicare doesn't take the economics into consideration, but the commercial payers certainly do. And we're in the process of putting the final touches on a very sophisticated HEOR model, health care economics and outcomes research model, that looks very promising with regard to our ability to demonstrate the cost-effectiveness of ESAGARD from a long-term perspective, and that'll be important for us to accelerate our commercial payer engagements as well.

Yeah, okay. In terms of the, you know, I guess the blood-based tests, is there any, like, I like the, you know, there's no real risk because it's hard. There's no, like, you know, the esophagus doesn't really shed cancer cells into the bloodstream that easily, right? So it's kind of...

So I think that's been an important risk mitigator for us from the very beginning, that for two reasons. One, there isn't much shedding from the esophagus into the blood. The blood-based tests that actually look for esophageal cancer, they're generally not. The multi-cancer tests have generally not done well on esophageal cancer. But more importantly, we're not here to detect esophageal cancer, because if you have stage one esophageal cancer, you have a 50% mortality. We're here to detect pre-cancer, and particularly the early pre-cancer. And the biologic changes in early pre-cancer just don't show up in the blood. These are very subtle epigenetic changes. They're methylation changes. These are not the typical genomic changes that you would see in circulating tumor DNA or RNA.

Got it. Yeah, exactly. So the TAM is about, do you think it's still like in the 60?

Well, you could do the math. So the 30 million patients, I'll reiterate again, is not just a pie-in-the-sky number. It's based on if you're over 50 and you have two of the six risk factors, two of the five additional risk factors based on established guidelines, there are 30 million people who have that. So our test is just under $2,000. You can do the math. That's a very large term. So for us to generate, I guess the way I would view that is for us to generate really substantial, meaningful revenue, we would only have to penetrate very, very small amounts, you know, low to mid-single digits. to generate meaningful revenue once we have the opportunity, once we have the reimbursement in hand.

And are you interested in international at all? Because that was, you know.

We've looked at it. We've been open to conversations from third parties, you know, distributors and other companies in Europe and South America and Canada, but we haven't pulled the trigger on any of those. We're really focusing our own team efforts on the U.S. for now. I think molecular diagnostics will struggle a little bit in other countries as well, just in terms of the healthcare system dynamics.

All right. In terms of just priorities kind of going forward and excluding the LCD, let's assume that you kind of get that maybe at the end of the year. What are the top three or four priorities?

Our priorities are really establishing the – it's really on the commercial side. It's on the commercial payers and really continuing to build on the momentum that we got from concert and going out with other LBMs as well as additional commercial plans. It's the VA. It's engagement with health systems. All of those lay the groundwork so that once we have Medicare, we can really put our foot in the gas.

And do you still feel like you can do, like, an 80% gross margin? Say that again? 80% gross margin with the test? Do you think that's still possible? Gross margin? At scale, yeah.

Our cost, we've talked about the cost of performing the test. If you take the cost of the cell collection device, manufacturing that, and the cost of performing the test at our current volumes, it's under $200. And we can get that down to probably the low hundreds at scale with automation and other things that we can do in the lab.

Sounds good. Thanks, Luchan, for joining us.