PAVmed Inc. Q4 FY2021 Earnings Call

Greetings. Welcome to the PAVmed Inc. Business Update Conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. I'll now turn the conference over to Adrian Miller, Vice President of Investor Relations for PAVmed. Thank you. You may begin.

Thank you, operator. Good afternoon, everyone. This is Adrian Miller, Vice President of Investor Relations for PAVmed. Thank you for participating in today's business update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and Chief Executive Officer of PAVmed, along with Dennis McGrath, President and Chief Financial Officer of PAVmed. The press release announcing our business updates and financial results is available on PAVmed's website. Please take a moment to read the disclaimer about forward-looking statements in the press release. The 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 the statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the Securities and Exchange Commission. For a list and description of these and other important risks and uncertainties that may affect future operations, see Part 1, Item 1A entitled Risk Factors in PAVmed's most recent annual report on Form 10-K filed with the Securities and Exchange Commission and any subsequent updates filed in quarterly reports on Form 10-Q as well as subsequent Form 8-K filings. Except as required by law, PAVmed disclaims any intention or obligation 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. With that said, I'd like to turn the call over to Lishan Aklog. Dr. Aklog?

Thank you, Adrian, and good afternoon, everyone. Thank you for joining us on this PAVmed quarterly update call. As many of you know, we've decided to move forward holding a separate quarterly call focused entirely on Lucid, which was held yesterday. Of course, since Lucid remains a dominant part of PAVmed's business, we will continue to provide substantive Lucid updates during the PAVmed call. I am, however, looking forward to having some extra time during these calls to provide a bit more global overview of PAVmed and provide some more detail on other aspects of PAVmed's business. Happy to report that PAVmed and its subsidiaries are making excellent progress on all fronts and are laying a foundation for us to continue driving our long-term growth strategy and our mission to create a leading diversified medical technology company. Before proceeding, I'd like to thank our long-term shareholders for your ongoing support and commitment. Our combined team has grown to over 100 employees, and every day, every member of this team is singularly focused on growing the PAVmed enterprise while enhancing long-term shareholder value. I'll start by providing an overview of our business and then pass the baton over to Dennis, who will provide our financial update before opening it up to questions. First, some background on PAVmed and its mission. Typically, I would preface this introductory overview with a quote for those of you new to PAVmed or something along those lines. I do, however, think this overview of PAVmed today is equally relevant for those of you who have been part of the PAVmed family for a long time. PAVmed has substantially grown in headcount over the past several quarters. It has, in several important ways, fundamentally transformed itself and its business model, driven largely by the needs of its subsidiaries, Lucid and Veris. Our board and management have been engaged in a comprehensive strategic overview over the past few quarters heading into the Lucid IPO to more clearly define what PAVmed is today and lay a strategic plan for the coming years. So let me spend a bit of time reviewing this with you. PAVmed is a diversified commercial-stage medical technology company operating in the medical device diagnostics and digital health sectors; it is not, as I am often asked, merely an incubator or a holding company. Our mission is to utilize state-of-the-art technologies in the service of patients by providing innovative and disruptive products and solutions which significantly improve or save lives while enhancing healthcare quality, efficiency, and cost-effectiveness. Our vision is to build a growing and profitable diversified medical technology leader across all three major sectors. PAVmed's business model has evolved significantly in recent quarters to support Lucid and Veris and now operates as a central engine, providing a broad range of shared services to its subsidiaries and business units, as well as to its R&D team. This allows each of these to be laser-focused on the development, commercialization, and clinical evidence for its products. The subsidiaries and business units are managed and financed by PAVmed until a subsidiary reaches the commercial growth phase and can raise its own growth capital, as Lucid did this fall. We believe this centralization of shared services provides numerous benefits to facilitate value creation across the enterprise, including economies of scale, diversification, lower cost of capital, and much greater growth potential. The list of centralized services that PAVmed provides to the broader enterprise is long and has grown in recent years. It includes general administration, human resources and finance functions, product design and development, protection of intellectual property, regulatory affairs, and quality management, all of which operate at the patent level. We recently brought much of our critical clinical research operations in-house, effectively providing more efficient and less costly internal CRO support across the portfolio. We'll soon be bringing our own small to medium volume manufacturing online and are expanding our internal clinical and medical affairs support. These efforts represent the fundamental transition at PAVmed, from being technology-focused to commercially focused. During our early years, we were heavily outsourced and primarily focused on expanding our portfolio and advancing it through regulatory experiences. During the past couple of years, especially in 2021, we've undergone a major transition focused on expanding our internal human systems and physical infrastructure, laying the foundation for commercial success, as well as optimizing and rationalizing our portfolio. The infrastructure expansion has included expanding and strengthening our senior management team, securing our own R&D, manufacturing, and laboratory facilities, and adding our internal CRO data and analytics systems. We believe this transition is essentially complete. The expanded infrastructure is mostly in place, and we are now entirely focused on commercial expansion and execution, reimbursement, and revenue growth in the coming quarters and years. Although we'll continue to grow and strengthen our technology and expand our portfolio, we will do so with a greater focus on synergies with our existing commercial and pre-commercial portfolio and opportunities that have potential to be accretive in the near and medium term. The PAVmed enterprise today consists of two subsidiaries, Lucid Diagnostics and Veris Health, and two business units, CarpX and NextFlo, along with an R&D pipeline of products at various stages of development towards commercialization. Lucid is a NASDAQ-listed majority-owned subsidiary of PAVmed, and PAVmed owns approximately 76% of Lucid's outstanding shares. Veris is a privately held majority-owned subsidiary of PAVmed, and PAVmed owns approximately 81% of Veris' outstanding shares. Among the business units, CarpX is in early commercialization and NextFlo is targeted for commercial launch in the second half of this year. I'll now proceed with an update of the subsidiaries, business units, and R&D pipeline, starting with Lucid, which remains PAVmed's dominant business. My discussion of Lucid will be a distillation of my remarks during yesterday's call focused on commercial and laboratory operations. I would encourage you to read the transcript or listen to the recording of the Lucid call for details and feel free to contact Adrian to help with this if you need. Lucid Diagnostics is a commercial-stage cancer prevention diagnostics company focused on the millions of chronic heartburn patients at risk of developing esophageal cancer. We believe our EsoGuard methylated DNA assay and our EsoCheck cell collection device together constitute the first and only commercially available diagnostic test capable of serving as a widespread screening tool to detect esophageal precancer and prevent tragic esophageal cancer deaths each year. We're very encouraged by the progress Lucid is making with EsoGuard commercialization. We processed 303 commercial EsoGuard tests in the fourth quarter of 2021, representing approximately a 50% increase sequentially from the third quarter and a nearly 200% increase annually from the fourth quarter of 2020, and this growth has continued nicely in the new year. Although our commercial focus has been on targeting primary care physicians to send patients to our test centers for EsoGuard testing and gastroenterologists and foregut surgeons to set up their own EsoGuard programs, we are making encouraging strides across multiple non-GI specialties. We've also made steady progress engaging with large practices, academic medical centers, community hospitals, and integrated health systems. These sites are embracing the potential for EsoGuard to increase engagement with chronic heartburn patients and create downstream revenue opportunities. The pillar of Lucid's growth strategy is expanding our network of Lucid test centers. The test centers have very modest fixed costs and attractive margins, operating almost entirely as marginal variable cost businesses. The program has completed its first stage, having advanced from a pilot program in Phoenix to a regional program covering seven metropolitan areas in the Southwest and Pacific Northwest. We are now launching the next stage of the program with accelerated expansion in nine larger states across the nation. Our experience has validated the test center model as the key driver of EsoGuard testing volume. The pilot of our EsoGuard telemedicine program launched in December with a limited direct-to-consumer advertising program in Phoenix. It is off to a good start, and we are seeing a steady flow of self-referring patients. Lucid significantly expanded its sales infrastructure and operations during the fourth quarter in recent months. The team now consists of 22 sales professionals, including 10 sales reps. We expect the overall sales team to double in size and the number of scale reps to triple by the end of the calendar year. We've also made substantial progress in honing the sales process and sales training. The sales process has become entirely data and analytics driven, utilizing Salesforce and other sophisticated tools. Our sales training program has also become quite robust, combining an intense five-day educational course and extensive field training. On the laboratory operations side, last month, we announced that Lucid DX Labs, the wholly owned subsidiary of Lucid Diagnostics, had acquired the assets to operate its own new CLIA-certified CAP-accredited clinical laboratory in Lake Forest, California. Lucid DX Labs is now performing all EsoGuard testing at this new laboratory. This is a critical milestone, which markedly streamlines and simplifies numerous EsoGuard testing processes and provides us with a scalable infrastructure to accommodate long-term growth. In conjunction with us taking over the laboratory, we've been able to upgrade Lucid's revenue cycle management provider and are now in a position to start submitting Medicare claims using the effective $1,938 Medicare payment rate. On the Medicare coverage side, we continue to await a response to our submission to the MolDX program of the Medicare Administrative Contractor, Palmetto GBA, which has been slowed by the pandemic. We remain encouraged by the October 2021 Multi-Contract Advisory Committee, or CAC meeting, which covered EsoGuard, and we believe was a strong indication that a draft LCD should be forthcoming. On the private payer side, the laboratory has been submitting claims and has been receiving approximately $1,150 per test, representing approximately 60% out-of-network coverage of the full price submitted. We are just reaching the critical threshold of submitted and processed claims in certain locations, which will allow us to have meaningful conversations with select private payers regarding in-network payment and coverage. We're also collecting the critical clinical utility data that payers are seeking in these negotiations. Now let's move on to PAVmed's other majority-owned subsidiary, Veris Health. Veris was launched 10 months ago as our first foray into the dynamic and rapidly growing digital health sector. Anyone paying attention to the medical technology industry would agree that, even if we apply some discount for hyperbole, we are in the midst of a digital health revolution. This includes the digitalization of increasingly smart, connected medical devices for which the term Internet of Medical Things, or IoMT, has been coined. It also includes sophisticated FDA-regulated purely digital technologies referred to as Digital Therapeutics or DTx, as well as modern approaches to health information management systems. Some common features of these trends include an intense focus on data and analytics, including artificial intelligence and machine learning. We decided that our foray into this sector should land right at the intersection between traditional medical devices and health information management systems. Thus, in May of 2021, Veris acquired Onco Disk, a digital health company with groundbreaking tools to improve personalized cancer care. Veris is developing a remote cancer care platform that integrates an intelligent implantable vascular access port with physiologic sensing software, symptom reporting and telehealth functions, and advanced data analytics. Today's aggressive outpatient cancer treatments, including immunotherapy and chemotherapy, leave patients unmonitored and at risk of serious avoidable complications. The Veris Technology is designed to allow oncologists to detect early signs of common cancer-related complications, provide longitudinal trends of physiologic and clinical data, offer data-driven risk management tools for precision oncology, and incorporate additional prospects for substantial value creation through data monetization and biotherapeutic clinical trial support. The technology contains biologic sensors capable of generating continuous data on key physiologic parameters that are known to predict adverse outcomes in cancer patients undergoing treatment. Wireless communication to the patient's smartphone and its cloud-based digital healthcare platform will deliver actual real-time data to patients and physicians efficiently and effectively. The Veris business model is based on software as a subscription service, which leverages existing reimbursement codes from remote patient monitoring. Veris is advancing its mission on three fronts: software, device, and data with the help of a world-class technology advisory board consisting of Silicon Valley luminaries and a distinguished medical advisory board of oncologists from leading cancer centers and business practices. We're also working very closely with Microsoft as a member of its global partner program. As a global partner, PAVmed and Veris have committed to building its future software and data platforms within the Microsoft ecosystem, specifically on its Azure health data services platform. Let's cover each of these three areas at Veris one by one. On the software front, we're working with our outstanding development partner, Loca, to build three interconnected software elements. First, a patient smart file app designed to communicate with the intelligent implantable monitoring device and allow the patient to enter and track symptoms and other clinical data. The second is a cloud-based software platform to which the patient app uploads its data and provides the oncology team with its clinical data to facilitate patient care. The platform is designed to integrate with common electronic health records and to include sophisticated telemedicine features. The third platform is a smartphone app for the oncology team to engage with the cloud-based platform remotely. The software development platform is progressing extremely well, with functional alpha prototypes of the software being circulated internally for testing. We're on schedule for an initial commercial launch in the second half of this year. We're also in the final stages of hiring a chief commercial officer for Veris, who will immediately begin laying the groundwork for this launch. We're also making good progress on the smart device side. We successfully completed feasibility animal testing of multiple prototypes of an implantable device to measure the physiologic parameters of a first-generation device. We also completed an informative FDA pre-submission meeting, which has allowed us to develop a well-defined device pipeline strategy. The FDA indicated that the implantable vascular access port with integrated sensors would likely be designated as a new device category and therefore may require a longer to know about clearance process. Based on this feedback, we have split our pipeline development strategy into three phases. What we're referring to internally as Veris Solar combines the software platform with existing wearable and connected medical devices. This will allow us to launch the first commercial product this year and gain valuable initial real-world experience with the software platform while engaging with early adopters. What we're referring to as Veris Mercury adds our own implantable monitoring device. The device will include all of the first-generation biosensing features contemplated, but will be a separate device that will be implanted alongside a traditional port. By separating the device from the port, we expect to leverage existing implantable monitors as the predicate and proceed down the FDA's 510K path, with a target submission launch in 2023. The Veris Mercury standalone monitor will also be the foundation for future products beyond cancer care, such as heart failure or renal disease. Finally, Venus will offer the fully integrated intelligent vascular access port utilizing many of the same parts as Veris Mercury. We will seek to advance this product through the FDA's de novo pathway, but also believe that EU regulations for the integrated device will be less onerous and could allow a classic Europe-first strategy for the fully integrated intelligent vascular access port. Finally, a few words about our data and analytics work. We believe that, as with nearly all digital endeavors, Veris has the opportunity to create substantial value through data monetization. Our Veris Chief Technology Officer, Sunny Webb, has been tasked with building a world-class data team with expertise in data science, data engineering, and analytics, so that we have the infrastructure in place to do the data and analytics work once Veris is deployed and generating data. We hired our first lead data engineer this month. Now let's move on to CarpX. CarpX is our FDA 510K cleared minimally invasive device to treat carpal tunnel syndrome. CarpX continues with its limited commercial release, utilizing early adopter key opinion leaders. We have a very experienced commercial team leading this effort, including a director of sales, a clinical specialist, and a sales representative. The goal of this effort is to advance procedural and product improvements before full commercial launch. Eight new surgeons have been trained, and five more are scheduled for cadaver lab training. Seven CarpX procedures were performed in the fourth quarter of 2021. This effort resulted in improvements to the procedure and led us to decide to hold clinical cases to implement certain product improvements based on the experience of the surgeons. The first set of improvements have been made, including addressing a problem with one of the electrodes, which led to the need to fire the device more times than experienced previously. We will restart clinical cases in the second quarter. Subsequent product improvements are slated to be completed later this year, at which point we should be in a position to expand commercialization more broadly. Development of a next-generation CarpX device incorporating integrated ultrasound imaging is also progressing well, with the target FDA submission in 2023. NextFlo is a platform infusion technology. The first product incorporating it is the next slide set, which seeks to revolutionize care by eliminating the need for complex, expensive, and error-prone electronic infusion pumps for most of the one million infusions performed in this country each day. As we discussed during our last call, NextFlo has progressed, but two FDA submissions were delayed due to manufacturing issues related to a molded part. That issue has been corrected through a small redesign, and we are back on track to complete pre-DDV and proceed to final pre-submission testing. We are currently on schedule to submit and launch in the second half of this year. We have hired a VP of Sales for NextFlo who's working closely with the rest of the management team and Deloitte Consulting to lay out a foundation for the commercial launch, targeting inpatient, outpatient, and home infusion. Now a few comments on a couple of other key products in our R&D pipeline. As we recently announced, PortIO, our implantable intraosseous vascular access device, launched its first-in-human clinical study in Colombia, South America, with three successful implants. We believe PortIO, which does not require flushing, is the first maintenance-free long-term vascular access device. Although we remain engaged with the FDA regarding its requirements for a US IDE study, our success in Colombia has led us to expand PortIO's regulatory strategy. We intend to pursue a European study to support EUC mark clearance and provide additional human data for US approval. Our EsoCure device to endoscopically treat esophageal precancer is also progressing well. We completed another successful animal study, including head-to-head comparisons with the Medtronic Barr device. Feedback from key opinion leaders who participated in the animal studies and our busy esophageal ablator has been universally positive and very encouraging. So let me close my portion of these remarks with a few business development updates. As we disclosed on yesterday's Lucid call, PAVmed and Lucid have entered into two agreements this month. First, PAVmed and Lucid decided to enter into a formal intercompany license agreement whereby Lucid will have exclusive worldwide rights to commercialize EsoSecure, which is tightly aligned with EsoGuard and EsoCheck products. Second, PAVmed and Lucid entered into an agreement for Lucid to acquire the Catnostics assets, including EsoCap, under the same terms under which PAVmed acquired Catnostics in the fall. This is a non-endoscopic sponge-based esophageal cell collection device that has been used in pre-commercial clinical research of esophageal precancer biomarkers at major academic medical centers, including Mayo Clinic and Johns Hopkins. Finally, we continue to receive a steady inflow of business development opportunities and carefully assess each in terms of synergy with our current portfolio and the potential to be accretive in the near and medium terms. With that, I will hand the reins on to Dennis to provide an update on our finances before proceeding to questions.

Thanks, Lishan, and good afternoon, everyone. Our preliminary and summary financial results for the fourth quarter and the full year ended December 31, 2021, were reported in our press release published earlier this afternoon. We plan to file our annual report for PAVmed on Form 10K with the SEC in the coming days. At that time, it will be available at sec.gov and on our PAVmed website. As we outlined during Lucid's earnings call, as a rule, EsoGuard tests performed are recognized as GAAP revenue when cash is actually collected by the company. As previously mentioned, this will more than likely be true during the transition period of negotiating third-party private payer reimbursement contracts and related coverage. As reported to you last quarter for compliance purposes during this reimbursement transition period, we negotiated a term month-to-month fixed payment arrangement with a contract laboratory that was processing the EsoGuard assay and performing the insurance company billing and collections function. This commercial agreement became effective on August 1, 2021, and terminated concurrently with the opening of our own laboratory at the end of February 2022. We recognized $500,000 of revenue as part of this EsoGuard commercial agreement with Research DX. Now that we are operating our own laboratory following the February 2022 agreement where Lucid DX Labs Inc. purchased certain assets from Research DX Inc., Lucid will have the ability to directly invoice CMS as well as private payers. Future revenues will be recognized based upon actual collections until such time that coverage policies are in place with CMS and payment contracts with private payers. This obviously can result in the timing of revenues recognized or the time they are edited for third-party reimbursement until these future conditions are met. Consequently, it is our expectation that we will begin to recognize GAAP revenue related to our Lucid DX lab in the second quarter of this year, and it will be adjusted based upon actual collections received for tests submitted for reimbursement by the laboratory. The number of EsoGuard tests performed and submitted for payment are provided in the press release and were discussed earlier by Lishan. Obviously, we're in the early stages of our commercial launch, particularly with our test centers, and we will continue to evolve our reporting metrics as various sales and marketing efforts further influence adoption, particularly with our ramp-up of our Lucid test centers and our EsoGuard telemedicine program in cooperation with Upscript. Presently, there are now four banking analysts who have issued coverage on PAVmed, and others are doing their diligence as well. The 2022 revenue estimates provided by the analysts are achievable. The quantity and collections are highly dependent upon the evolving reimbursement landscape. As you're likely aware from our last corporate update, the local coverage decision, or LCD for CMS-related reimbursement has still not been published, but as Lishan previously described, we have reason to expect action soon. I'll provide some summary comments on PAVmed and then follow with similar comments about Lucid Diagnostics as a standalone company. PAVmed remains the controlling shareholder, holding approximately 75% of the voting interest in Lucid. Lucid's operating results will continue to be consolidated into PAVmed's financial results. The statement of operations will reflect line items showing the non-controlling interests or profits or losses to non-PAVmed shareholders of its majority-owned subsidiaries. There will also be a corresponding offset in the equity sections of the balance sheet for amounts attributable to the minority interest equity. The methodology is unchanged as a result of the IPO and will continue to be applicable as long as PAVmed remains the controlling shareholder. As mentioned, the revenue recognized, the $500,000, relates to EsoGuard for the year ended December 2021. Despite the negative gross profit for last year, which reflects the initial test center startup related costs at very moderate volumes, incremental gross margins can be around 90%, and contribution margins can be 60% to 65%. Regarding operating expenses, during yesterday's Lucid earnings call, we discussed the three components that make up Lucid's operating expenses, namely sales and marketing, general administrative, and research and development. Since Lucid's operating expenses represent approximately 50% of PAVmed's consolidated expense for the full year respectively, we'll summarize the operating expenses. For the year ended December 31, 2021, PAVmed's consolidated operating expenses were $54.3 million compared to $23.4 million during the same period in 2020, with 78% of the net increase attributable to compensation related to headcount increases, stock-based compensation from RSA grants to Lucid and PAVmed employees, consulting services, and development costs, particularly in clinical trial activities and outside professional services. There is a table in the PAVmed press release published today and the Lucid press release yesterday that adjusts each of these three components of operating expenses for the embedded non-cash stock-based compensation expense. Without the SBC, operating expenses for PAVmed and Lucid standalone were $39.3 million and $17.7 million for 2021 and 2020 respectively. PAVmed reported a net loss attributable to common stockholders of $17.3 million and $50.6 million, or a loss of $0.20 and $0.65 per common share for each of those periods. This compares to a loss of $8.8 million, or $0.14 and $34.6 million, or $0.73 in the same periods in 2020. The press release also provides a table entitled non-GAAP, which highlights these amounts along with interest expense and other non-cash charges, namely depreciation, stock based compensation, and financing-related costs, enabling a better understanding of the company's financial performance. You'll notice from the table that after adjusting the fourth quarter and the full year of 2021, the GAAP loss by approximately $4.6 million and $17.4 million respectively for non-cash charges, the company reported a non-GAAP adjusted loss for the fourth quarter and the full year 2021 of $12.7 million and $33.2 million respectively, or $0.15 and $0.43 per common share. PAVmed has consolidated cash of $77.3 million as of December 31, 2021, which compares to $17.3 million at the same time in 2020 and is debt-free. Thank you for your attention, operator. We can now open the call up for questions.

[Operator instructions] Our first question comes from the line of Ross Osborn with Cantor Fitzgerald. You may proceed with your question.

Hi everyone. Maybe we start off at the macro level with COVID. Did you guys see any different trends with regards to CarpX versus EsoGuard products that you discussed last night? And if so, how did this play out over the quarter and also year to date?

COVID has had no impact on CarpX at all. What we're experiencing, the pace and cadence of CarpX, as I described, is really based on getting surgeons trained and performing cadaver labs and having them perform clinical cases to help with our procedural and product development work, which has paid off. Because, as I mentioned, we are getting ready to launch clinical cases again after making the improvements that came out of that activity. So COVID has had no impact on that at all.

Okay, great. And then maybe could you just lay out how the company defines full commercial launch relative to the limited launch right now? And if you're able to quantify that, that'd be great.

Sure. Let me just redefine the limited launch. The limited launch, we'd like to get up to 15 to 20 surgeons who we're trained so we're doing cases and are fully engaged with providing feedback on procedural development and product improvement. But a full commercial launch will be just that, a full commercial launch. We'll expand our commercial team beyond adding sales reps at various locations and also use distributors to target hand surgeons across the country.

Okay. Thank you for the additional color. And then maybe switching PortIO, could you walk us through the different use cases between the ER inpatient and at home? And if there are any different dynamics there that we should be thinking about?

Are you referring to NextFlo or PortIO? Just want to make sure.

PortIO.

PortIO is really designed to be a long-term vascular access device that can provide patients who require such devices with access over weeks and months for various medications like antibiotics that have to be delivered over time. So it's really on an outpatient basis. We don't expect this to be of much use on an inpatient basis where access is really limited to days or a week or two. The target populations include patients who have poor veins as a result of repeated access or other hardware in their vein system, like pacemaker leads and long-term catheters who need long-term access but have poor veins. This device is also perfect for renal failure patients who need to protect their veins for future dialysis. They frequently require procedures and having a long-term access device that doesn't require any maintenance or flushing to utilize allows clinicians to protect their veins, which is very attractive. So those are the two primary target populations, and these would be implanted for long-term use over weeks and months.

Okay, got it. And then last one for me. Could you help us think about OpEx spend this year specifically for PAVmed? I realize Lucid will still take the majority of it, but just any clarity there would be helpful as we're thinking about the rest of the year.

I'm sorry. I was on mute. On a consolidated basis, as we go through the year, the areas where OpEx will continue to increase are on the clinical trial side, which we categorize in our engineering and R&D areas. As the Lucid landscape for reimbursement continues to evolve, you will see some increased spend on patient adoption and education through various means, including continuing to expand, which is now limited only to a pilot program in Phoenix, our direct advertising campaign. These are pretty variable expenses and will increase significantly once reimbursements are fully in place. So what you've seen in the fourth quarter, excluding the stock-based compensation—that is, the non-cash charges—will continue to steadily increase over the course of the year.

Our next question comes from the line of Frank Takkinen with Lake Street Capital Markets. You may proceed with your question.

Hey, thanks for taking my questions, guys. A couple for me. I wanted to start with one a little bit more specific to the Lucid DX lab now. Can you talk about the transition process? I understand that happened at the end of February. Just curious if there's any disruption from when the contract dollars were coming in from the previous owner of the lab to when you may start to see cash come in the door on a cash collection basis?

Yeah, thanks, Frank. I'll let Dennis answer that question, but just at a high level, the way we designed this transaction and this process was to be seamless as it relates to the actual operation of the laboratory and the processing of EsoGuard tests. We were able to get the CAP accreditation and transfer the laboratory functions to the new facility without really missing a beat with all the testing performed at the new laboratory. As it relates to filing claims and processing claims, I did mention that we can now control that process completely internally because we can follow the billing and collections, and we've been able to upgrade our revenue cycle management provider as well. So, as it relates to the flow during the transition, Dennis, take over that part of the question.

So Frank, through the February 25th transaction, we had continued the commercial agreement, and from our comments, it was about $100,000 a month. So the month of launch may be a little bit of a transition, but through the second quarter, we're expecting to recognize our own GAAP revenue. It will be somewhat variable. We will be filing claims with CMS and with the private payers based on the experience we have seen at Research DX—the level private payers are paying at out-of-network rates, which is encouraging, in that even though the dollar amount, which Lishan reported was over $1,100, to be exact $1,150, they're benchmarking it off the list price that CMS has established just under $2,000. We will also be billing CMS. We have not received any payments under the CMS as the LCD is still pending. We will be able to collect on past CMS or Medicare patients once that LCD is in place, technically we should be able to now, but they aren't spent until we believe that LCD gets published. So the collection side will be a bit more variable than the systematic revenue we've recognized in the last August simply because the amount we will bill will be $1,938. The amount we collect, until those payer contracts are in place, will be somewhat variable. The timing of such we will not be able to record revenue when we invoice, at least for the early part of this transition period. That transition period will last until it becomes highly probable the GAAP rules use that term, they use that term. The amount you invoice will be the amount you collect, and that will take some experience to establish that standard. That's probably a 12-month to 18-month period of time in total. This is not unique to us; many other companies with new codes like this and a new reimbursement landscape have gone through the same exact recognition period. So it's a really short window in terms of the transition. As Lishan indicated, a lot of that was bolstered by the fact that the agreement included a negotiated management services agreement, where much of the personnel that were performing the activities prior are performing the activities for us now, and that management services agreement is in place for up to 36 months. But at our discretion, we can continue to add our own staff in replacement of staff from Research DX. So that over time it will be entirely our own personnel and drive efficiency of our costs.

Got it. Okay, very helpful. I wanted to shift over to Veris and ask one a little bit more specifically about that platform. I was just hoping you guys could simplify it a little bit more for us on the software platform side. I was under the impression the port and the platform are married in a way that they run best together, but it feels like the platform's going first and then the port is going to come afterward. Just help us understand the business model. And if we can see any revenue recognition in the call, in the 6, 12, or 18-month timeframe, or we're waiting for the port until we start to see that.

Yeah, so you got that correct. What we've done is we've basically taken the pipeline and taken the long-term vision of having the port fully integrated with all the sensors, that right now looks like it's going to be in de novo, although we think we can get them into Europe earlier. By doing it in steps along the way, the initial launch of the software platform with wearables and connected devices, connected blood pressure cups, connected probes, connected scales, and so forth, ultimately you're going to have to be part of the overall care platform over both platforms. This allows us to launch the commercial launch, commercially, and within the same business model as the final version of this platform will be contending. We decided that we didn't want to delay the launch of the software platform if the timeline through the FDA was extended because of the de novo pathway, and this allows us to do that. The intermediate step, where we have a separate implantable monitoring device implanted alongside a port at the same time, is an intermediate step we think will have a much more straightforward 510K path and allow us to have the actual integration of the physiologic parameters communicating with the platform in real time. So, hopefully that’s a little bit clearer than how I described it earlier.

Okay, yep. That's helpful. And I just wanted to finish up with one big picture one, and it's maybe more subjective today, but was hoping you could just help us rank the different opportunities. I know it's not a—there's no quote, unquote, less favorable or less loved child in the portfolio. But if you could...

You took the words out of my mouth. It's like asking which is your favorite kid. Look, I'll try. Okay. I think clearly the Lucid opportunity certainly on paper has the largest market opportunity at $25 billion, with the largest target population and so forth. So it's hard not to argue that that remains far and away the largest commercial opportunity. And it's obviously the one that's driving this forward. Amongst Veris, CarpX, and NextFlo, it's a tough call. If we can really develop the data aspects of Veris and generate the opportunity to monetize data, like some other wildly successful digital health companies have done, I think that certainly could be in a similar ballpark to Veris and NextFlo and CarpX, which are quite different. CarpX is a kind of traditional surgical interventional device that takes time to get physicians to adopt and has more of a steady growth opportunity. It is a large target market with 600,000 patients every year undergoing carpal tunnel surgery. We think we have an opportunity, particularly with the next-generation version of this that has ultrasonic imaging built-in, to be the default treatment for those patients. So that is a large opportunity as well, but I think it’s not quite what the ultimate potential of Lucid and Veris would be. Finally, NextFlo is a bit of a ringer in there because there are a million infusions a day, and NextFlo in many ways may be the most disruptive technology, if it performs as like we expected, where 80% or so, according to our Deloitte analysis of those million infusions a day that are performed with electronic infusion pumps could transition over time to our technology. It is a very, but it's a very different type of commercial launch. It's very much the hospital system driven. That's where our focus is and our workings with Joel Sparks, as our new VP of sales, working extensively with Deloitte on mapping out how to target both inpatient facilities, outpatient facilities, and dual suites, as well as the increasing effort to move care into the home. So there's a big opportunity there, but it's a different commercial pathway to get there. There are some hurdles along the way, which include sort of the entrenched infrastructure around electronic infusion pumps. But I think long term it's a very big opportunity, so hopefully that's helpful.

Yeah, absolutely. Thanks for taking my question. I'll stop there. Congrats on all the progress.

Thanks, Frank. All right, next question comes from the line of Anthony Vendetti with Maxim Group. You may proceed with your question.

Hello, Anthony. Thanks. Hey, hey, Dennis. Hey, Lishan. How are you? Great. So I just want to get a little better handle on the Lucid test center. So once you identify a site for the center, how long does it take to get it up and running and start being able to perform the tasks?

Right. So the answer is actually not very long. The pace to get to that point, what you just described, so identifying a city that we're going to target, identifying a physical location, leasing that office space, hiring a nurse practitioner, and a medical assistant can be weeks to a month or so. But getting that, remember, that test center is really there to receive patients that are being referred primarily from primary care physicians. The activity at that center is going to be driven as much by the time it takes to have good sales representatives coverage in that area. In the cities that we've launched so far, we've tried to get two sales reps per city, per test center to drive cases to the test centers. That takes longer; getting hiring a sales rep who has good experience calling on primary care physicians takes some time. Getting them trained, both in the field and on the didactic coursework takes some time, and getting them to actually generate referrals from their primary care contacts can take some time. Historically, in MedTech, I think it can be 9 to 12 months before a rep really operates at peak efficiency. We have found that to be quite a bit shorter than that, more like on the order of four months. One thing that will be different with this next stage, where we're targeting these nine larger states and identifying one metropolitan area in each state to open our first test center, is that several of these states already have Lucid sales personnel. Their market development managers and sales reps who are calling on large primary care and family practices that are performing the procedure themselves without Lucid test metrics. There will be some shortening of the time before we start seeing cases at these test centers, because, in several cases, for example, California and Ohio, we already have boots on the ground. Those folks are begging for us to set up test centers in their locations, because they know it can really help them drive testing volume significantly.

Okay. So it could, if it from scratch, it could take nine to 12 months just because identifying the site and getting that up and running is one thing, but getting the field reps to generate referrals. But you're saying so far, you're seeing it doesn't take as long as nine to 12 months in your case.

No, no. Yeah. I mean, we had our first rep in September in Phoenix. We have two reps now in Phoenix, that was in September, and that rep was generating patient referring private care referrals at a decent clip, several months later. His counterpart, the second rep is also contributing with a shorter period of time. So, yeah, I don't mean to suggest it will stretch out to nine to 12 months, but the time we actually launched until we're generating referrals and tests at those centers is probably on the order of several months, let's just say that.

And just remind me on the expansion plans, how many test centers ideally would you like to have open by the end of this year?

Yeah, so we'd like to open a minimum of 9, perhaps more. Our first target is to get 9 open starting in these 9 new states. We're really broadening our geography and expanding to larger states with more complex laboratory regulations, which we're going to dive headfirst into. After we have one site within each state, remember this goes back to your question about what you just said about the sales reps. If we have a sales rep in North Carolina and we open our first center in Charlotte, that'll give us the opportunity to open additional centers since that rep will cover the entire state and additional centers in other cities within that rep geography. So, the amount of effort it takes to add other centers will not be that great within a certain geography.

Yeah. My question is on what is your cost to open up these test centers? Is it very minimal?

So the— I'll let Dennis answer with a bit more granularity, but the fixed costs, as we've noted, for these test centers is actually quite minimal. We often get people asking us about, well, that's a big capital cost, and it's bricks and mortar and so forth. There is some cost; we have to set up a lease, but these medical office suites are not that expensive on a monthly basis, even in more expensive areas. And then hiring a nurse practitioner and a medical assistant, and the overall economics of the operation of a test center is almost entirely variable. The fixed costs can be covered by two reimbursed procedures a week while the team could perform 20 a day. Dennis, did you want to add anything more specific around the fixed costs?

Yeah. Maybe just get a little more granular. As Lishan said, less than two treatments or tests a week. The way we get there is a nurse practitioner or at least these test centers are presently staffed with a nurse practitioner and a medical assistant, and their salaries combined with the lease cost—generally in the $1,000 to $2,000 range per month, are not very costly sticks and bricks. When you add that cost up, it's about $40,000 to $45,000 a quarter, and a nurse practitioner can do without breaking a sweat 20 tests a day in an eight-hour day. You are aware the tests are just under $2,000. So you simplify the math: 20 times $2,000 a day is $40,000 a day, and we know our costs are embedded in each quarter. So when you break that down, it's 1.7 tests per week to break even. As Lishan said, it really is a marginal business, and we open them up rather quickly without a significant fixed cost burden. The other piece is finding the right salespeople with the right relationships that can speed adoption and drive that test count up on a daily basis.

Well, I don't think we have enough yet. You're like-- I'm just kidding. I think we have a pretty robust pipeline now with the goal being to get NextFlo and the initial Veris software platform with connected devices launched this year. Our goal for next year is to launch Esecure and subsequent generations of NextFlo and Veris. PortIO, it’s a little hard to say. I think we could get PortIO in Europe next year, but as I've described, we've had significant challenges with regard to US FDA pathways. There are some products in our portfolio that are still in the early R&D phases that I can't fully predict will be heading into the pipeline next year. But we also have constant active discussions for business opportunities to bring in new technologies into our pipeline. As I mentioned, the way we look at those has changed over recent quarters and the past year or so, where we're more focused on viewing anything that can sit in the space. We are focused on expanding our portfolio within technologies that are synergistic with our current commercial or pre-commercial products and that we can at least map out as being accretive in the near- to medium-term. You can stay tuned on that—there's a lot going on in that space, and we'll let you know if we end up consummating those. We have a pretty good record of bringing in technologies from the outside over the last couple of years.

At this time, we have reached the end of the question-and-answer session, and I will turn the call back over to Lishan for any closing remarks.

Great. Hey, thank you all for joining us today. Again, another day of really great questions, so I appreciate that as always. We look forward to keeping you abreast of our progress via news releases and via periodic quarterly calls such as this one. The best way to keep up with news is to sign up for our email alerts on our investor relations website and to follow us on social media. You're also welcome to contact Adrian with any questions. Thank you, everybody. Thanks so much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.