Lucid Diagnostics Inc. (LUCD) Q3 FY2025 Earnings Call Transcript & Summary

Good morning, and welcome to the Lucid Diagnostics Third Quarter 2025 Business Update Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Matt Riley, Director, Investor Relations. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thank you for participating in today's business update call. Joining me today on the call are: Dr. Lishan Aklog, Chairman and CEO of Lucid Diagnostics; along with Dennis McGrath, CFO. The press release announcing our business update and financial results is available on Lucid's website. Please take a moment to read the disclaimers about forward-looking statements in the press release. The business update press release and the conference call all include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the SEC. For a list and description of these and other important risks and uncertainties that may affect future operations, see Part 1, Item 1A entitled Risk Factors in Lucid's most recent annual report on Form 10-K filed with the SEC and any subsequent updates filed in quarterly reports on Forms 10-Q and subsequent Forms 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 would now like to turn the call over to Dr. Lishan Aklog, Chairman and CEO of Lucid.

Thank you, Matt, and good morning, everyone. Thank you for joining our quarterly update call today. As always, I'd like to thank our long-term shareholders for your ongoing support and commitment. Our team is extremely excited and remains singularly focused on driving this enterprise towards its substantial commercial potential and to enhance our long-term shareholder value. . Since our last update, of course, the most significant event was the MolDX CAC or Contract Advisory Committee meeting that was held on September 4. The meeting went extremely well. There was strong consensus among the experts on this live on the record call that really reinforced our confidence that we're in the final stages of securing positive Medicare coverage policy outcome. And we'll obviously have more on this later. The meeting led directly to a successful subsequent financing in September that gives us plenty of runway to successfully navigate these final steps and accelerate EsoGuard's commercialization once Medicare coverage is secured. So let's, as always start with some key highlights related to our commercial execution. In the third quarter, EsoGuard test volume was 2,841 tests, and our revenue is approximately $1.2 million. Both the revenue and the volume are in line with the last quarter, with the second quarter of '25. And our volume is within the target range that we've articulated of approximately 2,500 to 3,000 tests per quarter that we need to maintain our ongoing engagements with commercial payers. We're pleased that the team continues to be successful at maintaining this volume while focusing on transitioning our targeting to include Medicare patients as well as securing event based contractually guaranteed revenue opportunities, which we'll discuss a bit further later. We're really excited that we've been able to strengthen our market access leadership team to provide -- excuse me, to drive payer engagement and secure broader commercial insurance coverage and expanded patient access. We strengthened and scaled our market access infrastructure ahead of these reimbursement milestones, such as Medicare. And the team is going to focus on market access for our commercial payers and broad reimbursement as well as government affairs issues. And I'll be highlighting our team, but we really have again excited to have a best-in-class team join us. We're excited to have to have a -- to be holding our very first Firefighter Esophageal Cancer Prevention Summit event next week. I'm extremely excited about this. As many of you know, we have a strong partnership with fire departments across the country that's extended over several years. And they've developed a really long-standing relationship with leaders in the -- firefighter leaders across the country and particularly those that are focused on cancer prevention in these groups. It's been a really very gratifying opportunity to help firefighters. As we've discussed before, firefighters have an increased risk of esophageal cancer, 62% of increased risk and an elevated risk of dying as well. We'll talk a little bit more about this summit a little bit later. As we've discussed, we are continuing our momentum to drive Medicare testing. If you recall that up to 50% of our 30 million target population are, in fact, Medicare eligible patients. We've historically not focused on this target population as we've been focused more on maintaining our volume to drive engagement with our commercial payers, as we've discussed repeatedly in the past. In anticipation of Medicare, now implemented measures and incentives to our commercial team to start targeting Medicare patients to drive our Medicare volume towards and perhaps exceeding the portion -- the 50% portion of the target population. We're in the early stages of this. So, the initial target, the initial group of -- from a subgroup of our commercial team was initiated this a few months ago, but we're starting to see some success. This is also important because if you may recall, once we get Medicare coverage, we'll be able to submit claims going back 1 year. So we're looking to maximize the amount of that look-back revenue that we can receive once we have -- once we secure a Medicare coverage. So now let's discuss some of our recent strategic accomplishments. Again, the most important one, of course, is the Medicare Contract Advisory Committee that was held in September. The results of that were extremely positive. The panel of clinical experts unanimously endorsed EsoGuard Medicare coverage, and they cited strong clinical evidence, guideline support and real-world experience. As we stated repeatedly, we believe this is the important final step towards securing Medicare coverage. And in a moment, we'll provide some additional context on this process, a little bit of update of some additional information we've received related to the -- what we expect to be an upcoming draft LCD. Finally, as we've announced and Dennis will discuss a little bit further later, we were able to strengthen our balance sheet with an underwritten public offering of common stock that netted approximately $27 million in proceeds. This significantly bolstered our balance sheet. As Dennis will discuss in more detail, we've ended the quarter with $47 million in pro forma cash. And we were encouraged. This is a fully marketed offering that reflected really strong interest and confidence, particularly boosted by the positive CAC meeting. There was broad institutional and meaningful insider participation in the offering, and it extends our runway through 2026 well past many concrete reimbursement milestones. We believe it also mitigates our financing overhang and the risk from other external factors. It provides us sufficient resources in addition to accelerate our commercial efforts once we receive Medicare approval. Before turning it over to Dennis, I want to provide some updates related, in a little bit more detail on reimbursement and also on our commercial efforts. So let's start with reimbursement. As we announced back in September, we have recruited a world-class market access team, led by Danielle Scelfo. She brought in 2 of our long-term colleagues, Jon Minken and Suki Iyer. And put together, they provide over 75 years of combined experience, as you can see here, at major diagnostics companies with a focus on precision medicine as well as payer strategy across some of the more respected names in the industry. They really bring strong relationships in the commercial payer space. And this is going to be extremely important for us to start securing coverage and reimbursement across major insurers as we proceed and secure Medicare coverage. So I couldn't be more excited about having Danielle, Jon and Suki join our team and their work will really be central to execute our national coverage strategy for EsoGuard. So let's talk a little bit about a bit of a more detailed update on Medicare. So we believe the next steps following this CAC meeting is the publication of a draft local coverage determination that would be a positive response to our request for reconsideration of coverage of EsoGuard under the existing local coverage determination. As I said repeatedly, we're very confident that we are very close in the final stages of this, based on the public CAC meeting as well as our ongoing conversations with the MolDX team. That confidence was strengthened following a recent meeting of the California Clinical Laboratory Association. If you recall, our laboratory is located in Orange County, California, we're members of the CCLA. And there was an important meeting following our CAC meeting, a general meeting where MolDX leaders were present and the meeting, which was a public meeting, further corroborated our confidence that, a, the meeting went well. Our CAC meeting was a topic of conversation. Dr. Ian Wilmer and one of his colleagues from Noridian were there. And the meeting was extremely positive. It just simply highlighted and reinforced the positive feedback that we believe came out of the CAC meeting. It was also important to note that the -- this is the first time that we heard directly from the medical director -- one of the medical directors at Noridian, who shared the same positive feedback that the leader of MolDX did as well. So again, very confident that we're heading towards that we should be expecting a draft LCD soon. Once that draft LCD is published, we believe the following steps from that are fairly routine. There will be a mandatory 45-day public comment period. Following that, there'll be a publication of a final local coverage determination from that official notice of EsoGuard coverage. And again, to reiterate, once we get final LCD coverage, that will allow us to submit claims dating back -- and getting paid for claims dating back for a full year. So again, that's the process. I feel like we're in good shape, and we're eagerly anticipating the publication of a draft LCD soon. I'd like to talk a little bit about some of the experiences we've had in our ongoing conversations with commercial payers. If you recall, on our last call, for those of you who participated, we are pushing full steam ahead on commercial payers. We're not just waiting for Medicare coverage. And that activity has really accelerated substantially with the expansion and strengthening of our market access team. One thing that we've noticed in addition to just simply a series of meetings with a variety of commercial payers even over the recent weeks that have gone extremely well is that we have an opportunity to link EsoGuard coverage to existing guidelines for endoscopy. Now we saw that in the inclusion of non-endoscopic biomarker testing such as EsoGuard in the NCCN guidelines that were published earlier this year that those guidelines were directly linked to a recommendation that followed the existing GI guidelines for endoscopic screening of esophageal precancer. And of course, the language in that guideline reiterated what the guideline -- in the NCCN guidelines reiterated what the GI guidelines say, which is that non-endoscopic biomarker testing, of which EsoGuard is the only one is an acceptable and equivalent alternative to endoscopy. And so what's interesting is we've seen that now in more aggressive and more involved conversations with commercial payers. And that actually manifests itself in an update in a guideline to the UnitedHealthcare guidelines that were published this summer on endoscopy guidelines for endoscopy and particularly guidelines for endoscopy as it relates to screening for Barrett's Esophagus. In that guideline, there actually a specific mention of EsoGuard and its role in identifying patients for EGD and specifically stating that patients who are EsoGuard positive are appropriately indicated for EGD. We believe this is actually a strong -- gives us a strong advantage in these conversations with commercial payers, in that EsoGuard is not standing alone, but it's linked to guidelines that already cover -- sorry, endoscopy guidelines that are already covered by payers. So being able to link to those guidelines that are already covered really gives us a great starting point in our conversations. And in fact, the UnitedHealthcare language is sufficiently strong, and we've had conversations with medical directors there that we feel confident proceeding directly to contracting discussions with UnitedHealthcare. So lots of activity on the commercial side. We have a team that's really operating on all cylinders, and we look forward to starting to convert positive policy coverage for commercial payers, actually in advance of us securing Medicare coverage -- final Medicare coverage. As I mentioned earlier, we've continued our momentum and that we are focused on driving Medicare as well as our event-based contracted testing. So let's flesh out some of those details as well. As I mentioned, we are really excited to host our very first Firefighter Esophageal Cancer Prevention Summit. This is a culmination of, as I mentioned, a long history and strengthening our relationships with fire departments across the country and testing the firefighters for this deadly cancer that has an increased incidence in this population. This event that we're hosting will have 60 attendees, over 60 attendees, and these include a variety of members of the firefighter community, including fire service leaders and those that are directly involved in decision-making about hosting contracted firefighting -- firefighter testing events as well as survivors, widows, families and physicians who are within this space. And it's really focused on shaping and advancing the future of cancer prevention through early detection in the fire service and highlighting EsoGuard's role for protecting -- for preventing the second most deadly cancer that these firefighters face. From a business impact point of view, we are confident that this will help us continue to bolster what's already a very strong pipeline of contracted of #CheckYourFoodTube events targeting fire departments. We have steadily been able to increase the number and the size of the pipeline of our contracted event-based testing throughout 2025, and we continue that momentum to continue and expand and accelerate through events like this. So with that, I'm going to pass it on to Dennis for our financial update.

Thanks, Lishan, and good morning, everyone. The summary financial results for the third quarter were reported in our press release that has been distributed. On the next 3 slides, I'll emphasize a few key financial highlights from the third quarter, but I encourage you to consider these remarks in the context of the full disclosures covered in our quarterly report on Form 10-Q. With regard to the balance sheet. Cash at the quarter end September 30 was $47.3 million. During the quarter, as Lishan mentioned, we completed a CMPO with proceeds just under $27 million. The quarterly burn rate was $10.3 million, which is slightly better than the average burn rate for the 4 preceding quarters of $10.5 million and exactly the same as the prior quarter. The burn in the third quarter included $7.2 million from ongoing operations and $3.1 million from the quarterly MSA with PAVmed. You will recall at the end of last year, we refinanced our convertible debt into a $22 million 5-year note, interest only at 12% with a $1 conversion price, which is held by long-term shareholders. The fair value of the convertible notes in the amount of $22.3 million at quarter end is really the only other substantive change from the previously reported balances at the end of the second quarter. The fair value decrease of $3 million reflects a mark-to-market quarterly adjustment in parallel with common stock price changes between the periods. The fair value decrease also drives a corresponding income pickup of $2.3 million reflected in other income in the P&L. Shares outstanding, including unvested RSAs as of last week are approximately 138 million. The GAAP outstanding shares as of September 30 of 130.9 million are reflected on the slide as well as on the face of the balance sheet in the 10-Q. GAAP shares do not reflect unvested restricted stockholders. At present, PAVmed continues to be the single largest common shareholder of Lucid Diagnostics with ownership of approximately 23% of the common shares outstanding. Although PAVmed no longer has voting control of Lucid, PAVmed together with the Board and management still has significant influence over Lucid with approximately 28% voting interest. Lucid has convertible preferred securities, whereby the preferred shareholders are incentivized to delay conversion of the preferred shares and the common shares until 2026, namely the second anniversary from closing. If all of the preferred shares outstanding were converted into common shares as of today, there would be an additional 49.6 million common shares outstanding. Next slide. With regard to the P&L, this slide compares this year's third quarter to last year's third quarter and year-over-year on certain key items. I trust you'll review the information in my comments in light of the cautionary disclosure on the bottom of the slide about supplemental information, particularly non-GAAP information. One additional high-level summary comment. If you were to place the sequential second and third quarters side by side, you would see they're nearly identical on a GAAP and a non-GAAP basis, relatively the same test volume, same recognized revenue, the same OpEx levels, both GAAP and non-GAAP, the same burden rate. With that and for consistency, a few comments on the normal things that I do touch upon. With over 2,800 tests for the third quarter, we invoiced over $7 million and recognized revenue of $1.2 million, reflecting a 4% sequential revenue increase and a 3% year-over-year increase. With new investors once again joining us for this call, it's worth repeating what we've communicated in past quarters about revenue recognition. A key determinant in how revenue is recognized at this point in our reimbursement journey is the probability of collection. And therefore, due to the fact that we are in this transitional stage of our reimbursement process means revenue recognition for the majority of our claims submitted to both traditional government or private health insurers will be recognized when the claim is actually collected versus when the patient report is delivered, invoiced and submitted for reimbursement. As you will see in our 10-Q, this is called variable consideration in the jargon of GAAP's ASC 606 Revenue Recognition guidelines. And presently, there is insufficient predictive data to reflect revenue from all of our quarterly test volume at the point where the test report is delivered to the referring physician. For billable amounts contracted directly with employers or through concierge medicine that are fixed and determinable, will be recognized as revenue when our contracted service is delivered. Generally, that means when the report is delivered to the referring physician. It's important to note that a pending Medicare approval decision impacts about 40% to 50% of our addressable patient population and therefore, will have a significant impact on our future revenue recognition analysis. Furthermore, for tests performed on Medicare patients with dates of service within 12 months of the final positive Medicare policy, we'll also get paid within a reasonable time frame after the final policy is issued. On a non-GAAP -- our non-GAAP loss for the third quarter of $10.3 million is relatively flat sequentially and slightly better than the trailing 4 quarters of $10.5 million. The non-GAAP net loss per share of $0.10 is flat sequentially as well as better than the trailing 4-quarter average loss of $0.16 per share. On a GAAP basis, net loss and EPS were just about the same as the non-GAAP metrics, namely $10.3 million loss and a net loss of -- per share of $0.10. Next slide. With regard to our operating expenses, this slide is a graphic illustration of our operating expenses after eliminating noncash expenses for the periods reflected. Non-GAAP operating expenses of $11.5 million are modestly lower than the average of $11.6 million for the last 4 quarters. Let me close with a few reimbursement highlights for the third quarter. In the most recently completed quarter -- third quarter, we billed 2,841 tests, reflecting about $7.1 million in pro forma revenue. During the third quarter, we recognized revenue of about 17% of that amount or $1.2 million. Of that amount, about 49% was from claims submitted in prior quarters with the longest dated item from 24 months ago. Of the claims submitted in the third quarter, about 76% have been adjudicated, 24% are pending. Out of the 76% that have been adjudicated, about 38% resulted in an allowable amount by the insurance company with an average of around $1,600 per test, which bumps up against the Medicare rate; and obviously, where a majority of tests are out of network. Of those denied, most fit into 1 of 3 buckets: A, medically not necessary or deemed medically not necessary; or B, require a prior authorization or C, required additional medical records. The balance are deemed to be noncovered. With that, operator, let's open it up for questions.

[Operator Instructions] Your first question comes from Mark Massaro with BTIG.

So yes, it's super interesting that you guys mentioned the CCLA meeting recently. Because I just wanted to get a sense, obviously, there are a couple significant leaders of Medicare contractors present. I'm just curious if you could share a little bit more about any dialogue you might have had? And then related to that, assuming you get a positive draft LCD, is it your opinion that the final, which would likely happen thereafter, I would think, would be probably a formality or at least consistent with the draft?

Great. Thanks, Mark. Yes, let's talk about the California meeting. Just to be clear, this is a regular meeting that's held by the California Clinical Laboratory Association, CCLA. We attend this meeting. Actually, Danielle, our new Head of Market Access, attended this meeting, and it was a general meeting. It's basically an opportunity for the leaders of MolDX contractors to engage in an open conversation. And so everything that was stated was stated in public, that -- it wasn't private one-on-one conversations. And that's frankly why we found it very -- to be very positive. In that a significant amount of time was actually spent based on audience questions on us and our CAC meeting. It was 20 or 30 minutes of kind of a 2-hour meeting was dedicated to that. And the responses from the Head of MolDX were very direct, very consistent with the internal conversations that we've had and very positive. They were all sort of reaffirming of our general perspective on how things are going and sort of the paradigm under which he's operating. And he explicitly, upon questioning by third parties, described the meeting, described the purpose of the meeting, he said the meeting went well, conversations flowed nicely, and he explicitly said that we got the information needed to move forward with drafting policy. So we couldn't have asked for more. He did add a few things that were also quite positive and encouraging. He got a little bit in the weeds on how they view this process. He spent some time on how important guidelines are and how important it is from their perspective to align with guidelines when at all possible to maintain -- so they don't put physicians in difficult positions with contrary opinions between the LCDs and existing guidelines. And he also talked about the whole history. We've talked about this in previous meetings about how he wrote this policy to be noncovered, but still was explicit as to what would be required for coverage. And so that would allow the reconsideration process, which is what we're in right now, to occur more quickly and that the companies like us could understand well in advance what the expectations are with regard to converting a noncoverage policy to a coverage policy. He said, "If we ask him to do this, we won't come back and just say it's just kidding and require more evidence." So that was really great. What was, frankly -- again, most of that was just reaffirmation, although there was some level of specificity, particularly in public comments that were extremely encouraging. What was rather new was that one of the medical directors at Noridian, which is one of the other MolDX participating Medicare contractors was also present and also commented. And she really corroborated very similar sentiment with regard to the meeting and with regard to the entire process. So that's a very good sign. As we've discussed before, the MolDX process is designed to bring the 4 Medicare contractors together. We believe that one of the purposes of the meeting, the public meeting was, in fact, to provide the MolDX Director with the information on the public records that the other MAC leaders could use to come to a consensus on proceeding with the draft policy. Noridian is the most important of the others because our laboratory is located in a Noridian jurisdiction. So yes, it was a bit unexpected. It was just a regularly scheduled meeting, and it was, frankly, other people who were asking people -- industry stakeholders and others who initiated the conversation. It was great to see that spontaneously both medical directors were just extremely positive about where things are. So it really puts us -- makes us feel confident about where this is heading. So yes, the second question, Mark, was around once the draft gets issued, the process between the draft and the final. And yes, we really do feel that that's a formality and for a variety of reasons. The draft policy was -- has already -- is basically a reconsideration of an existing final policy. So the vetting of the body of the coverage determination, the specific criteria and other language in there, everybody has already signed off on that. That already went through a public comment period, and we are happy with the language of the final. So this reconsideration is just simply to flip it from noncoverage to coverage. I think I might have mentioned in previous meetings that part of our submission for reconsideration is literally a red line of the old -- of the existing final LCD. And the proposed red line just simply removed the term noncovered and it maintains everything else. It obviously adds additional data, our data in the summary of the evidence, but the actual policy itself is identical. And so because the -- because we're not asking for a reconsideration of the substance of the policy, just to flip it, we believe that the public comment period will be a formality that there is strong support for this, not just obviously from us, but from other stakeholders. We expect there will be support from trade associations and from others, patient associations and so forth, just like there was the last time. And so we really do view that the process, the public comment period, the process of converting the draft to a final to, in fact, be a formality. It's one that has a certain time window and takes some time to move from A to B. But it's -- I think that's the right word, Mark, it's a formality.

Okay. Great. That's very helpful and good to hear. I know you guys indicated just today that you feel confident that you're getting very close. I recognize I don't think there's any clock per se. But would it be reasonable to think that perhaps by year-end 2025, we might see a draft? I mean what's your latest thinking on timing?

I think our thinking hasn't changed. I mean you and others have projected that. We think that's a reasonable estimate. It's really about workload. There were some thought and concern that the shutdown could have influenced that process and slowed down the process of issuing LCDs. We have no reason to believe that, that was actually the case. The LCDs continue to get issued. It's important for people to remember that MolDX and Palmetto, the underlying MAC are private contractors. So there was no -- and I believe they explicitly stated at this -- even at the CCLA meeting that the shutdown did not slow them down at all. There was a period of a few weeks when the coverage advisory group at Medicare at CMS proper was furloughed, but they were brought back rather quickly, and they were issuing NCDs and LCDs along the way. So this is just sort of a pipeline workflow issue. We think there's -- this is a fairly straightforward reconsideration because the data has been in their hands now coming on a year. The CAC meeting was universally positive. And so this is just a -- yes, workflow issue, and we think that that's a reasonable time line.

All right. And then maybe just one more for me. Since the since the last call and in the CAC meeting, I'd be curious if you could perhaps expand on any dialogue you've had with any commercial payers. Are you seeing anything move there? Or do you think it's more of a wait and see on the [indiscernible] decision?

Yes, definitely, yes. So I think I made the point during our last call that prior to, I would say, in the first -- like sort of in the first quarter or second quarter of this year, we were of the thought that for the most part, with the occasional high mark, we got a high mark policy issued in the second quarter that for the most part, commercial payers would wait until Medicare. Our thinking on that has changed quite a bit over the last couple of quarters. The fact is that, for example, the Highmark policy was -- move forward quickly because we had the data. And it's important to remind people that the package of data that we submitted for the reconsideration for Medicare wasn't completed until the fourth quarter of last year. So we weren't really out there talking to commercial payers with a full data set until the first half of this year. So the answer to your direct question is, yes, we have a lot of meetings going on, a lot of activity. We're fully engaged with larger payers and smaller payers, and we are seeing positive movement. So the meetings are going well. The specific points of discussion around the clinical evidence, both CV and CU as well as health care economics, which does come into play on the commercial side are positive. Those conversations are very much strengthened by the published guidelines, particularly not just the GI guidelines, but being in a CCN is an important factor for commercial payers. And so yes, so they're moving forward well, and now we have -- our team is really beefed up and is pursuing these aggressively. So I would not -- I would expect, frankly, that we'll be -- we'll start seeing positive coverage policies from payers, small and hopefully sooner rather than later, large, even as we await the Medicare process to come to conclusion. It may be a good time to emphasize one of the points I made during my prepared comments, which is that one of the things that we're learning as we navigate the commercial side is we have to remind ourselves that payers already -- let me just back up, that EsoGuard fits within a paradigm. It's not a test that's done in isolation. It fits in the paradigm of screening for Barrett's Esophagus for precancer that obviously includes endoscopy. It includes confirmatory endoscopy, includes surveillance endoscopy and people who have been found positive, and it includes ablation. And we have to remind ourselves that all of those are covered right now by payers. And so this updated guideline by United was really encouraging, not just in and of itself, but a reminder of how we fit within that paradigm. We're not going to payers and saying, "Here's a new test, you go. That's sort of coming out of the blue. We want you to cover it." We're saying, "Here's a test that fits entirely within a paradigm that you've already accepted." And that has, as it relates to endoscopy, and has obviously substantial advantages to endoscopy, both in terms of cost and in terms of invasiveness to the patient. So we're not starting from ground zero. We're starting from that baseline. And the fact that United included in its latest update with guidelines for endoscopy for Barrett's Esophagus screening, the fact that they -- that one of the considerations with regard to covering an endoscopy is that the patient has a positive EsoGuard test really was an eye opener for us and has given us confidence of pushing those dialogues a bit more aggressively. And in that case, just going straight to seeing if we can secure a contract.

The next question comes from Kyle Mikson with Canaccord Genuity.

So just on your point there, Lishan, about the shutdown not slowing down LCDs, draft LCDs. I'm just curious with it potentially ending here, you think there could be like an acceleration or like this -- a rubber band effect to maybe complete the draft now? Just curious what you had to say about that.

Perhaps. I think the fact is I don't think it was slowed down by it. The sort of the CAC group was out for a couple of weeks. And so the reason that's relevant is that although these policies are finalized by the contractors, there is a sort of a rubber stamp. We got a little bit -- I'll even just call it an administrative process that has to happen at CMS proper to get these things published and so forth. And so sure, I think the fact that the shutdown is ramping up will make sure that things are operating at full steam at CMS when it comes time to actually process -- finalize the administrative processes that are necessary post the draft LCD.

Okay. That's great. And then maybe in mid-'26, let's say, when you -- let's assume you have coverage for Medicare, what should the commercial channel mix kind of look like? You've had concierge, you have test setters, you have [ slightly ] different channels there. Just curious how that's going to change from this point to then basically.

Yes. Right. So we've been operating in anticipation of that, and we described in a little bit more detail on our last call about the fact that that we are making a concerted and prospective push to drive the portion of our population that are Medicare -- that are Medicare eligible patients. And so that process has already started. The goal is at least 50%, which is about approximately what the target population what the target population is in terms of Medicare. And that process is going well. We're -- where we're turning the boat. Our reps have been focused primarily on just getting volume and focusing on these other channels, as you said, concierge, employers, and fire departments, and things like that. All of that is continuing. And all of that is continuing. But there's been a concerted push by our commercial team to start the process of driving the portion of patients that are Medicare from where we are right now, which is about 10% to 15% ultimately towards -- at least where it is based on the epidemiology of the target population. And we're certainly hopeful that by midyear next year, in addition to that transition happening with regard to the target population that we'll start seeing the fruits of our efforts on the commercial side as well.

Yes. Maybe just a quick -- that was helpful. Maybe just to clarify, is there any maybe change in the call point or like a greater emphasis on the call point for the reps or maybe new reps, let's say? I think that's what I was kind of getting at, I just given -- it's a whole different [ update from the reps here. ]

Yes, yes. No, I think yes, the answer is yes. Yes. So we're encouraging and we're incentivizing reps. We're actually starting with the more experienced reps and less of the new ones to shift their emphasis to calling on practices and helping those practice identify Medicare patients that would qualify for testing. So yes, that process is active, and we're seeing it bear fruit. There's also -- so I'm glad you followed up, Kyle, because there's another aspect to this as well, which are health systems. Health systems are challenging in a variety of ways, but obviously, the yield once we can secure a health system is -- can be high. And Medicare is a barrier -- has been a barrier to many health systems. You just can't initiate a conversation of coming in. We've had some successes where that hasn't been the case. But the anticipation of Medicare coverage has actually greased the skids in terms of us being able to engage with health systems. So we're expanding that. So we've made some adjustments to our team. We've actually brought in some more experienced director-level folks who have experience calling on health systems with regard to GI technologies. And we're looking to see bear the fruits of that and the fact that at Medicare, we believe Medicare coverage is imminent, has helped drive those conversations.

Perfect. And then just a quick housekeeping question, maybe for Dennis. The cost of goods per test increased to like $600 per sale, so it's like a 5% increase quarter-over-quarter. Anything in the quarter that would have elevated costs? Or how should we kind of think about that going forward? Is that going to -- I feel like you kind of thought that was going to decrease over time.

The variable cost has remained unchanged. The cost of EsoCheck is in the $50 range and the cost to process through the lab, the variable cost to process test through the lab is still unchanged in the $120 to $125, so less than $200. The rest are fixed costs, they could adjust up or down a little bit, but nothing significant. On a GAAP basis, you've also got some noncash charges to flow through there based upon stock-based comp that goes through some of the employees. But on a cash basis, it's pretty consistent quarter-to-quarter.

The next question comes from Anthony Vendetti with Maxim Group.

So just as a reminder, how many commercial payers right now cover EsoGuard? And then maybe a -- and then I have a follow-up.

Yes, we have one positive policy, which is Highmark New York. That policy was issued in the second quarter. We're in the process of engaging with them on contracting. We build 400 plus. And I would say our pipeline of conversations, active conversations with commercial payers, small and large is in the order of dozens.

Okay. Great. Okay. And you built 400 of them now. So they're aware. It's just they know -- it's a lengthy process.

Yes, exactly. That goes back to basically the pattern -- the stance we've had for the last couple of years, which is that we need to do enough volume so that we can engage, we can submit claims, we can get denials, we can appeal denials and make the case for transitioning now that we have the data to form a positive policy so they're not -- we're not stuck in out of network, sort of a new strategy.

Right. Okay. And then can you talk about the ordering behavior from the physicians that use EsoGuard, and for the ones that are your, let's say, higher volume users, what's their repeat ordering kind of rate if you track that?

Yes. We don't track that sufficiently to report it, but we know what's going on in the field clearly. And there is just no issue with that. When we engage with a physician that's able to order the test that buys into the paradigm that understands the guidelines, understands the opportunity to have an impact on their patients, it's a sticky business. And so really, we don't spend a lot of time focused on that because ultimately, we're -- we know that when we put our foot in the gas and we go out and try to drive -- when we have sufficient coverage to justify throwing more commercial firepower at this, that they'll respond. And we know that just for years now of engagement with the physicians. This is not a difficult call point to walk in and educate the physicians and make the case. And once we do, we have good partnerships with that. In fact, some of that's actually -- we've been making some tweaks to that, which still is a fundamentally solid call point process. One of the things that just out of -- just, to the amount of interest that we're doing is we're leveraging -- more and more leveraging our nurses, the clinical team that we deploy to do cell collection, both for these #CheckYourFoodTube events, but also at physician practices. If you recall, we do these things we call satellite Lucid test centers where our nurses will show up on a regular basis at a physician's office and do tests. We actually had one recently where they did 30 tests. And when I said that theoretically, it's actually a -- it's actually happening in real life. And one of the things that we've done from an account maintenance point of view and relationship point of view is to actually take our nurses who are obviously clinical experts and are able -- are very conversant in the underlying clinical medicine to be much more directly engaged with these accounts at the beginning and also on an ongoing basis so that their role has expanded. It's been really quite gratifying.

Okay. And then last question is, when you actually get a referral for an EsoGuard test, if they don't offer it at the site, but you actually get a referral, what's the conversion rate from referral to actually getting the test done?

All right. Just to be clear, these are not really one-off referrals. Let me just clarify that first that when we enter -- when we partner with a practice or with a health system, and those are slightly different. I'll talk about both. It's really programmatic. It's establishing a -- an esophageal precancer detection, a cancer prevention program within your practice or within your health system. And we work together with them to help them find the patients to interrogate their electronic health records to do events with -- if it's a GI practice with their local primary physicians, if it's a primary care practice, we do patient events and so forth. So it's really a partnership. It's not sort of one-off if a physician is sort of thinking, "How do I -- oh, should I test this patient or not?" It's much more programmatic. And as you might imagine, especially at the health system level, that's quite -- even more involved and it can be quite sophisticated. I mean it's whole health system, for example, has 200 primary care physicians that work with a cadre of gastroenterologists and working -- the system that we're building there is designed to bring all of those folks in the mix. And the -- so what drives these folks is the negative predictive value, the fact that they know that if a test is negative, they can rule out. And if a test is positive, that those patients will get referred for endoscopy. Now the health systems are very motivated in particular, and the GIs are motivated because it drives patients for -- to endoscopy and the ones who come to endoscopy have a higher yield. I think your narrower question is actually much more straightforward, which is that what is the yield of a patient who gets referred in terms of making its way through the process. It's extremely high. Patients who get referred for the EsoCheck cell collection and the EsoGuard test, that number is well over 90% in terms of people who actually follow through and get there and get their cell collection, whether it's us or whether it's someone we've trained within the practice or the health systems, we do both, and -- or at one of our health events. We've also reported previously, and this is actually central to our clinical utility portion of our clinical evidence that patients who get -- who are positive. So remember, EsoGuard negative patients don't need anything further done, because they have a high negative predictive value. The positive patients are referred for confirmatory endoscopy. And our -- the patient compliance with that is 85%, which is double the compliance of patients who get referred for endoscopy without EsoGuard. So the patient knowing that they have a positive biomarker test is a very strong impetus -- provides them a very strong impetus to go and complete the process and get their endoscopy so they can be put in the appropriate follow-up plan, whether it's surveillance or treatment.

The next question comes from Mike Matson with Needham & Company.

This is Joseph on for Mike today. So I understand how you guys feel about positive coverage for EsoGuard. Obviously, the CAC meeting was overwhelmingly positive. But just looking at this potential, I guess, like 1-year lookback period for claims once you get positive coverage, I'm just trying to level set the 1-year lookback period with just now engaging or increasing Medicare patients -- while I don't think it's the case, I think maybe some investors could see that and view maybe Lucid being closer to 1 year for reimbursement rather than a couple of months. So I guess that central question, why engage Medicare patients now or increase that rate versus maybe starting to do that last quarter or 2 quarters ago?

Let me answer that at a high level, maybe Dennis has some additional thoughts. I just want to make sure it's clear. Getting Medicare patients now -- first of all, they're are Medicare Advantage patients, which are -- can pay because they're private insurers are paying that. And so that's one element of it. But the -- now that we didn't trigger this until just before the CAC meeting. Now that we have a pretty good high level of confidence as to when this is going to happen, it's important that we saw the pipeline and try to maximize as much of that look back as possible. And so I'm not sure characterizing it as a delaying reimbursement really is how we would look at it. I don't know, Dennis, if you have any thoughts on that?

Yes. I think, Joseph, what you're aiming at is since the CAC meeting was so overwhelmingly unanimous among all the clinicians and the receptivity by the MolDX leadership was strong. It certainly has embolden us to be more aggressive in our pursuit of those areas where are more Medicare-rich populations. You think of Texas, Florida, North Carolina. And that's an expression of our confidence that we're in this zone of Medicare approval. And that zone is the 12 months prior to final. So your question was if an investor thinks it's more than a year from now, the question would be why are we pursuing Medicare patients today with a focus when under that theory, we wouldn't get paid right now. Well, our confidence is just the opposite that we are in the zone of approval and that what we are now intentionally pursuing in terms of our patient pool is an indication that we are expecting draft any day to what the expectations were, right, set by many of the analysts out there. And that what we are incurring, we will get paid based upon that expectation. That's what's driving our behavior.

And now that I understand the question, thanks for clarifying it. Yes, the patients that -- Medicare patients that we're bringing in today, we expect to get paid on.

Okay. Yes, crystal clear. And then I guess just a follow-up, and then I'll ask my second question. Are you now ramping total test volume or just increasing the mix of Medicare patients and kind of still keeping that total test volume more or less moderating? And then just on your study with the NIH looking at asymptomatic GERD patients, can you just remind us how many patients are in that study and maybe the expected readout time line for that? And I guess, really the central question, how do you expect results from that study to drive adoption in that asymptomatic population?

Yes. Okay. So the answer to the question is that we are not increasing our target volume, and we're not increasing the headcount of personnel, a few here and there. But for the most part, we're keeping our headcount flat. But we're changing the nature of our headcount. So the nature of our sales team, as I mentioned, we're bringing in more experienced directors. And that's really designed to be -- so that we can be scalable at the time we put our foot on the gas. So we're trying to maintain our test volume while shifting the portion that are Medicare and that our direct sort of physician practice call points during this window between now and Medicare coverage. So this is really about building something that is easily scalable once we decide the time is right to put our foot in the gas and to start investing in an increased -- expanding our commercial team accordingly. So that's what we're doing. It's a little bit of, like I say, sort of fixing the engine while it's running. So we're still doing plenty of larger health care events, which have supported our volume over time. Many of those are now being converted to contracted events, which -- where we expect to get paid. But we've taken a portion of our commercial team, the more experienced ones and trained them and have initiated an actual program to have them go -- to be incentivized to go find -- to go engage with practices to drive Medicare. And as I said, we're seeing those. We saw one recently where one of our reps on the East Coast found -- engaged with the practice, started -- initiated one of these satellite testing programs where nurses will come, and on the very first meeting at the very first one of those, there were 30 patients and 28 of them are Medicare. So we know that we can actually -- that this process can work, that we've trained them appropriately, and we're going to shift them, but not in a way that we're still very cognizant of our burn. We're still maintaining our stance of trying to keep our burn flat and not get ahead of ourselves until we know that we have coverage, and that we can justify putting additional resources to drive both volume and revenue and Medicare revenue in particular. I think your question -- just to confirm, your question was about the NIH study for [ ACG Medical. ] Is that correct, Joe?

Yes.

Yes. So that study is going well. Actually, it's enrolling pretty well. There are actually 2 parallel studies. There's that one, and there's also one that's being run by the VA, which is also enrolling extremely well. So we don't have a target date for the readout. The NIH study had 600 to 900 was the target sample size. It's based a bit on what the positivity rate is. So it could range somewhere [ around that. ] We think it's actually going to be on the lower end of that. I expect the VA will read out much more quickly. They just have a knack for rapid enrollment. So I don't have a target date, but those studies are going extremely well. Look, at the end of the day, we view the output of those studies as a longer-term market expansion opportunity that we're not dependent on the results of this data to drive -- to make substantial inroads into the existing target population. Remember, the 30 million target population that we're pursuing now are that's the core population that includes symptomatic patients. And we're driving that based on existing guidelines, ACGME [ GI ] guidelines and as we articulated in the NCCN guidelines. And in all of those, you're referring to typically symptomatic patients. So we're excited about this study, just to be clear, as an opportunity to expand that 30 million target population to likely closer to 50 million for the -- in terms of the long-term commercial opportunity. But we're not dependent on this -- on the read of the study for our near-term significant commercial opportunity that happens in the near term.

The next question comes from Ed Woo with Ascendiant Capital.

Congratulations on all the progress. Dennis, I think earlier, you mentioned that the variable cost of these tests are about $200. Has there been any significant inflation impact on this cost? Or do you think it will be pretty steady going forward?

We think it's pretty steady. That pricing of EsoCheck particularly is over a large manufacturing level. So I'm not expecting it to change very much. I think we've got a good economic number at this point. At $50, the inflationary impact will negligible. And as far as the lab supplies that are consumed during the processing of the test, I don't expect that to be a significant needle mover, particularly when you think about a $2,000 test -- and a $200 and I'm rounding up from $185, you've got some -- a lot of room in terms of absorbing cost.

And then by the way, while we're at it, there's also, in the future, an opportunity to get those costs down, especially the laboratory portion of it, there's opportunities with automation to get it down. We're just not pursuing those yet [indiscernible] AI is another tool that can be used in various aspects of the process of running the assay that can lower costs over time.

Thank you. There are no further questions at this time. I will now turn the call over to Dr. Lishan Aklog for closing remarks. Please go ahead, sir.

Great. Thanks, operator, and thank you all for taking the time and for your attention this morning. We really, as always, appreciate the thoughtful and informed question by our covering analysts. It gives us an opportunity to provide additional color along the way. So hopefully, you get a sense that we feel -- it may feel like we're in a bit of a holding pattern here, but that's really a function of our fiscal discipline with regard to holding our burn. And we remain very confident that we're in the near-term processes for getting, securing Medicare coverage. It's not a matter of when, it's a matter of if. The CCLA meeting was just a sort of another confirmation and validation of that confidence. And while -- as we've talked about in several specific ways, we are working to lay the groundwork for a growth phase once we secure Medicare coverage. So hopefully, that was clear. So again, with that, we appreciate your time. We encourage you to keep abreast of our progress. Please follow our news releases, follow up on these calls as well as through our website and social media and feel free to reach out to us if you have any specific additional questions. So thanks again, and everybody, have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.