Lucid Diagnostics Inc. (PAVM) Earnings Call Transcript & Summary

Greetings, and welcome to the PAVmed and Lucid Diagnostics Strategic Business Update. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Michael Parks, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Doug. Good afternoon, everyone. Thank you for participating in today's joint business update call. The press release announcing our strategic business update is available on both PAVmed and Lucid websites. Please take a moment to read the disclaimer about forward-looking statements in the press release. The strategic business update, press release and the conference call, those include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the SEC. For a list and description of these and other important risks and uncertainties that may affect future operations, see Part I Item 1A entitled Risk Factors in both PAVmed and Lucid's most recent Annual Report on Form 10-Q (sic) [ Form 10-K] filed with the SEC and subsequent updates filed in quarterly reports on Form 10-Q and any subsequent Form 8-K filings. Except as required by law, PAVmed and Lucid disclaims any intentions or obligations to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, conditions or circumstances on which those expectations may be based or that may affect the likelihood of the -- of 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 PAVmed and Lucid Diagnostics. Dr. Aklog?

Thank you, Michael, and thank you all for joining us this afternoon on the call. In addition on the call with me today is Dennis McGrath, our Chief Financial Officer. As I have described during previous calls over the past few quarters, both PAVmed and Lucid have engaged in a broad systematic initiative to protect long-term shareholder interest by maximizing our cash run rate during what remains challenging market conditions. These efforts have included continuously assessing our operations and portfolio to maintain a cash preservation posture while continuing to execute on our long-term strategy. As stated in today's press release, we have decided to further extend this initiative by aggressively streamlining our operations to focus substantially all our resources and near-term efforts on accelerating the commercialization of Lucid's and Veris' products, using our EsoCheck and the Veris Cancer Care platform. These commercial products with their large market opportunities are clearly our most valuable assets, and we strongly believe that focusing on them provides our shareholders the greatest near- and long-term value creation opportunity. Towards this end, we have implemented a targeted workforce reduction, approximately 20% across PAVmed and its subsidiaries. We've also implemented cost-cutting measures, which seek to lower our cash burn by at least 25%. These include streamlining our product development and clinical research activities to those that are directly linked to our near-term commercialization efforts. We believe that our leaner, more commercially focused posture puts us in the best position to advance our long-term strategic goals and maximize near- and long-term shareholder value. Let's start with our first commercial priority, Lucid Diagnostics. First, just a few highlights to remind you where we are and why we believe Lucid and EsoGuard remains our most important -- our most valuable assets with the greatest near- and long-term opportunities. EsoGuard remains the first and only commercially available diagnostic test recommended by clinical practice guidelines to prevent esophageal cancer deaths, through early precancer detection. The target population based on guidelines recommendations is at least 30 million patients. The estimated addressable market is $60 billion based on an effective Medicare payment of $1,938. Our per-test gross margins at that payment rate are very attractive. Physician practice and institutional engagement remains robust with a significant clinical hurdles to EsoGuard adoption. The volume of EsoGuard test performed at our dedicated and now independent CLIA-certified laboratory has grown steadily in recent quarters. The company began submitting claims to commercial insurers in the late third quarter of 2022 and is starting to generate claim histories that are necessary to drive in-network commercial contract discussions. And finally, our out-of-network payments that we've received to date and in existing -- an existing in-network contracts have respected Medicare -- the Medicare [ lead as the core ]. So all of the initiatives that I'm describing today are designed to build on this rock-solid commercial foundation and guide us through private and public payer reimbursement towards cash flow positive [indiscernible]. I'll go through these one at a time. Lucid plans to continue with full force to drive EsoGuard testing volume with an increased focus on closing larger strategic accounts and newer market development initiatives, including targeting self-insured players, IDNs and related entities. We've determined that we can continue to drive test volume growth, consistent with our internal projections with the sales team at its current level of approximately 40 sales personnel. We've chosen to expand -- we've chosen not to expand the team to the previous Q1 target of 58. We achieved our current level through some targeted layoffs and closing of our prior vacancies. The hiring space has already allowed our sales leadership to shift the tension from what is often a very time-consuming recruiting and hiring process towards just driving productivity of the current team, and to focus more time on strategic and market development initiatives, as I just mentioned. Test volume growth requires support from our clinical team of nurse practitioners who performed the EsoCheck procedure as Lucid customers. We are maintaining this team in the number of test centers at its current level of 13 centers in 11 states. This actually circulate quite well since as I mentioned in our last corning call, we have initiated what is now a burgeoning satellite Lucid test center program. This program allows us to have Lucid personnel perform the EsoCheck procedure at the prescribing physician's offices as opposed to one of our physical locations. And this, in turn, provides much greater geographic flexibility and efficiencies and engagement with the practice. So our plan is to accelerate these efforts that adjusts our allocation of personnel and test centers as appropriate to drive test volume. The laboratory, LucidDx Labs, remains at the core of Lucid's business. We currently have sufficient personnel and equipment to maintain testing capacity for the foreseeable future. And we'll continue to invest in either to drive ongoing quality improvement, operational and cost efficiencies. On the clinical research front, we are extending prior efforts to prioritize clinical utility studies to support in-network payer coverage and have streamlined our clinical research team and partnerships accordingly. We expect these efforts to bear significant fruit in the next 2 quarters. We expect our retrospective study -- clinical utility study, to be completed this quarter, and to have meaningful prospective clinical utility data by midyear. We're still committing to completing the BE-2 case control clinical delivery study but plan to delay completion for the second half of the year. And we will use this opportunity to identify high volume -- high enrolling sites along the way. We find the same with EsoCure, our esophageal ablation product, and pause further development at least until the second half of the year before reassessing. Let's now move on to our other commercial priority, Veris Health. Again, a few highlights to remind you why we remain so bullish on this commercial opportunity. We commercially launched the Veris Cancer Care platform last month, the cloud and smartphone-based digital care platform interfaces with a package of Bluetooth-connected health monitor devices, to provide symptom reporting, telehealth functions and its ultimately advanced data analytics. The company is currently developing an implantable physiologic monitor designed to be implanted alongside a chemotherapy port. And this monitor will interface with the Veris Cancer Care platform. The platform is designed to improve personalized cancer care through remote patient monitoring, or RPM. Again, a few highlights on the value of Veris' recurring revenue business model, is based on software as a service. It allows oncology practices to leverage these well-established existing RPM codes. The practice subscribes to the platform for a number of patient seats and pays a recurrent subscription fee. The model provides attractive margins to both the oncology practice and to Veris. Implantable monitor will further enhance the clinical and commercial value of the platform by providing continuous RPM data, which is not dependent on patient compliance. The addressable market opportunity here is substantial with several million U.S. patients undergoing cancer treatment each year and a large number of requiring implantation of the port. It is obvious from our early commercial efforts that practices are already laser-focused on remote patient monitoring as an opportunity to enhance care but also to enhance their practice economics. They're actually looking for RPM solutions, and the feedback on our solution as an RPM tool has been very positive. A critical aspect of Veris' value proposition is that the commercial success is not predicated on securing a third-party reimbursement only on sales and product development execution. As with Lucid, the initiatives we're announcing today are designed to deliver on the substantial -- under substantial value opportunity, which Veris offers through intense focus on near-term commercial priorities. So we will continue to drive commercial adoption as the Veris Cancer Care platform, utilizing our existing personnel, traction with early adopters with a product like this requires personalized attention to customer integration support. And we will expand the commercial team only when commercial traction has been well established. We decided it was appropriate to delay development and regulatory submission of the implantable physiologic monitor to the second half of 2023. This gives us a unique opportunity, the early commercial experience with the software platform will inform final design considerations to be inside of the monitor and the commercial strategy for its launch. Since the Veris workforce is focused on near-term commercialization, we have eliminated certain technology positions focused on future data analytics, while retaining technology personnel who are directly involved in customer innovation and technical support. Finally, a few comments on what we are doing at the PAVmed level to support this initiative, which shifts focus on commercial activities to its 2 subsidiaries, Lucid and Veris. So PAVmed will continue to provide research and product development support for Lucid and Veris commercialization. It will continue to work on next-generation EsoGuard and EsoCheck products. Most of the resource-intensive work on the Veris implantable monitor will be pushed to the second half, but the PAVmed team will continue to make some progress on the testing and regulatory fronts for this product. Last quarter PAVmed entered into a joint early-stage research and development project with Novosound to explore applying its groundbreaking ultrasound technology to next-generation intravascular ultrasound imaging. Since nearly all of the near-term work on this project will be performed by Novosound and does not require any meaningful resource utilization, we have elected to continue with this promising partnership. With regard to the remainder of the portfolio, we are definitely pausing for helping all other product development activities, including CarpX, PortIO and NextFlo. This is obviously a difficult decision given their long-term prospects. But we simply cannot justify the word in precious resources away for the near-term commercial value opportunities. On the business development front, we'll continue to explore opportunities -- that are presented to us on a limited basis but obviously with a much higher bar for engagement, focusing on -- only on high-value, near-term accretive opportunities that are synergistic with our existing commercial activity. And finally, our entire team from leader -- from senior leadership [ there ] remains highly motivated to pursue additional cost-cutting measures beyond what we already achieved while protecting our commercial enterprise. Despite asking everyone to be more -- to give more with less, but we have made the difficult decision to not pay any more cash bonuses. Employee retention remains a high priority, and we will implement all other necessary measures accordingly. So in summary, as we enter this new year, I enter with great confident that the measures we're taking today to make PAVmed and its subsidiaries leaner and more commercially focused and with a firm cash preservation posture that these efforts will pay dividends in the near and the long term. Many of these decisions were difficult, but ultimately necessary to strengthen the company's and ensure that they continue on a successful path to achieving their long-term vision despite short-term challenges. And we remain in a strong position because we have an incredibly talented and dedicated team that always goes above and beyond every day to support the mission, and I think particularly done so in the past, I hope. So with that, operator, let's now open it up for questions.

[Operator Instructions] Our first question comes from the line of Kyle Mikson with Canaccord.

I guess first, I just was wondering if there was any change in your expectation for EsoGuard collections this year that -- or in the near term, I guess, that kind of prompted these changes in the reduction that you announced today?

No. Actually, I think, as I mentioned, our internal projections for our test volume growth remain the same and robust. And when we went to our sales team and asked them what we needed to do within the posture that we're taking to make sure that we maintain our projections for test volume growth, they actually felt quite comfortable with pausing the growth of the sales team at the current level of 40. We have increasing tenure amongst our sales team. The folks we had anticipated hiring over this first quarter would not really have been productive for 4 months plus into their tenure. And so they actually welcome the -- the opportunity to focus on the productivity of the current clinical team. They spend a ton of time, they have spent a ton of time on recruiting and hiring and freeing up that time from sales leadership to be more directly involved in the field as well as to focus on some of these more strategic initiatives, larger accounts and employers and other -- such as -- was actually welcome, and we think will allow us to maintain our trajectory.

Okay. That was great. It was fine. Just in terms of reimbursement and kind of collecting cash on the EsoGuard claims, how is that progressing relative to like what you're expecting?

Yes, it's actually progressing. I'll let Dennis chime in a little bit, but it's consistent with where we were expecting it to hit. Just again, as a reminder, we started submitting claims in the -- in the middle of the third quarter. So those -- we had 2,000 bad claims. So those are starting to work their way through the system. We continue to get paid out of network on -- at a price that respects the full -- the full price at a -- $1,200 to $1,400 average payment, which reflects the 60% kind of network coverage. We are starting to generate claims histories that have led to engagements with payers whereby we agree on payment rate as sort of an interim to in-network contract discussions. So those have been gratified over the last -- generally the recent past. So it's making progress. I just -- I would say, it's still early, since we're only a few months into actual claims submission. But what our goal is around securing to be -- to engage in claims history as well as protecting through the Medicare as a floor. All of the price investment of this have been gratifying, and we look forward to continuing that program. Dennis, would you like to add anything to that?

Yes, sure thing. So Kyle, yes. None of the actions that we've undertaken here were driven by any different view of reimbursement or our expected cash collections based upon claims already submitted or expected to be submitted. As Lishan indicated, none of it was driven by a change in our expectation in terms of the number of tests, which we expect to continue to increase quarter-on-quarter, largely driven by a change in the capital markets that, that could not be a backup plan, but if there is any gap, then it was just prudent to take these actions. We only have a sample of 2 weeks in the last quarter. And so the first 2 weeks are an indication that our expectations should be met, if not exceeded. But again, it's always a small sample. So there's not a whole lot of predictive value in that sample size.

Yes. You know what, actually, maybe I can just jump in again because I realize that the point of your question, I might have missed it. So it's actually to the contrary, Kyle, that the FD positions are, in fact, driven by our focus on applying the resources we have to drive test volume, to drive reimbursement, to get through those hurdles in the upcoming quarters. So it's exactly the opposite, just to be [ clear ].

All right. And just I guess one more. What's new with the draft or fee for Noridian? I think it's only been like a year or so. I think April was when that was released. Is anything new there? What are you expecting with respect to timing on that?

Yes. As we've said before, we -- the time line is correct. The final submission was actually in June of last year. So we're about 6, 7 months in. And we have no visibility as to when we will hear back from them. It's a bit of a waiting game similar to what we went through prior to the publication of the LCD. All of the materials are in. So we are confident in the -- in the [ audience ] you need to transform the LCD into an operational LCD and moving forward. I will use this opportunity to emphasize that our -- the distribution amongst payers for the cases we're doing has remained at sort of 90-10, private versus Medicare. So although the LCD will be important in engaging larger payers, and many of the larger payers do leverage the, at least, the draft LCD, it has not been an issue with regard to our engagements so far with smaller plans and adjudicated claims along the way. So we remain full team ahead on the private side while we wait for the coverage of the Medicare side.

Our next question comes from the line of Ross Osborn with Cantor Fitzgerald.

So starting off, can you provide more detail on what roles you're cutting to lower total workforce by 20%? And then also the timing of these cuts?

Yes. The cuts, we've already taken them. So that 20% reduction is already in place. And I'll let Dennis dive into further details. But it's a mix of product development teams for projects that are no longer access. We've reduced some of our clinical research teams since we're going to be focusing on clinical utility, and we're going to be delaying the completion of the BE-2 clinical utility study. We did have some layoffs on the commercial, the listed commercial team, to get us to this number, but it was really a combination of those layoffs as well as sort of closing that vacancy to get us to like 40 -- at that 40 number. So approximately 28 personnel representing about 20% of the combined workforce of the PAVmed and the [ Veris ]. Dennis, feel free to add any details if you like.

Yes. No, I think that's the kind of what we've disclosed. It was generally across the board across all of those disciplines. And the general rule was we did not touch any of the areas that had immediate commercial near-term value. And it's fully tied to those initiatives that had a longer horizon, and we could afford to push them off indefinitely our [ whole cycle ] program, and that resulted in where the cuts came from.

Okay. Got it. And then turning to the Lucid testing centers. Do you plan to launch any new centers in 2023? Or are you going to stick with the 13 centers and the level you mentioned?

I think that's a good opportunity for me to emphasize something that I had mentioned earlier, which is that the focus on the number of test centers as opposed to the number of clinical personnel and so the utilization has really evolved over the last couple of quarters. We were kind of in the -- okay, let's keep adding centers, 3 a quarter and so forth. And right now, what we found with this satellite test center model where we have much more mobility where our NPs can move to places that are far removed from a physical location and be able to provide testing even at screening events and so forth, has really changed the game for us. So I'm not saying that we won't open any new test centers. I think the way I would encourage you and others to look at this is start with the sales personnel and how much test volume the sales personnel can drive, and we believe they can continue to drive that volume based on their engagement with physicians and institutions. And that we have sufficient clinical support to provide the EsoCheck procedure to support the test line that's generated. And we believe that we currently have that with the number of the physical sites that we have as well as the NPs that we have. We may need to adjust that as test volume grows during the year. But right now, we actually have sufficient clinical support. And that's how I would sort of encourage you to think more about the test centers as opposed to kind of the physical locations, which we'll continue to add. They still serve their -- serving important purpose but the satellite model has really opened up the game substantially with regard to our ability to provide testing and procedural support. Does that make sense?

Yes. That makes sense. And maybe going off of that with regards to those satellite testing centers. Are these being done in the 11 states you're currently in? Or is your geographic base more diversified?

They're being done in other states and other locations, too. We even had NPs drive, commute, fly to areas where we don't have physical centers. And so that's one of the easiest way, it really does expand geographically. And we -- there are further ways we can extend that. If we have a busy site in an area where we don't have a physical center or we don't have a nurse practitioner in close proximity, we can actually -- we're looking into having -- putting those -- putting those practitioners who are working part time to simply just support that -- work part time under us, but would simply be there to support a particularly busy site that wants to get up and running prior to that. So again, just keep emphasizing, it's really, really exciting and has opened up really a number of [ listings ] in terms of our ability to expand -- support and expand our facilities.

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

I was hoping to start with one on Veris. It sounds like some good progress is being made there. Can you maybe just lay out how you're thinking about potential contribution from that business in 2023?

You want me to go ahead?

Yes, go ahead, Dennis.

Yes. So we started, as you well know, with launching our first commercial site with Veris Box and a Cancer Care center, and we'll continue to do so. We have a number of opportunities in the pipeline. Keep in mind that the fees that we will earn will be, over time, similar and probably align to how the institution or the physicians get reimbursed over time as they continue to monitor these patients during their chemo care and shortly afterwards. So there won't be that -- a bolus of revenue as we sign each one. It will occur over time. It's a recurring revenue model. So it will diminish some of the burn inside Veris. But given the development plan that Lishan outlined, we don't think that there is a significant burn beyond where we have been. And in the following year, as we get past the submission for Mercury, some of that development costs will come down. So I know I didn't give you a complete answer. It's roughly between the range. That's simply because we haven't publicly disclosed all of those details of what's coming from the initial contract and what we have in the pipeline already.

Yes. But just to add to that, Ross (sic) [ Frank ], the investment in the platform and the pipeline of materials, the monitoring devices, all of that is in place, right? So by pushing out some of the product development costs on the implantable monitor, the commercial launch right now is really entirely focused on just getting our team out there. We have, as Dennis mentioned, a very robust sales pipeline of practices we're calling on. We're giving demos. We're engaging with them. As I mentioned, just -- just to highlight something I mentioned, which is that it's been very gratifying the way when we've engaged that. We did not expect necessarily that the practices would be sort of a change to the opportunities of remote patient monitoring. We thought we'd have to make that as sort of a second talking point. And the conversations have generally zoomed [ particularly ] for that because people after COVID are very much focused on remote patient monitoring and the -- both clinical care and economic aspects of it. So the coming quarters is just straight sales execution, calling on sites and delivering the products that we already have. There's not a substantial burn associated with that, just the ongoing cost the sales and sales execution. And we're not building a big team to do that. We're going to start with our current team. And once we start getting traction, we'll build accordingly.

Got it. Okay. That's helpful. And then maybe on the statement around and definitely halting business development around CarpX, PortIO and NextFlo. Do you intend to seek any monetization avenue with any of these assets? Or do you think they [indiscernible] capital market?

It's early to say, I mean, we obviously have the IP. Sorry to interrupt you. Yes, it's a little bit early to say. We have -- I mean, obviously, this is not just IP. We have substantial progress we've made on the product development side with all of those. Whether there would be monetization opportunities for those or not is something we'll explore. But I don't have a good answer for you there with regard to that. We do think they're extremely valuable where we've been making progress on the ultrasound imaging side of CarpX. The PortIO clinical trial have been coming along, and we're looking to expand that to longer durations and so forth. So yes, it is a bit bittersweet, but we'll do everything we can, obviously, to take the investment we made into those and try our best to create some value from them potentially through the kind of efforts that you're describing.

Okay. Perfect. And then maybe just one clarifying question to make sure I understand. You state reduced quarterly cash burn by at least 25%. Is this as it applies to the PAVmed entity as a whole? Or are you looking at just the Lucid entity? Just trying to make sure I understand.

I'll ask Dennis to dive into that, but yes, yes.