Lucid Diagnostics Inc. (NASDAQ:LUCD) Q1 2023 Earnings Call Transcript

Lucid Diagnostics Inc. (NASDAQ:LUCD) Q1 2023 Earnings Call Transcript May 16, 2023

Operator: Welcome to the Lucid Diagnostics Business Update and First Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder this conference is being recorded. I would now like to turn the call over to your host, Michael Parks, Vice President, Investor Relations. Mr. Parks, you may begin.

Michael Parks: Thank you, Betsy. Good morning, everyone. Thank you for participating in today’s first quarter 2023 business and financial update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and Chief Executive Officer of Lucid Diagnostics along with Dennis McGrath, Chief Financial Officer of Lucid Diagnostics. The press release announcing the business update and first quarter results is available on the Lucid website. Please take a moment to read the disclaimer about forward-looking statements in the press release. The first quarter 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 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 Lucid’s most recent annual report on Form 10-Q filed with the SEC and subsequent updates filed in quarterly reports on Form 10-Q and any subsequent Form 8-K fillings. 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 those 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 Diagnostics. Dr. Aklog?

Dr. Lishan Aklog: Thanks Mike, and good morning, everyone. It’s good to be here. Thank you for taking the time. Look forward to giving you an update of our business in the first quarter of this year 2023. Let’s just start with some highlights. These were highlighted in the press release as well. We performed 1,841 commercially EsoGuard tests in the first quarter. That’s a 57% increase on a quarterly basis over the fourth quarter of 2022 and a 245% annual increase. We’ve seen substantial increases in the satellite Lucid Test Center activity, now they represent about 50% of the samples collected for testing in the first quarter. We’ll dive into that a little bit further, later. Our CheckYourFoodTube Precancer Detection Event that were launched earlier this year.

That program is now in full gear and is expanding across the country. And we had a very — we had an excellent DDW or Digestive Disease Week meeting in Chicago this week. That’s the premier gastroenterology meeting. Two studies with compelling data were presented for EsoGuard and EsoCheck. I’m going to start with some background for those of you who are new to the story, before diving into our results. So, Lucid Diagnostics, we’re a commercial stage cancer prevention medical diagnostics company and we’re focused on early precancer detection, specifically in patients with chronic heartburn or gastroesophageal disease, GERD, who are at risk for a highly lethal form of esophageal cancer, called esophageal adenocarcinoma. Our mission is very straightforward, which is to prevent deaths from this awful cancer in at-risk patients.

Just a couple of facts about esophageal cancer. It is highly lethal, it’s really bad actor and it has become quite prevalent with an increase of over 500% over the last 400 decades — for the last 4 decades, in contrast to all the other common cancers, which have remained flat or gone down, and this makes it the second most lethal cancer, approximately 80% five-year mortality rate and accounts for about 16,000 deaths per year. The key statistic is really right there in the middle of the slide there, which is that even stage one disease carries over 40% mortality rate, unlike other common cancers, which have — or picking up the cancer at stage one gives you an opportunity, excellent opportunity for a cure. That’s not the case with this cancer.

It’s one of the rare examples of that. And the consequence of that is that early precancer detection is necessary to prevent deaths. And although screening is recommended, and a well defined target population, less than 5% of those patients who are recommended for screening with endoscopy undergo endoscopy. Our lead products are EsoGuard and EsoCheck, and they form collectively the first and only commercially available test that’s capable of serving as a widespread tool — screening tool to prevent esophageal cancer deaths through the early detection of esophageal precancer. Both major gastroenterology societies, the American College of Gastroenterology and the American Gastroenterological Association, recently updated their guidelines and now support non-endoscopic biomarker testing such as EsoGuard and EsoCheck as an equivalent — acceptable alternative to endoscopy for early detection of esophageal cancer.

The market opportunity here is extremely large, based on the fact that there’s a large population that is recommended for screening. So, approximately 30 million patients are — with chronic heartburn are well established by guidelines that are being at risk and are recommended for screening. That number is actually somewhat conservative. One of the two guidelines actually expanded the target population to include patients who don’t have symptomatic heartburn. So, that number actually is under those guidelines is moderately higher. Medicare has established a nationwide Medicare payment of $1,930. And as you’ll see, that has been reflected in our engagements with private payers as well. So, that results in a very large approximately $60 billion total addressable U.S. market.

The gross margin at volume is over 90%. Just one quick slide on our commercial strategy. We target a two groups separately, the primary care physicians, and specialists and institutions. And they have very different approaches to these two stakeholders. The primary care physicians, the goal is just to get them to order EsoGuard test as we would — as others would ask to order other tests, bringing tests or otherwise. And the actual performance of the cell collection procedure that results in the performance of EsoGuard tests in those situations is performed by a Lucid nurse practitioner, either at a Lucid facility, Lucid test center, or in the physician’s office in the form of satellite Lucid Test Center, as I mentioned. And I’ll show you the data reflects this, the satellite test center model is actually rapidly expanding.

So, just to flesh that out a little bit, what happens is that we have a nurse practitioner, have a scheduled day on a regular basis at the physician’s office and they schedule patients for testing in the office by our nurse practitioner. They can perform up to 30 each day. With the specialty — excuse me. Sorry, I forgot to advance the slide. I apologize. With the specialty and institutions, that’s a somewhat different approach where we’re looking to work with the specialists or the institutions to go an EsoGuard program. And that is — the purpose there is to — for the specialists or the institutions to garner the downstream opportunities for growing such [ph] practice, increased endoscopy, surgeries, other testing within their facility.

And in that model, the procedure can be formed either by their own clinician, a nurse practitioner, a nurse or physician assistant or using a satellite Lucid Test Center model as well. Down to our commercial results, we had an excellent quarter. The first quarter, our total number of tests, you can see here, continues to increase in a steady fashion. We increased 57% over the prior quarter and 245% compared to a year ago. Two pie charts here reflecting some of the distribution of this testing volume. The referral source is now about two thirds. It’s been stable actually in recent quarters, two thirds primary care physicians and about a third specialists and institutions. And as you could see on the right slide there, that 60% of the EsoCheck subcollection procedures are being performed by Lucid personnel.

But the number — the proportion of the total number that are being performed at a satellite test center in conjunction with a physician’s office is now over 50%. And about 40% of these remain — are being performed by the physician practice itself and their own personnel. So last time we announced that we had launched our CheckYourFoodTube Precancer Detection Events. These events are geared towards holding high volume testing events, where our nurse practitioners arrive at a location with a group that’s scheduled for testing. The first event was with the San Antonio firefighters earlier this year, and approximately 400 firefighters were tested over two weekends. That program as we have announced is expanding. We’ve completed — you can see there the orange pies of these events across the country.

And we have a robust pipeline, nine of the remaining, the others in blue are already scheduled for the coming weeks and months. Few comments about contracts and payments. On the right side, you can see that the proportion of patients that are Medicare-Medicaid remains stable at around 10%. And the other aspects are actually relatively stable as well. We continue to maintain an average contracted price above the Medicare rate. Excuse me, all the contracts are above the Medicaid rate — Medicare rate and the average contracted price for the in-network contracts that we have is over $2,000. And we continue to get out-of-network payments and that respects our charges with an average payment of about $1,400. That’s based on a typical 50% to 60% out-of-network benefit.

We’re working hard to continue to drive future in-network commercial payer contracting. And the key drivers of this are generating a claims history and we continue to do so. We have almost 200 insurers that have — to whom we’ve submitted claims so far. And really the critical element of this is clinical utility, generating clinical utility data. That is a critical part of entering into in-network commercial payers and I’ll talk about that in the next slide. We’re also transitioning to a new revenue cycle management provider. We’re excited that that’s going to happen in the next month or so, where we will have significantly more data and actionable data to facilitate our engagement with private payers. Last time, we also announced that we’ve launched a Direct Contracting Strategic Initiative.

And the goal of this initiative is to engage, as others have done in the diagnostic space with ASO, self-insured, employers, unions and other entities directly, as opposed to the insurers. We think there’s a meaningful revenue opportunity outside of traditional commercial payer contracts. As I said, others have had some success with this. We are hiring a dedicated person to lead this program. And I’ll also note, the — events are actually part of this and we have that internal person who is going to be — who is going to be leading the event planning side. As I mentioned, collecting clinical utility data is really a critical part of our efforts to secure predictable reimbursement and secure in-network contracts. Just briefly, a clinical utility data is a very specific type of data.

It’s basically demonstrating to those entities that our test has an impact on medical decision making. More specifically, it means that if a physician — physician orders a test, they actually act upon the result. So, a positive test results in a confirmatory endoscopy and a negative test does not. And so, that’s the specific data that we’re documenting here. We know what the result is just based on our experience broadly across thousands of tests that have been performed so far. These are the four active studies that we’re pursuing, and to document this retrospective and prospective. The firefighter events have had — given us a great opportunity for some retrospective analysis of prospectively collected data. That’s approximately 390 patients.

That study is actually — the data collection has been completed, the manuscript is written and it’s currently being submitted for peer review, that we’re looking forward to that. We have two prospective studies, that Lucid Registry and a multicenter study called the CLUE study. Our target enrollment in each of those is approximately 200 each by midyear. And those are going well. We’re at or above our target enrollment in both of those, and the firefighter events have actually been a nice boost to the registry in particular. And then, we have a virtual randomized controlled study where physicians are given clinical scenarios and asked to document what their decision-making would be. That’s a well established modality used for submitting clinical utility data to payers and that study is also ongoing and is actually at our target.

So, very excited about this, we expect that we should have our first batch of data that can be submitted — the prospective data that can be submitted on top of the retrospective data that’s coming from the firefighter events. We expect that to happen by mid-year and then that will get submitted for peer review and that subsequently will be available to us for our in-network engagements with the commercial payers. Just a couple of highlights from the Digestive Diseases Week meeting. As I mentioned, we had two excellent presentations. This one is by the faculty at the VA in Cleveland, where they performed EsoCheck with follow-up endoscopy — confirmatory endoscopy on 69 veterans. They reported a 99% technical success rate, which is equivalent to the technical success rate that our own NPs have, which was excellent.

The overall sensitivity was 100% which, at picking up conditions along the spectrum from precancer to cancer, that translates into of course 100% estimated negative predictive value and a 37% estimated positive predictive value, which are both really — write down exactly where you’d want it to be for a screening test. There were seven positive patients detected who had either precancer or cancer. Notably, four of the seven were short segments, so less than 3 centimeters of abnormality. That’s the most important category, but also the most difficult to pickup because the amount of abnormal lining of the esophagus is so short, and we’re gratified that they were able to pick up all of those. Two of them have longer segments of this earlier precancer non-dysplastic BE.

And we’re very excited about the fact that we picked up one patient who had silent Stage III esophageal cancer and had them enter treatment with chemo and — chemotherapy and radiation. So, really excellent results from the VA. We also reported on an expanded cohort of patients real world data using the EsoCheck device for sampling of the esophageal cells. This was approximately with under 1,500 patients and the technical success rate that we’ve previously reported at the American Association of Cancer Research of 98% helped. And the average procedure time of less than 3 minutes also helped. The DNA quantity or the DNA yields continued to improve, the quantity not sufficient rate, which is what portion of patients who undergo small collection do not have enough DNA to lead the use of that assay.

That number was already quite good at 6%, but in the interval between the last report and the current report, that number is down to 2%, which is outstanding. And we’re quite proud of the poster presentation at DDW. We have forgot to push the slides. The poster presentation at the DDW was in the top 10%, excellent distinction. Finally, a summary of our lab operations, here you can see the quantity not sufficient rates have plummeted since we took over the laboratory operations in the early part of last year. They’re now solidly under 5%. Turnaround times have held — also have got down quite significantly, held at approximately [indiscernible]. I’m going to hand things over to Dennis to give financial update.

Dennis McGrath : Thanks Lishan. In first quarter, the Board authorized $20 million preferred offering at an $11 million senior convertible debt as seen on slide 18. Previously mentioned, we completed the initial closing of the preferred in the amount of $13.6 million. After exploring a variety of alternatives, this preferred structure created a mutual win for the Company and the investors by matching an attractive dividend with a strong incentive to hold the stock for more than two years. Additionally, in the first quarter, we issued $11 million in convertible debt securities with an accredited investor that has provided the same type of structures with PAVmed over the years and currently holds PAVmed’s existing debt with similar terms.

The note interest is only for six months, has a $5 voluntary conversion price and a 7.9% interest rate. Amortization does not begin until a six-month anniversary in October. Both structures keep stock out of market for long periods of time, likely two years in the case of the preferred, which allows the Company to complete its work on clinical utility studies and improving reimbursement. Our runway is substantially elongated through June 2024. When combining these financings with our cash at the beginning of the quarter results in pro forma cash of $46.1 million. With an ending quarter cash balance of $39.5 million, the pro forma burn rate for the first quarter was $6.6 million. So, on the next couple slides, the summary financial results for the first quarter are reported in our press release that was published last night.

And on these next three slides I’ll emphasize a few key highlights from the quarter, but I encourage you to consider those remarks in the context of a full disclosure is covered in our quarterly report on Form 10-Q that was filed with the SEC last night and is available on our website. So on slide 19, balance sheet. So, cash $17 million, sequential net increase in the first quarter. Our vendor payables were relatively flat with the sequential quarter. It’s offset by the intercompany debt to PAVmed, a $2.7 million increase, reflects largely the management services agreement but that continues to exist in that intercompany debt count. And the shares outstanding including unvested, restricted stock awards as of today is 43.7 million shares.

The GAAP outstanding shares are reflected on the slide as well as on face of balance sheet in the 10-Q. Slide 20 compares this year’s first quarter to last year’s first quarter on certainty key items, plus review the information and my comments in light of the cautionary disclosure at the bottom of slide about supplemental information, particularly non-GAAP information. Revenue for the first quarter reflects actual cash collections for the quarter. The prior year reflects the fixed monthly fee received from the third-party lab that we used before setting up our own lab at the end of last year’s first quarter. Revenue recognition. Key determinant is the probability of collection, where the vast majority of patient out-of-network claim submission means revenue recognition occurs when the claim is actually collected, first when the patient report is 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 predicted data to reflect revenue when invoiced. Our non-GAAP loss for the first quarter of $9.8 million reflects a 7.5% sequential decrease compared to the fourth quarter loss of $10.6 million. On slide 21. Slide 21 is a graphic illustration of our operating expenses for the periods reflected. Total non-GAAP operating expense of $10.9 million for the first quarter 2023 was relatively flat sequentially. However, the first quarter includes approximately $1.2 million of certain onetime expenses related to the reduction for severance costs, loss incurred to finalize the acquisition of ResearchDx including terminating the earnout payments and canceling the consulting agreement and close-out of the secure development and clinical work to arrive at a point to efficiently restart it later when financial resources permit bringing that back on line.

Absent these costs, the non-GAAP operating expense would have been about $9.7 million, reflecting about a 9% decrease sequentially. Cost of revenue primarily consists of EsoCheck devices, lab supplies and fixed lab facility costs. Consistent with recent SEC filings is presented in our 10-Q as operating expense consistent with practices above the other diagnostic companies. Sequential decreases in R&D and marketing expenses were offset by approximately the $1.2 million onetime costs already mentioned, including terminating the relationship with ResearchDx, which will avoid approximately $2.7 million in the future costs. These onetime first quarter costs together with the highly variable quarter-to-quarter convertible debt noncash charges which are shown below the line, account for approximately $0.07 of the $0.40 GAAP loss.

With that, operator, let’s turn it over to questions.

Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] Your first question today comes from Kyle Mikson with Canaccord Genuity.

Operator: The next question comes from Mike Matson with Needham. Please go ahead.

Operator: The next question comes from Mark Massaro with BTIG.

Operator: The next question comes from Edward Woo with Ascendiant Capital. Please go ahead.

Operator: [Operator Instructions]

Dr. Lishan Aklog: I think, operator, we can close out now. So, I’d like to thank you all for taking the time this morning. We found it informative. We encourage you to follow us on our websites, social media but also feel free to contact Michael Parks for any questions. We’re always open for business in that regard. So, his email address is mep@pavmed.com. Thank you very much and have a great day. The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.