Lucid Diagnostics Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 12, 2024

There are 9 speakers on the call.

Operator

Good morning, and welcome to the Lucid Diagnostics Second Quarter 2024 Business Update Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. Please note, this event is being recorded. I would now like to turn the conference over to Matt Reilly, Lucid Diagnostics Director of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone.

Speaker 2

Thank you for participating in today's business update call. Joining me today on the call are Doctor. Lishan Aklog, Chairman and Chief Executive Officer of Lucid Diagnostics along with Dennis McGrath, Chief Financial Officer of Lucid Diagnostics. 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.

Speaker 2

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 Securities and Exchange Commission. For a list and a 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 Forms 10 ks filed with the SEC and any subsequent updates filed in the quarterly reports on Forms 10Q subsequent Forms 8 ks. 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 Doctor.

Speaker 2

Lishan Aklog, Chairman and CEO of Lucid Diagnostics. Take it away, Lishan.

Speaker 3

Thank you, Matt, and good morning, everyone. 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 remains singularly on driving this Lucid enterprise towards a substantial commercial potential and to enhance our long term shareholder value. I'm very pleased with the solid progress the team has made over multiple fronts during the past Q2 and in recent weeks.

Speaker 3

We are now fully armed with a complete body of outstanding clinical data and are poised to make our final push towards broad coverage and reimbursement to drive EsoGuard revenue and revenue growth. Let's start with some highlights. First on commercial execution. Our revenue for the Q2 of 2024 was $1,000,000 that's flat relative to the prior quarter and up approximately 500% on an annual basis. E Cigar test volume, as we previously reported, was 3,147 tests, which is a 31% increase on a quarterly basis and 44% annually, and that represents record E Cigar quarterly test volumes.

Speaker 3

Our CYST events continue to thrive. We held over 50 high volume health fair events during the quarter, and that's a 60% increase prior relative to the prior quarter. In partnership with the Fort Worth Fire Department, we held our first large CYFT event with upfront contracted payment. We've made solid progress in direct contracting and our direct contracting initiative targeting benefit brokers, 3rd party administrators and self insured entities to offer EsoGuard as a covered benefit. We also have made continue to make progress our revenue cycle management processes, including prior authorization expansion, physician and professional society advocacy and our pricing, as Dennis will describe in more detail, is holding with median out of network allowed amounts remaining near the Medicare rate.

Speaker 3

Some key strategic again, as I stated earlier, we are now fully armed with the complete body of outstanding clinical data. Much of this has come in recently. We reported on the ENVET BE clinical utility study, which showed positive data with a 2.4 fold increase in the yield of endoscopy. And the BE-one clinical validation data, which was also just recently released showing EsoGuard sensitivity of 88% and a negative predictive value of 99%. We'll discuss both of these studies in greater detail later.

Speaker 3

The previously released data from the clinical for the Cleveland VA clinical validation study was published in a peer reviewed journal, the American Journal of Gastroenterology and showed similar EsoGuard sensitivity of 88% and negative predictive value of 99%. Last month, we held a productive meeting with the CMS MolDX program focused on EsoGuard clinical data. And we look forward to submitting our data and working with the MolDX team to ultimately secure Medicare coverage. The American Foregut Society, a leading professional society focused on esophageal disease, published a formal statement that strongly advocated for commercial payer coverage of E Cigar to align with guidelines of biomarker legislation. This is a formal request.

Speaker 3

It was strongly worded and we believe it will have an impact on seeking coverage from commercial payers. So for those of you who are new to the Lucid story, there's a few slides to provide you some background on our company. Lucid is a commercial stage cancer prevention medical diagnostic company. We're focused on early pre cancer detection and the mission is to prevent esophageal cancer deaths in a well defined at risk population. We have 2 technologies EsoGuard, esophageal DNA test and the EsoCheck Cell Collection Device.

Speaker 3

The EsoGuard test is the 1st and only commercially available test that's capable of serving as a widespread screening tool to prevent esophageal cancer deaths through the early detection of esophageal precancer. Escar performance is really unprecedented for a molecular diagnostic test. Here we show compare the EsoGuard performance in various categories compared to some comparable some other early detection tests including Cologuard, the colorectal stool test and the guidance shield colorectal blood test which was recently approved. And I say it's unprecedented really around its ability to detect precancer and early precancer. So you can see this is pool data from multiple recent clinical validation studies, which show 100% sensitivity for cancer, which is kind of compares very favorably to these other tests.

Speaker 3

Pre cancer sensitivity, however, is 83%, substantially greater than the other tests than really any other tests in this category. And then most notably, early precancer sensitivity remains high at 86%, while other tests have no ability to detect early precancer. EsoGuard even has a high sensitivity of 91% in the very shortest segment sort of segments of disease, 99% negative predictive values or very false a very low false negative rate and a positive predictive value of approximately 30%, which is comparable to other such tests. The commercial opportunity here is very large. There are very well defined population of 30,000,000 approximately 30,000,000 people in the United States who are at risk with chronic heartburn and are already recommended for precancer testing.

Speaker 3

Medicare has established a rate of $1938 and our out of network payments with commercial payers have held up pricing has held up in that range. So very large addressable market, a lot of opportunity for us to generate revenue, substantial revenue even with low levels of penetration. Our gross margin for the next test in the door as our current volumes is approximately 90%, which we believe will give us an opportunity to drive our business moving forward. We have a multi pronged commercial strategy with multiple venues and multiple locations where patients can get access to our test. We have physical test centers now located in 23 cities.

Speaker 3

Our dominant approach right now is with what we call our satellite Lucid test center model, where our team partners with the typically primary care physicians and perform cell collection at the physician's office. And we also have physician practices who are building programs around typically specialists who are building programs around the EsoGuard test where they perform the test itself. We have a mobile test unit in Florida, which provides us with a good opportunity for visibility and marketing. And as I hinted at earlier, we have these large check your food to health fair type events. We've initially focused on firefighters, but we're expanding to other targets.

Speaker 3

We made we're starting to get some increased traction with larger health systems. These are longer lead times, but really are high value once we have programs in place and we're looking forward to expanding our efforts in that area. So as previously noted, we had record quarterly test volume this past quarter at just over 3,100 tests. Revenue has been flat for the last compared to the last quarter. And this commercial activity has been with a flat headcount for sellers over the past couple of quarters and really a 30% decrease in the headcount compared to our peak in approximately Q4 of 2022.

Speaker 3

So really this represents an increase in the productivity of our sales force. On commercial execution side, let me first talk about these, our high volume check your food tube pre cancer detection events. As I mentioned earlier, we had over 50 such events during this past quarter. That represents a 60% increase relative to the Q1 of 2024. We're happy to note an important milestone where we tested our 4 thousandth firefighter recently and we have continued to have a very robust pipeline of events scheduled full through October.

Speaker 3

Direct contracting remains an important part of our near term strategy, which we believe will meaningfully contribute to long term revenue growth. We're deploying additional resources to this initiative and we held, as I mentioned, our first large CYFT event where we received upfront contracted payment with the Fort Worth Fire Department. This is a really important milestone. We'll increasingly seek to have guaranteed revenue from these CYFT events outside of the usual insurance claims process whenever possible. We are making solid progress targeting benefit brokers, 3rd party administrators and other self insured entities in our effort to offer EsoGuard as a covered benefit to in the near term drive contractually guaranteed revenues.

Speaker 3

We continue to have make solid progress with our revenue cycle management processes related to out of network payments. This remains a critical aspect of converting our test volume both into revenue. The median allowed payment amount remains stable near the Medicare rate. We're making good progress on streamlining the processes for prior authorizations to eliminate denials. Our appeals process is getting more sophisticated and targeted and we are seeing higher percentages of appeals of claims that are being turned over on appeals and we have better processes for those appeals, particularly in those patients where the appeal is related to the designation of being medically not necessary.

Speaker 3

Dennis will discuss some of these numbers in more detail later. We held a highly anticipated and productive meeting with the MolDX leadership group with an in person meeting last month and was very productive. We really look forward to the focus was on our data and we look forward to submitting our data formally and working with the MolDX team to ultimately secure Medicare coverage. We also continue to pursue an active market access strategy with commercial payers that's focused on securing medical policy coverage with regional plans and trying to leverage biomarker legislation, which now exists in multiple states and trying to secure pilots with national plans. As I stated from the onset, we are really now fully armed with what is now a complete body of outstanding clinical data.

Speaker 3

And this positions ourselves really well for this final push towards broad coverage and determination. This table shows the data. Here it is. I won't go through each of these, but just to highlight a few, I'll talk briefly about the most recently released data for the EsoGuard BE-one and the NVAD BE studies. As you can see, those are working their way through peer review.

Speaker 3

We've had some recent publications and now have multiple published studies, basically 4 clinical validity studies, those are the top 4, and 4 clinical utility studies that are that demonstrate the clinical utility of EsoGuard. So the EsoGuard DE1 study, which is the data was recently released on preprint and it's awaiting peer reviewed publications, It was a study that included 93 patients in a screening population. So these were not preselected patients who had known disease. Pre cancer sensitivity was 88%. There were no not unexpectedly, there were no cancers detected in this population and very similar statements sorry, similar results with negative predictive values in the 99% range and positive predictive value of 30%.

Speaker 3

This is a multicenter study led by Doctor. Nick Shaheen of UNC. The NVAT BE study, which was recently released on preprint and we announced that last week in a press release as awaiting peer review. This study provided real world data to confirm the utility of EsoGuard has a non invasive triage tool to significantly increase the positive yield of invasive upper endoscopy. And I was noted in BioWorld, it demonstrates that our EsoGuard test more than doubles precasular deflections.

Speaker 3

I reported on 199 patients where EsoGuard was used as a triage tool to invasive endoscopy. So positive patients got endoscopy, negative patients did not. And the yield of endoscopy was increased by 2.4 fold relative to what it would have been endoscopy was performed without a triage using esakart. So really excellent clinical utility data to supplement our overall clinical evidence. Let me pass the baton on now to Dennis, who will cover our financials.

Speaker 4

Thanks, Lishan, and good morning, everyone. The summary financial results for the Q2 were reported in our press release that was published earlier today. On the next three slides, I'll emphasize a few key financial highlights from the quarter, but I encourage you to consider those 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 quarter end June 30 was 24,900,000 dollars During the quarter, we closed the Series B1 convertible preferred financing in the amount of 11,600,000 dollars The average quarterly burn rate for the trailing 4 quarters is $10,600,000 The burn in the 2nd quarter included 7 point $4,000,000 from ongoing operations, which is in line with the previous quarter. Dollars 2.5 from the quarterly MSA or management service agreement and $1,600,000 reduction to the intercompany debt to PAFmed.

Speaker 4

We disclosed in the 10 Q that our ability to fund operations beyond 1 year from today is largely dependent upon how revenues ramp over the next 4 quarters, which is dependent upon how the reimbursement landscape for both government and private health insurers continues to improve. Additionally, our direct contracting efforts with self insured employers and or corporate finance activities, including refinancing any outstanding debt at the time, can also work to exceed that threshold. The increases in other assets of approximately $2,000,000 reflects the GAAP accounting for the 3 year lease renewal of our California lab. That also is reflected in the long term liabilities with a corresponding $2,000,000 increase. Included in other current liabilities is the $11,200,000 fair value of the senior convertible debt, which reflects a sequential quarterly decrease of 1,900,000 dollars During the quarter, the company issued approximately 2,100,000 shares in satisfaction of conversion notices from the debt holder.

Speaker 4

Shares outstanding, including unvested restricted stock awards as of last week are approximately 54,000,000 shares, which includes approximately 750,000 shares issued subsequent to quarter end in connection with conversion notices from the convertible debt holder. The GAAP outstanding shares as of June 30 of 49,300,000 dollars 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 stock award amounts. At present, PAVmed continues to be the single largest shareholder of Lucid Diagnostics with ownership of just under 60% of the common shares the As you're aware, Lucid's recent financings included the issuance of a series of voting convertible preferred securities, whereby the preferred shareholders are significantly incentivized to delay conversion of the preferred shares into common shares until 2026, namely the 2nd anniversary from closing. All of the preferred shares outstanding were converted to common shares as of today.

Speaker 4

There would be an additional 51,600,000 shares outstanding. With regard to the P and L, This slide compares this year's Q2 to last year's Q2 on certain key items. Trust you will review the information in my comments in light of the cautionary disclosure at the bottom of the slide about supplemental information, particularly non GAAP information. Revenue of approximately $1,000,000 for the 2nd quarter is about even with the previous two quarters and reflects more than a sixfold increase over the prior year's Q2. The amount reflects actual cash collections for the quarter plus a small amount of invoiced EsoGuard tests delivered to the VA.

Speaker 4

Test volume of 3,174 tests for the quarter represent almost $8,000,000 in submitted claims at our $2,499 ASP. It's worth repeating what we've communicated in the past quarters about revenue recognition. The 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 the early stages of the reimbursement process means revenue recognition for claims submitted to 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 when the test report is delivered to the referring physician.

Speaker 4

For billable amounts contracted directly with employers and 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. Our non GAAP loss for the 2nd quarter of $9,700,000 is in line with each of the trailing 6 quarters with an average of 9,600,000 dollars The non GAAP net loss per share has been relatively flat for each of the last six quarters at plus or minus a penny between each of the 6 quarters with an average of 0.22 dollars per share. On a GAAP EPS basis, non cash charges accounted for approximately $0.19 per share. With regard to our operating expenses.

Speaker 4

This slide is a graphic illustration of our operating expenses after eliminating non cash expenses for the periods reflected. Total non GAAP OpEx is $10,600,000 for the 2nd quarter and is in line with the trailing 6 quarters with an average of 10,300,000 dollars Cost of revenue primarily consists of EsoCheck devices, lab supplies and fixed lab facility costs and is in line with the last several quarters. Non GAAP G and A expense is sequentially up slightly by about $400,000 which is mostly reflective of some hiring in our market access reimbursement department and some patent expenses. Let me close with a few reimbursement highlights for the first half of this year. In the Q2, we billed, as I mentioned, 3,174 tests, reflecting just under $8,000,000 in pro form a revenue.

Speaker 4

During the Q2, we collected $976,000 Of that amount we collected, about 35%

Speaker 3

of the

Speaker 4

970 6,000 claims paid were from those submitted in the current quarter, about 45% from claims submitted in the Q1 and the balance from claims submitted last year with the longest dated item nearly 12 months ago. Our revenue cycle manager is reporting that the turnaround times have been increasing for the largest payers and we've seen an increase in claims being designated medically not necessary. The RCM has a mitigation plan for both issues including increasing the speed to follow-up with the late payers and proactively soliciting medical records to use in appeals at an earlier stage in the process. We submitted reimbursement claims for nearly 5,600 claims during the first half of the year, representing just under $14,000,000 in pro form a revenue. About 77% have been adjudicated, 23% are pending.

Speaker 4

Out of the 77% that have been adjudicated, about 25% resulted in an allowable amount by the insurance company with a weighted average during that period of time of about $15.40 per test, dollars 15.40 per test. Of those denied, about 43% are deemed not medically necessary or require prior authorization. Additionally, about 26% were deemed to be non covered. With that, operator, let's open it up for questions.

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer Our first question comes from the line of Mike Matson from Needham. Go ahead please.

Speaker 3

Good morning, Mike.

Speaker 4

Hi, Dennis. Hi, Lee, Sean. This is Joseph on for Mike today.

Speaker 3

Hi, Joe.

Speaker 5

Hey, how are you doing? Great. Just in terms of, I guess, the MolDX meeting, did you have the recent data, especially the clinical utility data to be presented in that pre submission meeting? And then, I guess, when would be the next one where you would have, I guess, another batch of data to show them? And is there a timeline in terms of final dossier submission in 2024?

Speaker 5

Or do you think that may be pushed out to 2025?

Speaker 3

Okay. A couple of questions there. So we the data that we reviewed during the pre submission meeting included the 3 clinical validity studies and the 3 clinical utility studies. We did not review the spend much time on the original paper from the STM from this STM. One of those was not was in preprint has not yet been published in terms of the CV data.

Speaker 3

We did not have the data, the 4th CU data, the ENVIT BE study prepared at the time, but we did discuss that we were what we expect the additional data we expected in the pipeline. We do not expect to have another formal pre submission meeting. This meeting was really our first formal reintroduction since the early days when we first submitted well prior to the LCD. And our next step is to collect the data, put it together in a dossier, as you mentioned, and submitted for consideration. One of the gating items for that is the publication of the EsoGuard BE-one data, which is preprint now and has been submitted to a journal and is currently under peer review.

Speaker 3

So that will be the gating item for us to put a final package together and to submit it. So really in terms of a timeline as to when that will happen and when the subsequent steps are. It's a little bit hard to say right now, but certainly would expect that the BE-one data will get published soon enough for us to be able to do so this year.

Speaker 5

Okay. Yes. All that color is very helpful. Thank you.

Speaker 3

Okay.

Speaker 5

And then I guess just looking at payment rate for in the quarter, obviously, EsoGuard volume was up a fair amount sequentially. I think it was 30%, which is great. But payment rate was down. Obviously, I understand some of the details that Dennis gave in terms of the increases and what was deemed medically not necessary. But just comparing that or framing that up with the large CYFT event where you guys did have a contracted payment.

Speaker 5

I'm just kind of wondering how those two forces came in contact with each other. Maybe what was that contracted payment rate, if

Speaker 4

you could talk about that?

Speaker 5

But the way I assume it is that you had 100% payment rate for everybody in that event. Also was that recognized in this quarter then?

Speaker 3

Yes. I may have some. Yes. Yes. Go ahead.

Speaker 4

Yes. So the contract amount was paid in advance and we deferred that revenue and we needed to defer that revenue because the event actually occurred in the Q3 and therefore will be recognized in the Q3.

Speaker 5

Okay. That's very helpful then. And then I'll just maybe just ask one more. With the current cash burn that you guys are laying out as well as the recent financing, what is maybe your cash runway look like right now?

Speaker 4

Yes, dollars 25,000,000 in cash burn just around $10,000,000 You've got a little more than 6 months' worth of cash.

Speaker 5

Okay, okay, beautiful. Well, thank you guys very much and congrats on the record quarterly E Cigar volume.

Speaker 4

Thanks, Joseph. Thanks, Joseph.

Operator

Our next question comes from the line of Kyle Mixon from Canaccord. Go ahead please.

Speaker 3

Hi, Kyle.

Speaker 6

Hey guys, thanks for the questions. Congrats on the progress. Just given all of the clinical evidence you're building now, it's very encouraging and it seems like it's going to be very useful for reimbursement and stuff. I mean, how are you thinking about like partnering with a large distribution, I guess, like partner, like whether it could be like a larger healthcare company, diagnosis company with a large network or health system or some sort of like elaborate like vendor, I guess, as well. I mean, just at this point, I feel like it's like a pretty legitimate story and like just how are you thinking about that sort of a partnership model?

Speaker 3

Yes, that's I think we've talked about this on and off over the previous quarters. Look, we're quite there yet, Kyle. I think we'll need to get to a higher percentage of realized reimbursement. But certainly with the data we have, the progress we've made, that's certainly a consideration. But, I don't expect that that's going to be a true near term event, because obviously those kinds of contractual arrangements require that you have sufficient payment to justify the expense on both sides.

Speaker 3

Dennis, did you want to add anything?

Speaker 6

All right, great. And then, yes, look, LiShan, what's been the reaction in the medical community or among the payers to all the most recent studies, I guess, and just like the building portfolio data? Could that actually result in like an increase in adoption or is volume going to be kind of stable until coverage for Medicare accelerates

Speaker 3

here? Yes. I think thanks, Kyle. I think the way I would characterize it is that we have our adoption is already quite good. Our volumes are really driven by the number of folks we have in the field.

Speaker 3

As I mentioned, we actually have fewer reps in the field with greater productivity. But look, the data is being well received, especially the clinical validation data, which is something that the physicians focus on. The clinical utility data is generally more something that's more that the payers have focused on more. But the clinical validity data with these kinds of sensitivities, really high negative predictive values, solid PPVs, We do numerous peer to peer events. There was one associated a large one associated with the Fort Worth Department event that I was able to attend.

Speaker 3

And as you said, it helps it's really critical to have data. So even though people generally have been quite enthusiastic about the prospect of having a non endoscopic biomarker test as an alternative to endoscopy with good early data. As we've locked down the clinical blood data in particular, that's just strengthened the enthusiasm within the physician community.

Speaker 7

All right. That was great. Thanks for that.

Speaker 6

And then Dennis, you mentioned that 43% of the like it was like over 5,000 claims submitted in the first half of the year were deemed not medically necessary. Maybe, Lisjan or Dennis, could you just like dive more into that and then what that means? Like why is that like reaction or why you've seen that reaction among these groups? That's interesting.

Speaker 3

Yes,

Speaker 4

medically. So the 43% included the combination of 2 things, medically not necessary was about 25% and 18% were prior not required a prior authorization. The medical not necessary designation tends to be the jargon when it may not be covered, may need additional information. And obviously, that's puzzling because all of these patients meet the guidelines, the criteria that have been well established for a long period of time. And that gives us the ability to appeal that claim, demonstrating that it was medically necessary based upon the patient's criteria.

Speaker 4

So each of those denials on that basis becomes a tool for us on the appeals process and we're making progress on the appeal side. We're seeing an increase of those overturned in the appeal process. One other comment that might be important in the overall scheme of things is that, the total backlog of tests and submitted claims that we are still working through all of this process is about $12,500,000 So this becomes an opportunity for us. It becomes an opportunity for a market access team to engage with payers, to submit additional information to demonstrate it was medically necessary and may be overturned in the appeals.

Speaker 3

Maybe I could just add one, emphasize one thing Dennis said, Cobb, which is that, this is actually, these are obviously out of network claims. So you expect to get denials on some reasonable number of them. When we see medically unnecessary, we actually embrace that because that gives us an opportunity to make the case, not just for that individual claim, but more generally with the higher up medical director or other person that's reviewing that. And one of the things that Dennis mentioned, but I just want to emphasize is that we have we're armed with substantially more firepower entering into those and we've had increases in our appeal. So now we have not just the data, not just the guidelines, but as we mentioned, we now have physician advocacy letters within the local communities as well as society letters.

Speaker 3

So the AFS letter, which is worth reading if you haven't, is quite powerful. It basically calls the insurance companies out and says, you need to pay for this test. It's important for our clinical management of these patients. And on the prior auth portion, as we've hinted at without going into too much detail because it can get a little bit wonky, we're really beefing up our prior authorization processes so that for payers and in locations where that's a common, we can actually get prior authorization submitted prior to the test actually being performed to facilitate that. So, those are both areas that we actually have something actionable that we can, that we believe is already leading to an increase in the success of our appeals and we'll hopefully continue to do so.

Speaker 6

And then one more follow-up. The 37% of the claims that were, I guess, billed in the second quarter, I guess, we're in the current quarter. Is that like a kind of a is that 35% like a pretty normal rate? Or do you want to see that increase going forward? Like in other words, do you want to see more like the book to bill ratio, I guess, kind of like become more even over time?

Speaker 6

And just help us think about how that metric could change as you get coverage and so forth?

Speaker 4

Yes. The expectation would be as we move to medical policy and more of the engagement with the insurers, that should be a 30 to 45 day turnaround time from submission of claim to payment. So obviously, it's stretched out while we're in this early part of the reimbursement journey, particularly since we're dealing with out of network and they require additional submitted data to get them paid. So it is being stretched out at this point in time and it is also being reported by the revenue cycle manager that during this out of network, the payments are getting stretched. With medical policy, it becomes much more streamlined.

Speaker 4

It's not without headaches, but the expectation is that we should collect more of what's built in the quarter and ultimately recognize revenue once the report is delivered and that would then be in the current quarter.

Speaker 3

Got it. Okay. Thanks guys. Thanks, Scott.

Operator

Our next question comes from the line of Ross Osborne from Cantor Fitzgerald. Go ahead please.

Speaker 4

Good morning.

Speaker 7

Hi, guys. Thanks for taking our questions.

Speaker 3

Starting off,

Speaker 7

I was just hoping if you guys could provide some more color on your direct contracting engagements just in terms of what's planned for the balance of this year?

Speaker 3

Yes. So I can tell you a bit about the activity and with some of the expectations with regard to how that will translate. So we now have 3 full time employees who are working on this. They're working on it on a couple of fronts. One is just directly engaging with employers, literally calling employers and looking to have our test offered as a covered benefit within their plan.

Speaker 3

We've also had a lot of great success with engaging with brokers. They're really key part of this infrastructure. They work with 3rd party administrators and with companies. And we're starting to get some traction with brokers who are now out there on our behalf pitching EsoGuard as a covered benefit within packages and actually the mechanics of doing so. So doing so by just adding riders to benefit plans to add e cigarette as a rider.

Speaker 3

And so we're still in the early stages of this, but there's a lot of activity, a lot of we have again these we have 3 full time employees who are working diligently on this and we are starting to see some traction. I think what you should expect over the coming quarters is some of our traditional CYFT events such as the firefighter events to result in pre negotiated contracted payments. Those should happen more quickly. Getting on these plans and sort of altering the benefit programs has a longer lead time, but we think we have enough folks on it right now, a lot of activity that should start generating some activity there. And again, when we do so, those will translate into, into, guaranteed contractually guaranteed revenue.

Speaker 7

Okay, great. And then, I realize you mentioned that your sales force is demonstrating productivity gains. But as we're entering into 2025, do you plan on selectively adding to sales force or do you still think you're at sufficient headcount?

Speaker 3

We're playing it really quarter by quarter at this point. We have a really good sales training process. We know how to train folks and add them. But we're paying a lot of attention to maintaining our OpEx flat. We're obviously encouraged by the increased productivity that could very well continue, particularly since the CYFT events tend to be more efficient.

Speaker 3

They don't require as much sort of foot time of reps going from office to office. But our threshold there is a threshold, but it's a threshold for us starting to steadily increase our sales team, very similar to what Kyle was asking, the threshold for considering entering into partnerships would be sort of a meaningful increase in the percentage of our test that we're generating revenue on. So for the foreseeable future, we'll assume it's flat, but obviously we look forward to there being an inflection point and the realization of revenue, which would allow us to justify increasing the sales team.

Speaker 7

Got it. Thanks for taking my questions.

Speaker 4

Thanks, Ross.

Operator

Our next question comes from the line of Anthony Vendetti from Maxim Group. Go ahead, please.

Speaker 4

Good morning, Anthony.

Speaker 1

Thanks. Good morning, Dennis. Good morning, Lishan. The hi. Just following up on the medically tests that are deemed not medically necessary.

Speaker 1

I know you've talked about it, but I think it's really important to try to understand exactly the trajectory. So when it's out of network claims and I know you look at it as an opportunity because you can have these discussions and you have 3 employees focused on this. And I know this is complicated with 3rd party administrators, brokers and so forth. Generally, these plans come up for renewal once a year. But in the meantime, it sounds like you're making progress with getting amendments to the plans, which is great.

Speaker 1

With all the data you have and you put out a lot of data, which is also awesome in terms of supporting the fact that these tests are necessary prevents Barrett's Esophagus and then esophageal cancer down the road. Do you believe because I know it's a long process, but do you believe this 25%, 26% that are still being deemed medically necessary, is that sort of where it's going to stay for a little while or are you expecting it to improve quarterly or sequentially just a little bit and then maybe over the next year see significant improvement in that. I'm just curious as you see it unfold, what's the trajectory?

Speaker 3

Yes, great. Thanks, Andy. Let me touch on that, see if we can provide some additional color and I'm sure Dennis will have some additional thoughts. So just want to make sure that we're clear that the out of network process where we're submitting claims and seeking to get paid on claims is different than the direct contracting initiative. I think you were suggesting that, but I just didn't want acknowledging that, but I didn't want folks to get confused.

Speaker 3

So when we are working on the direct contracting side, where we're getting EsoGuard added as a covered benefit that does not need to go through the traditional claims process that we're talking about here. So those are 2 separate initiatives. But to your direct question about the medically unnecessary, until we have more until we have medical policy coverage, it's reasonable to expect that the percentage that get denied immediately of out of network claims that get denied initially, let me sorry to say, initially based on medically unnecessary may go down, but not necessarily dramatically. We do think we'll have some ability to drive that down as another there are a variety of initiatives we can't cover them all here, but another RCM initiative we have is really having making sure that claims are submitted with full medical histories and with literally with the medical notes. And we have the team has done a great job of coming up with streamlined processes to do so, so that the claim gets submitted with the actual medical history, with the risk factors that demonstrate that are consistent with the guidelines.

Speaker 3

That doesn't mean that all of those will get one of them, but that should winnow it down somewhat. But still, if medical policy is not available, then there is generally sort of an administrative knee jerk They could say, well, this is medically ineffective because we have a policy and then we have the opportunity to engage on appeal and to leverage the physician advocacy letters as well as the society advocacy letters to get those appealed to turn around. That might be different on the prior authorization side so that our efforts to get more patients to have prior authorization should drive that portion of that 43% whatever what that number was. Dennis, did you have anything you'd like to add to that?

Speaker 4

No, I think you hit it on the head. It's reasonable to assume that medically not necessary will go down as policy changes, improvements in policy change. Prior to that, if even though now we are addressing that by giving more of the clinical data upfront with a submitted claim. You could even in the non out of network environment see more of just non covered go up. What will change is medical policy changes will change all of those categories.

Speaker 4

And that's what we're driving with the clinical data to move that needle.

Speaker 1

Okay. No, that's helpful. And in terms of and I know it's probably hard to make sure this happens most of the time or definitely it's probably impossible to make it happen all the time. But how do you make sure that when the claims are submitted, is that part of the revenue cycle management sort of it's under their purview to make sure that the claims get submitted with all the medically with the medical history and so forth to prove that, hey, this person meets that criteria or is it

Speaker 3

yes, okay. That's a I'm going to jump in. I think that's a joint effort by both teams, by our team that includes everybody on our team, the field team that includes the sales team, we're communicating with the physician practice, the clinical team that's there at the time to sell collection, the laboratory team who's processing the samples as they come in and QuadEx, our revenue cycle management. So there are a bunch of procedures, standard operating procedures that we continue to hone and improve on to make sure to understand what with their expertise with QuadEx's expertise, what we think will improve, like for example, the specific effort to drive the prior authorization processes and advance the efforts to get the physician notes. And with that.

Speaker 3

So it's a joint effort on strategy, but the execution requires execution with multiple folks within our team and coordination with the with QuadEx, the RCM management.

Speaker 1

Okay. No, that's helpful. I know it's a process, but the good news is obviously the tests are going

Speaker 6

up. Yes.

Speaker 3

It's not because of the way you said it, Anthony. It's not like we outsource it to them and say call us, call us if it works. I mean, it's a back and forth and we keep honing our operations in the field and in the lab to feed the data to maximize their ability to be successful on their side.

Speaker 1

Excellent. Okay. Thanks so much. I'll hop back in the queue. Appreciate it.

Speaker 3

Great. Thanks, Amit.

Operator

Our next question comes from the line of Mark Massaro from BTIG. Go ahead please.

Speaker 8

Hey guys, thanks for taking the questions. So congrats on the strong volume quarter, record and up sequentially by 31%. You did host over 50 events in Q2 that was up from I think 32 in Q1. So I'm just curious what you think your event number might look like in Q3 because I'm just trying to determine if it's reasonable, if you think volumes can grow sequentially or are you going up against a tough comp?

Speaker 3

Yes, I think it's hard to say, Mark. I mean, we're not we're certainly not pushing a story that we're sort of going to see sort of dramatic quarter on quarter growth every quarter moving forward. I think our stance from the other from a couple of quarters ago, I guess last quarter to say that our expectations are generally given the sales given the lean sales team, even with higher productivities to see modest quarter on quarter growth. We're obviously happy that that increased. That as you sort of hinted, it could be could change depending on how our CYST volume goes.

Speaker 3

And so there is certainly the possibility of having another quarter up similar to what it was this quarter. But we're really would prefer to kind of assume that that may be noisy and choppy with some overall growth and given that both the CYFT events and the more traditional volume still driven by a relatively lean sales team.

Speaker 8

Yes, that makes sense. And so it's nice to see you test over 4,000 firefighters. You've made strong inroads in that group of folks. I think you talked about expanding to other targets, other types of end markets, I guess. Are you willing to share some of those?

Speaker 8

And I would assume these folks are higher risk.

Speaker 3

Yes, sorry to interrupt Mark, I'll take your time. Yes, sure. It's interesting because what ends up what we the way we see this progressing is sort of the lines get are going to start getting a bit blurred between what we're talking about, what we've been experiencing over the last year and a half with these firefighter focused Check Your Food Tube events and expanding into other similar groups, example, police departments or other municipal groups, teachers and so forth. But that starts to blend into unions and that starts blending into employers and that actually starts blending into our direct contracting initiatives as well. So there is close collaboration actually between our sales team, our field sales team, which is driving most of the current check your food tube event volume with firefighters and our employer markets and our contracting team who are looking to call on more employers and then kind of the unions fall sort of in between.

Speaker 3

And so but yes, it starts the expansion starts with other groups that are similar to firefighters. I mentioned police and other municipal groups, but then we'll start to blur into just unions in general, but also employers.

Speaker 8

Okay, great. So I believe there's been at least 15 states that have moved to pass biomarker bill legislation. You guys did talk about it, But I'd be curious to know, if you're having any conversations with commercial payers, specifically about the biomarker bills, and if you could maybe just share any type of intelligence with respect to when I think a lot of other labs talked about 2025 when we can start to see this start to move. But just curious if you've had conversations with any regional plans like perhaps Blues plans about whether or not your test is eligible to qualify under the biomarker bill language or how we should think about this as we exit the year?

Speaker 3

So yes, the answer is yes. We do have we have conversations with multiple plans in multiple states and we're very our market access team is very cognizant of this legislation. And as you sort of hinted that regional blues are actually a key target in that area. And we are having those conversations and there's a bureaucratic element to it that requires more work than it probably should because we definitely qualify under it because most of these biomarker tests state that mandate coverage. I mean, they obviously have every one of them has their own language, but just to kind of as a general theme that mandate coverage based on FDA approval or recommendation and guidelines, right.

Speaker 3

So we really feel absolutely that we qualify under the ladder. But there is a bureaucratic process as you might assume that the payers are not necessarily sprinting to this process, but we think it's inevitable. So I think we've had conversations, we've had some progress in a couple of states. We're working our team is working diligently there. And I think the general sense you're getting that the traction will start picking up and we'll start seeing coverage pathways that are that take advantage of this legislation later towards the end of this year or early next year is probably a reasonable assessment.

Speaker 8

Okay, great. That's it for me. Thank you.

Speaker 4

Great. Thanks, Mark. Thanks, Mark.

Operator

Our next question comes from the line of Ed Woo from Ascendiant Capital. Go ahead, please.

Speaker 3

Yes, congratulations on the progress and on the quarter. As you get possibly moved to having more of these Check Your Food Tube events with upfront contracted payments, has there been any pressure to negotiate down the testing prices? The way these events are structured, it's sort of a potpourri of what works for both sides. And so there are a variety of pricing models that we explore with these folks that some of them are risk sharing in some regard. So they vary a lot.

Speaker 3

I wouldn't say there's pressure on pricing so much as there is what you might expect there to be in terms of sort of working out the details of a contractual arrangement. How many over what time? Is it a maximum number? Just a variety of per day, per diem structure. There are varieties.

Speaker 3

There's sort of a menu that we present and look at contractual arrangement accordingly. Dennis, did you want to add anything?

Speaker 4

Yes. No, it does depend upon the event. So we could engage in a fixed amount for that particular day and have all comers up to a certain level. And it's unpredictable based upon firefighters schedules, whether or not that's going to be 50 or 200. And we look at it for that particular event, what's profitable for us for our team being there in that particular day.

Speaker 4

And it always calculates out to be a very profitable day for us. There's not much more to add other than what Lishan indicated. We have a lot of flexibility in that regard to fit the particular need and circumstances of that department at that particular time of the event.

Speaker 3

Great. Well, thanks for the explanation. I wish you guys good luck. Thank you. Thanks, Ed.

Speaker 3

Very good, Ed. Thank you.

Operator

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Lishan Aklog for final closing comments.

Speaker 3

Well, that's great. Thank you all for your time and for your questions. I really appreciate that. I do want to mention that we have a fireside chat tomorrow at the 44th Annual Canaccord Genuity Growth Conference. So we're looking forward to that.

Speaker 3

And as always, we look forward to keeping you abreast of our progress via news releases and periodic calls such as this one. And the best way to do so and to keep up with our news updates and events is to sign up for our email alerts on the Lucid Investor Relations website and to follow us on Twitter, LinkedIn and on our website. So thank you everybody. I really appreciate it and have a great day.

Operator

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today. We thank you for

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Key Takeaways

  • Strong commercial momentum in Q2 with $1.0M revenue (flat q/q, +500% y/y) and record 3,147 EsoGuard tests (up 31% q/q, 44% y/y), driven by 50+ high-volume “check your tube” events and lean sales-force productivity.
  • Robust clinical data now complete, including the EN VET-BE utility study (2.4× increase in endoscopy yield) and BE-one validation (88% sensitivity, 99% NPV), supplementing peer-reviewed publications and strengthening the case for coverage.
  • Advancing reimbursement efforts via a productive CMS MolDX pre-submission meeting and a forceful American Foregut Society statement advocating payer coverage, while median out-of-network payments hold near Medicare rates amid improved prior-authorization and appeals processes.
  • Progressing direct contracting with self-insured entities and benefit brokers, exemplified by the first contracted event with the Fort Worth Fire Department, and dedicating three new hires to secure upfront, guaranteed revenue outside the insurance claims process.
  • Solid financial health with $25M cash as of June 30, a trailing four-quarter burn of ~$10.6M, high gross margin (~90% per test) and closed $11.6M in Series B1 financing, providing runway into mid-2025 subject to reimbursement gains.
AI Generated. May Contain Errors.
Earnings Conference Call
Lucid Diagnostics Q2 2024
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