Canaccord Community Growth Conference. I'm Kyle Mikson. I cover lifestyle and solution diagnostics for Canaccord. Really pleased to have Lucid Diagnostics here with us for a fireside chat. Lucid offers a method to detect a precancer for esophageal cancer. With the company, we have Lishan Aklog, the company's CEO. Thanks, Lishan, for joining us today. Thanks, Kyle. It's great to be here. Lucid has been around for a while, but maybe some are not, you know, know the story that well. Can you walk through an overview of the company and technology and maybe the kind of the landscape of the market you're looking at? Yeah, again, thanks. Great conference. Thanks for having us here. Yes, Lucid was founded in 2018. We licensed technology from your alma mater, Case Western Reserve University. This is technology that, as Kyle mentioned, relates to esophageal cancer. Esophageal cancer is the second most deadly cancer we have. It's really a rough, brutal disease. It's essentially a death sentence upon diagnosis. That's true for even stage I disease. There's been a real need, a real unmet clinical need, a real thirst for having the ability to detect the precancerous condition so you can actually do true cancer prevention. That's one of the things that we're proud of, that we actually are truly in the business of preventing cancer, not just early detection of cancer. The good news is that even prior to the founding of Lucid, there's a really good understanding of the biology of how it progresses from heartburn and reflux through these precancerous stages, ultimately to cancer. There's a point at the late stage precancer where you can intervene and stop progression to cancer. All of those elements have been in place. The target populations have been really well defined. We know who these patients are. It's basically heartburn and three out of six risk factors. You know, over 50, white male, obese, smoker, or family history. You have about a 10% chance of having a precancer. If we can identify those patients who have precancer, they can be monitored. If they have an early precancer and if they have a late precancer, you can intervene and prevent cancer. Historically, endoscopy has not worked, even though guidelines for going back 30 years have said we should be fine with these patients. People just don't get endoscopies. It's an invasive test and the compliance with that has been low. Now comes this molecular test that can be performed on samples that can be collected non-invasively in an office setting with just a sip of water. There's a little balloon capsule that you swallow and in a minute you can have targeted samples from the lower esophagus that can be sent to a central laboratory. There are these two genes where you can check methylation signatures that have incredible performance and really unprecedented performance at detecting particularly these early precancers. It's not that easy. There's just not that much abnormalities there, but the test is very sensitive at doing so. Just a high level, it's got a 99% negative predictive value. If it's negative, you know that it's not, that you don't have these, a very high probability you don't have these conditions. It works as a triage test. You basically get the biomarker test. If you're negative, you're good to go. About 80% of people can avoid the invasive test. If you do end up being positive, it increases the yield of finding disease in the positive patients. We have a cell collection device that was FDA cleared quite a while ago. We've had a laboratory developed test available on the market where we're approaching 40,000 tests performed to date. We got payment from Medicare that was attractive at $1,938. That was issued in 2021. Over the last few years, we have been working hard on coverage policy on Medicare, which is really the main event that we're dealing with right now, as well as commercial payers and just building up a clinical evidence package so that we can have meaningful conversations with payers. That package was pretty much done by the end of last year. That led to us submitting a request for reconsideration of an existing non-coverage LCD, local coverage determination by the MolDX Group. Now we're coming to the end of that, we believe. We have a meeting coming up on September 4th where we think is really the final stages in this process as they've reviewed our data and are bringing together the other Medicare contractors as well as clinicians to discuss the clinical utility of the test. Great. Let's talk about the meeting in a second. First, you had earnings this morning, I guess announced results last night. You did, I think, like 2,756 or so tests. I believe it goes a step down from the first quarter. Just talk about, if we're looking at the volume the past several quarters, why is it, you know, why is it kind of low? Yeah, so, you know, we've been in this mode where we're waiting for coverage. We're generating, we're billing. We'll bill millions of dollars a quarter in testing. Coverage is, at the end of the day, you know, you have to wait for coverage to get paid. One of our fundamental strategy, really going back over the last year or so, has been to try to maintain a sufficient amount of volume so we have the ability to engage with payers. You can't just sort of sit and wait and say, "Hey, give me a policy." You actually have to be submitting claims and going through, engaging with the medical directors and having activity. We're trying to do so in a way where we're cognizant of our cash burn and our OpEx. Our goal has been to keep our OpEx flat and to keep our test volume somewhere between 2,500 and 3,000 tests. Sometimes that'll go up. We had a quarter in the fourth quarter of last year where we did substantially more than that. Some of that volatility relates to the fact that one of the ways we're able to generate a meaningful amount of test volume while keeping our OpEx down is to be a bit more, you know, sort of more highly efficient methods of doing that, which include these check your food tube events, these health fair type events where we can, you know, go off and make an arrangement to test a bunch of firefighters with one rep who's there engaging with the physician who cares for them. We can bring in, you know, dozens or hundreds of tests and so forth. Some of that up and down is related to that. Even on the revenue side, you know, some of those, it makes the volume a bit more lumpy with regard to the payers you have. This is all sort of consistent with this level of being sort of mid-throttle. We're not trying to drive volume until we are at higher levels of reimbursement. Generally, right now, we're getting paid, you know, I think this quarter was about 17% on the dollar. Most of that is out-of-network commercial payers who will pay us out-of-network. They're paying us pretty close to the Medicare rate. The price is holding with regard to that. The story now is all about coverage. As we start, once we secure Medicare coverage and as we start securing commercial coverage, then we'll have the motivation to put our foot on the gas and really drive test volume and growth. The denial, like 83% of the claims were denied in this order? It's in various, yeah, that's about where, you know, where we've been. These are out of network. There is a variety, I think Dennis on the call today kind of broke it down, but it falls into a variety of categories. You don't have medical policy, so you're not covered. Sometimes they'll say it's experimental, in which case we can appeal and say, you know, we have guidelines. We're in all three of the major guidelines, 2 GI guidelines, we're in NCCN. Sometimes on appeal, we'll get them to reverse. Generally, with commercial payers, if you don't have medical policy and a contract in place, you are not going to, and you're getting paid out of network, lots of times it's hard to recover a meaningful amount of that. In order to get medical policy, you need data. We've really only completed our clinical validity and clinical utility package of data, the clinical evidence package, really only wrapped up in terms of the stuff that was in peer review at the end of last year. It's really only this year that we've been in the ability to have meaningful engagements. They know who we are, but that meaningful engagements with the commercial payers. As I said on the call this morning, we've always, we've generally assumed that the commercial payers as a broad group are waiting for Medicare. That's probably true for the larger, the bigger payers, the ones that operate under these LBMs like Evercore and so forth. What we're learning is that the regional plans, like the regional Blue Cross Blue Shields and others, are very willing to talk to us and they're not actually focused on Medicare. We got a Blue Cross plan in upstate New York, Highmark, that issued policy in the spring. That was really only after a few months of us being able to present the full data package and the healthcare economics. As I mentioned on the call this morning, our pipeline for regional plans that are engaged with us, that are actually evaluating us for medical policy, has really grown. Those conversations that we've had with the medical directors are very much sort of on the data. Where's your clinical validity? Where's your clinical utility? Give us your healthcare economic models. They're digging in the weeds. We think we'll actually start securing more and more regional commercial plans for coverage even before Medicare is finalized. Okay. You have some partnerships with health systems and concierge medicine groups, things like that. It's not really affecting the volume right now, but maybe it is having an impact on the ASP or something. Maybe that's a longer term. Yeah. Let's start with the health systems first because those are longer lead times, right? You go to a health system, you have typically a GI, gastroenterology champion who believes in this, who sees the opportunity to have an impact. For, you know, unlike walking into a private, in like a primary care practice where you're just saying you have patients, great, here's the relationship between cancer and heartburn. We have a test, a non-invasive test. We can get them to kind of start being active earlier. The larger health systems have much longer lead times. We've been talking to Hoag for a year and a half or so, which is the one we announced in the fall. When you do actually complete those and they actually launch these programs, they're really exciting because it's using our test as an anchor to a broader program for cancer prevention, esophageal cancer prevention within their entire health system. They have 200 primary care physicians. They've got a couple of dozen gastroenterologists. We have the head gastroenterologist, who's a really charismatic guy, who's very, very much determined to wipe out esophageal cancer in that region. It's a full-fledged program. We work with them to train their practitioners to do the cell collection part of things. It's a fully integrated thing that just got online, as you said, but we'll start seeing the fruits of that in terms of volume and then ultimately revenue. They do happen to have a concierge practice within the whole health system. That actually is an interesting angle because there we're not dependent on clinic submissions and traditional insurance. Those are contracted arrangements between us and the concierge practice. We're starting to see some traction that we think will start showing up on our numbers in the coming quarters. Okay. Yeah, let's talk about the Medicare situation next. First of all, the mix for Medicare within your volume currently, or maybe for like 12 months, whatever you think is more valuable, was it like 10%? 10%- 15%. It's bounced around in that area. I think this is really important, and we covered it a bit on our call today, which is that the population of patients who are recommended for screening, just the straight-up guidelines, you know, how many people are out there who qualify for guidelines who should be tested? It's about 30 million patients, and half of them, 40%- 50% of them, are Medicare age. That's the population. We just have made no particular effort to go to target Medicare patients in these early periods. Our levels, yeah, I think at one point we were at 20%, but they generally bounced around between 10% and 20%, just sort of the random nature of who we test. In fact, our population tends to be a bit younger because, as I mentioned, a meaningful portion of our test volume is coming through these health fair events, which tend to be working firefighters. They tend to be not retired, on the younger side. What that means for us now is that we have a significant opportunity, just based on our own execution, without the whims of dealing with these commercial payers, to start driving more actively, pursuing and driving the Medicare population. There are other companies that have done that, you know, and we've already started that process in anticipation of getting Medicare. That includes allocating resources in states and in geographies where we know there are higher concentrations of Medicare patients, such as Florida and Texas, Arizona, Southern California. There are lots of tools right now that are digital tools, whether it's through Facebook or through other means where you can actually acquire data. You can actually say, show me all the physicians in this particular zip code that have high Medicare percent practices and also happen to be high prescribers of anti-acid PPI medications. Boom. That can feed directly into Salesforce and directly into how our team targets. We've started that initiative now in anticipation so we can start seeing those numbers go up in anticipation of actually, and then obviously once we get Medicare coverage, our goal will be to get to 50%, you know, from where we are today in an active fashion. Got it. You kind of touched on my next question of, can you, if you got the coverage tomorrow, can you flip the switch and just like. Yeah, I mean, everything about what we've been building as we've been going through this, it's a bit of a slog to get through the coverage process as well as through Medicare. Everything we've done to date has been focused on making sure that we had a scalable infrastructure. That goes from the kind of the routine stuff like how the cell collection tool, the EsoCheck tool, the manufacturing of that, that's scalable. They just need to add lines. We have a high volume manufacturer in Tijuana, Mexico that can, if we say we need a million next year, they can do a million next year. That's not a problem. Our laboratory in Irvine, just outside Irvine, California, same thing. Right now we're doing 10,000 - 12,000 tests a quarter. We already know just based on spikes, they can manage five times that volume with very minimal additional resources, either human or capital. To get higher than that, we'd have plenty of lead time in order to build extra capacity. That's fully scalable. The same is true for our commercial team. We've actually kept the volume around where we are with actually less personnel than we had a year and a half ago. At one point, we were pushing 40. We've kind of, because we have longer tenures and there's a bit more productivity, we're right now operating in the high 20s. All of the training, all of the, just literally down to talk tracks of like, how do you focus on primary care physicians? How do you focus on GIs? What is the pathway to get fire departments to get grants so you can do these events? All of that's in place. It's pretty well locked down. They're effectively SOPs at this point. Starting with Medicare coverage, I think we'll have some momentum going into that because we're starting to get folks to, we actually have new training to get folks to engage with the physicians on Medicare patients. We're not looking to just turn the switch on and suddenly add 100 reps. We're going to be responsible about that consistent with our revenue trajectories and keeping our burn unlimited. We're ready. There's no, everything is in place for us to be able to dial that up at the appropriate time. Okay. Just go back, let's provide some background. Go back to 2022, 2023, when the first draft LCD and the final LCD came out for this kind of testing. You know, it's a non-coverage decision. There's a final policy out there that is not coverage test. Look, maybe just talk about what was missing. It's interesting. Yeah. Nothing was missing, and I'll hopefully can convince you of that. The process of the LCD actually started in 2020. We came to them and said, we have one paper. That was the paper from Case Western that led to, we have no clinical utility data. We have the science behind this, but we really think that you guys should start the process of proceeding with a coverage determination because we're going to have the data. They didn't have to agree to do that. They could have just said, come back to us when you have all the data, then we'll start this process. They didn't because there's been a clear sense from the beginning that there's a strong interest within MolDX leadership about this category of tests, this category of tests to detect esophageal precancer. That culminated, as you said, in a few steps along the way. There was a CAC meeting actually in 2021 that led to a draft that led to ultimately the draft was a little bit of a mess, but there was a comment period that led to a final. If you read the final, the top line says it's non-covered. If you kind of ignore that and you read the rest of it, it says, we will cover tests and it gives the criteria and it matches. It's a perfect LCD for us. It matches the ACG criteria. It says there are no tests that currently have sufficient CV, CU, AV data to, that was true. We didn't, even at that point, we still just had that, we just had that one published test. We know from our conversations with the MolDX that the purpose of them putting that out was to provide a roadmap to us. Again, they didn't have to do that. They could have just said, we've done our analysis. We're not issuing any kind of an LCD. Come to us when you have the data. They put that out there so that it was clear what the pathway was, that they were open to the idea of covering tests within the guidelines according to the ACG. When you're ready to come back with tests, yeah, we would have loved that to be a foundational coverage LCD. It ended up being a non-coverage LCD. To flip it, you have to do a reconsideration as opposed to just coming in with a technical assessment. Still, we're extremely happy that they did that because the alternative would have been, we would be starting from scratch now, now that we have the full data. That culminates into last year. At the midpoint of last year, the data was coming together. We had a few papers that still needed to end up in peer review. We engaged with the MolDX team in July of last year. We had effectively a pre-submission meeting where we showed all our data, really positive feedback, multiple meetings with leadership culminating in the submission of the reconsideration to flip this. My sense is that this was always the plan from their point of view to kind of give us a roadmap, wait till we have the data, go into a reconsideration. They spent the first half of this year reviewing it. We really believe that they're at the last stages here with regard to the CAC meeting. The purpose of the CAC meeting, as directly articulated to us from leadership, is to just add a bit of clinical context to the clinical evidence that's already in place. It's not to interpret the clinical evidence. They already understand that. I'm just stating what we've been told. To provide context from physicians who are in this space, gastroenterologists, primary care physicians, leaders in the field, as well as just people in practice, to say, yeah, we're part of the group that ordered these 40,000 tests. We're building an entire program at Hoag centered around the clinical utility of EsoGuard. These more subtle clinical utility matters that are not easily captured in a clinical utility paper that gets published, it's to kind of fill in some of that context for them. We are very confident that that's sort of a last box that they're checking in that process. Okay. The reconciliation request was accepted. Now, Max, especially MolDX, which Noridian's a part of the program, they're now having this CAC meeting. It's part of the process. There's going to be a list of questions that's announced maybe three to five days before. I think maybe next week, you know, we expect it to come next week or so. Next week. Okay. We have some nice sweet time to look into that. After that, though, in the timeline, there's a comment period, I think it's like four to five days. If you look at the last CAC meeting in November, or maybe it was October of 2021, you didn't get the draft LCD until the spring probably of 2022. Yeah, but let's make sure that it's a different context if you think about it, right? At that point, the CAC meeting in 2021, there was no LCD at all. I mean, they were basically deciding, should we proceed with an LCD in this space? What the physicians at the CAC meeting said, yes. I mean, it was a little bit of a jumbled meeting, but there was wide enthusiasm for non-endoscopic testing of precancer. That led five months later to a draft LCD, right? Here, it's completely different. We, you know, there is a final LCD. The request for reconsideration is not asking for any changes to the LCD at all. It's just saying flip non-coverage to coverage. Say there is now a test that has, so we're not asking for them to do any additional work. Our expectation is that it won't take that long, that they are at the last stages, that the CAC meeting is sort of filling in the final bits with regard to clinical utility. Look, there's workflow issues. There's other things. We can't really predict how long it's going to take. Just one real correction. There is no comment period after the CAC meeting. That's after the draft, right? You go from CAC to draft. That's just a waiting game until they issue that. Once the draft is issued, which from our point of view is the milestone, because they're not going to issue a draft unless they intend to cover it. If they don't intend to cover it, then they'll just tell us we're rejecting your request for reconsideration. We obviously have no expectation that that's going to happen. Once they have a draft, that's a commitment that they intend to cover this. There'll be a comment period. They have to go allow that to happen by statute. That's the 45 days of comment and so forth. A final will come at some point after that. The draft could come, you know, like weeks or like months after the CAC meeting. It could, like by year end, basically. It could, yeah. I mean, I guess I'm just careful not to predict things that are not completely in our control. Our strong sense is that we're kind of at the very final stages of this. They wouldn't have had, you think they wouldn't have had like, you know, a sudden CAC meeting if it wasn't too 100% strongly considered. Yeah, because let's just kind of flesh out a little bit. If there was an issue with our clinical validity data, for example, and they said, you know, we don't really think you've proven that the test is valid in Medicare patients, they wouldn't call a CAC. They would just say, we don't think you have enough data. We don't have enough clinical validity data, right? By the way, that understanding is not just me speculating. One of the really great things about this experience with MolDX is they've welcomed our direct discussions. I've had numerous meetings with leadership on some of these subtleties. I've walked away from them. My sense is based on actual discussions with the leadership as to what they're thinking. They've held onto this, like, updated dossier from you for several months, like since, I think. We submitted it in December. They accepted it in December, and they issued the CAC notice about mid-year. We expected to hear back mid-year. We obviously would have loved it to go straight to a draft, but the timing is actually about what we were expecting based on feedback that we got that we would hear back from them about mid-year. We also found out that the early part of the year, they were definitely slowed down. You know this just from seeing the activity out of MolDX has really picked up since May in terms of the number of LCDs and TAs. They're starting to come out much more rapidly. There was a sense that there was a bit of a backlog they were working through. Got it. Since this sounds like kind of imminent and it's only a matter of time, it sounds like, you know, how do you think about forecasting what the revenue and the volume could turn into next year and so forth and how that could help you because you're not burning a ton of cash, which is like $10 million or so. $10 million a quarter or so. Prior to Medicare, we do have some sense that we should see our burn come down a bit. Earlier in the year, we did say that we were launching a concerted effort on contracting and guaranteed payments around, as well as concierge medicine. That's starting to gain traction. We think we'll see some fruits from that in quarter three and four, well before we'll have a final Medicare approval. After we have Medicare approval, it'll really come down to fine-tuning how quickly do we ramp up without getting ahead of our skis, having our OpEx and burn go up and trying to do so in a way that's opportunistic. I think next year should be, on an annual basis, a solid year for us in terms of revenue growth relevant for this year. Obviously, in subsequent years, we think we'll have the ability to really go after this large market opportunity. There is a backlog of, yeah, it goes back maybe to. Right, you remember that, the year, yeah. From the date of the final LCD, even after the final, there's still a little bit of bureaucratic stuff. You have to end up in the articles, and there's some little gap from that that goes through CMS. From the date of the final, you have a year's worth of claims. You can literally submit that day, and you'll get paid based on that day. To me, that's a reason to kind of crank up the volume a little bit too. Right, exactly. That's one of the reasons we're trying to shift some of our business to Medicare and really understand what does it take to drive, what works in terms of driving Medicare volume. We're learning that right now actively as we speak. Okay. Yeah, post-Medicare or maybe even post the draft, let's say, how does the commercial strategy really change then? Because right now you're using health systems, you've had the test centers in the past, Salesforce, the big event, the Check Your Food Tube events. Do you turn into more of like a traditional? Yeah, I think so. I think we drive, we will go where the opportunities are, right? With Medicare coverage under our belt, we're going to do more traditional direct sales to primary care as well as to health systems. We're not going to walk away from the, you know, I've always said the concierge opportunity is really interesting. At some point it may end up being in a niche, but it is nice to, it's a significant growing part of the market that we'll continue to pursue. Our test fits well within the kind of menu of things that concierge practices like to offer. Even the contracted events, the contracted events with employers as well as fire departments, those will continue. Clearly with Medicare on board and then subsequently with increasing commercial insurance, the whole traditional path of driving traditional volume will accelerate much more rapidly. Got it. In terms of the broader kind of ecosystem with inverted esophagus, there's some pretty successful tests for the prognostic side of it. Do you think the success that those tests have had is indicative of what could be? I think so. Although, to be honest with you, I maybe flip that. Their success depends on our success, right? Because at the end of the day, there are very few patients, only 5%- 10% of the population of patients who are recommended for screening by guidelines ever get an endoscopy, right? What we're doing is we're filling the funnel. Obviously, as you put our foot on the gas, we're driving a lot more patients to endoscopic evaluation of their precancer, of their Barrett's. The opportunity to do the prognostication to find more dysplasia that some of these other companies and other products are doing will be, they'll just have more patients to prognosticate on. Yeah. Is there any, like, you know, partnership potential as you sort of try to, like, scale really quickly? We know that we have good relations with all the companies in the space, even companies that have sort of talked about maybe entering the space on the screening side. At the appropriate time, there'll be opportunities to work together. The sponge-based devices, what do you think about those? I know you have some. I think we have enough time for that, but let me just start by saying that it's old technology. It's been around for 30 years. We owned the sponge that was used for many of the clinical studies that have been published. We had to remove it from the market because it was FDA because of detachments and life-threatening risks associated with it. We had We had to actually take it off the market. The data doesn't pan out. I mean, there's published data from two major groups, Mayo and Hopkins, that have published data, and their performance comes nowhere close to what we're used to. It's not surprising because these sponge devices, essentially like a Brillo pad, scraping your entire esophagus, it's not targeted to where the pathology is. Any molecular test is always going to struggle to try to find that needle in a haystack if you're sort of scraping the entire esophagus. The beauty of EsoCheck is that, boom, it gives you a targeted sample there. Great. There's plenty of patients. We're not, you know, we're fine with there being a lot of activity in this space. At the end of the day, when you look at the data, you know, how good are you at detecting a short segment? About 70% of these people just have less than 3 cm of abnormality. How good are you at detecting those patients in order to put them in the appropriate surveillance regimen and so forth? The published data for all the other sponge-based technologies, that sensitivities are like 60% where we're at 90% in that, you know, for that particular category, the vast majority of people that you're looking for. Okay. The blood tests I've seen for esophageal cancer screening are pretty good performing, at least I thought, 80% + sensitivity. Why hasn't that been? Yeah, no, I think that's maybe a bit overstated, but just to be clear, those are for cancer. There are no blood tests that can pick up a precancer. As I mentioned, if you pick up a stage I cancer, you're still facing a 50% mortality. The opportunity to save lives here and prevent deaths has to be at the precancer stage. So far, there hasn't been anything. We don't really think there'll be anything because precancerous changes are very subtle. They don't end up in the bloodstream. You certainly don't have mutations that you can pick up in the bloodstream related to that. I think biologically, there'll always be a hurdle to doing a blood test that can pick up a precancer. Okay. Finally, just a year from today, we're going to be talking about at the conference, you know, Lucid's guide, Medicare coverage. I think, yeah, great. I think we certainly will have Medicare coverage and we'll be ramping that volume up. Hopefully, we'll be at some significant penetration of the portion of our patients that are Medicare. I think at that point, we'll have a meaningful amount of commercial coverage as well. Based on those two factors, we'll be a bigger company. We'll be growing our sales team and trying to drive towards this market opportunity. It's a huge market opportunity. For us to get 0.5% penetration in this market is a really substantial, meaningful commercial opportunity for us. Perfect. Okay. Thanks, Lishan. Thanks, Kyle. Appreciate it. Awesome.