Q2 2022 PAVmed Inc Earnings Call
Greetings welcome to have met Inc. Second quarter 2022 business update conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I will now turn the conference over to Adrian Miller, Vice President of Investor Relations. Thank you you may begin.
Thank you operator, good afternoon, everyone. This is Adrian Miller, Vice President Investor Relations.
Thank you for participating in today's business update call joining me today on the call our Doctor Alicia Eclogue, Chairman and Chief Executive Officer, I've met along with Dennis Mcgrath, President and Chief Financial Officer, Todd, but the press release announcing our business update and financial results will be available shortly on <unk> website. Please take.
A moment to lead read the disclaimer about the forward looking statements in the press release the 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 the 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 of those descriptions.
And other risks and uncertainties that may affect future operations see part one item one a entitled risk factors and I've met with most recent annual report on Form 10-K filed with the Securities and Exchange Commission and any subsequent updates filed in quarterly reports on Form 10-Q and subsequent.
Form 10, 8-K filings, except as required by law I've met 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.
Or that may affect the likelihood that actual results will differ from those contained in the forward looking statements.
With that I would like to turn the call over to Alicia backlog that backlog.
Thank you Adrianne and good afternoon, everyone. Thank you for joining our quarterly update call.
Before proceeding I would like to thank our long term shareholders for your ongoing support and commitment our combined team has grown to over 150 employees singularly focused on growing.
Enterprise, while enhancing long term shareholder value.
<unk> and its subsidiaries continued to make solid progress as we push forward on our long term growth strategy admission could create a leading diversified medical technology company across all three sectors medical devices diagnostics.
Our subsidiary Lucid diagnostics has completed a transformational period during which it has.
The transition to an independent full service medical diagnostic company, but what's unclear certified fully operational laboratory lucid Dx labs.
It is getting steady commercial traction from an extend bill payment and that was the testing centers and secured critical clinical practice guideline recommendations our digital health subsidiary that health is also progressing well towards that and its exciting initial commercial launch this year.
The products that are recently streamlined portfolio are moving steadily forward them hundreds of alphabet.
We have completed nearly year long effort to strengthen our senior leadership team securing the high caliber talent in critical areas such as business strategy development regulatory quality Medical Affairs laboratory operations and systems integration and customer support.
And finally during this past quarter and in recent weeks, we have launched an ongoing companywide initiative to confront perhaps the most challenging.
Sector National and global market conditions in decades.
Unchartered waters with no clear path to recovery.
Our leadership team has been challenged to think critically creatively and systematically and maximize runaway and strengthen our balance sheet to protect the long term interest of our company, while continuing to execute on strategic objectives.
We have sought to find the right balance between preserving our long term growth trajectory and maintaining a cash preservation posture.
The volatility and uncertainty.
It's been a rewarding even clarifying experience for a cool alrighty, resulting in streamlining and strategic reallocation of resources for this fiscal year.
Again rationalization and prioritization of our pipeline.
So I'll start with by providing an overview of our business and then we'll pass the baton over to Dennis who will provide a financial update before we open it up to questions.
Let me first take a step back and provided a brief background on our company mission for those of the Horton Youth Department store.
I've met as a diversified commercial stage medical technology company operating in the medical device diagnostics and digital health sectors Army.
Mission is to utilize state of the art technologies in the service of patients by providing innovative and disruptive products and solutions, which significantly improve or save lives, while enhancing healthcare quality efficiency and cost effectiveness.
Our vision is to build a growing and profitable diversified medical technology leader across the three major sectors.
That mid enterprise today consists of two majority owned subsidiary lucid diagnostics and breast health.
Internal business units with a portfolio of New Airport project products.
Research and development projects.
So to the NASDAQ listed commercial stage cancer prevention medical diagnostic company that market so guarded.
First of all the commercial tools for widespread Oh, the detection of the stoppage of frequency to prevent the sockets on cancer.
Health is a privately held digital health company developing additional cancer care platform improved personalized cancer care for remote patient monitoring using smart.
Smart devices with biological patches.
Okay.
Including the person college.
Basketball Court.
I've met operate the central engine, which provides a broad range of shared services to a subsidiary and internal business units.
Include General Administration Finance product design and development regulatory affairs quality management clinical research manufacturing Medical Affairs.
<unk> shared services model allows each subsidiary in business unit to be laser focused on the development commercialization and clinical evidence for its product or products.
Model provides numerous benefits to facilitate value creation across the enterprise, including economies of scale.
Risk mitigation through diversification, a lower cost of capital at much greater growth potential.
During the past years that we've undergone a major transition focused on expanding our internal human resources systems and physical infrastructure laying the foundation for commercial success as well as optimizing and rationalizing our portfolio.
Our team has grown to approximately 150 talented and committed individuals. This transition is really now complete.
And expanded infrastructure that's in place.
For the coming quarters and years, we're now entirely focused on commercial expansion that you shouldn't reimbursement and revenue growth.
And our strategy over the past quarters, because it's the bulk of our effort and resources on lucid Zara perfect ultrasound.
While remaining opportunistic with regard to our R&D pipeline and new groundbreaking technologies.
I'll now provide a more detailed business update and then pass the pass the baton overtime.
My discussion of lucid will be a distillation of my remarks during yesterday's lucid quarterly call and I would encourage you to read the transcript or listen to the recording of the looser call for additional detail feel free to contact me I agreed to help us cope with it.
In recent months, both a major gastroenterology, especially society.
D. G E published the updated clinical practice guidelines, which support for the first time the use of non endoscopic tools I was an acceptable alternative to endoscopy to screen at risk patients where esophageal cancer.
Both explicitly site instead of checking with Novartis, that's not on this topic bag lots of cool the only such devices commercially available.
In addition, both expand the Atlas cargo population by treating men and women with the appropriate number of risk factors equal.
With the answers the looser value proposition by leasing target population from $13 million to $30 million.
Our addressable market opportunity in 'twenty five.
Finally, the a J for the first time recommends and talking to a pre cancer screening and patients without symptoms further expanding the target population.
Are you sort of guard commercial commercialization efforts are going very well, we continue solid consistent growth in coffee volume, we've been processed 850 commercial testing in the second quarter of 2022.
Representing approximately 60% sequential increase from the first quarter of 2022, I don't know if it.
300% increase annually from the second quarter 2021.
We continue to see a steady increase in the proportion of tests performed at our Elisa Test Center, who now represent approximately two thirds.
Well testing.
This is a direct result of our investment and our expanding sales team focused on primary care physicians, and we're making excellent progress towards reaching our year end target thirty-ninth itself Representatives and a total of 58 sales professionals.
Our expanding network of Lucid Test center supports our primary care channel by providing a facility where patients report for you. So that testing by primary care physician can undergo the ether checks all collection procedure.
The test centers have very modest fixed cost at attractive margins operating almost entirely as a market all variable cost business.
Second stage of lucid that'd be a lucid test second program is now underway, we recently, Washington for new Metropolitan areas in Orange County.
The Dallas Fort worth area of Palm Beach County in Columbus, Ohio.
During the first stage, we were which we completed earlier this year, we covered seven most of the medium sized metropolitan areas in the southwestern Pacific Northwest.
We're seeking to launch five additional sensors this year targeting the south east.
On the latter part park, we wont have fully operationalized, our CLIA cap accredited CLIA certified cap accredited laboratory well add.
Staff by your own personnel operating with our own quality standards and processes and most importantly capable of submitting that aggressively pursuing claims directly with place okay.
Last week, our new revenue cycle management provider started committing a backlog of claims.
The lifetime Cushing on February 10.
When we should start seeing some out of network and P. P O preferred provider organizations.
Along with our recognized revenue in the coming quarters.
On the private payer reimbursement, we have entered into a participating provider agreements with four.
Secondary PPO in the specialized diagnostic hybrid network with clock collectively which collectively cover many millions of lives.
Hello engagement with traditional regional and National Health plans.
Confirmation of that.
That will require some additional time.
Generate meaningful client workspace.
And to collect of a park retrospective and prospective.
Prospective clinical utility.
The Medicare we along with over a dozen diverse partners.
The public comment period for the proposed foundational local coverage determination or LCD published by two Medicare contractor delivering a strong evidence base message on how to improve the draft LCD into one that can be operationalized consistent with clinical evidence.
Updated guidelines in place.
We now wait for a response.
Clinical research fund, we've made some significant changes to our strategy.
Key element of the company wide initiative has been to take a careful look at our allocation of resources for clinical research to align with our near medium and long term goals.
Our updated strategy to focus.
So heavily focus on the research efforts and resources towards generating critical clinical utility data to support private payer and Medicare reimbursement multi.
Multiple retrospective and prospective clinical utility studies are underway.
The payment or the same and we have adjusted our eats up or do you want in two studies, we're pausing enrollment will be one prospective screening study.
And what rebooted under the breakthrough device umbrella at a later time.
We are continuing to the case control study and will likely complete enrollment at a somewhat lower sample size in early 2023.
Let's now move on to a patent the other making money on.
Subsidiary there yourself.
Various is developing a digital cancer care platform with symptom reporting telehealth functions and advanced data analytics designed to improve personally secure remote patient monitoring using smart devices with biologic sensors and wireless communication.
During the first intelligent implantable vascular access point.
<unk> health has cancer care platform will allow the cancer care team to detect early signs of common cancer related complications provide longitudinal trends a physiologic and clinical data offered data driven risk management tools for precision oncology and incorporate additional prospects for substantial value creation through data monetization.
Biotherapeutic clinical trial support.
The first model is an attractive.
Our software as a service.
Recurring revenue business model.
Leverages existing remote patient monitoring or RPM codes, which the providers can utilize to bill for review and interpretation of placement data that are the patient data that our system provides the mom.
I'll provide a healthy margin for the providers and the company without the new without the need for new codes or other regulatory hurdles.
Model also leverages.
Supplemental payments to providers for improved outcomes, including providing hospitalizations that provide us with the Medicare program.
First is advancing especially on three fronts software device and data.
On the software front.
I call. It our partner local are scheduled to complete development of the software platform and dependent.
This concludes the patient facing smartphone applications as well as the clinician facing mobile and desktop applications.
<unk> continues to work closely with the Microsoft Digital health care cooling as a member of the global partner program as well as seen from other vendors, providing the cool for integration with electronic Health Records and analytics to the private securities.
The completed software platform will then be subjected to rigorous compliance audits wont be available for commercial launch by the end of the year.
And I anticipate them in anticipation of the upcoming commercial launch we have called out the various commercial team, including our chief commercial officer elect or more of them.
Product management, and director of systems integration and customer support.
The initial launch will be in conjunction with the package weird dubbing.
With various branded OEM Bluetooth enabled connected health care crisis.
The various blocks of external connected devices as a first step of a three step the bike development profit.
Next product with the Mercury isn't implantable physiologic monetary designed to be implanted in conjunction with a traditional vascular access for chemotherapy or other treatments.
The various mercury development process is progressing well we have completed.
Except for FDA pre submission meeting during which the FDA.
The FDA provided us with a clear path to fight I think Claire.
Several animal studies have demonstrated the device's ability to continuously collect wirelessly transmit this philosophy parameters.
And we expect the device Supersecret Godfrey development testing and our FDA submission and clearance that yeah.
The third step in the device development product.
Process the product we've got the.
Parents Davina.
The device design a step further with full integration of the implantable monitor with them before.
We are working with FDA to finalize its regulatory path.
Whether it will be a five 10-K or the novel pathway.
Design and development work on this personable accelerated once we've had experience with the modular to there for Mercury.
Finally virus is all about the data the system will be generating a substantial amount of clinical and physiologic data, which will provide a rich substrate for monetize the whole data analytics using machine learning and Oh.
That's spelled out of state of science team with two full time data sciences into data.
Let's now move on to.
Perfect because our five 10-K cleared minimally invasive device to treat carpal tunnel.
Key opinion leaders on our surgical partners had been using car back from the limited commercial release focused on generating user experience to drive procedural and product improvements.
Experienced led us to explore the possibility of incorporating intraluminal ultrasound device to provide real time imaging of the ligament to be cut along with critical anachronic structure.
Initial exploratory effort in advance to a full blown.
Product development project.
Which we've done carfax ultrasound and addition to integrated ultrasound imaging. The design that incorporates additional features that we believe will enhance the clinical and commercial attractiveness of the product, including much of the electronics to a handheld device and console.
And the FERC case cost of goods and the gross margin opportunity.
The design and development work, including cadaver testing.
Well for ongoing and we expect the device to proceed through design freeze development quite Zhang Deputy said Michel clearance next year.
Given these projected time lines for the next generation Capex ultrasound device, we've decided not to expand commercialization of a first generation product. There are plenty of inventory and that will continue to advocate of kols perform procedures and grow our experience.
Informed the product development until the cutbacks ultrasound person is ready for commercial launch.
Okay.
Next up is that ease up here.
Alright.
That's designed to enter topically treated with topical Precancer and is also progressing well.
The devices are designed to compete with Medtronic market, leading cross device.
Offering the advantages of direct with them ablation of the esophagus through the work from Florida of the endoscope and without the need for a quarter of a million dollar causal.
Development work is progressing well in head to head chronic animal studies continue to show promising results.
We expect the device to proceed.
Please development testing FDA submission.
Next year.
A quick reminder, that lucid have licensed compound local producer commercialization as it is highly synergistic with cigar.
The remainder of the part of our pipeline consists of research and development projects, whose commercial path is not yet fully established.
CT I O is our implantable <unk> vascular access device, which we believe.
Does not which does not require flushing and <unk> maintenance free long term vascular access device.
<unk> first in human study progressing well with three new sites approved in Colombia, South America. When we cite recently performed successful implantation of the device seven patients all of them have completed seven days of infusion after implantation and successful excellent.
They are currently in the 30 day follow up period with no complications or other issues.
These patients closeout the initial group of patients in the protocol that underwent seven days implantation and now allows us to move onto the next set of patients that required the device implanted core.
Recruitment of these patients are well underway with our procedures et cetera.
Once we have.
Some successful implants, you'll reassess our regulatory pathway and decide whether to pursue CE mark in Europe with things like the U S.
No.
Next one is our platform and technology of course product incorporating that surplus to revolutionize car by eliminating the need for complex expensive and airfone electronic infusion pumps for most of the 1 million students per carton.
Once we've completed that.
Next one was on the verge of progressing to verification and validation testing and I think the submission when the team encountered difficultly with repeat ability despite could flow regulation.
Required relegating that flowed through him research and design of each.
Search and development redesign project.
Hello regulation feature to work, but we need to kind of we need to crack the code with regard to repeat ability. We're committed to trying to solve this is an issue, but we do not yet have a solution.
Finally, as part of the companywide initiatives I mentioned earlier over the past couple of months, we've taken a very aggressive approach to pipeline rationalization and pruning to make sure that we are allocating capital judiciously.
This analysis, we have either terminated.
We terminated certain certain development projects are shelved them for the foreseeable future.
So, let's disappear tomorrow and next one.
Although we continue to pursue active attractive excuse me business development opportunities that have some promising prospects in the pipeline again, we have raised the bar with regard to the types of projects, we will consider pursuing an investment resources.
So before handing the reigns over to Dennis Let me quickly summarize our strategic priorities.
We get priority from a company a company wide initiative that I pushed down through the course of our remarks number one clearly used advanced lucid commercial activity.
Completing the expansion of the sales team at lucid.
They're driving steady testing volume growth to demonstrate clinical utility and generally claims history secure private and Medicare reimbursement.
Optimize our laboratory, including operations, including claims submission of prostitution and generating clinical clinical utility data.
Number two is to launch the platform with the various box connected devices. Later this year and number three is to advance our fleet.
Commercial products cutbacks ultrasounds, they're lucky we have eclipsed here to the development regulatory clearance and commercial launch next year.
That I'll hand, the reins over to Dennis to provide an update on our financials before proceeding.
With a question.
Yes.
Thank you Felicia and good afternoon, everyone. Our preliminary summary financial results for the three months ended June 32022 were reported in our press release that was published earlier this afternoon.
We filed our quarterly report for Pat made on Form 10-Q, with the SEC last night August 15th the due date.
The report is available at SEC Gov and on the <unk> website.
As we outlined during loose its earnings call yesterday, as a rule east to guard tests performed.
Recognized as GAAP revenue when cash is actually collected by the company.
As previously mentioned this will more than likely be true. During this transition period of negotiating third party private payer reimbursement contracts and related coverage policies.
As I reported to you in previous quarters for compliance purposes. During this reimbursement transition periods. We initially negotiate any short term month to month fixed payment arrangement with the contract laboratory was previously processing. They used to guard assay was performing the insurance company billing and collections function.
This commercial agreement terminated concurrently with the opening of our own laboratory on February 25th.
We recognized 189000 of revenue was part of that used to guard commercial agreement with research the extra the partial period from January 1st 2022 through the end of the agreement on February 25th.
Part of the transition to our company owned commercial clinical laboratory, we contracted with a revenue cycle management company or <unk>.
Briefly abbreviated RCM RCM service provider.
Third party reimbursement claims on our behalf.
The RCM service provider will oversee payer claims appeals processes.
Patient billing online payment collection and claims tracking.
With the appropriate licenses and certifications for billing and credentials secured and recently completing the necessary back office systems claims for approximately 1000 tests performed.
Since the establishment of our own labs are now being processed including 850850 tests in the three months ended June 32022.
Presently recognized revenue for GAAP purposes is subject to actual amounts collected during the period.
Due to delays receiving certain information needed from the IRS related to establishing a required lockbox at J P Morgan or commercial bank.
Batch claims were submitted by the RCM on August 1st Accordingly, since the RCM began submitting claims process for our own lab. Subsequent to June 30th there are no collections. During the three months ended June 32022.
Future revenues will be recognized based upon actual collections until such time as the coverage policy in place with CMS and payment contracts with the private payers.
Obviously, you can result in a disconnect between the timing of revenues recognized versus the timing. They are submitted for third party reimbursement.
So all of these future conditions are met.
The gap in claims submissions from this transition will impact near term GAAP recognized revenue until the system catches up with claims for tests performed during the transition.
It is our expectation that we will begin to recognize GAAP revenue related to our lucid Dx labs as we progressed through the second half of this year and recognize the revenue will be adjusted based upon actual collections received protests.
Did it for reimbursement by the laboratory.
The number of I used to guard tests performed and submit it for payment are provided in the press release and discussed earlier by Alicia.
Obviously, we're still in the early stages of our commercial watch, particularly with our test centers.
Continue to evolve our reporting metrics as various sales and marketing efforts further influence adoption, particularly with the ramp up of our lucid test centers are used to guard telemedicine program.
Presently there are four banking analyst coverage on patented.
Others doing their diligence.
Quantity of yeast guard tests assuming.
The related claims will be reimbursed at the CMS payment rates, we would need to perform to meet the 2022 revenue estimates provided by the analysts are achievable.
The collections and therefore, the recognized revenue each accounting period.
Our highly dependent upon the evolving reimbursement landscape.
Since there was no revenue in the second quarter.
For the test centers and our laboratory are reclassified to operating expenses.
For the second quarter, and excluding 38000 of noncash expenses.
Center costs were approximately 460000 and are included in marketing expense.
For the second quarter and also excluding noncash expenses of about 375000.
Laboratory costs of approximately 745000 are included in G&A expense.
Avnet remains lucid controlling shareholder holding approximately 72, 4% of voting interest of lucid.
Lucid operating results will continue to be consolidated into <unk> financial results.
Statement of operations will reflect the line items to show the Noncontrolling interests.
Profits or losses.
Non pad med shareholders of its majority owned subsidiaries as.
As well there will be a corresponding offset in the equity section of the balance sheet for amounts attributable to minority interest equity.
With regard to operating expenses.
There was no revenue in the quarter plus centers were reallocated as I mentioned.
During the yesterday's earnings call, we discussed the three components that make up lucid operating expense, namely sales and marketing General and administration administrative and research and development.
Lucid operating expenses represent approximately 60% of Pat that's non-GAAP consolidated operating expense for the second quarter I'll summarize the consolidated operating expense as a total.
For the three months ended June 32022 patents consolidated operating expenses were $23 4 million compared to $13 million during the same period in 2021.
Flex a quarterly increase of 22% sequentially.
Theres a table in the <unk> press release published today in the lucid press.
Press release published yesterday.
Each of these three components of operating expense for the embedded noncash stock based compensation expense.
Without including the SBC stock based compensation expense operating expenses from path it.
Operating expenses were $18 5 million inclusive of $10 1 million of lucid operating expense.
<unk> reported second quarter net loss attributable to common shareholders of $25 6 million or a loss of 29 per common share.
Versus a loss of $11 5 million or 14 cents a share in 2021.
Press release provides a table entitled non-GAAP , which highlight these.
Amounts among along with other noncash charges, namely depreciation stock based compensation financing and acquisition related costs to enable a better understanding of the company's performance you'll notice from the table that after adjusting the second quarter loss by approximately $11 million for these charges the company reported.
Our non-GAAP adjusted loss for the second quarter of 2022 of 14, and a half million or 17 cents per common share.
<unk> consolidated.
Cash of $65 2 million as of June 30, which compares to $77 3 million as of December 31, 2021.
During the quarter, we realized approximately $24 5 million of net proceeds from the convertible debt financing announced in April .
With that operator, we can now open up the call to questions.
Thank you as he would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star he is.
Our first question is from Ross Osborne with Cantor Fitzgerald. Please proceed.
Hi, Thanks for taking my questions Congrats on progress.
So that is starting off could you. Please spend some time discussing the use cases with the first iteration of the various health platform and then what the scale of the launch later this year and early next year it looks like.
Yeah, So yeah, I think with but I appreciate the opportunity to dive a little bit deeper into that so.
The.
Just to step back again to reiterate the overall goal of the various platforms to provide busy.
Physiologic.
Data parameters from a patient that are communicated in real time through.
Through a wireless and a cloud based connection to the providers to facilitate detection of early early.
On top of the signs of complications that can result in a morbidity mortality cost.
The we're providing that then that data is can be of any form for the purposes of remote patient monitoring codes as long as there is an FDA device cleared device it is generating that data.
The opt them, but.
Clinician can kick off with that so we're going to be providing that data in three different steps in the first launch is.
They give us the opportunity to launch a SaaS or software platform and in order to do so we're providing them a bundle.
Ted Bluetooth connected external devices that well communicate with our platform and generate.
Hum.
Yeah, five data points, including.
Hi, everybody.
Activity oxygen saturation weight blood pressure.
And and so that that data and that information is law, along with symptom reporting which can have a fairly robust system reported and other quality of life metrics will be.
Provided to the clinic.
For the caregivers.
We are starting them well.
We'll obviously start with a modest launch with targeting Hum spectrum of providers.
Providers have different sizes, including smaller practices in the world, including in rural areas, where we think this will have full particularly resonate two lots of larger Kansas Star's and of course. This initial effort is to get it.
Experience with some.
Some of the complexities of getting the of getting the platform.
On the I T networks of the of the Hum.
The providers to.
Establish connections with electronic health record to establish connections with them.
To be able to turn on to telehealth functions and other and other factors. So.
We are excited we have there.
The team we've built we have a hum joining us who did customer integration at epic.
Chronic health care records, and he'll be overseeing the systems integration and customer support.
And then just to advance forward once we have the first version of the implantable part then you know some of those devices like the scale and the blood pressure cuff will remain but many of them.
All of the parameters will then move towards being.
Uh huh.
And transmitted from the Oh go long term incredible that'd be nice.
Hopefully that answers it out a little bit.
Yes, that's great. Thank you and then just one more from me on E. L. I believe you'd mentioned there were seven patients included in the first phase with no complications and correct me if I'm correctly I think we're more than that we had seven in the most recent group I think we're over Ted I'll get back to you on that number the first wave.
I believe we did four and I think this is that he has done something right around that and.
But what's most important as I mentioned is that the protocol required us to have the first quarter.
Gordon.
Have a seven day implant patient with excellent patient and that was to demonstrate that.
Exclusions work they were safe and that you could explain the device and that there wasn't a fracture or other other complications associated with.
Implantation now that that part is complete we really get to that so the important part which is to demonstrate.
Seven days wasn't a part of it before it is not really politically that useful but what is useful as to get out to longer periods of time. So many orders of weeks a month. So this next phase which is we're excited to launch the device will be implanted for 60 days and our expectation is to prove for the first time in humans, what we demonstrated.
Aldo in animals that we have hey, implantable vascular access points. The first ever that is maintenance free so in the animal studies once we implanted them that require a flashing any blood thinners or anything like that and they were functional and.
Patent.
Peyton at 60 days, obviously, our goal here is to replicate that and we have every reason to believe that we'll be able to replicate that in humans.
So that is that's the current that's the current state of the first in human study and as I said, we're still not I don't have this on a sort of a roster of full bore pre commercial product because we're still trying to figure out the regulatory path, we have an outstanding new head of regulatory and scrap it.
Quality and then there's some thought and some hope that we could re engage with FDA about this being.
Potentially.
Quicker path.
Hum potentially still with its mobile, but a quicker path than we had previously.
Hum.
Well, what we're facing with an IV in the U S. So.
Would that be a first name is pretty bad and then walk kind of ironed out.
But longer term plans after we get that data.
Okay understood and then with the second phase can you disclose how many implants you are targeting.
I'll come back to that thought I forget what the number is but it's been a couple of dozen.
Okay, Great that does it for me congrats again on the progress and thanks for taking my questions.
Thanks.
Our next question is from Frank Atkins with Lake Street Capital markets. Please proceed.
Frank.
Actually I just got a text the number is 30 up to 30 patients where that second thanks, Dr. <unk>.
Sure.
How are you doing Frank Thanks, a lot.
Good good thanks for taking the questions I wanted to start with just a question on your comments around the re prioritization or rationalization.
But it sounds like it's all longer term opportunities that won't impact really the short or intermediate term story here. So that's kind of one confirmation of that concept for the first part of the question then.
Part of that is just can you quantify expected cost savings by putting some of these initiatives on hold on an annualized basis.
Yes. So the answer is of course the answer. The first question is yes, that's exactly the point is to try to get out.
This is a very sort of collaborative conservative effort over a couple of months, but you know it doesn't I'm more members of our senior leadership team and the goal what it was in fact as you said to make sure that given.
Given the landscape that what we are investing in today, and what where we're deploying our resources today have the most.
Nearest term opportunity to be accretive into incentive to be two commercial traction commercial growth and so forth. So.
100% correct, what you booked your first question.
Of the I'll, let Dennis comment a little bit more granularly, but this is a process that we started a couple of months ago and it.
It did lead to some real reallocations within the.
The second half budget of this year not a not a significant total savings a bit more reallocation.
Within the programs. So for example on the leasing side.
We shifted costs from the longer term studies to quite a futility study and even unwinding the longer term studies still require some costs. So it doesn't you can't shut the spigot off immediately.
Immediately so, but we certainly expect to have.
Some.
Cost savings going into next year. One. Good example, there again quantitatively is looking.
Looking to kind of plateau grow our sales team through this year, but then once we get to that sort of 60 total commercial team number an approximate 18 looser test sensors to pause.
Keep it flat team keep our costs sort of relatively flat focussed on growing test volume through the people. We already have so so Dennis would you like to include satellite and to add anymore color to that.
Sure. So so frank in the sales and marketing.
Given the comments that Felicia made about we intend to increase our our salesforce going through the end of the year there will be some increases in sales and marketing costs between now and the end of the year, However, with that and the targeted number of test centers, we expect 2002.
'twenty three to be fairly flat.
Did that second half cost level as.
The landscape for reimbursement starts to evolve and we probably won't put more resources towards that and until.
We get clarity there we believe by increasing.
The the resources between now and the end of the year, we'll gain critical mass by the end of the year such that we can drive reimbursement, we can drive claims to get attention from payers.
We can facilitate adoption and then when reimbursement comes in and play that will start contributing and we can then.
Decide whether or not we're going to step on the accelerator again.
Alicia pointed out that on the clinical research there is a shift between longer term more expensive.
Two shorter studies that are focused more on reimbursement there will be some overlap between now and the end of the year, but.
What we see through 2023 and 'twenty four those costs will be relatively flat and they're flat somewhat because of the shift in priorities with some of our.
Our products here that would have had a higher level of development cost or clinical costs and those time periods. We think that is the wise thing to do given the overall economic climate and the longer term priority there as far as the administrative expenses.
Should be relatively flat between now and the end of the year.
And and we intend to keep them relatively flat through most of 2023, we do with John's comments earlier.
<unk> indicated that we've rounded out the the the infrastructure the management team that we believe can.
Sustain us through continued growth at the top line.
We had a number of pretty healthy growth in tests.
In the last quarter and that was done with only a fraction of the sales force that we expect to have by the end of the year keeping in mind that it takes about four months for a new hire to actually start to carry their weight and contribute.
And the numbers are such that we entered this quarter with only a handful of folks calling on the primary care physician area and we are going to increase that size, where we think that gives us.
That initiative to drive reimbursement. So that's our that's how we see over the call. It. The next 18 to 30 months.
There'll be some increases between now and the end of the year to get to those levels of critical mass and then should be fairly flat until we see that inflection from reimbursement, which will then signal us to put more resources behind the commercial efforts.
That's great color and I know I wanted to ask one on CMS I understand youre kind of in a wait and see stage, but any estimation you guys are comfortable putting out there when you could potentially hear back from either palmetto or meridian on next steps.
I have a little bit worried because I think you know Frank when we submitted the first technophile in may of 2019.
We certainly thought it was coming soon coming sooner than the 18 months next year, but a little bit more than that later, we were still waiting. So you know I I think.
Let me first let me just first sort of couch it in the maybe a bit of a qualitative way honestly if we got if we if we heard back in we had a cleaned up and nice operational foundation of LCD Tomorrow, we wouldn't be in a position where too.
To be able to to convert that into a into an E cigarette coverage because we we clearly need more clinical utility data to check that final box as was articulated in the towards the end of the.
Of the draft LCD, So my hope and.
You know God is that that we will the time it'll take us to you know we're going to complete a fairly large retrospective clinical utility study with our NYU experience.
Hopefully by the end of this year and we should start seeing them.
The sample sizes for the other prospective studies to start to kick in.
The first half of next year. So you know my kind of ideal situation that once we've reached threshold numbers and substantial.
Our solid critical mass of clinical utility data in the first half of next year that that would coincide with the the publication of a final LCD that gives us the opportunity to file a technical.
Our final core technical assessment and convert that foundational LCD into coverage for your support so that's kind of roughly the you know that.
Could be would be sort of the ideal timeline, but you know you never know.
Okay. That's helpful. Thanks for taking the questions congrats on the progress I'll stop there.
Thanks, a lot.
Our next question is from Edward Ascendant Capital. Please proceed.
Yes. Thank you for taking my question. My question is on cortex ultrasound what is the thinking in terms of why you guys decided to focus on this new product and will there be significant investment required or and any regulatory approval requirements great. Thanks for getting the opportunity to flush that out a little bit so.
Although they are pretty excited about this carpets ultrasound because we are we have experienced now.
Hundreds of cadavers and dozens of patients.
The client device and the the the.
Function of the balloon dilatation them, you know all of the key principles, the bipolar RF cutting and so forth we're quite well.
One element that has.
Kept us with this first generation device and that kind.
Kind of what it felt like a perpetual.
Limited commercial release is that there are some procedural challenges that that we would both based on feedback would clearly benefit from the ability of the surgeon to kind of see what they're doing right now they can obviously see what they're doing when they insert with device, but after that.
Balloon is inflated it is buying at that point and just to be clear with other techniques.
Cutting is also blind even with even within the topic techniques, but we you know we we challenged ourselves to come up with a way to improve what functionally works well, but to improve the procedural point of view from a physician from a surgeon's perspective by incorporating ultrasound and you know what.
Wanted to be clear, though.
People understand that this is not like an external ultrasound probe that that the opposite the surgeon has to sort of.
Learn how to use in conjunction with the device what we're talking about here with Intraluminal ultrasound. So the ultrasound probe is actually what goes right down the shaft of the.
The carpets device similar to anyone who has you may have seen something called Intravascular ultrasound, where you can put a catheter a once off the leidy visualized too.
To be circumstantial cuts of the vessels. So that's some of the quality of it. So that's what it makes that can be a surgeon can be hard to interpret a quite easily but it's starting to.
And make them a bunch of identified the various structures and before after inflating the balloon that before a firing could cut the ligament. They can feel a high level of confidence that sat there everything is in good position that the critical structures or out of the way. So that was the impetus for it and we've.
Spent some time with kind of exploratory work in development and send some initial challenges with.
Getting some ultrasonic images, but we were fortunate enough to partner with a firm that has.
And all of a sound guided device for anesthesia.
So they've done some of the kind of the baseline grab them.
Circuitry work for us and have a lot of experience with this type of imaging and so we're starting to get some some decent images. So we have a pretty good feeling where this is going it is going to take some time.
It's certainly not a trivial development process, we've allocated capital within our within our within our budget to two we think this is a high priority along with the others and so we decided to go full bore on this into Hum.
That's the capital necessary to get this to get this product on the market and frankly, you realize the commercial opportunity that hasn't been all patiently waiting for the court.
For context over the years. He got there it's still a very very prevalent conditions under the current options are not great. So we're really hopeful that this will be the.
The product that gives us the opportunity to take advantage of that.
So yeah, we're excited about that.
We shouldn't comment on the regulatory path.
Oh, Yeah, I'm, sorry, Ed so yeah, they're there they're the regulatory paths will just be filing this as a.
Use our current device as a a predicate.
Predicate for a new five 10-K likely in your five 10-K M and it will we don't expect there to be significant hurdles with that because the fundamentals the things that it took us quite a while to get through FDA, which had to do with the cutting in the thermal spread and all these things that we have to deal with in the past.
The working part of this the distillate is almost.
Almost identical to the current device we are moving as I mentioned in my comments, we're moving a whole lot of the electronics to a to a handheld.
Non disposable device at a console, but that's actually quite exciting from that point of view the economics, because it lowers the cost per case cost and gifts gives us a better margin and better opportunity to compete.
From a price point of view with existing technologies.
We expect the regulatory path to be fairly straightforward.
We'll leverage the existing five 10-K for the.
First of all Asia.
Great well. Thank you for answering my questions and I wish you guys. Good luck. Thank you.
You bet.
Our next question is from Anthony Vendetti with Maxim Group. Please proceed.
Hello, Anthony Thanks.
Hey, Dennis.
John how are you doing.
So just want just wanted to talk a little bit.
About the number of tests.
Performed in the second quarter.
That you at least a test center. So he I think he mentioned 850.
Just on the second quarter alone.
Is there anything you would attribute that debt.
If he can pick up in the number of tests to and is that a good is that a good baseline or where it was there anything.
Extra in the second quarter that you don't think is.
Repeatable.
Going forward, let me, let me, let me take a first crack at that and I'll, let Dennis filling some of the numbers. There. So you know I think as Dennis mentioned, we've had now two nice consecutive.
Percentage growth quarter on quarter.
If you remember we're about a year into the initial the first lucid Center test centers launched in September of last year. So we're not even a barely a full year in <unk>.
And is that essentially you know what we hired a literally a first sales rep.
Calling on primary care physicians in the third quarter of last year. So now we are as of beliefs. Today, we're at 20 and we're moving towards 40 for the end of the year. So I think the simple answer to your question Anthony is that the the steady growth quarter on quarter than we've seen for the last few quarters is directly attributable to our allocation of resources to.
Building, a sales channel that fills a group of sales reps expanding the number of centers and the support that.
To allow the sales reps to generate referrals to the center.
And its directly a reflection of that is also a reflection of of something that Doug talked about it a little bit more depth on the looser call, which is that we have.
<unk> leadership has done a really great job of honing our.
<unk> sales process, which you know you think about just kind of walking in and talking to a doctor and get them to do the test, but it's actually quite a sophisticated process here with how we target and how we route how we are all the top tracks around that at a quite sophisticated organize data driven.
And that process has definitely helped sales training has gotten much more intense.
We just finished one a couple of weeks ago.
And depth really intense field training field rides, along with an entire week of.
Classroom training. So so that's been helpful. So I think our productivity on the time from a rep starting to them being productive in terms of generating test volume.
Well Patrick.
<unk>.
And you know I think that's yeah, that's really you'll see those are really the two factors and we obviously are expecting to continue to grow that's why we're investing in the same we liked it we think kind of 60 for the end of the year is a good number to kind of parse that and then allow the the.
What sort of run with those horses for a bit too.
To grow within those territories and with their with those reps in place.
So I think hopefully that that's all kind of a long winded, yes, I don't know Dennis if you wanted to.
To elaborate any further on that.
Yeah, just maybe a few more details so.
Anthony it's almost all organic growth.
And it's driven simply by more accounts, which is driven by more feet on the street we.
We entered the quarter.
With 21 total people in the sales organization that are as of April 1st not included.
N.
A representative sales representatives that were primarily focusing on the primary care physician.
At the end of June .
We had 29.
Total in the sales organization 16 of which we're focused on.
The primary care physician.
And presently we have 40 total people in the organization as of August that includes 24 people.
Better dedicated principally to primary care physicians. So we steadily increase that we continue to hire.
Proved our sales processes and more accounts, referring more patients to our test centers.
Another Scott.
I think Lisa touched upon this in your prepared remarks is that out of the 850 tests in the quarter about two thirds were coming through the test centers, which are tied directly to.
The increase in.
Calling on primary care physicians, we still had an increase in the institutions.
In hospitals.
But the more telling increase was.
The referrals into our test centers.
Okay, Great and then just last question on the overall.
Business review.
Focusing on on <unk>.
Costs and projects high was there anything that came out in terms of direct.
Cost savings other than pausing some programs any.
Any cost cuts specifically.
Yeah, I mean, I think yeah, I think the way I would summarize it is that you know we we we were very conscious with this effort and I was kind of one of my points to this team as I look around this is not an austerity program, we can't cut our way to growth, we're not going to fundamentally change kind of the our stance with regard to.
Right. So the effort was.
It was very much driven obviously provide general posture of cash preservation, but but more kind of rationalizing and streamlining and you know maybe pruning is because when I was looking for work and I think that that would say that so the example.
For example on the sales growth.
Growth, we had projected to continue to grow in 2023, and this decision to not scale not not dialed back our growth this year, but expect that plant on plateauing at this year in writing that team for a little while because basically you know that that will.
Resulting flattened cost.
As Dennis mentioned on the sales fell costs into next year, we did a pretty aggressive rationalization and prioritization of our.
The product development side, some mature a little bit tough there are some projects in there that were you know a bit moon shots, but we thought it had a big opportunities, but we just couldn't justify the investments and capital at least at this point in time and so we settled on.
The three products corporate culture, Saudi he spoke here in the first implantable version of the merits of the various devices.
With.
Port IL kind of hanging out in a little bit behind.
And on the on the personnel head count.
Instead, we've grown.
Certainly some people call that we've got with this.
This company quite a bit at a lot at the senior leadership team that you know really what I would say as a general matter I mean, that's not 100% but.
From this point on we had to have the team and.
And we you know.
Increases in our head count moving forward are going to be.
Almost entirely commercial team members of the commercial team ramping up consistent with the commercial.
The traction we're getting reimbursement at all of that certainly lots of little world won't be hiring people on the best commercial team.
After we see some traction there and so forth, but in terms of more of them.
The base team to the infrastructure of the leadership and so forth.
We've got the team and then expand testing.
Okay, Great. That's helpful color I appreciate it I'll hop back in the queue. Thanks, guys.
Great. Thanks.
Yeah.
We have reached the end of our question and answer session I would like to turn the conference back over to Dr. Karen.
Closing comments.
Right.
Thank you very much everybody for taking the time to join us today and for the all the great questions from our colleagues.
As always we look forward to keeping you abreast of our progress and the news releases and conference calls.
Just encourage you to keep up with Avnet news updates and events.
Sign up for email alerts that's the best way to keep in touch you can do that on our patent Investor Relations website to follow us on social media were fairly active on Twitter Linkedin Youtube.
And also to feel free to contact Adrian at AK Ahmed pattern that dot com with any with any questions. So thanks again, everyone and have a great rest of your day.
Thank you. This concludes today's conference you may disconnect your lines at this time and thank you for your participation.
Okay.
[music].