PAVmed Inc (PAVM) 2022 Q2 法說會逐字稿

Greetings. Welcome to the PAVmed Inc. Second Quarter Business Update Conference Call. (Operator Instructions) 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 to everyone. This is Adrian Miller, Vice President of Investor Relations at PAVmed. Thank you for participating in today's business update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and Chief Executive Officer of PAVmed; along with Dennis McGrath, President and Chief Financial Officer of PAVmed.

The press release announcing our business update and financial results will be available shortly on PAVmed's website. Please take a moment to read the disclaimer about 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 and those descriptions and other risks and uncertainties that may affect the future operations, see Part 1 Item 1A entitled Risk Factors in PAVmed's 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 8-K filings.

Except as required by law, PAVmed disclaims any intentions or obligation to publicly update or revise any forward-looking statements to reflect changes in expectations or in events, conditions or circumstances on which those expectations may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements.

With that, I would like to turn the call over to Lishan Aklog. Dr. Lishan Aklog?

Thank you, Adrian, 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 and is singularly focused on growing the PAVmed enterprise while enhancing long-term shareholder value.

PAVmed and its subsidiaries continue to make solid progress as we push forward on our long-term growth strategy and mission to create a leading diversified medical technology company across all 3 sectors: medical devices, diagnostics and digital health. Our subsidiary, Lucid Diagnostics, has completed a transformational period during which it has completed its transition to an independent, full-service medical diagnostic company, but with its own CLIA-certified fully operational laboratory, LucidDx Labs. Lucid is getting steady commercial traction from an expanding sales team and network of testing centers and secured critical practice guideline recommendations. Our digital health subsidiary, Veris Health, is also progressing well towards an exciting initial commercial launch this year. Other products in our recently streamlined portfolio are moving steadily forward along their development path.

And we have completed a nearly year-long effort to strengthen our senior leadership team, securing the highest talent in critical areas such as business strategy and development, regulatory and 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 company-wide initiative to confront perhaps the most challenging sector and national and global market conditions in decades through uncharted waters with no clear path or timeframe to recovery. Our leadership team has been challenged to think critically, creatively and systematically to maximize runway and strengthen our balance sheet to protect the long-term interests of our company while continuing to execute on strategic objectives and mission.

We have sought to find the right balance between preserving our long-term growth trajectory and maintaining a cash preservation posture during a period of volatility and uncertainty. This has been a rewarding, even clarifying experience for our team, already resulting in streamlining and strategic reallocation of resources for this fiscal year and a significant rationalization and prioritization of our pipeline.

So I'll start 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 provide a brief background on our company and its mission for those of you who are new to the PAVmed story. PAVmed is a diversified commercial stage medical technology company operating in the medical device, diagnostics and digital health sectors. Our 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 3 major sectors.

The PAVmed enterprise today consists of 2 majority owned subsidiaries, Lucid Diagnostics and Veris Health, and internal business units with a portfolio of near-commercial products and research and development projects. Lucid is a Nasdaq-listed commercial stage cancer prevention medical diagnostic company that markets EsoGuard and EsoCheck, the first and only commercial tools for widespread early detection of esophageal precancer to prevent esophageal cancer death.

Veris Health is a privately held digital health company developing additional cancer care platform to improve personalized cancer care through remote patient monitoring, even smart devices with biologic sensors and wireless communications, including the first intelligent implantable vascular access port.

PAVmed operates as a central engine, which provides a broad range of shared services to its subsidiaries and internal business units. These include general administration, finance, product design and development, regulatory affairs, quality management, clinical research, manufacturing and medical affairs. This centralized shared services model allows each subsidiary and 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 and much greater growth potential.

During the past year or so, we have 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, as is an expanded infrastructure that's in place. For the coming quarters and years, we're now entirely focused on commercial expansion and execution, reimbursement and revenue growth. We have honed our strategy over the past quarter to focus the bulk of our efforts and resources on Lucid, Veris, CarpX ultrasound EsoCure, 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 baton over to Dennis in a second. 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 Lucid call for additional details. Feel free to contact the Adrian to help with this.

In recent months, both major gastroenterology specialty societies, the ACG and AGA, published updated clinical practice guidelines which support, for the first time, the use of non-endoscopic tools as an acceptable alternative to endoscopy to screen at-risk patients for esophageal precancer. Both explicitly cite EsoCheck and EsoGuard as such an endoscopic diagnostic tool, the only such devices commercially available in the U.S. In addition, both expand the at-risk target population by treating men and women with the appropriate number of risk factors equal. This enhances the Lucid value proposition by increasing target population from 13 million to 30 million and its addressable market opportunity from $25 billion to $60 billion. Finally, the AGA for the first time recommends esophageal precancer screening in patients without symptoms, further expanding the target population.

Our EsoGuard commercialization efforts are going very well. We continue solid, consistent growth in EsoGuard testing volumes. Lucid processed 850 commercial tests in the second quarter of 2022. That represents an approximately 60% sequential increase from the first quarter of 2022 and an over 300% increase annually from the second quarter 2021. We continue to see a steady increase in the proportion of tests performed at our Lucid test centers, which now represent approximately 2/3 of the overall testing volume. This is a direct result of our investment in our expanding sales team focused on primary care physicians. And we are making excellent progress towards reaching our year-end target of 39 such sales representatives and a total of 58 sales professionals.

Our expanding network of Lucid test center supports our primary care channel by providing the facility where patients referred for EsoGuard testing by primary care physicians to undergo the EsoCheck cell collection procedure. The test centers have very modest fixed cost and attractive margins, operating almost entirely as a marginal variable cost of business.

The second stage of the Lucid test center program is now underway. We recently launched in 4 new metropolitan areas in Orange County, the Dallas-Fort Worth area, Palm Beach County and Columbus, Ohio. During the first stage, we were -- which we completed earlier this year, we covered 7 mostly medium sized metropolitan areas in the Southwest and Pacific Northwest. We're seeking to launch 5 additional centers this year, targeting the Southeast and Midwest.

On the laboratory front, we now have fully operationalized our CLIA test accredited -- CLIA-certified CAP-accredited laboratory, LucidDx Lab, staffed by our own personnel, operating with our own quality standards and processes, and most importantly, capable of submitting and aggressively pursuing claims directly with payers. Last week, our new revenue cycle management providers started submitting a backlog of claims held since the lab transition in February. And we should start seeing some out of network and PPO, or preferred provider organizational receipts, along with recognized revenue in the second quarter.

On the private payer reimbursement front, we have entered into participating provider agreements with 4 secondary PPOs and a specialized diagnostic laboratory network, which collectively cover many millions of lives. Full engagement with traditional regional and national health plans and the consummation of in-network contracts will require some additional time to generate meaningful client histories and to collect and report retrospective and prospective clinical utility data.

With regard to Medicare, we, along with over a dozen diverse partners, completed a public comment period for the proposed foundational local coverage determination, or LCD, published by 2 Medicare contractors, delivering a strong evidence-based message on how to accrue the draft LCD into one that can be operationalized consistent with clinical evidence, updated guidelines and practices. We now wait for a response.

On the clinical research front, we've made some significant changes to our strategy. A key element of the company-wide initiative is 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 -- to heavily focus our clinical research efforts and resources towards generating critical clinical utility data to support private payer and Medicare reimbursement. Multiple retrospective and prospective clinical utility studies are underway. Towards the same end, towards the same end, we have adjusted our EsoGuard BE1 and BE2 studies. We're pausing enrollment in BE1 prospective screening study, and we'll reboot it under the breakthrough device umbrella at a later date. We are continuing BE2, the case control study, and we'll likely complete enrollment at a somewhat lower sample size in early 2023.

Let's now move on to PAVmed's other majority owned subsidiary, Veris Health. Veris is developing a digital cancer care platform with symptom reporting, telehealth functions and advanced data analytics designed to improve personalized cancer care through remote patient monitoring using smart devices with biologic sensors and wireless communication, including the first intelligent implantable vascular access port. The Veris Health cancer care answered care platform will allow the cancer care team to detect early signs of common cancer-related complications, provide longitudinal trends of physiologic and clinical data, offer data-driven risk management tools for precision oncology, and incorporate additional prospects for substantial value creation through data monetization and biotherapeutic clinical trial support.

The Veris model is an attractive software-as-a-service recurring revenue business model. It leverages existing remote patient monitoring, or RPM codes, which the providers can utilize to bill for review and interpretation of patient data that -- the patient data that our system provides. The model provides a healthy margin for the providers and the company without the need for new codes or other regulatory hurdles. The model also leverages supplemental payments to providers for improved outcomes, including preventing hospitalizations as provided through the Medicare EOM program.

Veris is advancing its position on 3 fronts: software, device and data. On the software front, our team and our partner, Loka, are scheduled to complete development of the software platform in the coming weeks. This includes the patient-facing smartphone applications as well as the clinician-facing mobile and desktop applications. The team continues to work closely with the Microsoft digital healthcare team as a member of its global partner program as well as teams from other vendors providing the tools for integration with electronic health records, data and analytics and cybersecurity. The completed software platform will then be subjected to rigorous compliance audit and will be available for commercial launch by the end of the year.

In anticipation of the upcoming commercial launch, we have filled out the Veris commercial team, including our chief commercial officer, director of product management and director of systems integration and customer support. The initial launch will be in conjunction with the package we are dubbing a VerisBox, the Veris-branded OEM Bluetooth-enabled connected healthcare devices. The VerisBox of external connected devices is the first step of the 3-step device development process.

The next product, which we dubbed Veris Mercury, is an implantable physiologic monitor designed to be implanted in conjunction with a traditional vascular access port for chemotherapy or other treatment. The Veris Mercury development process is progressing well. We have completed a successful FDA pre-submission meeting, during which the FDA provided us with a clear path to 510(k) clearance. Several animal studies have demonstrated the device's ability to continuously collect and wirelessly transmit physiologic parameters, and we expect the device to proceed to through design freeze, development and testing and FDA submission and clearance next year.

The third step in the device development product -- process, a product we have dubbed Veris Venus, takes the design a step further with full integration of the implantable monitor within the port. We are working with FDA to finalize its regulatory path, i.e., whether will be a 510(k) or a de novo pathway. Design and development work on this version will accelerate once we've had experience with the modular Veris Mercury device.

Finally, Veris 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 monetizable data analytics using machine learning and AI. Veris has filled out its data science team with 2 full-time data scientists and 2 data engineers.

Let's now move on to CarpX. CarpX is our 510(k)-cleared minimally invasive device to treat carpal tunnel syndrome. Key opinion leaders and surgical partners have been using CarpX in a limited commercial release, focused on generating user experience to drive procedural and product improvements. This experience led us to explore the possibility of incorporating intraluminal ultrasound into the device to provide real-time imaging of the ligament to be cut, along with critical anatomic structures. Initial exploratory efforts have advanced to a full blown product development project, which we have dubbed CarpX ultrasound.

In addition to integrated ultrasound imaging, the design 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, decreasing the per case cost of goods and the gross margin opportunity. The design and development work, including cadaver testing, is going well and ongoing. And we expect the device to proceed through design freeze, development and testing, FDA submission and clearance next year.

Given these projected time lines for the next-generation CarpX ultrasound device, we have decided not to expand commercialization of the current first-generation product. We have plenty of inventory, and now we'll continue to have our KOLs perform procedures and grow our experience and inform the product development until the CarpX ultrasound version is ready for commercial launch.

Next up is EsoCure. Our EsoCure device is designed to endoscopically treat esophageal precancer and is also progressing well. The device is designed to compete with Medtronic's market-leading Barrx device, offering the advantages of direct thermal ambition of the esophagus though the working cord of the endoscope and without the need for a $0.25 million console. Development work is progressing well, and head-to-head chronic animal studies continue to show promising results. We expect the device to proceed through the design freeze, development, testing, FDA submission and clearance next year. Quick reminder that Lucid has licensed EsoCure from PAVmed for future commercialization as it is highly synergistic with EsoGuard and EsoCheck.

The remainder of our pipeline consists of research and development projects whose commercial path is not yet fully established. PortIO is our implantable intraosseous vascular access device, which we believe does not -- which does not require flushing and is the first maintenance-free long-term vascular access device. PortIO's first-in-human study is progressing well with 3 new sites approved in Colombia, South America. One new site recently performed successful implantation of the device in 7 patients, all of whom have completed 7 days of infusion after implantation and successful explantation. They are currently in the 30-day follow-up period with no complications or other issues.

These patients close out the initial group of patients in the protocol that underwent 7-day implantation and now allows us to move on to the next set of patients that will have the device implanted for 60 days. Recruitment of these patients is well underway with procedures expected in September. Once we have established some success with the 60-day implants, we will reassess our regulatory pathway and decide whether to pursue CE mark in Europe or pursue with the U.S. IDE.

Next one is our platform infusion technology. The first product incorporating it is our NextFlo IV set, which seeks to revolutionize care by eliminating the need for complex, sensitive and error-prone electronic infusion pumps for most of the 1 million infusions performed in this country every day. NextFlo was on the verge of progressing to verification and validation testing and FDA submission when the team encountered difficulty with repeatability, despite good flow regulation. This required relegating NextFlo to a research and design -- a research and development redesign project. The flow regulation features work, but we need to kind of -- we need to crack the code with regard to repeatability. We're committed to trying to solve this design issue, but we do not yet have a solution.

Finally, as part of the company-wide initiative I mentioned earlier, over the past couple of months, we have taken a very aggressive approach to pipeline rationalization and pruning to make sure that we are allocating capital judiciously. As a result of this analysis, we have either terminated -- we've either terminated certain development projects or shelved them for the foreseeable future, including Solys, DisappEAR, FlexMo and NextVent. Although we continue to pursue active -- attractive, excuse me, business development opportunities and have some promising prospects in the pipeline, again, we have raised the bar with regards to the types of projects we will consider pursuing and investing resources in.

So before handing the reins over to Dennis, let me quickly summarize the strategic priorities from our company-wide initiative that I've touched on through the course of my remarks. Number one clearly is to advance Lucid commercial activities. This includes completing the expansion of the sales team at Lucid test centers this year, driving steady testing volume growth to demonstrate clinical utility and generate claims history, secure private and Medicare reimbursement, optimize our laboratory, including operations, including claims submission and prosecution, and generating critical clinical utility data. Number 2 is to launch the Veris platform with the VerisBox-connected devices later this year. And number 3 is to advance our pre-commercial products, CarpX ultrasound, Veris Mercury and EsoCure, through development, regulatory plans and commercial launch next year.

With that, I'll hand the reins over to Dennis to provide an update on our financials before proceeding with questions. Thank you.

Thanks, Lishan, and good afternoon, everyone. Our preliminary and summary financial results for the 3 months ended June 30, 2022, where reported on our press release which was published earlier this afternoon. We filed our quarterly report for PAVmed on Form 10-Q with the SEC last night, August 15, the due date. The report is available at sec.gov and on the PAVmed website.

As we outlined during Lucid's earnings call yesterday, as a rule, EsoGuard tests performed are 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 period, we initially negotiated a short-term month-to-month fixed payment arrangement with the contract laboratory who was previously processing the EsoGuard assay and was performing the insurance company billing and collections function. This commercial agreement terminated concurrently with the opening of our own laboratory on February 25. We recognized $189,000 of revenue as part of that EsoGuard commercial agreement with ResearchDx for the partial period from January 1, 2022, through the end of the agreement on February 25.

Part of the transition to our company-owned commercial clinical laboratory, we contracted with a revenue cycle management company, or briefly abbreviated RCM, an RCM service provider, to submit 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 1,000 tests performed since the establishment of our own lab are now being processed, including 850 tests in the 3 months ended June 30, 2022. 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 JPMorgan, our commercial bank, the initial batch of claims were submitted by the RCM on August 1. Accordingly, since the RCM began submitting claims processed for our own labs subsequent to June 30, there are no collections during the 3 months ended June 30, 2022.

Future revenues will be recognized based upon actual collections, so such time as the coverage policy in place with CMS and payment contracts with the private payers. This obviously can result in a disconnect between the timing of revenues recognized versus the timing they are submitted to third-party reimbursement until all of these future conditions are met. The gap in claim 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 LucidDx labs as we progress through the second half of this year, and recognized revenue will be adjusted based upon actual collections received for tests submitted for reimbursement by the laboratory.

The number of EsoGuard tests performed and submitted for payment are provided in the press release and were discussed earlier by Lishan. Obviously, we're still in the early stages of our commercial launch, 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 and our EsoGuard telemedicine program.

Presently, there are 4 banking analysts who have issued coverage on PAVmed and others doing their diligence. The quantity of EsoGuard tests, assuming the related claims will be reimbursed at the CMS payment rate, we would need to perform to meet the 2022 revenue estimates provided by the analysts are achievable. The collections, and therefore the recognized revenue in each accounting period, are highly dependent upon the evolving reimbursement landscape.

Since there was no revenue in the second quarter, costs for the test centers and our laboratory are reclassified to operating expenses. For the second quarter, and excluding $38,000 of non-cash expenses, test center costs were approximately $460,000 and are included in marketing expense. For the second quarter, and also excluding non-cash expenses of about $375,000, laboratory costs of approximately $745,000 are included in G&A expense.

PAVmed remains Lucid's controlling shareholder, holding approximately 72.4% of the voting interest of Lucid. Lucid's operating results will continue to be consolidated into PAVmed's financial results. The statement of operations will reflect the line item to show the non-controlling interest, profits or losses to non-PAVmed shareholders of its majority owned subsidiaries. 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. Since there was no revenue in the quarter, cost centers were reallocated, as I mentioned. During the yesterday's earnings call, we discussed the 3 components that make up Lucid's operating expense, namely sales and marketing, general and administration -- administrative, and research and development.

Since Lucid's operating expenses represent approximately 60% of PAVmed's non-GAAP consolidating operating expense for the second quarter, I'll summarize the consolidated operating expense as a total. With the 3 months ended June 30, 2022, PAVmed's consolidated operating expenses were $23.4 million compared to $13 million during the same period in 2021 and reflects a quarterly increase of 22% sequentially. There is a table in the PAVmed press release published today and the Lucid press release published yesterday that adjust each of these 3 components of operating expense for the embedded non-cash stock-based compensation expense. Without including the SBC, or the stock-based compensation expense, operating expenses from PAVmed, operating expenses were $18.5 million, inclusive of $10.1 million of Lucid's operating expense.

PAVmed reported the second quarter net loss attributable to common shareholders of $25.6 million, or a loss of $0.29 per common share, versus a loss of $11.5 million, or $0.14 a share in 2021. The press release provides a table entitled non-GAAP, which highlights these amounts among -- along with other non-cash 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 a non-GAAP adjusted loss for the second quarter of 2022 of $14.5 million, or $0.17 per common share.

PAVmed had 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.

(Operator Instructions) Our first question is from Ross Osborn with Cantor Fitzgerald.

Congrats on the progress. So starting off, could you please spend some time discussing the use cases with the first iteration of the Veris Health platform? And then what the scale of the launch later this year and early next year looks like?

Yes. So, thanks. I appreciate the opportunity to dive a little bit deeper on this. So just to step back again to reiterate, the overall goal of the Veris platform is to provide physiologic data parameters from a patient that are communicated in real time through a wireless and cloud-based connection to the providers to facilitate detection of early signs of complications that can result in morbidity and mortality and cost. We're providing that data -- and that data can be of any form for the purposes of remote patient monitoring codes. As long as there is an FDA device, cleared device that is generating that data, the clinician can bill for that.

So we are going to be providing that data in 3 different steps. The first launch is to give us the opportunity to launch the software platform. And in order to do so, we are providing a bundle of Bluetooth-connected external devices that will communicate with our platform and generate the 5 data points, including heart rate, activity, oxygen saturation, weight, blood pressure. And so that data and that information, along with symptom reporting, which we have a fairly robust system reporting, and other quality of life metrics will be provided to the caregivers.

We are starting -- we'll obviously start with a modest launch with targeting a spectrum of providers of different sizes, including smaller practices, and including in rural areas where we think this will have -- will particularly resonate to a lot of the larger cancer centers. And of course, this initial effort is to get experience with some of the complexities of getting the platform on the IT networks of the providers to establish connections with the electronic health record, to establish connections with -- to be able to turn on the telehealth functions and other factors. So we are excited. We have the team we've built. We have a gentleman joining us who did customer integration at Epic, the electronic healthcare record, and he'll be overseeing the systems integration and customer support aspect of this.

And then just to advance forward, once we have the first version of the implantable port, then some of those devices, like the scale and the blood pressure cuff will remain. But many of the parameters will then move towards being collected and transmitted from the long-term implantable device. Hopefully that touches on it a little bit.

Yes. That's great. And then just one more from me on PortIO. I believe you mentioned there were 7 patients included in the first phase with no complications. Correct me if I'm wrong, please.

Yes. I actually think we're more than that. We had 7 in the most recent group. I think we're over 10. I'll get back to you on that number. The first wave, I believe we did 4. And I think this is -- we've done 7. Something right around that. And what's most important, as I mentioned, is that the protocol required us to have the first group have a 7-day implantation with explantation. And that was to demonstrate that the infusions work, they were safe and that you could explant the device and that there wasn't a fracture or other complications associated with the implantation. Now that that part is complete, we really get to the important part, which is to demonstrate -- 7 days with an implantable port is not really clinically that useful. But what is useful is to get out to longer periods of time in the order of weeks to months.

So this next phase, which 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 a while ago in animals that we have an implantable vascular port, the first ever that is maintenance-free. So in the animal studies, once we implanted them, they didn't require any flushing, any blood thinners or anything like that, and they were functional and patent at 60 days. Obviously, our goal here is to replicate that as we have every reason to believe that we'll be able to replicate that in humans.

So 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 our sort of roster of full bore pre-commercial products because we're still trying to figure out the regulatory path. We have an outstanding new head of regulatory and quality. And there's some thought and some hope that we could reengage with FDA about this being potentially a quicker path, potentially still with a de novo but a quicker path than we had previously were facing with an IDE in the U.S. So we'll get the first-in-human study done, and then we'll kind of iron out the longer term plans after we get that data.

Okay. Understood. And then with the second phase, can you disclose how many implants you're targeting?

I'll have to get back to you with that. I forgot what the number is, but it's in the couple dozens.

Okay. Great. Congrats again on the progress.

Our next question is from Frank Takkinen with Lake Street Capital Markets.

Frank. Actually, I just got a text. The number is 30. Up to 30 patients for that second. Thanks, Dr. DeGuzman. How are you doing, Frank?

Good. Good. I wanted to start with just a question on your comments around reprioritization or rationalization initiative. 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 for the first part of the question. Then second 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 -- so of course, the answer to the first question is yes. That's exactly the point is to try to -- this is a very sort of collaborative concerted effort over a couple of months with a dozen or more members of our senior leadership team. And the goal was in fact, as you said, to make sure that given the landscape that what we are investing in today and where we're deploying our resources today have the most -- the nearest term opportunity to be accretive and to lead to commercial traction, commercial growth and so forth. So, 100% correct, which is your first question.

Yes. In terms of the -- I'll let Dennis comment a little bit more granularly, but this is a process that we started a couple months ago, and it did lead to some reallocations within the second half budget of this year. Not a significant total savings, but more reallocation within the program. So for example, on the Lucid side, we shifted costs from the longer term studies to clinical utility studies. And even unwinding the longer term studies still require some costs. You can't shut that spigot off immediately. But we certainly expect to have some cost savings going into next year. One good example there, again qualitatively, is 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 and approximately 18 Lucid test centers, to pause and to keep a flat team, keep our costs sort of relatively flat, focused on growing test volume with the team we already have. So Dennis, would you like to add any more color to that?

Yes. So Frank, in the sales and marketing, given the comments that Lishan made about we intend to increase our sales force. 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 2023 to be fairly flat to that second half cost level as the landscape for reimbursement starts to evolve. And we probably won't put more resources towards that end until we get clarity there. We believe by increasing 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 play, that will start contributing, and we can then decide whether or not we are going to step on the accelerator again.

Lishan pointed out that on the clinical research, there is a shift between longer term, more expensive to 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 2024, those costs will be relatively flat. And they're flat somewhat because of the shift in priorities with some of our products here that would have had a higher level of development cost or clinical costs in 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, they should be relatively flat between now and the end of the year, and we intend to keep them relatively flat through most of 2023. We do -- Lishan's comments earlier indicated that we've rounded out 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 during 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 4 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 sizably. We think that gives us that initiative to drive reimbursement.

So 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. Then I wanted to ask one on CMS. I understand you're kind of in that wait and see stage. But any estimation you guys are comfortable putting out there when you could potentially hear back from either Palmetto or Noridian on next steps?

I'm a little bit wary because I think, Frank, when we submitted the first technical file in May of 2018, we certainly thought it was coming soon, coming soon. And 18 months -- actually, a little bit more than that -- later, we were still waiting. So I think -- let me just first sort of couch it in maybe a bit of a qualitative way. Honestly, if we heard back and we had a cleaned up and nice operational foundational LCD tomorrow, we wouldn't be in a position to be able to convert that into EsoGuard coverage because we clearly need more clinical utility data to check that final box, as was articulated in the -- towards the end of the draft LCD.

So my hope and gut is that we will -- the time it'll take us to -- 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 the sample sizes for the other prospective studies to start to kick in in the first half of next year. So my kind of ideal situation is once we've reached threshold numbers and substantial -- a solid critical mass of clinical utility data in the first half of next year, that that'll coincide with the publication of a final LCD that gives us the opportunity to file a technical -- file for a technical assessment and convert that foundational LCD into coverage for EsoGuard. So that's kind of roughly the -- would be sort of the ideal time line, but you never know.

Okay. That's helpful. Congrats on the progress.

Our next question is from Ed Woo with Ascendiant Capital.

My question is on CarpX 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 any regulatory approval requirement?

Great. Thanks for, again, the opportunity to flesh that out a little bit. So we're really pretty excited about this CarpX ultrasound, because we have experience now obviously in hundreds of cadavers and in dozens of patients with the current device. And the function of the balloon dilatation and all of the key principles, the bipolar RF cutting and so forth, work quite well. But the one element that has kept us with this first-generation device and this kind of what felt like a perpetual limited commercial release is that there are some procedural challenges that would, 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 the device, but after the balloon is inflated, it is blind at that point. And to be clear, with other techniques, a lot of the cutting is also blind, even with endoscopic techniques. But we challenged ourselves to come up with a way to improve what functionally works well, but to improve the procedural point of view from the physician -- from the surgeon's perspective by incorporating ultrasound.

And I want to be clear that people understand that this is not like an external ultrasound probe that the surgeon has to sort of learn how to use in conjunction with the device. What we're talking about here is intraluminal ultrasound. So the ultrasound probe actually goes right down the shaft of the CarpX device. Similar to anyone who has -- and you may have seen something called intravascular ultrasound where you can put a catheter in a blood vessel and visualize to the circumferential cuts of the vessel. So that's the similar quality image. So that's an image that can be -- a surgeon could be taught to interpret quite easily. It's very intuitive. And they can learn to identify the various structures. And before -- after inflating the balloon, but before firing to cut the ligament, they can feel a high level of confidence that they're -- everything's in good position, that the critical structures are 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 some initial challenges with getting some ultrasonic images. But we were fortunate enough to partner with a firm that has an ultrasound-guided device for anesthesia. So they've done some of the, kind of the baseline circuitry work for us and have a lot of experience with this type of imaging. And so we're starting to get 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 sufficient capital within our budget to -- we think this is a high priority, along with the others. And so we've decided to go full bore on this and to invest the capital necessary to get this product on the market and, frankly, realize the commercial opportunity that we've been all patiently waiting for CarpX. Because it's still a very, very prevalent conditions, and the current options are not great. So we're really hopeful that this will be the product that gives us the opportunity to take advantage of that commercial opportunity. So we're excited about that.

Lishan, a comment on the regulatory path.

Oh, yes. I'm sorry, Ed. So, yes. The regulatory path, we'll just be filing this as -- use our current device as a predicate for our new 510(k) -- likely a new 510(k). And it will -- we don't expect there to be the significant hurdles with that because the fundamentals, the things that took us quite a while to get through FDA, which had to do with the cutting and the thermal spread and all these things that we had to deal with in the past, that -- the working part of this, the distal end, is almost identical to the current device. We are moving, as I mentioned in my comments, we're moving a lot of the electronics to a handheld non-disposable device and a console. That's actually quite exciting from the point of view of economics because it lowers the per case cost and gives us a better margin and a better opportunity to compete from a price point of view with existing technologies. So we expect the regulatory path to be fairly straightforward. Then we'll leverage the existing 510(k) for the current first-generation.

Our next question is from Anthony Vendetti with Maxim Group.

So just wanted to talk a little bit about the number of tests performed in the second quarter at your Lucid test center. So I think you mentioned $850 just in the second quarter alone. Is there anything you would attribute that significant pickup in the number of tests to? And is that a good baseline? Or was there anything extra in the second quarter that you don't think is repeatable going forward?

Let me take a first crack at that. I'll let Dennis fill in some of the numbers there. So I think as Dennis mentioned, we've had now 2 nice consecutive percentage growths quarter-on-quarter. If you remember, we're about a year into the first Lucid center, test centers launched in September of last year. So we're not even barely a full year in. And as Dennis mentioned, what we -- we hired literally our first sales rep calling on primary care physicians in the third quarter of last year. So now we are as of I believe 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 steady growth quarter-on-quarter we've seen for the last few quarters is directly attributable to allocation of resources to building a sales channel, a group of sales reps, expanding the number of test centers and the support to allow these sales reps to generate referrals to those test centers. And it's directly a reflection of that.

It's also a reflection of something I talked about in a little bit more depth on the Lucid call, which is that we have -- our sales leadership has done a really great job of honing the sales process, which you think about just kind of walking in and talking to a doctor and getting them to do the test. But it's actually quite a sophisticated process here with how we target, how we route, how we -- all the talk tracks around that, and it's quite sophisticated, organized, data driven. And that process has definitely helped. Sales training has gotten much more intense. We just finished one a couple weeks ago. It's an in-depth, really intense field training, field rides, along with an entire week of classroom training. So that's been helpful. So I think our productivity and the time from a rep starting to them being productive in terms of generating test volume I think will shrink. And I think that really is the -- those are really the key factors, and we obviously are expecting to continue to grow. That's why we're investing in this team. We'd like to -- we think kind of 60 for the end of the year is a good number to kind of pause at, and then allow the sort of run with those horses for a bit to grow within those territories and with those reps in place. So yes, I think hopefully -- that's kind of a long-winded yes. I don't know, Dennis, if you wanted to elaborate any further on that.

Yes, 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 entered the quarter with 21 total people in the sales organization as of April 1. That included 10 representatives, 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 were focused on the primary care physician. And presently, we have 40 total people in the organization as of August. That includes 24 people that are dedicated principally to primary care physicians. So we steadily increased that. We continue to hire. We've improved our sales processes and more accounts referring more patients to our test centers.

And another stat, and I think Lishan touched upon this in your prepared remarks, is that out of the 850 tests in the quarter, about 2/3 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 and hospitals, but the more telling increase was in the referrals into our test centers.

Okay. Great. And then just last question. On the overall business review, focusing on costs and projects, was there anything that came out in terms of direct cost savings, other than pausing some programs? Any cost cuts specifically?

Yes. I think -- yes, I think the way I would summarize it is that we're very conscious with this effort. It was kind of one of my points to this team is that, look, this is not an austerity program. We can't cut our way to growth. We're not going to fundamentally change kind of our stance with regard to growing this company, right? So the effort was very much driven obviously from a general posture of cash preservation, but more kind of rationalizing and streamlining and maybe pruning is the word I was -- I was looking for a word, and I think that I would say that. So for example, on the sales growth, we had projected to continue to grow in 2023. And this decision to not scale -- not dial back our growth this year, but expect the plan on plateauing at this year and riding that team for a little while was basically that that will result in flattened cost, as Dennis mentioned, on the sales cost into next year.

We did a pretty aggressive rationalization and prioritization of our -- the product development side, some of which are a little bit tough. There are some projects in there that were a bit moon shotty, but we thought had big opportunities. But we just couldn't justify the investments in capital at least at this point in time. And so we settled on the 3 products: CarpX ultrasound, EsoCure and the first implantable version of the Veris device, with PortIO kind of hanging out a little bit one step behind.

And on the personnel headcount, as Dennis said, we've grown -- and we have certainly since you've been following us. We've grown this company quite a bit and a lot at that senior leadership team. Really, what I would say as a general matter, it's not 100%, but from this point on, we kind of have the team. And we -- increases on our headcount 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 and all that. So look, we'll be hiring people on the Veris commercial team after we see some traction there and so forth. But in terms of more of the base team, the infrastructure, the leadership and so forth, I think we've got the team and it's fantastic.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Dr. Aklog for closing comments.

Great. Thank you very much, everybody, for taking the time to join us today and for all the great questions from our colleagues. As always, we look forward to keeping you abreast of our progress via news releases and conference calls. Just encourage you to keep up with PAVmed news, updates and events, to sign up for our email alerts. That's the best way to keep in touch. You can do that on our PAVmed Investor Relations website. To follow us on social media. We're fairly active on Twitter, LinkedIn and YouTube. And also to feel free to contact Adrian at akm@pavmed.com 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.