PAVmed Inc (PAVM) 2021 Q3 法說會逐字稿

Hello and welcome to the PAVmed and Lucid Diagnostics Joint Business Update Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to turn the call over to Lisa DeScenza, Vice President of Integrated Communications at the LaVoieHealthScience. Please go ahead, Lisa.

Thank you, operator. Good afternoon, everyone. This is Lisa DeScenza, supporting PAVmed and Lucid's Investor Relations. 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 PAVmed and Chairman and Chief Executive Officer of Lucid Diagnostics, along with Dennis McGrath, President and Chief Financial Officer of PAVmed and Chief Financial Officer of Lucid Diagnostics.

The press release announcing our business updates and financial results is available on PAVmed and Lucid's websites. 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 description of these and other important risks and uncertainties that may affect future operations, see Part I, 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, as well as Lucid's S1 registration statement and any subsequent 8-K filings. Except as required by law, PAVmed and Lucid disclaim any intention 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 said, I'd like to turn the call over to Lishan Aklog. Dr. Aklog?

Thank you, Lisa, and good afternoon, everyone. Thank you for joining us on this first joint quarterly update call for PAVmed and its major subsidiary Lucid Diagnostics. This call of course, comes at a very exciting time for us, almost certainly the most important crossroads in PAVmed’s corporate history.

Just over 1 month ago, Lucid became a NASDAQ listed public company and netted over $60 million of growth capital, providing it with sufficient runway to execute on its growth strategy and drive commercialization in a $25 billion addressable market. Also PAVmed and Lucid are no longer pre-revenue companies that they both for the first time formally recognized modest revenue, consistent with projections in third quarter.

Before diving into updates on the important developments in our business over the past quarter and recent weeks, I'd like to first thank PAVmed's long-term shareholders for your ongoing support and commitment, and I would also like to welcome our new Lucid shareholders to the panel. Every day, our rapidly growing team is intensely focused on growing these companies and enhancing our long-term shareholder value.

I will start by providing some high-level comments of certain corporate and strategic matters. I will then hand things over to Dennis, who will provide our financial update. After that, I'll proceed with a systematic business update before opening it up to questions.

So let me start by talking in a bit detail about the relationship between PAVmed and Lucid. Pre-IPO, now immediately post-IPO and in the future, based on inquiries we and others have received, I think it's important that I clarify something by recounting the history of Lucid as a company.

Lucid was founded as a separate corporate entity and privately held subsidiary of PAVmed in May 2018 to license the groundbreaking technologies underlying Lucid's current products, the EsoGuard Esophageal DNA Test and the EsoCheck Esophageal Cell Collection Device from a major academic medical center. Lucid received the worldwide exclusive rights to commercialize these valuable technologies in exchange for an 18% minority equity interest in the newly created subsidiary. PAVmed did not provide any consideration in cash or PAVmed stock despite maintaining an 82% stake in Lucid and these license technologies.

During the 3.5 years since, PAVmed has spent approximately $30 million on Lucid and managed its operations through a management services agreement, advancing what was a research laboratory assay and device prototype into commercial products, securing Medicare payment of nearly $2,000 per test and launching Lucid's own network of test centers.

Early this year, as many of you know, we decided that Lucid had progressed sufficiently and that it made strategic sense to take Lucid public, so we could raise and spend its own capital to drive a growth strategy focused on, 1, expanding commercialization, including by expanding Lucid's network of test centers and, 2, expanding the clinical evidence of Lucid's products efficacy to support Lucid's ongoing regulatory, reimbursement and commercialization efforts, as well as recommendation of these products in clinical practice guidelines. We also decided that although Lucid would have its own capital and not depend on PAVmed financing its operations, that PAVmed will continue to manage Lucid through a management services agreement for the foreseeable future.

Prior to the effective date of the Lucid IPO perspective, PAVmed retained an approximately 73% equity stake in Lucid. Lucid issued 5 million shares of common stock in the IPO at $14 a share, yielding $70 million in gross proceeds. Despite the issuance of these additional shares, PAVmed's equity stake in Lucid actually increased post-IPO to approximately 76% as a result of PAVmed converting debt into equity in an attractive price, immediately prior to the confirmation of the IPO. As a 76% majority shareholder, PAVmed will continue to consolidate Lucid's financial into a sump, and recognize Lucid revenue as its own.

The value of having a stake in Lucid will grow as Lucid's value grows. PAVmed, as I already mentioned, will also continue to manage Lucid through an updated management services agreement. I'll also note that half of Lucid directors are also PAVmed directors.

So with all this remaining unchanged, what has changed for PAVmed following the Lucid IPO? The only notable change for PAVmed and its shareholders is that PAVmed no longer has to raise and spend capital and dilute its shareholders to finance Lucid's operations, PAVmed has for the past 3.5 years and would have had to do on a rate of tens of millions of dollars per year over the coming years if Lucid had remained a private subsidiary. Lucid now has access to $60 million of its own growth capital in the public markets and collectively PAVmed and the subsidiaries now hold approximately $90 million in cash and no debt, the strongest financial position PAVmed has been in since its inception.

So that's pretty much it in terms of change, same or higher PAVmed equity stake in Lucid, same management structure, same massive Lucid commercial opportunity, but much more cash available to create value within both PAVmed and Lucid.

Based on some of the communications we received, I thought it would be helpful to clarify what PAVmed did not do by taking Lucid public. PAVmed did not sell off some or all of Lucid. The Lucid IPO shares were newly issued primary shares. And despite the new issuances, PAVmed holds a largest stake in Lucid, than it did before the IPO. Similarly, PAVmed did not split itself into 2 companies or spin Lucid off.

Lucid Diagnostics Inc. was always a separate corporate entity and majority owned subsidiary of its parent company, PAVmed, before the IPO. And that relationship remains unchanged post-IPO. Finally, as I will describe in more detail, PAVmed is not merely a holding company for Lucid or its other subsidiaries. But remains the hub of innovation and value creation for the subsidiary and its overall enterprise.

On that note, a couple of questions I frequently get asked these days are what is PAVmed now that Lucid is public? Or -- and what is PAVmed's long-term strategy? Before answering those questions, let me describe what I believe PAVmed has become over the past few years, in many ways, thanks to Lucid. Because during this period, PAVmed has greatly expanded its infrastructure to support Lucid's rapid growth. As a result, I view PAVmed now as a hub, an innovation and value creation engine with scalable capacity across the spectrum of functionality necessary to advance and commercialize internal innovations or those licensed or acquired from outside parties. This allows PAVmed and its subsidiaries to share these functionalities and services across an expanding portfolio.

PAVmed shareholders benefit from this diversified portfolio with multiple shots on goal with non-binary success, which mitigates long term risk. PAVmed and Lucid shareholders benefit from the obvious economies of scale, which this shared services model provides.

So PAVmed's long-term strategy can be simply stated as create more Lucid. What do I mean by create more Lucid? I mean, PAVmed's long-term strategy is to use its expanding resources and infrastructure to rapidly and efficiently advance and commercialize innovative technologies to create and enhance shareholder value, as we have done with Lucid over the past few years.

We're doing that with our entry into the dynamic digital health space with the acquisition of Oncodisc and the launch of our digital health subsidiary Veris Health earlier this year and we expect to do that with our commercial and near commercial products, CarpX and NextFlo.

With Lucid no longer dependent on PAVmed to finance its operations, PAVmed now has plenty of cash to advance these existing technologies. We also expect PAVmed will accelerate its pursuit of new opportunities to expand its portfolio through the licensing and acquisition of new innovative technologies, including for the first-time later stage, pre-commercial and revenue-generating commercial products. To support this growth, we are expanding both our human and for the first time our physical infrastructure to meet the needs of the shared services model.

PAVmed and Lucid have added dozens of employees over the past couple of quarters and expect to accelerate that growth in headcount in 2022. This quarter, we will launch PAVmed's own dedicated product research and development facility in Foxborough, Massachusetts, adjacent to our long-term contract engineering and manufacturing partner, Sage Product Development. Early next quarter, we expect to launch Lucid's own CLIA certified diagnostic laboratory facility in Irvine, California, a few minutes away from our long time CLIA laboratory partner, ResearchDx.

Finally, sometime mid next year, we expect to launch PAVmed's own dedicated low to medium volume medical device manufacturing facility in Salt Lake City and we're in the process of securing space for that as we speak.

Finally, before handing the reins over to Dennis, I'd like to touch on the ongoing COVID-19 pandemic. Although the late summer surge of the highly transmissible Delta did have some impact on our commercial operations, we continue to remain fortunate compared to many other health care companies, especially those who operate within hospitals. Our Lucid commercial and clinical activities are almost exclusively in an outpatient setting and we continue to have mostly unfettered access to physicians in their offices. Our concern of course is that cases have stopped declining and are beginning to rise again in many parts of the country, raising the specter of the major winter surge, similar to the one currently underway in Europe. We are closely monitoring the situation and its potential impact on our commercial and clinical trial activities.

With that, I'll hand the reins over to Dennis to provide an update on our financials, before proceeding with a more comprehensive update of our business.

Thanks, Lishan, and good afternoon, everyone. A preliminary and summary financial results for the third quarter ended September 30, 2021 we reported in our press release that was published earlier this afternoon and we plan to file our quarterly reports for each of PAVmed and Lucid Diagnostics on Form 10-Q with the SEC in the coming days. At that time, these reports will be available at sec.gov and on the PAVmed and Lucid websites, respectively.

PAVmed has elected the automatic 5-day extension for filing its Form 10-Q for the third quarter. If filed on or before November 22, 2021, the SEC report will be considered timely filed. The Lucid Diagnostics Form 10-Q was due 45 days from the effective date of the IPO registration or November 29. We intend to file both 10-Qs concurrently during the PAVmed extension period. The extension for PAVmed was unavoidable given the IPO occurred directly in the middle of the closing and reporting period. So with regard to test performed and revenue recognition, as you already know from our previous quarterly corporate update calls, as a general rule, EsoGuard tests performed so far will be recognized as GAAP revenue when cash is actually collected by the company. Also 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 reported to you last quarter, for compliance purposes during the reimbursement transition period, we've negotiated short-term month to month fixed payment arrangement with the laboratory, which is processing the EsoGuard assay and is performing the insurance company billing and collections function. The fixed payment arrangement can be updated monthly to reflect estimated collections. This commercial agreement became effective on August 1, 2021 and therefore, we recognized $200,000 of revenue as part of the EsoGuard commercial agreement with ResearchDx.

Once we acquire own laboratory, Lucid will be able to directly invoice CMS and private payers without relying upon a third party to perform those functions. Once this occurs, the short-term agreement with ResearchDx will be terminated and future revenues will be recognized based upon actual collections until such times that the coverage policies are in place with CMS and payment contracts with private payers. This obviously can result in timing of revenues recognized versus the timing there submitted to third-party reimbursement until these future conditions are met. The number of EsoGuard tests performed and submitted for payment are provided in the press release. It will be discussed by Lishan in following.

I would say we're at the very early stages of our commercial launch, particularly with our test centers. We'll continue to evolve our reporting metrics as various sales and marketing efforts further influence adoption, particularly with the ramp of our Lucid test centers and the upcoming launch of our EsoGuard telemedicine program.

Presently, there are now 4 banking analysts who have issued coverage on PAVmed and 4 that have issued coverage on Lucid Diagnostics, and others that are doing their diligence. The 2021 and '22 revenue estimates provided by the analysts are achievable, but quantity and collections are highly dependent upon the evolving reimbursement landscape. As you are likely aware from our last corporate update, the local coverage decision or LCD for CMS-related reimbursement has not yet been published. But as Lishan will describe in more detail, we have reason to expect action on this front in the coming months.

With regard to the financial results for the quarter, provide some summary comments on PAVmed and then follow with similar comments on Lucid Diagnostics as a standalone company. First, a couple of clarifying comments related to how PAVmed's consolidated financials are impacted by the recent IPO, which is a question both Lishan and I have frequently received.

PAVmed will remain Lucid's controlling shareholder, holding approximately 76% of its voting interest. As Lishan noted, it's slightly greater than PAVmed's voting interest prior to the IPO, which was around 73%. Lucid's operating results will continue to be consolidated into PAVmed's financial results. Statement of operations will reflect a line item to show the non-controlling interest of profits or losses, the 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. This methodology is unchanged as a result of the IPO and will continue to be applicable as long as PAVmed remains to be the controlling shareholder.

PAVmed revenue. PAVmed recognized $200,000 of revenues related to EsoGuard with a margin of 28%. I think everyone understands that this is not reflective of future margin expectations given the minimum fixed cost during this early ramp. At moderate volumes, we are expecting approximately 90% gross margins.

PAVmed's operating expenses. In the press release, we added a new table for each of PAVmed and Lucid that details each of 3 components of OpEx, mainly commercial operations, G&A and R&D. And it reflects both gross amounts and net amounts after deducting stock-based compensation costs.

By comparison, the $9.7 million for net operating costs in the third quarter, it's about $2 million higher than the previous quarter in 2Q. This increase is attributable to increases in commercial headcount and activities as well as the expansion of clinical operations and the various health acquisition of Oncodisc.

With regard to PAVmed's loss and per share amounts. PAVmed reported a third-quarter net loss attributable to common shareholders of $12.3 million or a loss of $0.15 per common share versus loss of $5.5 million and $0.11 per share for the same period in 2020. Our press release provides substantially more detail related to the noncash charges occurring in the current prior periods. Also the press release provides a table entitled, non-GAAP measures, which highlights these amounts along with interest expense and other non-cash charges, namely depreciation, stock-based compensation and financing-related costs to enable a better understanding of the company's financial performance.

You will notice from the table that after adjusting the third quarter GAAP loss by approximately $4 million for non-cash or financing-related charges, the company reported a non-GAAP adjusted loss for the third quarter of 2021 of $8.2 million or $0.10 per common share. PAVmed had cash of $37.3 million as of September 30 and is debt free.

During the third quarter, the company received additional net proceeds of approximately $2.7 million from the issuance of common stock in connection with the exercise warrants and stock options.

Lucid revenue. Lucid recognized $200,000 of revenues related to EsoGuard with a margin of 28%, as previously mentioned. At moderate volumes, we're expecting margins greater than 90%. These lower volume amounts of a minimum level of fixed costs associated with just being operational.

Lucid research and development costs. For the third quarter 2021, research and development costs were approximately $2.2 million as compared to $1.2 million for the corresponding period in the prior year, with the $1 million increase principally related to the increase in clinical trial costs.

With regard to Lucid G&A expenses, not including sales and marketing expenses, which are now presented separately as commercial operations, were $3.4 million for the third quarter 2021 compared with $0.5 million for 2020. The approximate $2.9 million increase is principally related to $2.7 million, stock-based compensation for grants, new hires, new directors and other incentive grants from the Board, approved equity programs. Lucid's commercial operation, the expense was approximately $1 million for the third quarter compared to $0.3 million for the corresponding prior year period with $700,000 increase principally related to increase in head count, increase in marketing programs related to the commercial activities.

With regard to the loss and per share amounts. Lucid diagnostics reported a third-quarter net loss attributable to common shareholders of $7 million or a loss of $0.49 per common share versus a loss of $2 million and $0.14 per common share in the same period in 2020. Press release also provides a table entitled, non-GAAP measures for Lucid as well. You will notice from the table that after adjusting the GAAP loss by approximately $3.2 million for non-cash and interest costs on PAVmed convertible debt, the company reported a non-GAAP adjusted loss for the third quarter of 2021 of $3.7 million or $0.26 per common share.

Lucid had cash of $21,000 as of September 30 and a $22.4 million convertible debt due to the parent company. Subsequent to the end of the quarter, PAVmed converted debt equity in Lucid. And on October 14, Lucid completed its IPO and raised $70 million, including $8 million from PAVmed.

On a pro forma basis, had the Lucid Diagnostics IPO occurred on September 30, 2021, cash would have been approximately $93.7 million after giving effect to underwriting commissions and financial advisory fees.

So with that, I'll turn it back to Lishan. Lishan?

Thanks, Dennis. So let me now run through some key updates from across our business for the past quarter, recent weeks as well as plans for the upcoming months. So as always, let's start with Lucid.

Just as a quick intro, Lucid Diagnostics is a commercial stage cancer prevention diagnostics company focused on the millions of chronic heartburn patients who are at risk of developing highly lethal esophageal cancer.

Unlike other common cancers. mortality rates are high in this cancer, even at its earliest stages. so preventing death requires us to detect the esophageal pre-cancer, which occurs in approximately 5% to 15% of at-risk chronic heartburn patients. Esophageal pre-cancer can be monitored in its early phase and cured with an endoscopic procedure that's late phase, which reliably halts progression to esophageal cancer.

Although esophageal pre-cancer screening is already recommended in millions of chronic heartburn patients, fewer than 10% undergo traditional invasive endoscopic screening. The profound tragedy of an esophageal cancer diagnosis is that likely death could have been prevented if the patients have been screened and then undergone monitoring and curative treatment.

The missing elements for a viable esophageal cancer prevention program has been the lack of a widespread screening tool that can detect esophageal pre-cancer. We believe that Lucid, EsoGuard test performed on samples collected with the EsoCheck Device, constitute the first and only commercially available diagnostic test capable of serving a such a widespread screening tool to prevent esophageal cancer deaths through the early detection of esophageal pre-cancer and these at-risk chronic heartburn patients.

On the commercial front, Lucid is now plush with the proceeds of its IPO, is in the process of rapidly expanding its commercial sales infrastructure and moving from a hybrid sales model, utilizing independent sales rep to a full-time dedicated direct sales force. Lucid hired 17 sales and clinical support personnel in the recent months and expects to increase its commercial headcount several fold in 2022.

Lucid is also in the midst of expanding its Lucid test centers in cities across the Western U.S. Chronic heartburn patients in these cities who are referred by their primary care physician or PCP or who self-refer can now undergo a rapid non-invasive office-based test to detect esophageal pre-cancer before it progresses to deadly esophageal cancer. Each test center is staffed by a Lucid employed nurse practitioner and medical assistant who uses EsoCheck to collect surface cells from the esophagus from the patient, which are then sent for EsoGuard testing. Lucid estimates that a single nurse practitioner can perform up to 20 EsoCheck procedures per day and expects each center to cover its personnel and medical office lease costs with only a couple of tests per week.

The lucid test program has now advanced from a pilot program in Phoenix launched just this past August, to a regional program covering the major cities of the Southwest, with the launch of test centers in Denver, Salt Lake City and Las Vegas last week. We look forward to the next phase in the programs growth, which will focus on the Pacific Northwest and then study expansion nationwide thereafter.

Now Phoenix's experience over the past 3 months have demonstrated that each test center can again be operated with modest fixed cost and attractive margins. We also learned that the key to driving primary care physician EsoGuard referrals is to recruit experienced, highly driven sales representatives who exclusively call on these primary care physicians, most commonly from the diagnostics or pharmaceutical sectors and have them in place at the launch of the test centers, just as we did in the 3 new cities we launched last week.

Lucid has also been working closely with UpScript, our independent telemedicine partner. UpScript is finalizing the Lucid branded telemedicine platform, which will accommodate self-referrals for EsoGuard testing from direct-to-consumer marketing. So this EsoGuard telemedicine program with direct-to-consumer marketing will launch the pilot program in Phoenix in the coming weeks.

Lucid continues to drive EsoGuard commercialization while growing, training and fundamentally transforming its sales infrastructure to a direct sales force increasingly focused on primary care physician referrals to Lucid test centers.

The third quarter was somewhat of a transitional quarter as we moved to a direct sales force and increasingly focused on these primary care physicians and we dedicated human resources to the expansion of our sales infrastructure, including implementing salesforce.com, Showpad and other critical sales tool.

We also established a very robust and intensive sales training process and graduates of the most recent 5-day program completed last month are now in the field, calling on physician. Testing volume during this transitional quarter was flat at 213 -- 203 tests relative to the prior quarter, but up over 300% on an annual basis.

We continue to see slow but steady progress on the reimbursement front. EsoGuard has already, as I mentioned previously, secured a national Medicare payment rate of $1,938, which became effective last January. Our current efforts are thus focused on securing Medicare coverage as well as private payer payment and coverage. We have been engaged with the MolDX program of the Medicare Administrative Contractor Palmetto GBA on Medicare payment and coverage since early 2020. Although we secured final and effective payment determination, coverage determination has been slowed by significant pandemic-related backlog of coverage reviews.

We do however have reason to believe that things are beginning to start on the coverage front. Last month, the MolDX program held a public Contractor Advisory Committee or CAC meeting on the topic of molecular testing for certain gastrointestinal cancers, which include a discussion of EsoGuard testing. We are very encouraged that the expert gastroenterologist panel voiced strong support for esophageal pre-cancer screening and high risk chronic heartburn patients.

Our market access and reimbursement team, along with our expert reimbursement consultants are now in the process of reengaging with MolDx to reinforce this message and we are hopeful that we might see a draft coverage determination in the coming months.

On the private payer side, the laboratory continues to receive some standard 50% out of network payments from private payers, averaging over $1,000 per test, which is encouraging. Securing in network private payment coverage is, of course, however, a longer-term process that requires negotiating contracts with local, regional and increasingly national private payer programs.

A prerequisite for initiating such engagements is a critical volume of tests performed and claims submitted to each payer. We are close to reaching such volumes in certain locales and have initiated some context of major payers in Arizona.

In the interim, we have held 2 successful advisory Board Meetings, including one this past September with medical directors of major insurers, which indicated good alignment with our strategic approach. The bottom line message from these meetings is that private payers will be focused on clinical utility data, demonstrating that EsoGuard positively impacts clinical decision-making, most notably that patients with a negative EsoGuard don't also undergo a costly endoscopy. We are collecting such data from our busiest clinical sites and we'll soon have our own clinical registry in place, which will also provide such clinical utility data.

Next I'd like to spend some time on the substantial progress we've made in securing Lucid's own CLIA certified laboratory, which will allow Lucid to bill payers directly for the test and eliminate the complexities of the current process involving our partner, ResearchDx. Lucid and ResearchDx have recently agreed in principle for the terms by which a newly created wholly owned Lucid subsidiary, Lucid Dx Labs would acquire the CLIA certificate and related licenses to perform the EsoGuard test. Lucid DX Labs will lease separate building in Irvine, and ResearchDx would continue to manage the performance of the EsoGuard test through a management services agreement with Lucid DX Labs. We look forward to executing the definitive agreement hopefully before the end of the year and launching the Lucid CLIA laboratory soon thereafter.

Bidding much of the effort on Lucid side have been our newly appointed Chief Scientific Officer, highly accomplished molecular biologist Suman Verma. Dr. Verma has long been a part of the Lucid family in her prior position as VP of Genomic Services at ResearchDx. There she played a central role in transferring to EsoGuard assay from the Case Western research laboratory and launching EsoGuard as a commercially available laboratory developed test. Could not be more excited to have her on board and to launch our own CLIA laboratory in the coming months.

Things are also progressing well on the clinical research and development program. We are actively enrolling patients in 2 international multicenter clinical trials, ESOGUARD-BE-1 and BE-2, support FDA, PMA approval of EsoGuard use with EsoCheck has in vitro diagnostic indicated to detect early esophageal pre-cancer. The studies have 68 sites in the U.S. and Europe, with 50 U.S. sites and all 9 European sites currently active. Enrollment is steady despite COVID and we are still targeting completion of enrollment by the end of 2022 and PMA submission to the FDA in 2023.

Couple of more Lucid highlights before moving on to the rest of the portfolio. We are proud to see Lucid's products add to their list of formal accolades and honors with EsoGuard being awarded Diagnostics Innovation of the year at the Biotech Breakthroughs Annual Award program, recognizing innovation of the global life sciences and biotech industry. This year's program attracted more than 1,200 nominations from over 12 different countries throughout the world.

And also, Lucid-related, last month PAVmed acquired North Carolina-based CapNostics, LLC which manufacturers EsophaCap, a U.S. FDA 510(k) cleared and European CE Mark certified, non-endoscopic sponge based Esophageal Cell Collection Device, which has been used in pre-commercial clinical research of esophageal pre-cancer biomarkers at major academic medical centers, including Mayo Clinic and Johns Hopkins. The transition to our manufacturing and quality systems is nearly complete and discussions with the academic medical centers and their commercial sponsors have commenced.

Next, a brief update on CarpX, our minimally invasive device to treat carpal tunnel syndrome and actually consciously optimistic that we're starting to turn the corner after frustrating year with repeated challenges building momentum with CarpX. Our new full time CarpX national sales manager has been doing an excellent job since he started in June, leveraging his relationships in the orthopedic at hand surgery space to recruit motivated early adopters in what remains a limited commercial launch.

In the past quarter and recent weeks, we have trained 7 surgeons and have 5 cadaver training lab schedule. Surgeons performed 11 CarpX procedures during this period and have an additional 8 currently scheduled on the books.

We hired a full-time territory manager with 4 years of experience at another carpal tunnel company and our recruiting clinical specialists to support training increases. So although this is just the first step, I'm encouraged by this progress, and remain upbeat about the future of this groundbreaking products, including exciting progress on the next generation CarpX device.

Let's now move on to Veris. I'm trying to be brief, since many of you participated in our Virtual Investor event last month. And if you didn't, I'd encourage you to watch the recording. It went really well.

Veris is a majority owned subsidiary of PAVmed and represents PAVmed's entry into the dynamic and rapidly growing digital health sector. Veris acquired Oncodisc, a digital health company with groundbreaking tools to improve personalized cancer care. Veris is now developing a remote cancer care platform that integrates an intelligent, implantable vascular access support with physiologic sensing, with the software with symptom reporting and telehealth functions as well as advanced data analytics.

Veris' groundbreaking vascular access port contains biologic sensors capable of generating continuous data on key physiologic parameters known to predict adverse outcomes in cancer patients undergoing treatment. Wireless communication of the patient's smart phone and Veris' cloud-based digital health platform will seek to deliver actionable real-time data to patients and physicians efficiently and effectively. Veris is targeting FDA 510(k) clearance of the intelligent, implantable vascular access ports and launch of the remote digital health care platform in the second half of next year.

I'm very proud of the remarkable progress we made in the 6 months since the acquisition. We are rapidly advancing the development of the intelligent implantable port, and successfully completed our first animal lab last month.

On the software side, in September, Veris was accepted into Microsoft's global partnership program and entered into a definitive services agreement with leading full service Silicon Valley-based software development firm, Loka.

Loka is now building the Veris remote digital health care platform. The teams are making excellent progress now with a clickable user interface of both the smartphone and desktop apps, as well as initial coding of the underlying data structures.

A major recent highlight for Veris was the appointment of highly accomplished Silicon Valley Technology executive, Sunny Webb, as its Chief Technology Officer. She brings to our team, now 2 decades of experience, successfully leading technology teams and launching dozens of enterprise level software and hardware products, including for industry leaders such as Apple, Philips, Healthcare and Facebook. She has deep expertise in data science, analytics, machine learning and advanced sensors, all cutting-edge technologies, which are central to the Veris device and platform.

We will soon be announcing 2 key Veris' advisory ports, of medical advisory board of key opinion leaders in cancer care, including the major cancer centers across the country and a technology advisory Board of Silicon Valley in the juries Finally, we have launched a major R&D effort to apply the Veris technology to very important and prevalent conditions beyond cancer. This project seeks to enhance the care of patients with heart failure, kidney failure, and most recently chronic lung disease or COPT.

Now on to NextFlo. Including our NextFlo IV set, which seeks to revolutionize care by eliminating the need for complex expensive and error-prone electronic infusion pumps for most of the 1 million infusions performed in this country each day. Although as a company we've been spared the brunt of the supply chain issues plaguing much of the country, we have incurred some delay in the receipt of certain -- of a certain NextFlo components from China. We were eventually able to switch to a U.S. supplier, but the delay cost us a couple of months in our time line. We have now received the parts and are starting verification and validation testing, but we've pushed our target date for FDA submission to Q2 of 2022. We are however already launching the recruitment of sales leadership personnel in anticipation of a commercial launch next year.

As many of our long-term shareholders know, for several years we have and we still continue to receive strong interest in NextFlo from leading strategic from the space. The engagements for a pre-commercial product that has not been exposed to the commercial market can be and has in this case painfully slow. I should note however that our strategic approach to NextFlo has evolved significantly over this time period. Back then, we were positioning NextFlo for a pre-commercial acquisition to supply PAVmed with much needed capital. We're obviously a very different company today than we were then. PAVmed is now in a strong cash position, especially following the NextFlo IPO. And although we're open to continuing these engagements and entertaining offers, which we will, we know that a commercial NextFlo product is a very valuable asset, which we are happy to commercialize and to create value organically, if necessary.

Finally, a few brief highlights with you, but for the sake of time, not all of other products in our portfolio. Progress on our PortIO, Implantable Intraosseous Vascular Access Device remain frustratingly slow. The long planned human study in Colombia, South America remains delayed due to local IRB backlogs. However, there promising signs, that we'll finally be able to start enrolling patients with long-term implants of PortIO after the New Year.

In the U.S., the FDA continues to present us challenges on the U.S. IVD study and we are strongly considering reverting to the classic MedTech strategy of seeking CE mark and launching in Europe first.

EsoCure, our esophageal ablation device is progressing extremely well. Histopathology and data from our most recent animal study, which included head-to-head comparisons with the Medtronic Barrx device really looked great. As things continue to go well, we expect to be in a position to submit for 510(k) clearance in 2022.

So thank you all for your attention. And with that operator, we can now open the call to questions and really thank you for your attention.

(Operator Instructions) Our first question today is coming from Kyle Mikson from Canaccord Genuity.

Congrats on the IPO in the quarter. So I just wanted to start, Lishan, I heard you on reimbursement, really helpful. I guess next few months -- next couple of months you think the draft LCD could be published. But just, could you just walk through the steps with a little bit more clarity or detail and just kind of expected time lines and perhaps the scenarios? I'm just kind of curious if you expect any additional data is going to be necessary to achieve the draft LCD?

I think the short answer is no. I mean, we obviously will know and we know, but we don't expect that. There was nothing in our extensive discussions with the MolDX Group as we were preparing the coverage dosing back in the first half of May that suggested that they were focused on additional data. And the CAC meeting transcript, if you read it, it's a bit rambling and there's a lot of, you have to sort of pay attention. There was fairly strong support, as I mentioned, from the gastroenterology expert panelists, including 2 from Mayo Clinic and 1 ne from Johns Hopkins on the fact that there is sufficient data right now to support high risk screening with these non-endoscopic tests, basically leveraging the existing guidelines for endoscopic screening to non-endoscopic screening.

So every hint we've gotten and every communication we've had would seem to suggest that. We feel that there is a fairly straightforward decision to be made here. If one follows the risk factor profile, that's been well established and endoscopic screening recommendations, Medicare patients are over 65. So we would hope and expect that the same risk profile basically a patient, a Medicare patient with 2 other risk factors would be covered for screening.

That said, of course you know, it's still an unknown. We're encouraged that period dusted off, our dossier and are looking at it in conjunction with other tests in the GI area and in the esophageal area and we're again, as I said, we're hoping that, that will translate in the draft in the coming months.

What happens from there is really impossible to predict, right? It depends on what they say. If we -- certainly, if we get something that approximates what I just described and what we think we have made a strong argument for, we would hope that the process from a draft LCD to effective one would not be very long. But that's obviously to be determined.

Okay. I appreciate that Lishan. That makes sense. And also was wondering where, I guess where most EsoCheck procedures occurred during the third quarter? And I guess where they're kind of being performed currently and what's the expectations for like early '22? And obviously you had the Lucid test centers kind of launched I guess in the middle of the quarter. I know that they're not really up and running yet, but I'm just trying to understand if the volume that we saw in the third quarter could increase sequentially or just what the trends could look like going forward?

Yes. So I think I have one clear answer is that the bulk of the nearly all of the test performed in the third quarter were through traditional target, which were the GI, which were the GI physicians. I mean, we didn't launch the Phoenix test centers until August. By the time we had our local sales reps in place, we were well into September. So that number reflects almost entirely the same target that we had in prior quarters. And as I said, it reflect some sort of shifting of resources to get the test centers up and running and to train and expand our sales force.

So I think I would expect over time including in this coming quarter and beyond that -- that the proportion of test performed from primary care referrals at our test centers relative to those being performed at GI centers will likely shift. But it's really hard to know for sure. But that's certainly where we're heading over the long term. And that we fundamentally believe over the long term, whether it happens in the next couple of quarters or not, we'll see, over the long term the path to wide adoption of EsoGuard testing is through the primary care physicians, because that's where the patients are, very few patients ever see a gastroenterologist.

Your next question today is coming from Charles Duncan from Cantor Fitzgerald.

Congratulations on the recent progress. You've got a lot going on. My questions are primarily along the lines of Lucid. I wondered if you could provide any feedback from physicians who prescribed EsoGuard, EsoCheck and kind of the in-market experience thus far? Anything newly gleaned from that?

Absolutely, yes. So we trained and we prepared our reps to do what we call objection handling, right, for both flavors of physicians, for gastroenterologist and for primary care physicians. And we've had a lot of experience on that, on the talk tracks related to gastroenterologist and have worked through that. And generally, those talk tracks have been well honed and have gone well over the prior quarters.

What we have learned and we're very happy with them to have experienced is that the contracts that we developed from the primary care side is really quite straightforward. And the reason for that is that what we made, as you know, we made the strategic decision to have a very simple ask of the primary care physicians, which is to say, let us sort of update you or educate you on the relationship between chronic heartburn and esophageal cancer and the availability of this test. And all we're asking is that you understand that and you offer this test to your -- to the appropriate patients within your practice and order the test and we will provide you with the location for that has to be performed. So without -- because the burden on them is quite low, we're not asking them to utilize their own resources to do the test.

We have a quick anecdote, one of our Vice Chairman, Stan Lapidus was in Phoenix, touring our test center and engaging with some of our folks. And he actually did a sales call, quite impressive, with one of our local PCP-focused reps. And he really came back and Stan is a pretty grisly veteran and he came back with very positive reviews of the of how the story was told and how the entire folks in this, in what was an office later, physicians, nurse practitioners, PAs et cetera, just got it from the very beginning and it didn't require a lot.

Now there is obviously an art to this, to sales. And that's mostly around sort of repeated context. So messaging has been fine, but to get people to actually to remember, to think about it and to have it be front and center, that's just classic sales one-on-one and requires sort of multiple points of contact. And the team has really gotten that down to almost a mathematical exercise right now in terms of how to do that.

So as I really said, could not be happier with how the interactions are going with the primary care physicians, which is sort of what's new in the last quarter.

Very good. And as I guess as key investor with your time and money in this business and these initiatives, marketing initiatives over the course of, say, even the next quarter, what will you be looking to gauge success?

Sure. I think a quarter maybe short, but we'll obviously hope that we'll start seeing. Yes, we clearly are looking -- our metric right now is just test volume, right? And as I said, we took some time to kind of -- took not just time but sort of allocation of resources to do this transition to direct sales force, the training program is now a 5-day, sort of intensive 5-day, all day program that we exposed 16 new salespeople to just last month. And so now that that's all in place and a lot of the infrastructure with salesforce and stuff is in place, we really expect them -- they're out on the field now. They're on the field, banging on doors, making their case. And so we would certainly expect to see some nice increase in testing volume over the couple -- over the coming quarters.

Okay. And then last question on this…

And I'll add one other thing, Charles. We'll certainly know by the next quarter, which is that, as I mentioned, we're very close, no more than a couple of weeks away from launching the pilot DTC program with UpScript in Phoenix. And we'll have a lot of information by the time we have our next call as to how effective that direct-to-consumer marketing is, how effective we are capturing the interest of patients with chronic heartburn and driving them into our telemedicine program. So that obviously could very well have a big impact in the coming quarters as well.

Okay. That should be helpful. Last question on the marketing initiatives, and then just one quick strategy question on CapNostics. I guess relative to the testing center model, which you've used in Arizona. You mentioned perhaps expanding that to Denver, Las Vegas and Salt Lake City. Does the math still work? Are you having to adjust that at least with these 3 new geographies?

Yes. No, the math is same. I mean, obviously, at some point, we'll get to New York and Chicago and other -- and then potentially some other higher real estate areas, where the medical office leases will be, somewhat higher. But honestly, even then the math is still pretty extremely attractive and that it still ends up being a marginal cost business. So no, nothing has changed in the cities that we just launched in and the ones we expect to launch in the Pacific Northwest, and we really don't expect that to change meaningfully even in higher cost.

That's on the operation side. Obviously, the marketing side and the media cost side will increase dramatically. And that's why we're testing the media model and lower cost sittings before we would even contemplate doing it in larger, higher cost media markets.

Got it. Last question, strategy, regarding EsophaCap and the CapNostics acquisition. I guess I'm wondering if you could give us a little bit of information, what you would like to do with that and really what drove you to consider that acquisition by PAVmed?

So let me answer the second question first. I'm probably not be able to say much on the first question. So let's cover the second question. So the reason we acquired EsophaCap from CapNostics is really fundamentally that Lucid intends to be the esophageal disease company. So we have obviously EsoGuard and EsoCheck for esophageal pre-cancer, esophagus screening. We have -- we've entered into option and license agreements and we continue to seek more out with regard to progression markers that can detect the difference between non dysplastic and dysplastic. And we have an ablation technology that's currently housed in PAVmed in EsoCure that we expect when and if it's successful will move into Lucid.

So we want to do -- we want to be the company for all things esophageal, I mean all esophageal. I forgot to mention, we also have a launched Medical Advisory Board and have started some clinical trial work on its use in eosinophilic esophagitis, which is an inflammatory, very common inflammatory food mediated allergic condition of the esophagus.

So with that as a baseline, we want to make sure that we have all of the tools available to us to pursue all of the things that I just mentioned. And although we firmly believe that EsoCheck for the screening application that we're using today is what is and will continue to be the best choice because of the way it does anatomic targeting and protected sampling, we just wanted to make sure that we had access to the other technology out there, which was a sponge-based technology, which could be beneficial for, let's say, esophageal eosinophilic esophagitis or potentially for progression markers or other areas that we're pursuing. We were frankly somewhat surprised that CapNostics was available. And when it became clear that it was available, we acquired.

Now in terms of the strategy, I'm going to have to get back to you, because you know obviously, there is, we -- as I mentioned in my prepared remarks, we have initiated conversations with Mayo Clinic and Johns Hopkins, who have been doing clinical research using their own biomarkers, using the EsophaCap device and frankly with commercial partners that they work with, so commercial sponsors and partners they work with. So stay tuned on that and we'll let you know once we have a little bit more clarity on that. But we just wanted to get it into our portfolio and make sure we had all the tools available, so that we could pursue our broader aspirations in this space.

Next question today is coming from Frank Takkinen from Lake Street Capital Markets.

I think this was slightly or partly answered in Kyle's line of questions, but just wanted to come back to. Can you talk to the sequentially flat quarter-over-quarter from a volumes perspective, what were some of the moving pieces that happened in the quarter? I guess I was expecting a little bit of growth, but I understand a lot of moving pieces. So maybe just flesh that out for us.

Yes, I think the best way -- Frank, the why I describe it is that, it was, as I said, a transitional quarter. So in the second quarter, everything was sort of full steam calling on gastroenterologists. We did not have -- we had not sort of expanded our team. It was mostly our business model with sales management utilizing independent sales reps. And we really kind of packed pretty rapidly in the third quarter in anticipation of the Lucid IPO and the access to the significantly more growth capital to a direct sales model. So most of that as a result of us shifting some personnel to getting the test centers up and running, to getting the primary care folks trained to getting some of the infrastructure, as I mentioned the online and other infrastructure, in place, so we could be set up to start really dialing things up with regard to expanding the direct sales force.

So it's really that. I mean it was there a little bit of COVID. Obviously, COVID went through the roof in August, maybe at the GI level, but I would attribute it mostly to this kind of transition from direct sales -- sorry from independent reps in a hybrid model calling primarily on GIs to sort of laying the groundwork for the future model and direct sales.

Got it. That's helpful. Crystal clear. Second piece I wanted to touch on was just of the revenue recognized in the quarter, can you break out the contribution from Medicare, if any, versus whether or not it was commercial at the 50% level you referenced?

Yes, let me answer that. So Dennis, why don't you go and answer that? Let me just make one comment, which is -- Dennis can follow. So the revenue we recognized is not reflective of the packing. Remember, the way it's just set up -- and Dennis will answer this, is not one and the same with the billings we received by the laboratory. But I will answer a part of your question, then I'll let Dennis answer for the more of financial perspective.

So all of the claims that have been paid, have been from private payers. The claims that have been paid to the laboratory have been private payers. We have not either gotten the denial for Medicare to-date. Some of that was related to the fact that it took a little while to get this sort of thing called DEX code, which facilitates processing of Medicare claims and that is now in place. So -- but we don't have really picture either one way or the other with regard to either the denials for claims paid for Medicare.

So all of the claims that have been paid to-date have been out of network payments by private payers at typically that sort of 50% rate. But Dennis, do you want to maybe add a little bit of color to that as it relates to some of the actual recognized revenue and where that came from?

Yes, the recognized revenue is actually agnostic in terms of the treatments, whether or not they're Medicare or private payer side. So you have both of these things going on, as Lishan explained the laboratory, who is the billing arm and collecting, has all been private payer components of the collected arm. Our arrangement with them is a fixed price contract. They pay us $100,000 a month presently. They are 30-day contracts, so they can renew each month depending upon what we view as the likelihood of their collections. It can be tied directly to that, but there is enough discussion, understanding in terms of where the billing cycle is occurring on the laboratory side that orients our arrangement in the contract for the go forward months, but presently it's a $100,000 a month, regardless of what they collect. We have visibility into what they're doing, what they're billing, how they're collecting out of network payments.

And as Lishan said, so far, none of them have been Medicare collections, none of them have been Medicare denials. On the private payer side, the collections have been predominantly out of network and traditionally out of network is paid at 50% of list price, which we view that as encouraging and it continues to be that approach at roughly half of what your $1,938 payment rate is with CMS.

So all of that is good. And for the foreseeable future, until such time that we have our own laboratory, own our own laboratory, we will continue with that arrangement with ResearchDx, and that will go up as their volume, their collections go up, and it'll go up prospectively in terms of that financial arrangement. But once we own it, then we will take over that same position. We will bill directly to the private payers, we will bill directly to CMS, and we will bill those rates that the payment rate has been determined at, until such time that there are contracts in place with the private payer community going forward. So hopefully, that was clear.

And Frank, I'll just add and emphasize one thing, which is that we really, I mean, the I's are not dotted, the T's are not crossed yet. But we're -- we really see this transit. We're highly motivated to complete this transition to Lucid owning the CLIA laboratory and transitioning to its own billing. And we really expect that to be near-term, barring some major unexpected problem.

This temporary setup is really temporary. We really expect it to be temporary.

The next question is coming from Mike Matson from Needham & Company.

So I guess first on this transition to the direct sales force, I mean I know you guys kind of talked about that in the past. So it's not surprising, but just -- is it now completely done or is it still underway? When do you expect it to be done? And then the second part of the question would be, is the direct sales force really purely focused on PCPs? Have you sort of given up on the GIs? Are they call on GIs as well?

Yes, that's worth. So the transition in terms of the structure is complete. So we're not, we're no longer depending on independent sales reps, that all of the sales activity right now is being done with focus Lucid employees. But we are absolutely not giving up on the GIs, let me just make it clear. So although the expansion has been and what's new has been adding aggressively adding PCP focus reps, the reason for that as we need them to support the Lucid test centers. So as I mentioned in my prepared remarks, I mean they are kind of joined at the hip and we've actually learned that. One of the things that we've learned in Phoenix is that it doesn't really matter whether you have a test center up and running if you don't have -- if you don't have reps, PCP focus reps in the area that are actually banging on doors and driving referrals there. So we're now doing them simultaneously, like we did in the 3 cities last week and we'll do the same in the Northwest.

The way to understand the GIs is as follows. We have in the trenches, primary care sales reps. These are, as I mentioned, pharma, typically pharma diagnostic reps who spent their careers selling diagnostics or pharmaceuticals to primary care physicians. They know how to go door to door and do that. Above them, we have market development managers who are looking at the overall market in a particular region and working with their reps as well as that are primarily right now expanding at the PCP level, but still providing ongoing support and engagement with the gastroenterologist.

Our messaging to the gastroenterologists that seems a little bit, which is that the way we see the gastroenterologists, they're just another test center. They are sort of GI test center, just like we have Lucid test centers. And we're not really out there putting Lucid test centers up to compete with gastroenterologist. When we have a gastroenterologist group in an area that's busy and is active and wants to have basically onsite Lucid EsoGuard testing, that's fine, and we support that we provide clinical specialists to come in and support the cases. They try to be there pretty much on every case. And so nothing, just I can say that more, more strongly that nothing has changed in that part and we continue to seek out and grow through the higher level and market development managers and the gastroenterology practices that want to embrace this and basically become a test center.

Once they've established themselves as the test center, what's interesting is that the primary care reps are calling on both on primary care physicians that are kind of de novo, that are not particularly attached with a particular GI that's working within our network, or they will also be the entity or the rep that calls on the primary care physician that refers to that GI. So I think as you remember, we've said this many times in the past, our message to the gastroenterologists is that, "Yes, there are going to be some patients in your practice, there are going to be some patients undergoing colonoscopy. And there is some low hanging fruit that you already see. But our goal is to go out and find more patients, find you those 19 out of 20 patients that are not currently getting screened. And to do that, we have to go to your primary care network." And so by having a network of primary care sales reps, we actually are in a better position now to actually support the GI.

So it's a bit -- maybe it's a bit complicated and hopefully that makes sense, but it's all intertwined in this transition. The transition that I described is from hybrid model with independent reps to our direct sales model. It is not the transition away from GIs towards primary care.

Okay. Great. That's very clear and very helpful. And then I wanted to ask about the direct-to-consumer component. What's your plan for sort of initial DTC advertising? Is it going to be in the areas -- all the areas now where you have the test centers? You're going to start in Phoenix and see how it goes…

Yes, we're going to start in Phoenix. Yes, so just like we did with the actual physical locations, we're going to start in Phoenix. So we have the Phoenix test centers. We actually have the media buys. Everything is ready. We've just been waiting for the UpScript Lucid telemedicine platform to be up and running. It looks great. It looks pretty slick, and that will be ready very, very soon. It's really just a matter of turning on the switch with regard to the media buys in the Phoenix area across all the various modalities. And we're going to do that in a deliberate way. We're going to look and see what the return on investment are we have with billboards versus local TV versus digital versus print versus other and start titrating that until we really kind of have a pretty good sense as to how, generally the population responds to our advertising before we branch out and start doing it in the other test center.

So for the other test center, that's going to be strictly primary care physicians driven referrals until we sort of fine tune and hone the upcoming DTC program in Phoenix.

Next question is coming from Mark Massaro from BTIG.

Congratulations on the IPO. I guess my first question is on the commercial payer contracting side, I know this can take a long time. I think you talked about clinical utility data being important. Where are you in that process and how long do you think it would take for you to complete building the evidence such that you could submit this to a large health plan?

Yes, I think, the quick answer to your question is that we'll have that data by the time -- I don't believe that data actually right is a rate-limiting factor. The rate-limiting factor is that they want to talk to you until you have sufficient claims within their coverage of population, right? So we are collecting that data. We have obviously high-volume users where we are going to them and getting them to get the endoscopy, the endoscopy results on patients who underwent EsoGuard testing. So these are very straightforward. This is not a complex clinical trial. It's actually getting clinical utility that's fairly straightforward. The patient got test with a positive or negative, if they were, and did they get endoscopy and what did that endoscopy show, right?

So yes, we're collecting that data now. And as I mentioned, we're just about ready to launch our own registry. And the goal of our registry is to try -- it's not always easy, but to try to get just about every patient that undergoes EsoCheck -- EsoGuard testing to consent to us collecting their follow-up data with endoscopy, if indicated. So we'll have to sort of a continuous stream of that data. But -- so it's not complex data to collect and the collection of the data is not going to be the rate-limiting factor in our initiating conversations with private payers.

Okay. And then maybe just a 2-parter. Is there currently a preference between digital or TV or billboards on the DTC? And then the second part is, as I think about my model for next year, obviously the test clinic is probably the biggest driver to adoption. For what it's worth, I'm modeling 14 clinics launched. That's a cumulative number. Just curious if you can just give me a sense for your comfort around a number between 10 and 15 in terms of rolling out clinics across the country or at least the Pacific Northwest?

Yes. So let me answer the first question first. I'll defer to Dennis for that. I must because he has a lot more experience in DTC. But I think the answer is that we're not going in with any pre-conceived biases as to what works and what doesn't. You just never know, right? I mean, some of these are elderly patients where digital may not be -- you may not get to them through the digital. So we are using Phoenix as a laboratory to understand that. But Dennis, do you want to talk a little bit more about that?

Yes. Obviously, Mark, this changes over time. So it's more important to have the feedback loop. And as Lishan said, we're going to launch with some initial bias, both -- all of those media tools. And the key is to make sure that we have the feedback loop to understand which ones are working, meaning the call to action is getting folks to schedule an appointment with telemedicine or calling their PCP and getting a script to get tested. And that will change over time, more dollars will pour into those that are having higher MER or media expense ratio, the revenue dollars compared to the cost of the specific media.

And you can parse all of those media even further. For instance, if you're going to do TV and which is part of our plans, on a very limited scale initially, you got to figure out what times of the day, what channels, what message? Is it 15 seconds, is it a longer commercial from a training standpoint? All of those things will take some time to optimize. But once it's completely figured out, and that's why we're using the lower media cost markets to have that figured out, so that when it does launch on a national basis, we have great data to give us confidence that dollar spent is going to yield dollars of revenue.

So it will take time to figure out digital TV versus billboard and other means of approach. Radio has been very successful in the past for physician-based kinds of models. COVID changes that, especially when drive times aren't as regular as they have been. But we expect that to come back at some point and that could be a very profitable approach for us. But measuring that and spending where it works is going to be important, and that's what we intend to do.

Great. And then on the test centers side?

Yes. So let's talk about that a little bit. Let me see if I can give you some details that provide some color without sort of directly projecting. So in Phoenix, for example, we have 3 test centers, right? And the reason we started right off the bat with 3 in Phoenix is because we knew we were going to launch a DTC program in Phoenix. First thing we wanted to make sure, we have full geographic coverage across the Phoenix metropolitan areas, so that we could -- because you can't always know where people are when they receive the advertisement.

So we have 3 in Phoenix, right? And the 3 cities we announced last week, we were starting with 1 in each, because we don't anticipate doing direct-to-consumer there until we -- as I mentioned, until we sort of get a sense of the model in Phoenix. And so those locations were basically, those places were located basically using the geography of hospitals and clinician practices and population demographics and so forth. We certainly expect to add 1 additional, at least 1 additional one in Denver and Salt Lake after we've had some time to gear up there and potentially maybe even a third in Denver.

The next, we've -- as I said pretty clearly, we're going to the Southwest to the Northwest. That's 3 cities. You can probably guess what they are, and that model will remain, will be similar to starting with one in each, and then expanding to up to 2 to 3, depending on the population of the geography.

At that point and that's too far into next year, that's fairly early next year, we will be in a position where we're laying the groundwork now to expand to cities -- sorry, to states, where we selected these Western states, I think as you know, because they have a low regulatory burden for nurse practitioners to operate independently. And so that's where we started. But we are now with our counsel from [Grenberg Trial] working through the processes of what we need to do to have physician oversight in states that require a physician or supervision. And so that process will be done by the time we have the Northwest centers up and running. And then it's really just a matter of aligning geographies and states where we have -- where we seem to be getting traction where we have reps.

I'll also just point out one really important point, which I probably should have started with, which is that I know you're focused on the rate of growth of test centers, but I just want to emphasize one thing that I said earlier, which is that test centers and the growth of the primary care targeted sales reps are integrally linked. They're sort of one and the same. And so the rate-liming factor for adding test centers is actually adding reps. We could -- I mean, getting test centers up and running, it doesn't take any effort at all. You just sign a leasing, you hire a nurse practitioner. But there's no point in doing that until you've identified -- again, we're doing -- we're starting with at least 2 in each city, high-caliber experienced, highly motivated, highly driven reps that are going to do a good job of driving patients to those test centers.

So what you're really asking is what is our time line and sort of we're growing our sales team. And I think, as I said, maybe I'll just leave it at that, that we expect our current team to expand several fold in 2022, and I would expect by the end of '22, we have a significant number of test centers with sales rep, primary care sales rep support in multiple other cities outside of the western states that I've already outlined, including the upcoming ones in the Northwest.

That's really helpful. Thanks so much.

Great. Thanks, Mark.

Our next question is coming from Ed Woo from Ascendiant Capital.

Yes. Congratulations on the IPO. My question is, has there been a significant shift in your product acquisition strategy? Should we expect fewer but much bigger acquisitions going forward?

So I did hint at that. I think I threw my prepared remarks on that. But again, as always, thanks for giving me the opportunity to expand on something. So the answer is yes. I'm not saying -- I'm not necessarily fewer, but somewhat -- maybe a different spectrum or a broader spectrum of potential targets, right? So historically, as I'm sort of describing it related to NextFlo and so forth, we have limitations with regard to capital in terms of what we could go out and pursue, when we were mostly pursuing extremely early stage products that we could essentially get for no cash or a stock consideration like we did with Lucid and Veris, and invest in them and build value with them organically over time, right?

Now that Lucid -- now that PAVmed has -- PAVmed was well financed prior to the Lucid IPO, but now that it's free from having to fund Lucid's operations, which is -- which accounted for the substantial portion of its cash burn, we have significantly more capacity to do later stage deals, including those that are truly pre-commercial or companies or products that are already in the commercial realm and already revenue generating.

So I think you picked up on an important point, which is -- so the answer to that is yes, whether the number will just depend on what we see in. I think, as you know, and our long-term shareholders know, we get a lot of deal flow. I mean we're constantly being contacted by companies, by academic centers by physician innovators, the word is sort of out, people reach out to us seeking to partner with us, which is a really fantastic position to be in. And that includes the kind of company you're talking about, companies that are further along that have commercial products. We have active discussions in that long-term.

Well, congratulations and good luck in the future.

We reached the end of our Question-and-Answer Session. I'd like to turn the floor back over to management for any further closing comments.

So thank you all for joining us today. This is obviously a lot with the 2 companies. And so thank you for your patience of going through all the information and for again another really great round of questions. So as always, we look forward to keeping you abreast of our progress with news releases and periodic calls like this one. The best way to keep up with PAVmed and Lucid news updates and events is to sign up for our e-mail alerts on the PAVmed and Lucid Investor Relations websites and to follow us on social media, Twitter, LinkedIn and YouTube and the rest of our websites. You can also contact us at info@pavmed.com or info@luciddx.com or directly to Lisa at PAVmed@lavoiehealthscience.

And I would really encourage folks and really don't feel limited to contact us by e-mail. Contact us by phone, as some of you learn is not always the easiest thing. Our corporate offices are still basically remote. And so the time line to get back to folks is -- it can be more challenging. So the quickest way to get in touch with us is info@pavmed or info@luciddx, and we're always happy to hear from you. So thank you very much for your time. Appreciate it. And everybody, have a good evening.

That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful evening. We thank you for your participation today.