PAVmed Inc (PAVM) 2020 Q2 法說會逐字稿

Greetings, and welcome to the PAVmed Inc. Business Update Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mike Havrilla, Director of Investor Relations for PAVmed. Thank you, Mr. Havrilla. You may begin.

Thanks, operator. Good afternoon, everyone. This is Mike Havrilla, PAVmed's Director of Investor Relations. Thanks for participating in today's business update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and Chief Executive Officer; and Dennis McGrath, President and Chief Financial Officer.

Before we begin, I'd like to caution that comments made during this conference call by management will contain forward-looking statements regarding the operations and future results of PAVmed. I encourage you to review the company's filings with the Securities and Exchange Commission, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statements. Factors that may affect the company's results include, but are not limited to, the uncertainties inherent in research and development, including the cost and time required to advance products to regulatory submission; whether and when products are cleared by regulatory authorities; market acceptance of products once cleared and commercialized; the company's ability to raise additional capital; and the competitive environment. PAVmed has not yet received clearance from the FDA or other regulatory bodies to market many of its products.

PAVmed has been monitoring the COVID-19 pandemic and its impact on our business. PAVmed expects the significance of the COVID-19 pandemic, including the extent of its effect on financial and operational results, to be dictated by, among other things, the success of efforts to contain it and the impact of actions taken in response.

New risks and uncertainties that may arise from time to time are difficult to predict. All of these factors are difficult or impossible to predict accurately, and many of them are beyond the company's control. For a further list and description of these and other important risks and uncertainties that may affect future operations, see Part I, Item IA 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.

Except as required by law, PAVmed disclaims 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, Mike. Good afternoon, everyone, and thank you for joining us on this quarterly call to update you on our business and discuss our recent financial results.

Although I always look forward to coming before you each quarter to provide a detailed overview of our business activities, this time it's somewhat special because, as I noted in today's press release, the second quarter and subsequent weeks have really been unprecedented for this company in terms of major accomplishments. Any emerging commercial-stage company's CEO would be proud to highlight any one of a preliminary CMS payment determination or an FDA clearance and commercial launch or consummation of corporate partnership agreements in a quarterly update. I am in the enviable position of being able to highlight all 3 along with solid, steady progress on multiple other fronts as we advance PAVmed and its majority-owned subsidiary, Lucid Diagnostics, as commercial-stage companies.

I'm also blessed to work with an expanding team of the most talented professionals, along with the best and most accomplished consultants, advisers and corporate partners in the industry. Armed with a strengthened balance sheet from 2 recent finances -- financings, the extended PAVmed-Lucid family is poised to deliver on important upcoming milestones in the coming months.

I'll begin with a shorter summary of COVID-19 pandemic-related challenges as in the last two calls as, to be frank, we have fully and successfully incorporated COVID-19 mitigation strategies in all aspects of our business. Although the pandemic continues to exact the heavy human toll in the United States with concerns for a second wave in the fall synergizing with flu season, the health care system and the life sciences industry, which serves it, which we are a part, are beginning to come out of a several-month hibernation during which nonemergency, non-COVID-19-related care had come to a standstill. The system is gradually learning how to reopen for necessary but nonemergency care through enhanced PPE, scheduling modifications, revised training regimens and other changes. We expect these to continue.

Thanks to our business model and dedicated teamwork, our product development, regulatory, financial and administrative activities have been entirely unaffected by COVID-19. All of our team, professionals and partners continue to push full steam ahead on all fronts. As previously mentioned, we encountered COVID-19-related challenges in 2 primary areas, which I will describe in more detail during my overview of the individual business divisions and products. But briefly, the first CarpX commercial launch -- briefly, first, the CarpX commercial launch was delayed by the back order of a pressure sensor used in ventilators. That supply chain problem has been fixed. Second, although we managed to maintain EsoGuard and EsoCheck commercial activities through remote sales and training during the late spring through midsummer shutdown of nonemergency procedures, our customers and clinical researchers were not able to perform actual procedures or enroll patients in our studies. That has begun to change. Commercial and clinical trial procedures have notably picked up in the past 4 to 6 weeks.

Before more detailed updates on our individual lead products, let me start by, as usual, highlighting important recent accomplishments. And as those of you who read the press release, there are many. And I'll follow that up with some upcoming key activities and milestones.

In June, the U.S. Centers for Medicare & Medicaid Services, or CMS, published its preliminary draft on payment determination for our EsoGuard esophageal DNA test with an expected blended rate -- payment rate over $2,000. In April, the U.S. Food and Drug Administration granted us 510(k) marketing clearance for our CarpX minimally invasive carpal tunnel device. This week, we are commercially launching CarpX for clinical use in the U.S. after successfully addressing the COVID-19-related supply chain issue described above.

During this period, we expanded our commercial management team to 7 professionals and our independent sales team organization to 35 professionals. 50 clinical sites have ordered and stocked our EsoGuard and EsoCheck products. And this month, we will resume in-person EsoCheck procedural training. This period -- during this period, we also activated 27 sites for ESOGUARD-BE-1 and BE-2 clinical trial. We enrolled the first patient in the clinical trial evaluating EsoCheck in eosinophilic esophagitis, or EoE, being performed at the University of Pennsylvania. We successfully completed the European Union notified body Stage 1 audits of our quality management systems, which are required for CE Mark submission of our products. We successfully completed a feasibility animal study of our EsoCure esophageal ablation device with outstanding results. We successfully completed preliminary human testing of our Solys laser-based noninvasive blood glucose device, demonstrating testing with very good accuracy in normal human volunteers.

U.S. Patent and Trademark Office granted us patents for EsoCheck and the proprietary technology underlying EsoCure, and the Chinese patent authority granted us a patent or CarpX.

In June, diagnostics industry titan, Stan Lapidus, the founder and former Chairman and CEO of $12 billion market cap Exact Sciences, joined our team as a Lucid strategic adviser. Finally, we strengthened our balance sheet through 2 convertible note financings, generating $10.6 million in net proceeds.

We have many key upcoming activities and milestones to look forward to in the coming months, but here are a few highlights. We will accelerate and expand EsoGuard and EsoCheck commercial activities as elective clinical procedures continue to resume from COVID-19 limitations. We will accelerate and expand our EsoGuard educational marketing activities, targeting physicians and consumers. We will begin CarpX commercial activities focusing on key opinion leaders and innovators capable of serving as CarpX trainers, proctors and educators.

We expect to receive CMS coverage determination for EsoGuard, and it will extend payment and coverage process discussions to private payers. We expect to successfully complete stage 2 audits of PAVmed and Lucid's quality management systems, which will allow us to submit EsoCheck, EsoGuard, Carpx and PortIO for European Union CE Mark regulatory clearance.

We expect to activate the remaining U.S. and European clinical trial sites for ESOGUARD-BE-1 and BE-2 clinical trials and accelerate clinical trial enrollment as elective clinical procedures continue to resume from COVID-19 limitations.

We expect to complete the EsoCheck trial at the University of Pennsylvania and launch the EsoCheck BE progression marker trial at the Fred Hutch Cancer Center as well as multiple other Lucid-sponsored clinical trials to support our commercial activities.

We expect to close an M&A deal for one NextFlo application and submit NextFlo for 510(k) clearance for a broader application. We hope to secure FDA IDE, or Investigational Device Exemption, clearance to begin a PortIO clinical safety study in the U.S., and launch, once and for all, a long-term PortIO study in Colombia, South America.

And finally, we hope to demonstrate Solys accuracy across the full range of glucose required by FDA and ISO standards.

So now let's go with -- let's proceed with our -- each of our divisions, starting with our GI Health division. I'll start with a little bit of background. Our GI Health division is building a portfolio of complementary products designed to diagnose and treat conditions of the esophagus, including a spectrum of conditions arising from gastroesophageal reflux disease or chronic heartburn as well as a prevalent inflammatory condition called eosinophilic esophagitis.

Let's start with EsoGuard and EsoCheck. EsoGuard and EsoCheck are designed to facilitate early detection of conditions leading to esophageal cancer in patients with GERD. It is important to understand that these conditions lie on the spectrum. Chronic heartburn can lead to benign changes in the surface cells of the lower esophagus called Barrett's Esophagus, which can transform into precancerous changes, called dysplasia, which can in turn lead to highly lethal esophageal cancer.

EsoCheck is an FDA-cleared cell collection device, which can perform targeted and protected sampling of cells from the lining of the lower esophagus as part of the 5-minute noninvasive office-based procedure. It serves as an alternative to invasive upper endoscopy performed under anesthesia in a hospital or dedicated endoscopy center.

EsoGuard is a highly accurate, next-generation sequencing diagnostic assay, which detects methylation changes at 31 sites on 2 genes, which occur in patients along the Barrett's to esophageal cancer spectrum. EsoGuard has performed on samples collected with EsoCheck and is commercially available as a laboratory developed test, or LDT.

Although professional society practice guidelines recommends screening in over 10 million high-risk GERD patients to detect and treat Barrett's before it progresses to cancer, fewer than 10% actually undergo screening using existing upper endoscopy. Tragically, the vast majority of patients diagnosed with esophageal cancer are not aware that they have underlying Barrett's, and that their progression to cancer could have been prevented through careful monitoring and treatment if the Barrett's had been diagnosed earlier. Over 80% of these esophageal cancer patients will die within 5 years of diagnosis.

Based on very moderate -- very modest penetration of U.S. GERD patients currently recommended for BE or Barrett's Esophagus screening, we believe that the estimated addressable domestic market opportunity for these products is several billion dollars. We are commercializing EsoGuard using a hybrid model with internal sales management, marketing and professional education, working closely with the independent sales representatives, led by our Chief Commercial Officer, Shaun O'Neil. The sales team now consists of 3 sales managers, supervising 35 independent sales professionals with long-standing relationships with gastroenterologists in their territories. They are supported by a marketing team, which now includes 2 professionals.

Despite the COVID-19 shutdown, the sales team is currently actively engaged with over 500 customers in the United States. Approximately 50 clinical sites now stock EsoCheck and EsoGuard specimen kits. And we resumed in-person training this month at several sites in the Northeast and expect commercial procedures to resume shortly.

We also continue aggressive marketing. Our aggressive marketing campaign in professional journals and social media, targeting physicians and patients to strengthen EsoGuard and EsoCheck brand recognition, generate awareness of the underlying conditions and support the sales process. One upcoming highlight will be an outstanding Access Health segment that is set to air next month on the Lifetime Network, which highlights the issue with Barrett's Esophagus as well as the benefits of EsoGuard and EsoCheck.

We're very pleased to have reported that our hard work and engagement with Medicare contractor, Palmetto GBA, and its molecular diagnostic group, MolDx, bore fruit in June. We were granted gap-fill preliminary determination for EsoGuard of $1,938 in 38 states and $2,690 in 12 states, including 3 large states, Florida, New Jersey and Pennsylvania, as well as 2 U.S. territories. The expected blended payment average of over $2,000 gives us an excellent opportunity to build a strong business with solid contribution margins.

We expect the preliminary determination to be finalized in the fall, which will allow the payment to go -- the payment determination to go live on January 1. We -- our plan is to continue to hold off on submitting bills until the payment determination is active to mitigate and avoid precedent setting denials. In the meantime, we will proceed with private payer payment discussions. We expect to receive CMS coverage determination later this year, which will strengthen our ability to secure payment for EsoGuard procedures in 2021.

There are many additional exciting developments and future activities in this -- in our GI division. We're excited about the progress we've made on our EsoCure esophageal ablation device. EsoCure is a disposable single-use thermal balloon ablation catheter designed to advance through the working channel of a standard endoscope, which uses our patented Caldus Technology to ablate esophageal tissue. Once cleared and commercialized, EsoGuard -- EsoCure, excuse me, would allow clinicians to treat Barrett's before it can progress to cancer, and to do so without the need for complex and expensive capital equipment such as current technologies from Medtronic and others, too.

We completed a preclinical feasibility animal study, which showed excellent results on both gross and microscopic pathologic examination. We demonstrated clean circumferential ablation of the targeted esophageal mucosa to titrated depth using very short ablation times relative to existing technologies. Testing will continue after additional development work. Our goal is to complete development and FDA 510(k) submission of EsoCure in the first half of 2021 and hope to have it commercialized later that year. As previously noted, we have launched 2 international multicenter clinical trials, ESOGUARD-BE-1 and 2 to support a future PMA submission for FDA registration of EsoGuard and EsoCheck as FDA-registered in vitro diagnostic devices, or IVDs. One study is a screening study of high-risk GERD patients, and the other is a case-control study of patients with known disease and control. We have 60 sites in the U.S. and Europe. 27 sites are active and we expect the remainder to be activated in the third quarter.

Clinical trial enrollments shut down between the months of March and June, but has started back up. We have now enrolled 8 patients in the BE-1 study, 6 since the reopening and expect enrollment to accelerate in the coming months. Our initial goal of completing enrollment in 2021 remains unchanged by the COVID delays.

We have multiple other Lucid-sponsored clinical trials that are at various stages. Two trials seek to expand the application of EsoCheck, one with the Fred Cancer -- Fred Hutch Cancer Center in Seattle looking at the role of EsoCheck and biomarkers to detect progression from non-dysplastic to dysplastic Barrett's, which could greatly facilitate the surveillance of Barrett's patients, so they can be treated prior to the development of cancer, and we have an exclusive option to license these biomarkers if they prove effective. We expect that study to start enrolling this quarter.

The trial at the University of Pennsylvania looks at the role of EsoCheck in monitoring treatment in patients with eosinophilic esophagitis, which, as I mentioned, is a very common but underappreciated allergy-mediated condition, which currently requires multiple invasive endoscopies during the course of treatment. The pilot study enrolled its first patient this month and should complete enrollment before the end of the year.

There are additional studies we are planning to launch, including an EsoGuard registry, and we look forward to getting those off the ground in the coming months.

Let's now move from GI Health to Minimally Invasive Interventions, which includes CarpX. CarpX is our patented single-use, disposable, minimally invasive device designed to treat carpal tunnel syndrome while reducing recovery time. The balloon catheter device is inserted under the scarred ligament, tensioning it while pushing the nerve and tendons away. When activated, bipolar radiofrequency electrodes precisely cut the ligament from the inside out in a matter of seconds. We believe CarpX will dramatically reduce recovery times compared to traditional open surgery, targeting an estimated $1 billion and immediately addressable domestic market opportunity.

We are very pleased to report that the U.S. FDA granted CarpX 510(k) marketing clearance in late April. Since then, we've been addressing the previously mentioned COVID-19-related supply chain issue involving a pressure sensor on the control circuit board. That problem was successfully addressed, and we now have sufficient inventory to commercially launch CarpX this week. CarpX is registered with the FDA as a commercial device and is listed in its GUDID database. Our third-party logistics and warehousing partner, HealthLink, is ready to fulfill orders.

Our CarpX commercial strategy is focused on a controlled launch with key opinion leaders. It is critical that we build a cohort of surgeon champions, who are facile with the procedure and the device and can serve as trainers, proctors and educators as well as all-around ambassadors for the technology within the specialty as we expand beyond this group. Our CarpX national sales manager is actively recruiting these KOLs, and we have one who's agreed to be the first. And we expect to start training and initiating U.S. commercial cases in the coming weeks.

Next, some brief highlights from our Infusion Therapy division, which includes PortIO and NextFlo. PortIO is our implantable intraosseous vascular access device, which allows access to the bone marrow to deliver medications, fluids and other substances, addressing an estimated $750 million market opportunity based on patients with poor veins and those with renal failure whose veins must be carefully preserved for current or future hemodialysis.

We are seeking an initial short-term implant duration indication through the FDA's de novo pathway. In January, we participated in the successful pre-submission meeting with FDA focused on a clinical protocol for a small, single-center clinical safety study in New Zealand and the target population of our proposed label. As a result of COVID-19 travel restrictions, we decided to switch to a U.S. investigational device exemption, or IDE, study and recently held another pre-submission meeting with FDA to discuss this. A follow-up for those -- the follow-up discussions from that meeting are going well, and we hope to secure IDE clearance and initiate this clinical safety study soon. The long term study we have planned to perform in Columbia, South America remains on hold due to COVID-related travel restrictions, and we are continuing to do necessarily administrative work, so we can proceed immediately to training and enrollment once things open up.

Moving on to NextFlo. Our NextFlo infusion system, which delivers highly accurate, gravity-driven infusions independent of the height of the IV bag, seeks to eliminate the need for complex and expensive electronic infusion pumps for most of the estimated 1 million infusions delivered in the U.S. every year. We are successfully advancing the NextFlo infusion system through design control development and testing, and we are on target for a 510(k) submission to the FDA later this year. We are also deep in active M&A discussions with several strategic partners focused on licensing the NextFlo technology for disposable infusion pumps. Those discussions are going very well, and we hope to consummate a transaction for this application soon.

As always, I wish I had more time to update you on the exciting projects we're working on in our Emerging Innovations division. Again, just a few brief highlights. Our DisappEAR resorbable pediatric ear tubes, which are manufactured from proprietary aqueous silk, seek to revolutionize the care of an estimated 1 million children who undergo bilateral ear tube placement every year. We recently entered into a definitive agreement with global manufacturer Canon Inc.'s U.S. manufacturing technology center, Canon Virginia, Inc,, to develop and utilize Canon Virginia's commercial-grade aqueous silk molding process to manufacture our DisappEAR pediatric ear tubes. Canon has already begun work on this process, and we look forward to receiving devices for testing soon.

The research and development plan for our noninvasive laser-based blood glucose modern technology licensed by our subsidiary, Solys Diagnostics, has made excellent progress during this period. We successfully completed preliminary human testing, demonstrating testing accuracy within established FDA and ISO standards in normal human volunteers with moderately elevated blood glucose after a high sugar meal. We hope to advance Solys development to achieve FDA and ISO accuracy standards for the full range of blood glucose required by these standards in the coming months.

Our Emerging Innovations team also continues to make progress on several exciting products, including an ECMO cardiopulmonary support device as well as a novel ventilator, which -- as I've mentioned, both of which are in areas that are highly relevant to the treatment of COVID-19 patients and other respiratory conditions.

With that, I'll pass it on to Dennis.

Thanks, Lishan, and good afternoon, everyone. I'll be brief with our financial results for the quarter ended June 30 we reported in our press release, which was published earlier this afternoon. And our quarterly report on Form 10-Q is available at sec.gov as well as on our website.

So with regard to the financial results for the quarter, research and development expenses for the second quarter were $2.1 million, up from about $1.4 million for the same period in 2019, but about $500,000 lower sequentially. The year-over-year increase largely reflects the incremental clinical trial costs for Lucid Diagnostics and product development costs for Solys Diagnostics as well as some increased personnel costs. As you might expect, the sequential decrease is primarily related to the delayed clinical trial costs due to the pandemic closure of GI clinics for most of the last several months.

General and administrative expenses were $2.9 million for the second quarter compared with $1.9 million for the same period 2019, and were higher by about $250,000 sequentially. The year-over-year increase reflects approximately $500,000 increase in sales staffing levels and other sales-related costs, together with an increase of approximately $400,000 in consulting services-related patents, regulatory compliance, financing costs and public company expenses. It's also an increase of approximately $100,000 in general business expenses. The sequential increase reflects compensation-related costs, primarily approximately $130,000 in noncash stock-based compensation costs.

PAVmed reported a net loss attributable to common stockholders of $5.6 million or a loss of $0.12 per common share.

Our press release provides substantially more detail related to the noncash charges occurring in the current and prior periods. Also, the press release provides a table entitled non-GAAP measures, which highlights these amounts along with interest expense and other noncash charges, mainly depreciation, stock-based compensation and financing-related costs to enable a better understanding of our company's financial performance. You'll notice from the table that after adjusting the GAAP loss by approximately $1.4 million for these type of noncash or financing-related charges, the company reported a non-GAAP adjusted loss for the 3 months ended June 30 of $4.2 million or $0.09 per common share.

PAVmed had cash of $7.1 million as of June 30, but as you know, subsequent to the quarter end, just about 2 weeks ago, the company received an additional net proceeds of approximately $7 million from the sale of convertible notes at a conversion price of $5 per share. On a pro forma basis, had the financing closed at the end of June, cash would have been over $14 million.

So with that, operator, we can now open it up to -- the call to any questions.

(Operator Instructions) Our first question comes from Anthony Vendetti with Maxim Group.

Just a little more color on COVID-19. And any delays you're seeing, whether it's on the commercialization side with CarpX and EsoGuard, EsoCheck or on the regulatory time lines. Are you seeing any delays with the FDA? And then I'll have a follow-up on scheduling trends for nonemergency procedures.

Sure. So let's start with the latter. We've had no issues with regulatory issues. We've -- as you know, CarpX was cleared in approximately 45 days from submission. We've been able to get our pre-submission meeting scheduled, and I know others have suggested that, but we haven't experienced any delays on the regulatory front.

On the commercial front, I'll sort of expand on what I was mentioning, which is that we always -- even though COVID is still with us and there's still concerns about its spiking in the fall, we always knew that you could only delay nonemergent procedures for so long. I mean, nonemergent procedures still need to be done. People still need to be screened for cancer. They still need to undergo other procedures, which may not be deemed as an absolute emergency.

And so what we have found after pretty much a 3-month hibernation, if you go sort of March, April -- 3 to 4 months, March, April, May and then much of June, is that the system is waking up. And that despite the fact that there's still plenty of COVID, even in geographies where -- that are subject to new hotspots in the South and Southwest, that clinical entities, hospitals, practices and otherwise are figuring out how to get back on track with necessary but elective procedures. Again, I don't like the word elective because it means -- it almost implies that you can do without them, and that's just not the case.

And so we have found both on the clinical trial enrollment as well as with our engagement of clinicians on the commercial side that things are actually starting to pick up in the last 4 to 6 weeks. And how long they will take to get back to full steam, that's obviously hard to predict. But we're in the early stages with both of these. And so as I mentioned from the statistics I outlined, I mean, we are actively involved in hundreds -- in discussions with hundreds of accounts where we have dozens, and we expect that to grow accounts with product on the shelf. And we really start -- we really expect commercial procedures to start picking up any day now, now that things are opening up. And as I noted, our -- as a preview of that, our clinical trial enrollment has picked up with 6 cases in the last 6 weeks.

So there's still uncertainty with COVID, but you can't withhold these procedures forever, and we expect that we will start seeing up ramp in both commercial cases and clinical trial enrollment.

Okay. Great. And then just in terms of the initial payment determination, I know we still need -- before the end of the year, we'll have a decision on what it is and somewhere between probably $2,000 and $2,600, as you're saying, is probably what it's going to be. And that goes into effect '21. Are you -- do you think that the -- that range that's out there is favorable. And can you expand upon why GI's would -- or why that procedure would be done by a gastroenterologist instead of doing an endoscopy. And then if they would then -- if they did this procedure, which doesn't require anesthesia, would they then follow-up with an endoscopy depending on what they find?

Okay. So there's a lot there. Let me break it down. Let me first take this as an opportunity to expand a little bit on the process on reimbursement because it can be a little bit complicated and difficult to follow. So we received preliminary payment determination by CMS, capital preliminary payment determination. We have every reason to believe that, that will be the final number. Typically, the transition between preliminary and final is really meant as an opportunity for those who appeal. So we fully expect that those will be the final numbers, grant -- the final determination, and we expect to hear about that in the fall.

The fact that we're not appealing should indicate that we do find them to be quite favorable. And as I hinted in my previous comments, if you do the math, we really believe that we can -- with a blended payment of $2,000, that we have a really good opportunity to capture this market opportunity with a nice contribution margin. So that will become active on January 1 for CMS patients. The process with -- once you have CMS and it really allows you to begin the process with private payers, and that will continue over the coming months as well.

It's important to emphasize that payment is not necessarily covered. And our coverage determination, we expect to hear before the end of the year as well, and we believe we've submitted a compelling case on coverage, given the existing professional society guidelines that are published. And that's what we are basing our coverage request on. So that's really where we stand on reimbursement and coverage, and we look forward to submitting bills after the first of the year using this payment determination.

The next question you asked is a really important one. It's probably the most critical question as it relates to Lucid's products, which is how do we -- we have decided to target gastroenterologists with this product. I'll note that, that actually is somewhat different than other companies, which have launched diagnostics in the space who have sought to do end around the gastroenterologist. We felt that was full hardy. And so our conversations with the gastroenterologists have gone extremely well. We -- as I said, there's 500 -- more than 500 of these that are active, and they've led to people ordering product and awaiting the opportunity for training and for doing this. And the conversation has actually become pretty well honed and pretty straightforward. So when we go in to a gastroenterologist office and the gastroenterologist asks, "Why would I use this on my -- on patients who are already sent to me for screening of Barrett's, which is what you hinted at?" And our answer to them is, "We don't expect you to." And if you get a patient that is referred for a screening endoscopy for Barrett's, then by all means do that. But what you know and what we know is that the percentage of patients who could be screened for Barrett's who are not getting screened by -- who should be screened by professional society guidelines were not being screened is well over 90%. We estimated it to be somewhere around 93%.

So there is an opportunity for us to work with you to expand that funnel. And for every patient that you're currently seeing, 10x as many potentially patients who are screened with EsoGuard and EsoCheck. And those who are positive undergo an endoscopy and are followed over time. So it's not just a single negative endoscopy. The positive patients undergo endoscopies every 3 years. And if they develop a more advanced condition like dysplasia, they undergo an ablation procedure, which is very well reimbursed to the gastroenterologist.

And just to finish up that discussion, we talked to them about these patients out there that they're not currently doing upper endoscopies on in 3 categories. One -- the first category is we just tell them to look right in their practices. And they acknowledge immediately that there are lots and lots of patients in their practice right now who are -- who qualify for screening by professional society guidelines who are not getting screened. The most obvious example are the patients undergoing colonoscopy. It's estimated about 50% of patients who undergo colonoscopy have gastroesophageal reflux disease and should be screened for Barrett's. They don't undergo endoscopy -- upper endoscopy right now. And so there's an opportunity to screen those patients by the gastroenterologists with EsoGuard to identify the patients who have Barrett's, so they follow them.

The next thing we talk to them about and we do is we start working with them to educate their primary care doctors. So their primary care doctors are aware that there's a 5-minute, non-anesthesia, office-based procedure that can screen the numerous, ultimately, millions of patients who they manage with -- that were managed in the primary care offices with GERD just using over-the-counter or prescription antacid proton pump inhibitors.

And then finally, we are committed as a third step in this process to go out more broadly, not just to the primary care physicians that refer to this particular gastroenterologist, but the broader community in their area. And as someone who is able to offer this modality, they will be the ones who see the patients who get screened, who are positive and who are inserted into the screening (inaudible). So that's the nature of -- it's a little long-winded, but that's the nature of our conversation with the GIs and it's gone extremely well. But the sort of the notion that EsoGuard and EsoCheck are going to cannibalize their existing upper endoscopy business is really not -- is not a difficult one to overcome, and it really comes up these days.

So bottom line, it's complementary. It should be an additional revenue source for them. And if there's confirmation of Barrett's Esophagus or dysplasia, they'll do an endoscopy. And then if it's confirmed on the endoscopy, they'll do an ablation, which is where EsoCure could come in down the road, correct?

Correct. They'll do an ablation or follow-up endoscopy. They're only doing ablations when there's dysplasia. So if they find dysplasia, they'll do an ablation. If there's no dysplasia, they'll follow them with an endoscopy every 3 years. And then if they do develop dysplasia, they will get an ablation, which, as you said, EsoCure is looking to position itself in that aspect of the spectrum of disease.

And just -- I know you talked about it in the prepared remarks, but EsoCure, what's your best guess as to the time line for that in terms of going through FDA and eventual approval, maybe best-case scenario?

Yes. I think we're really bullish on EsoCure. The animal study was just -- blew it out of the water. Just -- our GI consultants who work with us were really blown away by how cleanly the ablation happened. So we still have development work in terms of titrating and finding the -- we know we can ablate deeply. We just have to get the timing right, so we can ablate just the superficial layer and those ablation times are going to be significantly shorter than the existing technologies by Medtronic and others.

So our goal is to have that work -- the development work and then the subsequent device qualification work in preparation for an FDA submission. I think best-case scenario would be Q1 of next year, but I would certainly think on our current trajectory, we would be submitted within the first half of next year. Our current regulatory assessment is that this is a 510(k), so we would hope to have something on the market by the end of next year.

Okay. And then just an update, Lishan, on the commercial progress with CarpX. Like you said, there's only so long you can put off nonemergency procedures. Do you see that pipeline starting to build as we move into the end of the year? Or is it just going to be not too many cases until really '21?

I think the important thing to emphasize, Anthony, with CarpX, and maybe it's worth contrasting it to EsoGuard and EsoCheck is that EsoCheck is a fairly straightforward procedure. It can be performed by a nurse. It can be -- someone can be trained quite quickly. With CarpX, it's a surgical -- it's a procedure that's done by a surgeon. And it's extremely important with devices that are launched as part of a procedure to be very careful that people are well trained and that you don't get ahead of yourself in terms of bringing on more surgeons than you can train properly and end up having adverse outcomes.

So a major emphasis on the early launch of CarpX is to build this network of initial adopters, early adopters and key opinion leaders, and to do so in a steady way. So I don't mean to imply that we are definitely going to start now that we've solved this -- the supply chain problem. We're ready to go and ready to start doing a bunch of cases. And we will -- we're going to do that in a controlled fashion, so that we can make sure that the cases go well and that the -- we have sufficient proctors and trainers to continue to train an expanding group of surgeons to do this procedure. So that doesn't give you any sort of quantification, but I just think it's qualitatively important to make the distinction from EsoGuard where we're looking -- anybody wants to do it, we're giving them the opportunity to do it on day 1.

Sure. Okay. Understood. And then lastly, obviously, you have a pretty full product portfolio, and there's a lot going on. Should we expect R&D to start to pick back up to go here in the third and fourth quarter to be closer to 1Q levels?

Yes. I'll let Dennis comment on that. I think the answer will be no as it relates to pure actual product development work. Certainly, the clinical research activities will end up being a significant part of that overall R&D budget as enrollment in the EsoGuard trial starts to pick up.

Dennis, did you have anything else to add?

No. That's true. The balance will shift to the clinical trial work for EsoGuard IVD. And -- so the decrease, as I mentioned, in the second quarter was largely -- the clinics were closed, and those costs were on pause mode. So that will pick back up in the second half of the year.

Our bench top and animal research and R&D work -- we're really pretty efficient at that, and we're quite cost effective in getting those projects through a device qualification (inaudible).

(Operator Instructions) Our next question comes from [Robert Wyman], a private investor.

With respect to NextFlo M&A, as we approach the time frame that you expect to submit to the FDA for clearance, is it a good assumption that the interested parties that would participate in M&A with us may want to see their investment derisked by actually getting cleared before consummating an M&A deal? Or is that not necessarily the case?

Yes. Thanks, Robert. It's a great question. And I appreciate the opportunity to maybe elaborate a little bit more on the NextFlo M&A process because there are some nuances there that I think are relevant.

So the answer to your question is no. So our conversations really are on the M&A and licensing side, incorporate expectations with regard to milestones for FDA submission [incurred]. And let me -- perhaps it will be helpful to articulate a little bit more clearly than I did in my prepared remarks on the distinction between what we are pursuing from a licensing -- M&A licensing opportunity and what we're pursuing directly with an FDA submission on our behalf.

So they're really -- it's important. Although there are multiple applications for NextFlo, let's focus on two of them. The first was the original conceived application, which was for intravenous infusions in an inpatient setting in a hospital and an infusion set that allows the nurses to administer medication without the need for an electronic infusion pump. That application, we think, has huge market potential, and we are prepared to maximize the value of that by proceeding with an FDA submission this week, getting -- sorry, this year, getting FDA clearance and having the opportunity to market it and even demonstrate market adoptance of that by ourselves.

What -- and look, if the opportunity comes to enter into a worthy deal for that particular application, prior to that, we're open to it. That's our strategy with the entire NextFlo portfolio. What our conversations that we're having currently with these potential strategic partners are focused on disposable infusion pumps. Disposal infusion pumps are pumps that patients go home with typically after surgery that administer usually pain medication or local anesthetic into surgical wounds. And those devices are highly inaccurate, and they have a variety of issues that are solved by NextFlo. So there is great interest in using NextFlo for that particular application.

And so our -- as things proceed the way we hope, then we expect -- we would expect to enter into a transaction related to that particular application that would have built into it the calculated risks around FDA submission and clearance for those applications, which are different than the broader inpatient application that we're pursuing independently.

One thing I'll note just as it relates to all of this is that the regulatory hurdles toward -- for all of the NextFlo technologies are very low. They don't require clinical studies. It's all bench top work. It's really just the mechanics of the technology and documenting that you get the flow rates and that you can manufacture them and the other elements of delivering a commercial device. So that's one of the reasons why derisking the regulatory elements of this are really not -- are not an important part of these discussions.

The -- and frankly, the one thing that larger companies often appreciate is that smaller companies like PAVmed are more nimble when it comes to the regulatory process and can actually get things through more quickly than some of the larger companies. So that's a long-winded way to answer your question that that's not -- that there shouldn't be an assumption there that they would wait for derisking on the regulatory side.

Okay. And is the regulatory time frame for those 2 applications the same? Or is it different?

No. What we've chosen to do is to proceed on our own terms for the infusion application because we're pursuing that independent unless we get an offer and unless someone makes us an offer we can't refuse on that. We are advancing the development of the technology, but we have not initiated the steps required for regulatory submission for the disposable infusion pump application, pending what transpires with these M&A discussions. But really, the simple answer to your question is they really are generally in the same time frame.

There are no further questions at this time. I'd like to turn the floor back over to management for any closing remarks you may have.

Well, thank you, everybody, for your attention. As always, we appreciate the great questions, and we look forward to keeping you abreast of our progress via news releases and periodic calls such as this one. As always, I would just like to remind you that the best way to keep up with PAVmed news, updates and events is to sign up for our e-mail alerts on our Investor Relations website, and you can follow us on Twitter, LinkedIn and YouTube as well as our main PAVmed website as well as our Lucid website as well. Feel free to contact Mike directly with any questions at jmh@pavmed.com. Have a great day. Thank you very much.

Ladies and gentlemen, this concludes today's web conference. You may now disconnect your lines at this time. Thank you for your participation, and have a great day.