PAVmed Inc (PAVM) 2021 Q4 法說會逐字稿

Greetings. Welcome to the PAVmed Inc. Business Update Conference Call. (Operator Instructions) And please note that this conference is being recorded.

I will now turn the conference over to Adrian Miller, Vice President of Investor Relations for PAVmed. Thank you. You may begin.

Thank you, operator. Good afternoon, everyone. This is Adrian Miller, Vice President, Investor Relations at PAVmed. Thank you for participating in today's business update call. Joining me today on the call are Dr. Lishan Aklog, Chairman and Chief Executive Officer of PAVmed; along with Dennis McGrath, President and Chief Financial Officer of PAVmed. The press release announcing our business update and financial results is available on PAVmed's website.

Please take a moment to read the disclaimer about forward-looking statements in the press release. The business update press release and this conference call both include forward-looking statements, and these forward-looking statements are subject to known and unknown risks and uncertainties that may cause actual results to differ materially from the statements made. Factors that could cause actual results to differ are described in the disclaimer and in our filings with the Securities and Exchange Commission. For a list and a description of these and other important risks, 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.

Any subsequent updates filed in quarterly reports on Form 10-Q and subsequent Form 8-K filings. Except as required by law, PAVmed disclaims any 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, Adrian, and good afternoon, everyone. Thank you for joining us on this PAVmed quarterly update call. As many of you know, we have decided moving forward to hold a separate quarterly call focused entirely on Lucid, which was held yesterday. Of course, since Lucid remains the dominant part of PAVmed's business, we will continue to provide substantive Ludic updates during the PAVmed call. I am, however, looking forward to having some extra times during these calls to provide a bit more of a global overview of PAVmed and provide some more detail on other aspects of PAVmed's business.

Happy to report that PAVmed and its subsidiaries are making excellent progress on all fronts and are laying a foundation for us to continue driving our long-term growth strategy and mission to create a leading diversified medical technology company. Before proceeding, I'd like to thank our long-term shareholders for your ongoing support and commitment, to our combined team has grown to over 100 employees. And every day, every member of this team is singularly focused on growing the PAVmed enterprise while enhancing long-term shareholder value.

I'll start by providing an overview of our business and we'll then pass the baton over to Dennis, who will provide our financial update before opening it up to questions. First, some background on PAVmed and its mission. Typically, I would preface this introductory overview with a "for those of you new to the PAVmed story" or something along those lines. I do, however, think this overview of PAVmed today is equally relevant for those of you who have been part of the PAVmed family for a long time.

PAVmed hasn't just substantially grown headcount over the past several quarters. It has in several important ways fundamentally transforms itself in its business model, driven in large part by the needs of its subsidiaries, Lucid and now Veris. Our Board and management have been engaged in a comprehensive strategic overview over the past few quarters heading into and [since] the Lucid IPO, to more clearly define what PAVmed is today and lay out a strategic plan for the coming years. So let me spend a bit of time reviewing this with you.

PAVmed is a diversified commercial stage medical technology company operating in the medical device, diagnostics and digital health sectors. It is not, as I am often asked, merely an incubator or a holding company. Our mission is to utilize state-of-the-art technologies in the service of patients by providing innovative and disruptive products and solutions, which significantly improve or save lives while enhancing health care quality, efficiency and cost effectiveness. Our vision is to build a growing and profitable diversified medical technology leader across the 3 major sectors.

PAVmed's business model has evolved significantly in recent quarters to support Lucid and Veris. PAVmed now operates as a central engine, which provides a broad range of shared services to its subsidiaries and business units as well as to its R&D team. This allows each of these to be laser focused on the development, commercialization and clinical evidence for its product or products.

The subsidiaries and business units are managed and financed by PAVmed until a subsidiary reached the commercial growth phase and can raise its own growth capital as Lucid did this fall. We believe this centralization of shared services provides numerous benefits to facilitate value creation across the enterprise including economies of scale, risk mitigation through diversification and lower cost of capital and much greater growth potential.

The list of centralized services that PAVmed provides the broader enterprise is long and has grown in recent years. It includes general administration, human resources and finance functions, product development, product design and development, protection of intellectual property, regulatory affairs and quality management also operate at the PAVmed level. We recently brought much of our critical clinical research operations in-house, effectively providing more efficient and less costly internal CRO support across the portfolio.

We'll soon be bringing our own small to medium volume manufacturing online and are expanding our internal and clinical -- our internal clinical and medical affairs support. These efforts are the culmination of what has been a fundamental transition at PAVmed from being technology focused to commercially focused. During our early years, we were heavily outsourced and focused on expanding our portfolio and advancing it through regulatory (inaudible). During the past couple of years, especially in 2021, we've undergone a major transition focused on expanding our internal human systems and physical infrastructure. Laying the foundation for commercial success as well as optimizing and rationalizing our portfolio.

The infrastructure expansion has included expanding and strengthening our senior management team, securing our own R&D manufacturing and laboratory facilities, adding our internal CRO, data and analytics systems. We believe this transition is essentially complete. The expanded infrastructure is mostly in place, and we are now entirely focused on commercial expansion and execution, reimbursement and revenue growth in the coming quarters and years.

Although we will continue to grow and strengthen our technology and expand our portfolio, we will do so with a greater focus on synergies with our existing commercial and pre-commercial portfolio and opportunities, which have the potential to be accretive in the near and medium term. The PAVmed enterprise today consists of 2 subsidiaries, Lucid Diagnostics and Veris Health and 2 business units, CarpX and NextFlo and an R&D pipeline of products at various stages of development towards commercialization.

Lucid is a NASDAQ-listed majority-owned subsidiary of PAVmed. PAVmed owns approximately 76% of Lucid's outstanding shares. Veris is a privately held majority owned subsidiary of PAVmed, and PAVmed owns approximately 81% of Veris' outstanding shares. Among the business units, CarpX is an early commercialization and NextFlo is targeted for commercial launch in the second half of this year.

I'll now proceed with an update of the subsidiaries business unit and R&D pipeline, starting with Lucid, which remains PAVmed's dominant business. My discussion of lease will be a distillation of my remarks during yesterday's call, focused on commercial and laboratory operations. I would encourage you to read the transcript or listen to the recording of the Lucid call for additional details and feel free to contact Adrian to help with us if you need so.

Lucid Diagnostics is a commercial stage cancer prevention diagnostics company focused on the millions of chronic heartburn patients at risk of developing highly lethal esophageal cancer. We believe our EsoGuard methylated DNA assay, and our EsoCheck cell collection device, together constitute the first and only commercially available diagnostic test, capable of serving as a widespread screening tool to detect esophageal pre-cancer and prevent thousand of tragic esophageal cancer deaths a year.

We're very encouraged by the progress Lucid is making with (inaudible) commercialization. We processed 303 commercial esophageal tests in the fourth quarter of 2021. That represents an approximately 50% increase sequentially from the third quarter and a nearly 200% increase annually for the fourth quarter of 2020. And this growth has continued nicely into new year.

Although our commercial focus has been on targeting primary care physicians to send patients to our test centers for esophageal testing and gastroenterologists and foregut surgeons to set up their own EsoGuard programs. We are making encouraging strides across multiple non-GI specialties. We've also made steady progress engaging with large practices, academic medical centers, community hospitals and integrated health systems. These sites are embracing the potential for EsoGuard to increase engagement with third or chronic heartburn patients and create downstream revenue opportunities.

Pillar of Lucid's growth strategy is our expanding network of Lucid test centers. The test centers had very modest fixed cost and attractive margins, operating almost entirely as marginal variable cost businesses. The program has completed its first stage having advanced from a pilot program in Phoenix to a regional program covering 7 metropolitan areas in the Southwest or Pacific Northwest. We are now launching the next stage of the program with accelerated expansion in 9 larger states across the nation. Our experience has validated the test center model as a key driver of the EsoGuard testing volume.

The pilot of our EsoGuard telemedicine program launched in December with a limited direct-to-consumer advertising program in Phoenix. It is off to a good start, and we are seeing a steady flow of self-referring patients. Lucid significantly expanded its sales infrastructure and operations during the fourth quarter and recent months. The team now consists of 22 sales professionals, including 10 sales reps. We expect the overall sales team to double in size in the number of scales rep triple by the end of the calendar year.

We've also made substantial progress in honing the sale process and sales training. The sales process has become entirely data and analytics driven, utilizing sales force and other sophisticated tools. Our sales training program has also become quite robust, combining an intense 5-day educational source and extensive field training.

On the laboratory operations side, last month, we announced that LucidDx Labs, a wholly-owned subsidiary of Lucid Diagnostics had acquired the assets to operate its own new CLIA-certified CAP-accredited clinical laboratory in the Lake Forest, California. LucidDx Labs is now performing all EsoGuard testing at this new laboratory. This is a clinical milestone, which markedly streamlines and simplifies numerous EsoGuard testing processes and provides us with a scalable infrastructure to accommodate long-term growth.

In conjunction with us taking over the laboratory, we've been able to upgrade Lucid's revenue cycle management provider and are now in a position to start submitting Medicare claims using the effective $1,938 Medicare payment rate.

On the Medicare coverage side, we continue to await a response to our submission to the MolDx program of the Medicare Administrative Contractor, Palmetto GBA, which has been slowed by the pandemic. We remain encouraged by the October 2021 multi-contract Advisory Committee, or CAC meeting, which covered EsoGuard and, we believe, was a strong indication that a draft LCD should be forthcoming.

On the private payer side, the laboratory has been submitting claims and has been receiving approximately $1,150 per test, representing approximately 60% out of network coverage of the full price submitted. We are just reaching the critical threshold of submitted and process claims in [certain locales] which will allow us to have meaningful conversations with select private payers in these locales on in-network payment and coverage. We're collecting the -- we're also collecting the clinical -- the critical clinical utility data that payers are seeking in these negotiations.

Now let's move on to PAVmed's other majority-owned subsidiary Veris Health. Veris was launched 10 months ago as our first foray into the dynamic and rapidly growing digital health sector. Anyone paying attention to the medical technology industry would agree that even if we apply some discount for hyperephrotheus, we are in the midst of a digital health revolution.

This includes the digitalization of increasingly smart "smart and connected medical devices" for which the term Internet of Medical Things or IoMT has been coined. It also includes sophisticated FDA-regulated purely digital technologies referred to as digital therapeutics or BTX as well as modern approaches to help information management systems.

Some common features of these trends include an intense focus on data and analytics, including artificial intelligence and machine learning. We decided that our foray into this sector should land right at the intersection between traditional medical devices and health information management systems. Thus, in May of 2021, Veris acquired Oncodisc, a digital health company with groundbreaking tools to improve personalized cancer care.

Veris is developing a remote cancer care platform that integrates an intelligent implantable vascular access port with physiologic sensing software with symptom reporting and telehealth functions and advanced data analytics. Today's aggressive outpatient cancer treatments, including immunotherapy and chemotherapy, leave patients unmonitored and at risk of serious avoidable complications.

The Veris technology is designed to allow oncologists to detect early signs of common cancer-related complications, provide longitudinal trends of physiologic and clinical data, offer data derivative risk management tools for precision oncology and incorporate additional prospects for substantial value creation through data monetization and biotherapeutic clinical trial support.

The technology contains the biologic sensors capable of generating continuous data on key physiologic parameters that are known to predict adverse outcomes in cancer patients undergoing treatment. Wireless communication to the patient's smartphone and its cloud-based digital health care platform will deliver actionable real-time data to patients and physicians efficiently and effectively. The Veris business model is based on software as a subscription service, which leverages existing reimbursement codes for remote patient monitoring.

Veris is advancing its mission on 3 fronts: software, device and data. With the help of a world-class technology advisory board consisting of Silicon Valley Luminary and a distinguished medical advisory board of oncologists from leading cancer centers and busy practices. We're also working very closely with Microsoft as a member of its global partner. As a global partner, PAVmed and Veris have committed to build its future software and data platforms within the Microsoft ecosystem, specifically on its Azure health data services across FHIR IoMT at DICOM as well as other services and other relevent cutting-edge technologies.

Let's cover each of these 3 areas that Paris is working on. On the software front, we're working with our outstanding development partner, Loka, to build 3 interconnected software elements. First, a patient smartphone app designed to communicate with the intelligent implantable monitoring rights and allow the patient to enter and track symptoms and other clinical data.

The second is a cloud-based software platform to which the patient app uploads this data and provides the oncology team with its clinical data to facilitate patient care. The platform is designed to integrate with common electronic health records and to include sophisticated telemedicine features.

The third platform is a smartphone app for the team, the oncology team to engage with the cloud-based platform remotely. The software development platform is progressing extremely well with functional alpha prototypes of the software being circulated internally for testing. We're on schedule for an initial commercial launch in the second half of this year. We're also in the final stages of hiring a Chief Commercial Officer for Veris, who will immediately begin laying the groundwork for this launch.

We're also making good progress on the smart device side. We successfully completed feasibility animal testing of multiple prototypes of a implantable device to measure the physiologic parameters of a first-generation [client]. We also completed an informative FDA pre-submission meeting, which has allowed us to develop a well-defined device pipeline strategy.

The FDA indicated that the implantable vascular access port with integrated sensors would likely be designated as a new device category and therefore, require someone longer to know the clearance process. Based on this feedback, we have split our pipeline development strategy into 3 phases. What we're referring to internally as [Veris Solar] combines the software platform with existing wearable and connected medical devices. This will allow us to launch the first commercial product this year and get valuable initial real experience with the software platform and engage with early adopters.

What we're referring to as [Veris Mercury] adds our own implantable monitoring device. The device will include all of the first-generation bio-sensing features contemplated, but will be a separate device that will be implanted alongside a traditional port. By separating the device from the port, we expect to be able to leverage existing implantable monitors as the predicate and proceed down the FDA 510(K) path with a target submission to launch in 2023. Veris Mercury stand-alone monitoring will also be the foundation for future products beyond cancer care, such as heart failure and renal disease.

Finally Veris will offer the fully integrated intelligent Vascular Access port, utilizing many of the same parts as Veris Mercury. We will seek to advance this product through the FDA's De Novo pathway but also believe that EU regulations for the integrated device will be less onerous and could allow a classic Europe-first strategy for the fully integrated intelligent Vascular Access Point.

Finally, a few words about our data and analytics work. We believe that as with nearly all digital health endeavors, Veris has the opportunity to create substantial value through data monetization. Our Veris Chief Technology Officer, Sunny Webb has been passed with building a world-class data team with expertise in data science, data engineering and analytics so that we have the infrastructure in place to do the data and analytics work once Veris is deployed and generating data. We hired our first lead data engineer this month.

Let me now move on to CarpX. CarpX is our FDA 510(k) cleared minimal invasive device to treat paratope syndrome. CarpX continues with its limited commercial release utilizing early adopter key opinion leaders. We have a very experienced team that is a commercial team that's leading this effort, including the Director of Sales, a clinical specialist and a sales representative. The goal of this effort is to advance procedural and product improvements before full commercial launch.

Eight new surgeons have been trained and 5 more scheduled for cadaver lab training. Seven CarpX procedures were performed in the fourth quarter of 2021, and this effort resulted in improvements to the procedure and led us to hold -- led us to decide to hold clinical cases to implement certain product improvements based on the experience of the surgeons.

This first set of improvements have been made, including addressing a problem with one of the electrodes that lead to the need to fire the device more times than had been experienced previously. We will restart clinical cases this coming quarter, second quarter. Subsequent product improvements are slated to be completed later this year, at which point we should be in a position to expand commercialization more broadly. Development of a next-generation CarpX device incorporating integrated ultrasound imaging is also progressing well with a target FDA submission in 2023.

On to NextFlo. NextFlo is a platform infusion technology. The first product incorporates -- incorporating it is our (inaudible) 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. As we discussed during our last call, NextFlo's progress to FDA submission was delayed due to manufacturing issues related to a molded part. That issue has been corrected through a small redesign, and we are back on track to complete pre-DD and proceed to final pre-submission testing. We are currently on schedule to submit a launch in the second half of this year.

We have hired a VP of Sales for NextFlo, who is working closely with the rest of the management team and with Deloitte Consulting to lay out a foundation for the commercial launch targeting inpatient, outpatient and home infusions.

Now a few comments on a couple of other key products in our R&D pipeline. As we recently announced, PortIO, our implantable intraosseous vascular access device, launched its first in-human clinical study in Colombia, South America with 3 successful implants. We believe PortIO, which does not require flushing in the first and maintenance-free long-term vascular access device. Although we remain engaged with FDA regarding its requirements for a U.S. IDE study, our success in Colombia has led us to expand PortIO's regulatory strategy. We intend to pursue a European study to support EU CE Mark clearance and provide additional human data for U.S. approval.

Our e-secure device to endoscopically treat esophageal pre-cancer is also progressing well. We completed another successful animal study. including head-to-head comparisons with Medtronic Barrx device. Feedback from key opinion leaders who participated in the animal studies and our busy esophageal ablator has been universally positive and really very encouraging.

So let me close my portion of these remarks on the business development updates. As we disclosed on yesterday's Lucid call, PAVmed and Lucid have entered into 2 agreements this month. First, PAVmed and Lucid decided to enter into a formal intercompany license agreement whereby Lucid will have exclusive worldwide rights to commercialize EsoCure, which is tightly synergistic, of course, with EsoGuard and EsoCheck products.

And second, PAVmed and Lucid entered into an agreement for Lucid to acquire the CapNostics assets, including EsophaCap, under the same terms under which PAVmed acuired CapNostics in the fall. EsophaCap is a 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.

And finally, we continue to receive a steady inflow of business development opportunities and carefully assess each in terms of synergy with our current portfolio and the potential to be accretive in the near and medium terms.

With that, I will hand the reins on to Dennis to provide an update on our financials before proceeding to questions.

Thanks, Lishan, and good afternoon, everyone. Our preliminary and summary financial results for the fourth quarter and the full year ended December 31, 2021, were reported in our press release that was published earlier this afternoon. We plan to file our annual report for PAVmed on Form 10-K with the SEC in the coming days. At that time, it will be available at sec.gov and on our website, our PAVmed website.

As we outlined during Lucid's earnings call, as a rule, EsoGuard tests performed are recognized as GAAP revenue when cash is actually collected by the company. As previously mentioned, this will more than likely be true during the transition period of negotiating third-party private payer reimbursement contracts and related coverage. As reported to you last quarter, for compliance purposes during this reimbursement transition period, we negotiated a short-term month-to-month fixed payment arrangement with a contract laboratory that was processing EsoGuard assay and was performing the insurance company billing and collections function. This commercial agreement became effective on August 1, 2021, and terminated concurrently with the opening of our own laboratory at the end of February 2022. We recognized $500,000 of revenue as part of this EsoGuard commercial agreement with ResearchDx.

Now that we are operating our own laboratory following the February 2022 agreement, where LucidDx Labs, Inc. purchased certain assets from ResearchDx, Inc. Lucid will have the ability to directly invoice CMS as well as private payers. Future revenues will be recognized based upon actual collections until such time that coverage policies are in place with CMS and payment contracts with private payers. This obviously can result in the timing of revenues recognized versus the time they are submitted for third-party reimbursement until these future conditions are met.

Consequently, it is our expectation that we will begin to recognize GAAP revenue related to our LucidDx lab in the second quarter of this year, and it will be adjusted based upon actual collections received for test submitted for reimbursement by the laboratory. The number of EsoGuard test performed and submitted for payment are provided in the press release and was discussed earlier by Lishan.

Obviously, we're in the 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-up of our Lucid Test Centers and our EsoGuard telemedicine program in cooperation with UpScript.

Presently, there are now 4 banking analysts issued coverage on PAVmed, and others are doing their diligence as well. The 2022 revenue estimates provided by the analysts are achievable but quantity and collections are highly dependent upon the evolving reimbursement landscape. As you're likely aware from our last corporate update, the local coverage decision, or LCD, for CMS-related reimbursement has still not been published. But as Lishan previously described, we have reason to expect action on this soon.

So I'll provide some summary comments on PAVmed and then follow with similar comments on Lucid Diagnostics as a stand-alone company. PAVmed remains the controlling shareholder holding approximately 75% of the voting interest of Lucid. Lucid's operating results will continue to be consolidated into PAVmed's financial results. The statement of operations will reflect the line item to show the noncontrolling interest or of profits or losses to non-PavMed shareholders of its majority-owned subsidiaries.

As well, there will be a corresponding offset in the equity section balance sheet for amounts attributable to the minority interest equity. The methodology is unchanged. As a result of the IPO will continue to be applicable as long as PAVmed remains the controlling shareholder. As mentioned, the revenue recognized the $500,000 relates to EsoGuard for the year ended December 2021.

Despite the negative gross profit for last year, which reflects the initial test center start-up-related costs, at very moderate volumes, incremental gross margins can be around 90% and contribution margins can be 60% to 65%.

Regard to operating expenses, during yesterday's Lucid earnings call, we discussed the 3 components that make up Lucid's operating expenses, namely, sales and marketing, general and administrative and research and development. Since Lucid's operating expenses represent approximately 50% of PAVmed's consolidated expense for the full year, respectively, to summarize the operating expenses.

For the year ended December 31, 2021, PAVmed's consolidated operating expenses were $54.3 million compared to $23.4 million during the same period in 2020, with 78% of the net increase attributable to compensation-related to headcount increases, stock-based compensation from RSA grants to Lucid and PAVmed employees, consulting services and development costs, particularly in the clinical trial activities and outside professional services.

There is a table in the PAVmed press release published today and the Lucid press release yesterday that adjusts each of these 3 components of operating expenses for the embedded noncash stock-based compensation expense. Without the SBC operating expenses for PAVmed and Lucid stand-alone were $39.3 million and $17.7 million for 2021 and 2020, respectively.

PAVmed reported the fourth quarter 2021 and the full year 2021 net loss attributable to common stockholders of $17.3 million and $50.6 million or a loss of $0.20 and $0.65 per common share for each of those periods. And that compares to a loss of $8 million -- $8.8 million or $0.14 and $34.6 million or $0.73 in the same periods in 2020. The press release also provides a table entitled non-GAAP, which highlights these amounts along with interest expense and other noncash 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 fourth quarter and the full year of 2021, the GAAP loss by approximately $4.6 million and $17.4 million, respectively, for noncash charges, the company reported non-GAAP adjusted loss for the fourth quarter and the full year 2021 of $12.7 million and $33.2 million, respectively, or $0.15 and $0.43 per common share. PAVmed has consolidated cash of $77.3 million as of December 31, 2021, which compares to $17.3 million at the same time in 2020 and is debt free.

Thank you for your attention. Operator, we can now open the call up for questions.

(Operator Instructions) Our first question comes from the line of Ross Osborn with Cantor Fitzgerald.

Maybe start on the macro level with COVID. Did you guys see any different trends with regards to CarpX versus the Eso products that we discussed last night? And if so, how do those play out over the quarter and also year-to-date?

The CarpX -- the COVID has had no impact on CarpX at all. What we're -- the pace and cadence of CarpEx, as I described, is really based on getting surgeons trained and performing cadaver labs and having them do clinical cases to help us -- limited number of clinical cases to help us with our procedural and product development work, which has paid off. And as I mentioned, we are we are getting ready to launch clinical cases and again, after making the improvements that came out of that activity. So COVID has had no impact on that.

Okay. Great. And then maybe could you just lay out how the company defines full commercial launch relative to the limited launch right now? And if you were able to quantify that, that would be great.

Sure. Yes. I mean let me just redefine the limited launch. The limited launch, we'd like to get up to 15 to 20 surgeons, so who are trained or who are doing cases and are fully engaged with providing feedback on the procedural development and product improvement side of things. But full commercial launch will be a full commercial launch. We'll expand our commercial team beyond adding sales reps in various locations and also using, as is commonly the case in the orthopedic space using distributors to target head surgeons across the country.

Okay. And then maybe switching to PortIO. Could you walk us through the different use cases between the ER inpatient and at home? And if there are any different dynamics there that we should be thinking about? Could you maybe highlight this as well?

Are you referring to the NextFlo or to PortIO? Just want to make sure.

PortIO.

Yes. PortIO is really designed to be a long-term vascular access device,that can provide patients who require such devices with access over weeks and months for various things, antibiotics and other medications that have to be delivered over time. So it's really all -- really on an outpatient basis, we don't expect this to be of much use on an inpatient basis where access is really limited to days or a week or 2. The target populations include patients who have poor veins as a result of repeated access or other hardware in their venous system like Pacemaker leads and long-term catheters who need long-term access but have poor veins. And this is really a perfect solution for those folks.

The other target population are renal failure patients. These are patients who need to protect their veins -- even if they have any, they need to protect their veins for future dialysis. And so the option -- and these are also patients who are frequently in the hospital, frequently require procedures and having a long-term access device that doesn't require any maintenance or flushing to utilize to allow the clinicians to protect their veins is very, very attractive. So those are really the 2 primary target populations and these would be implanted for longterm use over a period of weeks and months.

Okay. Got it. And then last one for me. Could you help us think about OpEx spend this year specifically for PAVmed. I realize Lucid will still take the majority of it, but just any clarity there would be helpful for thinking about the rest of the year.

Dennis?

I'm sorry. I was on mute. On a consolidated basis, we get through the year, the areas where OpEx will continue to increase on the clinical trial side, which we categorize in our engineering and R&D areas. And as Lucid's landscape for reimbursement continues to evolve, you will see some increased spend on patient adoption, patient education through a variety of means, including continuing to expand, which is now limited only to a pilot program in Phoenix, our direct-to-patient advertising campaign. And they are pretty variable expenses and will increase significantly once reimbursement is fully in place. So what you've seen in the fourth quarter, ex the stock-based compensation so the noncash charges will continue to steadily increase over the course of the year.

Our next question comes from the line of Frank Takkinen with Lake Street Capital Markets.

A couple for me. I wanted to start with one a little bit more specific to the LucidDx Lab now. Can you talk about the transition process? I understand that happened at the end of February. Just curious if there's any disruption from when the contract dollars were coming in from the previous owner of the lab to when you may start to see cash come in the door on a cash collection basis for...

Thanks. I'll let Dennis answer that question, but just at a high level, the way we designed this transaction and this process was to be seamless as it relates to the actual operation of the laboratory and the processing of EsoGuard test. So we were able to get the CAP accreditation and transfer the laboratory functions to the new facility without really missing a beat. And with now all of the testing performed at the new laboratory.

As it relates to filing claims and processing claims, I did mention that we are now able to control that process completely internally because we're -- we control the billing and collections. And we've been able to upgrade our revenue cycle management provider as well. So as it relates to the flow -- how the transition is going on with regard to receipt. I'll let Dennis take over that part of the question.

So Frank, through the February 25 transaction, we had continued the commercial agreement. And from our comments, you know that it was about $100,000 a month. So the month of March may be a little bit of a transition. But through the second quarter, we're expecting to recognize our own GAAP revenue. It will be not as systematic. We will be filing claims with CMS and with the private payers. Based upon the experience that we have seen at the ResearchDx level, the private payer side are paying at out-at-network rates, which is encouraging in that even though the dollar amount, which Lishan reported, was a little over $1,100, $1,150 to be exact. They're benchmarking it off the list price that CMS has established at just under $2,000.

We will also be billing CMS. We have not received any payments under the CMS as the LCD is still in pending format. We will be able to collect on past CMS or Medicare patients once that LCD is in place. Technically, we should be able to now, but they are in expense until we believe that LCD gets published. So the collection side will be a little bit more variable than the systematic revenue we've recognized since last August, simply because the amount we will bill will be the $1,938, the amount we collect until such time that those payer contracts are in place will be somewhat variable.

And the timing of such we will not be able to record revenue when we invoice at least for the early part of this transition period. That transition period will last until such time that it becomes highly probable on the GAAP rules, that's the term they use, that the amount you invoice will be the amount you collect. And that will take some experience to establish that standard. That's probably a 12-month to 18-month period of time in total. That is not unique to us, many of the other companies with new codes like this, a new reimbursement landscape have gone through the same exact recognition period.

So it's a really short window in terms of the transition as Lishan indicated and a lot of that was bolstered by the fact that the agreement included a negotiated management services agreement, where much of the personnel that were performing the activities prior or performing the activities for us now. And that management service agreement is in place for up to 36 months. But at our discretion, we can continue to add our own staff in replacement of staff from ResearchDx so that over time, it will be entirely our own personnel and drives utilization and efficiency of our costs.

Got it. Okay. Very helpful. Wanted to shift over to Veris and ask one a little bit more specifically to that platform. I was just hoping you guys could just simplify it a little bit more for us on the software platform side. I was under the impression the port and the platform are married in a way that they run best together, but it feels like the platform is going to launch first and then the port is going to come afterwards. Help us understand the business model and if we can see any revenue recognition in, call it, 6, 12, 18-month time frame or if we're waiting for the port until we start to see that.

Yes. So you got that correct. So what we're -- what we've done is we've basically taken the pipeline and taken the long-term vision of having the port fully integrated with all the sensors that right now, it looks like it's going to be a de novo although we think we can get into Europe earlier by doing it in steps along the way.

And so the initial launch of the software platform with wearables and connected devices, connected blood pressure cups, connected (inaudible), connected scales and so forth, which ultimately are going to have to be part of the overall care platform -- remote care platform anyway, will allow us to launch the commercial -- launch commercially and within the same business model using remote patient monitoring in a similar way that the final version of this will have contemplated.

So yes, we decided that we didn't want to delay the launch of the software platform if the time through FDA was extended because of the developer pathway, and this allows us to do that. The intermediate step where we have a separate implantable monitoring device that's implanted alongside the port at the same time as sort of an intermediate step is one that we think will have a much more straightforward 510(k) path and allow us to have the actual integration of the physiologic parameters communicating with the platform in real time. So that hopefully, that's a little bit clearer than I described earlier.

Okay. Yes, that's helpful. And I just wanted to finish up with one big picture one and it's maybe more subjective today, but I was hoping you could just help us rank the different opportunities. I know it's not a -- there's no "less favorable or less loved child" in the portfolio. But if you can...

You took the words out of my mouth. It's like asking which is your favorite kid. Now it's -- look, I'll try, okay? I mean, I think clearly, the Lucid opportunity certainly on paper has the largest market opportunity at $25 billion with the largest target population and so forth. So it's hard not to argue that, that remains far and away the largest commercial opportunity and it's obviously the one that's furthest along. I think amongst Veris, CarpX and NextFlo, tough call. I think if we can really develop the data aspects of Veris and generate the opportunity to monetize data like some other wildly successful digital health companies have done. I think that certainly could be in a similar ballpark.

Between NextFlo and CarpX are quite different, right CarpX is a kind of a traditional surgical interventional device that takes time to get physicians to adopt and has a sort of more of a steady growth opportunity. It is a large target market with 600,000 patients every year undergoing carpal tunnel surgery. We think we have an opportunity, particularly with the next-generation version of this that has ultrasonic imaging built in to be the default treatment for those patients. So that is a large opportunity as well, but I think it's not quite what the ultimate potential of Lucid and Veris would be.

And then NextFlo is a bit of a ringer in there because there are 1 million infusions a day. And NextFlo, in many ways, may be the most disruptive technology if it performs like we expect it to, where 80% or so according to our Deloitte analysis of those million infusions a day, that are performed with electronic infusion pumps could transition over time to our technology. So it's a very -- but it's a very different type of commercial launch. It's very much sort of hospital system driven.

That's where our focus is in our workings with Joel Sparks as our new VP of Sales has been working successfully with Deloitte on mapping down how to target both inpatient facilities, outpatient facilities like ambulatory surgery centers and endoscopy suites as well as the increasing effort to move care into the home and where infusions are currently fairly labor-intensive and require a nurse and electronic infusion pumps. So there's a big, big opportunity there. It's a different commercial pathway to get there. There are some hurdles along the way, which includes sort of the entrenched infrastructure around electronic infusion pumps. But I think long term, it's a very big opportunity. Hopefully, that's helpful.

Our next question comes from the line of Anthony Vendetti with Maxim Group.

So I just want to get a little better handle on the Lucid test centers. So once you identify a site for a center, how long does it take to get it up and running and start being able to perform the tests?

Right. So the answer is actually not very long to that -- to get to that point, which you just described. So identifying a city that we're going to target, identifying a physical location, leasing that office space, hiring a nurse practitioner and a medical assistant can be weeks to a month or so. What -- but getting that -- remember that test center is really there to receive patients that are being referred primarily from primary care physicians. And so that activity -- the activity at that center is going to be driven as much by the time it takes to have good sales representative coverage in that area.

In the cities that we've launched so far, we've tried to get 2 sales reps per city, per test center to drive cases to the test centers. That takes longer, hiring a sales rep who has good experience, calling on primary care physicians could take some time, getting them trained both in the field and on the certain sort of the didactic coursework takes some time and getting them to actually generate referrals from their private care context can take some time. So that's more on the order of -- I mean historically, in MedTech, I think, as you know, I mean, it can be 9 to 12 months before a rep is really operating at peak efficiency.

We found that to be quite a bit shorter than that, more like on the order of 4 months. One different -- one thing that's going to be different with this next stage where we're targeting these 9 larger states and identifying 1 metropolitan area in each state to open our first test center at is that several of these states actually already have Lucid sales personnel there. There the market development managers and sales reps who are calling on GIs. We're calling on large primary care and family practice -- practices.

That are performing the procedure themselves without Lucid test centers. And so there'll be potentially somewhat -- some shortening of the time before we start seeing cases at these test centers because we -- in several of these cases, for example, in California and in Ohio, we actually already have boots on the ground. And those folks are begging for us to have test centers in their locations because they know it can actually really help them drive testing volume significantly.

Okay. So it could -- if it -- from scratch, it could take 9 to 12 months just because identifying the site and getting that up and running is one thing, but getting the field reps to get the price rate references. But you're saying -- so far, you're seeing it's not taking as long as 9 to 12 months in your...

No, no. Yes. I mean we had our first rep in September. -- in Phoenix. We have 2 reps now in Phoenix. That was in September, and that rep was generating private care referrals at a decent clip several months later and his counterpart, the second rep is even -- is also now contributing with a shorter period of time, and he just got trained in February. So yes, I don't mean to suggest that it will stretch out to 9 to 12 months. But from the time we actually physically launched till we're generating referrals and test at those centers on the order of several months. Let's just say that.

And just remind me on the expansion plans, how many test centers ideally would you like to have up and running or open by the end of this year?

Yes. So we'd like to open a minimum of 9 perhaps more, but our first target is to get 9 open, starting in these 9 new states to really broadening our geography and broadening to larger states and states that have more complex laboratory regulations, which we're going to dive head first into. But it's interesting. After we have 1 site within each state, remember, this goes back to your question about what you just said about the sales reps. If we have a sales rep, let's say, in North Carolina, right And we opened our first center in Charlotte. That will give us the opportunity to open additional centers since that rep is going to cover the entire state, additional centers in other cities within that reps geography. So there's -- it's not quite the same as the initial -- the time to get to add other centers and the amount of effort it takes to add other centers -- it's not going to be that great within a certain geography -- as great, within a certain geography. Does that make sense?

Our next question comes from the line of Ed Woo with Ascendiant Capital.

My question is on what is your cost to open up these test centers? Is it very minimal?

So the -- I'll let Dennis answer with a bit more granularity. But the fixed costs, as we've noted for these test centers is actually quite minimal. And we often do get sort of people asking us about, well, that's a big capital cost and it's bricks and mortars and so forth, right? And there is some cost we have to get a lease up and running, but these are -- these medical office suites are really even in more expensive areas are really not that expensive on a monthly basis and then hiring a nurse practitioner in the medical system. And the overall economics of the operation of a test center is almost entirely variable. The fixed costs can be covered by 2 reimbursed procedures a week while the team could perform 20 a day.

Dennis, do you want to add anything more specific around the sales cost?

Yes. Maybe just get a little bit more granular, Lishan said less than 2 treatments or tests a week, and that's true. And the way we get there is that nurse practitioner -- or these test centers are presently staffed with a nurse practitioner and a medical assistant. And their salaries combined with the lease cost and lease cost is -- they're generally in the $1,000 to $2,000 range per month. So they're not very costly sticks and bricks.

When you add that cost up, it's about $40,000 to $45,000 a quarter. And a nurse practitioner can do without breaking the sweat 20 tests a day in an 8-hour day. And as you're aware, the tests are just under $2,000 so you just simplified the math 20x, $2,000 a day, it's $40,000 a day. And we know that our costs are that in each quarter. So when you break that down, it's 1.7 tests per week to breakeven. So as Lishan said, it really is a marginal business, and we can open them up rather quickly and do so without a significant fixed cost burden. The other piece part is to put in place, as Lishan explained, is finding the right salespeople that have the right relationships that can speed adoption and drive that test count up on a daily basis.

Great. And my last question is, how do you guys feel in a year as we are obviously going to have a very busy 2022. What's your view about adding potentially new products into your portfolio?

Well, we don't have enough yet there. I would like more -- so I think we have a pretty robust pipeline right now with the goal being to get NextFlo and the Veris -- the initial Veris software platform with connected devices launched this year. Our goal for next year is to launch EsoCure, and subsequent generations of NextFlo and Veris. And PortIO, it's a little bit hard to say. I think we could get PortIO in Europe next year. But as I've described, we've had significant challenges with regard to U.S. FDA pathways there.

And then there are some other products in our portfolio that are still somewhat in the early R&D phases that I can't fully predict we'll be heading into the pipeline next year. But as I mentioned, we also -- and this is real. We also are constantly being solicited and have active discussions for opportunities to bring in new technology into our pipeline. And as I mentioned, the way we look at those has changed over the recent quarters and over the past year or so, where we're more focused on not just viewing anything that can sit in the space.

But now that we are fairly well established as having sort of laid our roots in medical devices, diagnostics and digital health that we are focused on expanding our portfolio within technologies that are synergistic -- with technologies that are synergistic with our current commercial or pre-commercial products. And that we at least can map out as being accretive in the near to medium term. So stay tuned on that. There's a lot going on in that space, and we'll obviously let you know if we end up consummating those. But I think, as you know, we have a pretty good record of bringing in technologies from the outside over the last couple of years.

At this time, we have reached the end of the question-and-answer session. And I'll now turn the call back over to Lishan for any closing remarks.

Great. So thank you all for joining us today. And again, another day of really great questions. So I appreciate that. And as always, we look forward to keeping you abreast of our progress via news releases and Periodic quarterly calls such as this one. The best way to keep up with PAVmed news is to sign up for an e-mail alert on our Investor Relations website and to follow us on social media. You're also welcome to contact Adrian at akm@pavmed.com with any questions. Thank you, everybody. Thanks so much.

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