Lucid Diagnostics Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Lucid is a majority-owned subsidiary of PAVmed and a commercial-stage diagnostics company focused on EsoGuard testing, generally using samples collected with its EsoCheck device. Financial amounts below are in U.S. dollars; figures are in millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Revenue | $0.446 | $0.189 |
| Cost of revenue | $1.338 | $0.369 |
| Gross loss / gross margin | $(0.892) / approximately (200%) | $(0.180) / approximately (95%) |
| Operating expenses | $14.763 | $12.460 |
| Operating loss | $(14.317) | $(12.271) |
| Net loss | $(16.247) | $(12.270) |
| Basic and diluted loss per share | $(0.40) | $(0.35) |
| Cash used in operating activities | $(7.045) | $(5.776) |
Cash was $39.522 million at March 31, 2023, versus $22.474 million at year-end 2022. Total current assets were $41.721 million and current liabilities were $23.393 million. Financing activities provided $24.110 million during the quarter; cash increased by $17.048 million. No positive operating margin or profitability was reported.
Total liabilities were $24.219 million, including $11.900 million fair value of the senior secured convertible note and $7.627 million due to PAVmed. The note’s face principal was $11.111 million. Management stated that cash on hand and committed equity sources were expected to fund operations and obligations for one year from issuance of the financial statements; Lucid also expects recurring losses and negative operating cash flow and anticipates continued debt and equity financing.
Material changes versus Q1 2022
- Revenue increased by approximately $0.257 million, principally reflecting EsoGuard testing performed in Lucid’s own laboratory; the prior-year quarter included revenue under the former ResearchDx commercialization arrangement.
- Cost of revenue increased by approximately $0.969 million, reflecting higher laboratory operations, supplies and compensation. Revenue remained below cost of revenue.
- Sales and marketing expense increased to $4.127 million from $3.318 million; general and administrative expense rose to $6.511 million from $5.892 million. Research and development expense declined to $2.282 million from $2.881 million.
- Net loss widened by $3.977 million. Q1 2023 included $0.505 million of acquired-intangible amortization, a $0.789 million noncash fair-value expense on the convertible note, and $1.186 million of note issuance and offering costs.
- Cash increased after financing. The quarter included $13.625 million gross proceeds from Series A preferred stock and $9.925 million net proceeds from the convertible note, as well as approximately $0.3 million net ATM proceeds.
Outlook, notable items and risks
- Commercialization and evidence: Lucid is expanding EsoGuard commercialization through clinician outreach, Lucid Test Centers and direct contracting with self-insured employers and other entities. It described clinical studies and a registry intended to build clinical-utility evidence, with preliminary results or interim analyses expected before year-end 2023 for certain studies. These are expectations, not guaranteed outcomes.
- ResearchDx transition: Lucid ended ResearchDx’s laboratory management services effective February 10, 2023 and said it had developed resources to operate the lab internally. A termination agreement reduced remaining payments from approximately $3.4 million to $0.713 million; Lucid settled the amount by issuing 553,436 common shares, with no cash payment.
- Convertible note: The March 2023 note bears 7.875% interest, matures March 21, 2025 and has a $5.00 conversion price. It is secured by Lucid and subsidiary assets and guaranteed by subsidiaries. Principal installments begin September 2023; they may be settled in shares, subject to conditions, or at Lucid’s election in cash. Covenants include at least $5 million of available cash, a market-capitalization-related debt test beginning September 30, 2023, and a $30 million minimum market capitalization. The company reported compliance as of March 31 and in the filing’s present-tense statement.
- Preferred stock and dilution: The $13.625 million Series A preferred issuance has a $1.394 initial conversion price, may convert at holder election after six months and automatically converts after two years. It carries share dividends equal to 20% of conversion shares on each of the first and second anniversaries, and liquidation priority. Common shares issued and outstanding were 41,753,603 at quarter-end; the filing reported 43,725,703 as of May 11, 2023.
- Related-party costs: PAVmed provides management and other services. A May 9, 2023 amendment raised the monthly management fee to $0.750 million effective January 1, 2023. Lucid reported $7.627 million due to PAVmed at quarter-end. PAVmed may elect, subject to terms and limits, to receive certain amounts in cash or shares.
- Risks and uncertainty: Key risks include limited operating history and revenue, market acceptance and reimbursement, regulatory and clinical requirements, need for additional financing, intellectual-property protection, and dependence on PAVmed. Revenue estimates are affected by variable payer consideration and collection uncertainty. Fair value of the note relies on Level 3 assumptions and can change materially.
- Guidance: The filing provides no numerical revenue, margin or earnings guidance. Management expects expenses and commercialization and development spending to continue; it cautions that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Progress in EsoGuard test volume, reimbursement, collections and revenue recognition, and whether revenue growth can outpace laboratory and commercialization costs.
- Cash runway and future financing needs, including availability and terms of committed equity and ATM facilities and compliance with note covenants.
- Potential dilution and cash obligations from preferred-stock conversion and dividends, convertible-note installments, equity compensation, and PAVmed payment arrangements.
- Whether internal laboratory operations and planned clinical studies deliver the expected efficiency and clinical-utility evidence; verify study timelines and results as reported.
- The continuing cost and governance implications of the PAVmed management-services relationship and the increased monthly fee.