Lucid Diagnostics Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Lucid is a commercial-stage diagnostics company focused on EsoGuard testing for esophageal precancer, using samples collected with its EsoCheck device. It is majority-owned and controlled by PAVmed Inc.
Financial performance and liquidity
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0.783 | $0.076 | $1.388 | $0.265 |
| Cost of revenue | $1.634 | $1.626 | $4.522 | $1.996 |
| Gross loss | $0.851 | $1.550 | $3.134 | $1.731 |
| Operating loss | $11.128 | $14.377 | $37.029 | $41.276 |
| Net loss | $14.208 | $14.349 | $41.836 | $41.243 |
| Net loss per share | $0.34 | $0.39 | $1.01 | $1.15 |
Revenue increased from a low base, principally reflecting more EsoGuard tests performed in Lucid’s own laboratory. Cost of revenue exceeded revenue in both comparative periods. Nine-month operating expenses were $38.417 million, down from $41.541 million; lower general and administrative and research and development costs were partly offset by higher sales and marketing and cost of revenue. The nine-month net loss was broadly unchanged, including debt-related charges in 2023.
- Cash and liquidity: Cash was $24.050 million at September 30, 2023, versus $22.474 million at December 31, 2022. Current assets were $27.303 million and current liabilities $30.224 million.
- Cash flow: Nine-month operating cash use was $22.838 million; investing cash use was $0.046 million; financing provided $24.460 million. Cash increased by $1.576 million over the period.
- Debt: The March 2023 senior secured convertible note had $11.019 million of face principal and a $14.490 million fair-value carrying amount at quarter-end. It bears 7.875% interest, matures March 21, 2025, and is secured by Lucid’s and its subsidiaries’ assets. Note fair-value remeasurement produced a $3.520 million nine-month expense, including $3.021 million in Q3; the note is measured using Level 3 valuation inputs.
- Related-party payable: Amounts due to PAVmed totaled $10.286 million at quarter-end. The MSA fee was increased to $0.750 million per month effective January 1, 2023; nine-month MSA expense was $6.750 million.
Material changes and financing
- Q3 revenue rose to $0.783 million from $0.076 million. For the first nine months, revenue rose to $1.388 million from $0.265 million; the prior-year figure included revenue under an agreement with former laboratory provider ResearchDx.
- Q3 operating loss improved year over year, mainly as general and administrative and research and development expenses declined. Nine-month cost of revenue increased by $2.526 million, while research and development expense declined by $3.481 million.
- In March, Lucid raised $13.625 million gross through Series A convertible preferred stock and issued the $11.1 million-face-value secured convertible note, receiving $9.925 million net of lender fees and offering costs. Preferred shares carry conversion rights and specified stock-dividend and liquidation preferences.
- After quarter-end, Lucid raised $5.0 million gross on October 17 through Series A-1 preferred stock, with a $1.2592 conversion price. Common shares outstanding were 42.330 million at September 30 and 44.667 million as of November 9, 2023; potential conversion and equity-plan awards may add dilution.
Outlook, risks and other notable items
- Management expects recurring operating losses and negative operating cash flow, and says it expects to fund operations through debt and equity financing, including conversions or refinancing of existing convertible debt. It states that cash on hand, committed equity sources, and planned debt conversions or refinancing are expected to fund operations and obligations for one year from issuance of the financial statements. This outlook depends on those financing plans.
- Lucid’s note requires at least $5 million of available cash, limits a debt-to-market-capitalization ratio to 30% under the stated test, and requires market capitalization of at least $30 million. The company reported compliance as of September 30 and the filing date.
- Commercialization depends on wider payer reimbursement, test adoption, clinical evidence, and successful execution of sales channels. Management highlighted ongoing clinical studies and registries; it expected enrollment in one observational study to finish by year-end 2023 and results from a virtual-patient study to be ready for analysis before year-end.
- Key risks include the company’s limited operating history, continuing losses and financing needs, market acceptance, reimbursement, regulatory risks—including potential changes in FDA enforcement discretion for laboratory-developed tests—intellectual-property protection, and dependence on PAVmed. No pending legal proceedings were identified as reasonably likely to have a material impact.
- Disclosure controls were assessed as effective as of quarter-end; the company reported no material change in internal control over financial reporting during the quarter.
Investor verification points
- Track test volumes, revenue growth, reimbursement coverage and collections, and whether revenue growth can outpace laboratory and other operating costs.
- Reconcile cash burn and the stated one-year liquidity outlook with actual financing availability, note amortization requirements, and the substantial payable to PAVmed.
- Review the secured note’s covenant headroom, fair-value assumptions, repayment terms, and potential dilution from note conversions and preferred stock.
- Confirm progress and published results from clinical studies and registries, and monitor regulatory developments affecting EsoGuard as a laboratory-developed test.
- Assess ongoing related-party fees and equity issuances, including the MSA with controlling shareholder PAVmed.