UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
(Mark
One)
For
the fiscal year ended December 31, 2022
OR
For
the transition period from _____ to _____
Commission
File Number: 001-40901
LUCID
DIAGNOSTICS INC.
(Exact
Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
360 Madison Avenue
(Address of Principal Executive Offices) (Zip Code)
(212)949-4319
(Registrant’s
Telephone Number, Including Area Code)
Securities
registered under Section 12(b) of the Exchange Act:
Title of each Class Trading Symbol(s) Name of each Exchange on which Registered
Common Stock, $0.001 par value per share LUCD The NASDAQ Stock Market LLC
Securities
registered under Section 12(g) of the Exchange Act:
None.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐
No ☒
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”
, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer ☐ Accelerated filed ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☒
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to section 13(c) of the Exchange Act ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As
of June 30, 2022, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market
value of the registrant’s voting stock held by non-affiliates was approximately $18.9 million, based on 8,366,797 shares of
common stock held by non-affiliates and a last reported sales price per share of the registrant’s common stock of $2.26 on such
date.
As
of March 9, 2023 there were 43,393,716 shares of the registrant’s Common Stock, par value $0.001 per share, issued and outstanding
(with such number of shares inclusive of shares of common stock underlying unvested restricted stock awards granted under the Lucid Diagnostics
Inc. 2018 Long-Term Incentive Equity Plan as of such date).
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s definitive proxy statement for its 2023 annual meeting of stockholders are incorporated by reference into Part
III of this Form 10-K where indicated. Such definitive proxy statement will be filed with the U.S. Securities and Exchange Commission
within 120 days after the year ended December 31, 2022.
TABLE
OF CONTENTS
PART I
Item 1. Business 1
Item 1A. Risk Factors 14
Item 1B. Unresolved Staff Comments 42
Item 2. Property 42
Item 3. Legal Proceedings 42
Item 4. Mine Safety Disclosures 42
PART II
Item 6. [Reserved] 43
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 53
Item 8. Financial Statements and Supplementary Data 53
Item 9A. Controls and Procedures 54
Item 9B. Other Information 54
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 54
PART III
Item 10. Directors, Executive Officers, and Corporate Governance 55
Item 11. Executive Compensation 55
Item 14. Principal Accountant Fees and Services 55
PART IV
Item 15. Exhibits and Financial Statement Schedules 56
i
FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K (this “Form 10-K”) of Lucid Diagnostics Inc. (“we”, “us”, “our”
or “Lucid” or the “Company”) contains forward-looking statements that involve substantial risks and uncertainties.
All statements, other than statements of historical facts, contained in this Form Form 10-K, including statements regarding our future
results of operations and financial position, business strategy and plans and objectives of management for future operations, are forward-looking
statements. The words “may,” “will,” “should,” “expects,” “plans,” “anticipates,”
“could,” “intends,” “target,” “projects,” “contemplates,” “believes,”
“estimates,” “predicts,” “potential” or “continue” or the negative of these terms or
other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these
identifying words. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ
significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are
not limited to, those discussed in Item 1A of Part I of this Form 10-K under the heading “Risk Factors,” which are incorporated
herein by reference.
Important
factors that may affect our actual results include:
● our limited operating history;
● our financial performance, including our ability to generate revenue;
● the ability of our products to achieve market acceptance;
● our potential ability to obtain additional financing when and if needed;
● our ability to protect our intellectual property;
● our ability to complete strategic acquisitions;
● our ability to manage growth and integrate acquired operations;
● the potential liquidity and trading of our securities;
● our regulatory and operational risks;
● cybersecurity risks;
● risks related to the COVID-19 pandemic;
● risks related to our relationship with PAVmed; and
In
addition, our forward-looking statements do not reflect the potential impact of any future financings, acquisitions, mergers, dispositions,
joint ventures or investments we may make.
We
may not actually achieve the plans, intentions, and/or expectations disclosed in our forward-looking statements, and you should not place
undue reliance on our forward-looking statements. You should read this Annual Report on Form 10-K and the documents we have filed as
exhibits to this Annual Report on Form 10-K completely and with the understanding our actual future results may be materially different
from what we expect. We do not assume any obligation to update any forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by applicable law.
ii
Part
I
Item
1. Business
Background
and Overview
Lucid
Diagnostics Inc. (“Lucid”) is a commercial-stage medical diagnostics technology company focused on the millions of patients
with gastroesophageal reflux disease (“GERD”), also known as chronic heartburn, acid reflux or simply reflux, who are at
risk of developing esophageal precancer and cancer, specifically highly lethal esophageal adenocarcinoma (“EAC”). References
in this Form 10-K to “we,” “us” and “our” are to Lucid and, unless the context otherwise requires,
its subsidiaries.
We
believe that our flagship product, the EsoGuard Esophageal DNA Test, performed on samples collected with the EsoCheck Esophageal Cell
Collection Device, constitutes the first and only commercially available diagnostic test capable of serving as a widespread screening
tool to prevent esophageal adenocarcinoma (“EAC”) deaths, through early detection of esophageal precancer in at-risk gastroesophageal
reflux disease (“GERD,” also commonly known as chronic heartburn, acid reflux or simply reflux) patients.
EsoGuard
is a bisulfite-converted next-generation sequencing (NGS) DNA assay performed on surface esophageal cells collected with EsoCheck. It
quantifies methylation at 31 sites on two genes, Vimentin (VIM) and Cyclin A1 (CCNA1). The assay was evaluated in a 408-patient multicenter
case-control study published in Science Translational Medicine and showed greater than 90% sensitivity and specificity at detecting esophageal
precancer and all conditions along the BE-EAC spectrum, including on samples collected with EsoCheck (Moinova, et al. Sci Transl Med.
2018 Jan 17;10(424): eaao5848). EsoGuard is commercially available in the U.S. as a Laboratory Developed Test (LDT) performed at our
CLIA-certified laboratory. Cell samples, including those collected with EsoCheck, as discussed below, are sent to our laboratory, for
testing and analyses using our proprietary EsoGuard NGS DNA assay.
EsoCheck
is an FDA 510(k) and CE Mark cleared noninvasive swallowable balloon capsule catheter device capable of sampling surface esophageal
cells in a less than five-minute office procedure. It consists of a vitamin pill-sized rigid plastic capsule tethered to a thin silicone
catheter from which a soft silicone balloon with textured ridges emerges to gently swab surface esophageal cells. When vacuum
suction is applied, the balloon and sampled cells are pulled into the capsule, protecting them from contamination and dilution by
cells outside of the targeted region during device withdrawal. We believe this proprietary Collect+ProtectTM technology makes
EsoCheck the only noninvasive esophageal cell collection device capable of such anatomically targeted and protected
sampling.
EsoGuard
and EsoCheck are based on patented technology licensed by Lucid from Case Western Reserve University (“CWRU”). EsoGuard and
EsoCheck have been developed to provide an accurate, non-invasive, patient-friendly screening test for the early detection of adenocarcinoma
of the esophagus (“EAC”) and Barrett’s Esophagus (“BE”), including dysplastic BE and related pre-cursors
to EAC in patients with chronic gastroesophageal reflux (“GERD”).
Market
Opportunity
In
2023, approximately 20,000 U.S. GERD patients are projected to be diagnosed with EAC and approximately 16,000 will die from it. Over
80% of EAC patients will die within five years of diagnosis, making it the second most lethal cancer in the U.S. The U.S. incidence of
EAC has increased 500% over the past four decades, while the incidences of other common cancers have declined or remained flat. In nearly
all cases, EAC silently progresses until it manifests itself with new symptoms of advanced disease. EAC is nearly always invasive at
diagnosis, and, unlike other common cancers, mortality rates are high even in its earlier stages.
As
discussed below under the heading “Clinical Guidelines for At-Risk Population”, the American Gastroenterology Association
(“AGA”) recently significantly expanded the target population for esophageal precancer screening, recommending screening
in at-risk patients without symptoms of GERD. Based on this revision, we believe the cohort recommended for screening consists of an
estimated 30 million U.S. individuals with at least 3 established risk factors for BE. Accordingly, we believe EsoGuard’s total
addressable U.S. market opportunity exceeds $60 billion based on an effective Medicare payment of $1,938 and the estimated 30 million
U.S. patients recommended for screening by clinical practice guidelines. (In December 2019, we secured “gapfill” determination
for EsoGuard’s PLA code 0114U through the CMS CLFS process. This allowed us to engage directly with Medicare contractor Palmetto
GBA and its MolDx Program on CMS payment and coverage. In October 2020, CMS granted EsoGuard final Medicare payment determination of
$1,938.01, effective January 1, 2021.)
Unfortunately,
for a variety of reasons, less than 10% of at-risk patients who are recommended for screening undergo traditional invasive upper gastrointestinal
endoscopy (EGD). We believe that the profound tragedy of an EAC diagnosis is that likely death could have been prevented if the at-risk
patient had been screened and then undergone surveillance and curative endoscopic esophageal ablation of dysplastic BE.
Since
mortality rates are high even in early stage EAC, preventing EAC deaths requires detection and intervention at the precancer stage. Most
of the necessary elements for such an early detection program are already well established—an at-risk population (at-risk GERD
patients), a precancer (BE), and an intervention which can halt progression to EAC (endoscopic esophageal ablation). The only missing
element for such an early detection program is a widespread screening tool that can detect BE prior to EAC.
We
believe EsoGuard, used with EsoCheck, constitutes that missing element—the first and only commercially available diagnostic test
capable of serving as a widespread screening tool to prevent EAC deaths through early detection of esophageal precancer and cancer in patients with 3 or more risk factors.
Clinical
Guidelines for At-Risk Population
The
subgroup of long-standing or severe GERD patients at-risk for BE and progression to EAC is well defined in clinical practice guidelines,
including the American College of Gastroenterology (ACG) BE Guidelines. In its Recommendation 5, the ACG suggests a single screening
endoscopy in patients with chronic GERD symptoms and 3 or more additional risk factors for BE, including male sex, age greater than 50
years, White race, tobacco smoking, obesity, and family history of BE or EAC in a first-degree relative.
An
ACG clinical guideline entitled “Diagnosis and Management of Barrett’s Esophagus: An Updated ACG Guideline,”
the first such update since 2016, was published online last year in the American Journal of Gastroenterology. The clinical guideline
reiterates the ACG’s long-standing recommendation for esophageal precancer screening in at-risk patients with GERD. For the first
time, however, the clinical guideline also endorses nonendoscopic biomarker screening as an acceptable alternative to costly and invasive
endoscopy stating that “a swallowable nonendoscopic capsule device combined with a biomarker is an acceptable alternative to endoscopy
for BE.” The clinical guideline specifically mentions EsoCheck, along with our EsophaCap® device, as such swallowable, nonendoscopic
esophageal cell collection devices, as well as methylated DNA biomarkers such as EsoGuard. The summary of evidence for this recommendation
includes a reference to the seminal NIH-funded, multicenter, case-control study published in 2018 in Science Translational Medicine, which demonstrated
that EsoGuard is highly accurate at detecting esophageal precancer and cancer, including on samples collected with EsoCheck.
In
July 2022, the American Gastroenterology Association (“AGA”) published in their “Clinical Practice Update on New Technology
and Innovation for Surveillance and Screening in Barrett’s Esophagus” updated clinical guidance that mirrors the same furnished
by the ACG as described above, endorsing the use of non-endoscopic cell collection tools to screen for BE like our EsoCheck Cell Collection
Device, which is cited in the update, as an acceptable alternative to endoscopy to directly address the need for noninvasive screening
tools that are easy to administer, patient friendly, and cost-effective for the detection of BE. The clinical practice update by the
AGA also significantly expands the target population for esophageal precancer screening, including for EsoGuard and EsoCheck, by recommending,
for the first time, screening in at-risk patients without symptoms of GERD. The AGA does so by adding a history of chronic GERD as merely
an additional, seventh risk factor to the six risk factors for BE and EAC that have traditionally identified at-risk symptomatic patients
recommended for screening.
Commercialization
Our
EsoGuard commercialization efforts span multiple channels including targeting primary care physicians and GI physicians, who have generally
embraced our message that EsoGuard has the potential to expand the funnel of BE-EAC patients who will need long term EGD surveillance
and, potentially, treatment with endoscopic esophageal ablation.
To
assure sufficient testing capacity and geographic coverage, we have built our own network of Lucid Test Centers, staffed by Lucid-employed
clinical personnel, where patients can undergo the EsoCheck procedure and have the sample sent for EsoGuard testing at our CLIA-certified
laboratory. Our current test center network currently includes locations in metropolitan areas in Arizona, California, Colorado, Florida,
Idaho, Illinois, Nevada, Ohio, Oregon, Texas and Utah.
In
addition to our base test center network, we have established a satellite test center program, whereby we are expanding our footprint
by making our personnel available to perform cell collection services in physician offices. Further, we have sought to expand our outreach
by successfully conducting multiple “#CheckYourFoodTube Precancer Testing Event” for organizations such as the San Antonio Fire Department, where
samples are collected from the organization’s employees for testing with EsoGuard at our CLIA-certified laboratory.
We
have also established an EsoGuard Telemedicine Program, in partnership with UpScript, LLC, an independent third-party telemedicine provider,
that accommodates EsoGuard self-referrals from direct-to-consumer marketing.
Reimbursement
and Market Access
As
noted above, in December 2019, we secured “gapfill” determination for EsoGuard’s PLA code 0114U through the CMS CLFS
process. This allowed us to engage directly with Medicare contractor Palmetto GBA and its MolDx Program on CMS payment and coverage.
In October 2020, CMS granted EsoGuard final Medicare payment determination of $1,938.01, effective January 1, 2021.
A proposed Local Coverage Determination
(“LCD”) DL39256, entitled “Molecular Testing for Detection of Upper Gastrointestinal Metaplasia, Dysplasia, and Neoplasia”
was published recently on the Center for Medicare and Medicaid Services (“CMS”) website by MAC Palmetto GBA. The proposed
LCD is a further step in our efforts to secure Medicare coverage and payment for EsoGuard. The proposed LCD, which the CMS website explicitly
characterizes as a “work in progress” for “public review,” outlines criteria that MolDX expects upper gastrointestinal
precancer and cancer molecular diagnostic tests to meet. These criteria include active GERD with at least two risk factors, as well as
evidence of analytic validity, clinical validity, and clinical utility. Although the proposed LCD indicated that it found that no currently
existing test has fulfilled all these criteria, it indicated that it will “monitor the evidence and will provide coverage based
on the pertinent literature and society recommendations.” Notably, the proposed LCD pre-dated, and therefore does not include consideration
of, the most recent AGA clinical practice update endorsing swallowable, nonendoscopic capsule devices combined with a biomarker, such
as EsoCheck and EsoGuard,, an an alternative to endoscopy. The publication of the proposed LCD triggered a written comment period, and
MolDX also held an open meeting on May 10, 2022, during which stakeholders and other interested parties had the opportunity to address
the proposed LCD. We presented at the public meeting and made a written submission during the comment period as well. A final LCD will
not be issued until the MAC has had the opportunity to assess and consider all stakeholder comments.
While we await a CMS coverage determination
from MolDX, we are aggressively pursuing EsoGuard commercial insurer payment and coverage. Although the claim adjudication cycle can be
prolonged during the early commercialization of a new test, we have received out-of-network commercial insurance payments for the EsoGuard
test, and has entered into agreements with insurers that provide access to, in the aggregate, over 70 million patients.
Clinical
Utility and Clinical Trials
Demonstrating
EsoGuard’s clinical utility, which requires providing evidence that the test has a meaningful impact on clinical practice, is very
important for a variety of purposes, including, importantly, for Medicare and private payor payment and coverage. It has been established
that one of the most important factors to private payors in deciding whether to grant payment and coverage will be demonstration that
the EsoGuard test, when ordered by physicians, provides information that can be used to
identify or exclude patients who would benefit from additional management and/or treatment. Clinical utility studies are also important
for general EsoGuard commercialization by facilitating physician understanding of test indications and potential benefit to the patients.
We
are currently seeking to accelerate our collection of clinical utility data through a range of trials that can be efficiently executed.
These efforts include a planned investigator-initiated, retrospective analysis of prospectively collected data on the approximately 400
San Antonio fire fighters who underwent testing as part of a community-sponsored cancer awareness event (in
respect of which we expect to publish results in the first half of 2023); an ongoing investigator-initiated, retrospective, single-center,
study with 500 patients (in respect of which we expect to publish results mid-2023), a virtual-patient randomized controlled trial with
intended recruitment of 100-200 physician participants (in respect of which we expect to publish
results this year); a Lucid-sponsored multi-center, prospective, observational study with 500 patients; and a Lucid-sponsored
registry at existing Lucid Test Centers, whereby all patients undergoing EsoCheck testing will be given the opportunity to provide informed
consent and contribute data about their risk factors, EsoGuard results, and subsequent diagnostic and/or therapeutic journey. Both Lucid-sponsored
observational/registry studies expect to have preliminary results and/or interim analysis before the end of 2023.
As
previously disclosed, consequently, we have decided to delay for the time being the two previously commenced clinical trials, the “EsoGuard
screening study” (“BE-1”) and the “EsoGuard case-control study” (“BE-2”), as we are devoting
our clinical resources to the studies cited above, which we expect will more efficiently generate the clinical data we are currently
prioritizing to drive EsoGuard commercialization.
Manufacturing
EsoCheck
is currently manufactured for us by our partners Coastline International, a high-volume device manufacturer, and Sage Product Development.
Through mid-2023, we expect to further transition from Sage to Coastline as the manufacturing process is further optimized. Our current
line capacity can produce up to 25,000 units per year. With Coastline’s improvement and expansion, there is capacity to scale exponentially.
Our EsoGuard Specimen Kits are currently manufactured for us by our partner Path-Tec. The warehousing, logistics, fulfillment and customer
support of our products is managed for us by our partners HealthLink International (a leading third-party logistics company) and Path-Tec.
License
Agreement
Under
the terms of our license agreement with CWRU, we acquired an exclusive worldwide right to use the intellectual property rights to the
EsoGuard and EsoCheck technology for the detection of changes in the esophagus and on sample preservation. we are required to pay CWRU
royalties on net sales of licensed products as follows: 5% of net sales of less than $100 million per year; and 8% of net sales greater
than $100 million per year. We are also required to pay CWRU minimum annual royalty payments as follows: $50,000 per year, beginning
January 1 following the first anniversary of a commercial sale of a licensed product; $150,000 per year, if net sales of a licensed product
exceed $25 million in a year; $300,000 per year, if net sales of a licensed product exceed $50 million in a year; and $600,000 per year,
if net sales of a licensed product exceed $100 million in a year. Minimum yearly royalty amounts are subject to increase based on the
percentage change in the CPI-W Consumer Price Index and are credited against the royalties otherwise due. The license agreement was subject
to four regulatory and commercialization milestones, of which one remains unachieved and unpaid. The remaining milestone is the FDA PMA
submission of a licensed product, upon the achievement of which we will pay CWRU a milestone payment of $200,000. The license agreement
terminates upon the expiration of the last-to-expire licensed patent, or on May 12, 2038, in countries where no such patents exist, or
upon expiration of any exclusive marketing rights for a licensed product that have been granted by FDA or other U.S. government agency,
whichever comes later. The EsoCheck patents, which are currently the last to expire, begin to expire in May 2035.
Regulatory
In
June 2019, we received FDA 510(k) clearance to market EsoCheck in the U.S. as a device indicated for use in the collection and retrieval
of surface cells of the esophagus in adults followed by FDA 510(k) clearance in 2022, expanding the use of EsoCheck in adults and pediatric
populations in the U.S. In December 2019, our CLIA-certified then-laboratory partner, completed documentation of EsoGuard analytical
validity allowing us to commercialize it as a Laboratory Developed Test (LDT).
In
February 2020, we received FDA “Breakthrough Device Designation” for EsoGuard as an in-vitro diagnostic (“IVD”)
medical device. The FDA Breakthrough Device Program was created to offer patients more timely access to breakthrough technologies which
provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human disease or conditions by expediting
their development, assessment and review through enhanced communications and more efficient and flexible clinical study design, including
more favorable pre/post market data collection balance. The Centers for Medicare and Medicaid Services and the United States Congress
continue to work to provide an expedited coverage pathway for emerging technologies.
In
May 2021, we received CE Mark certification for EsoCheck (under the Medical Devices Directive 93/42/EEC), and in June 2021, we completed
CE Mark self-certification for EsoGuard (under the European In-Vitro Diagnostic Devices Directive (IVDD 98/79/EC)), indicating both may
be marketed in CE Mark European countries.
Our
longer-term strategy is to secure a specific indication, based on published guidelines, for BE screening in certain at-risk populations
using EsoGuard on samples collected with EsoCheck. This use of EsoGuard together with EsoCheck as a screening system must be cleared
or approved by the FDA as an IVD device.
Laboratory
Operations
On
February 25, 2022, our new, wholly owned subsidiary, LucidDx Labs Inc. (“LucidDx Labs”), acquired from RDx, certain licenses
and other related assets necessary for LucidDx Labs to operate its own new CLIA-certified, CAP-accredited clinical laboratory located
in Lake Forest, CA. Since March 2022, we have conducted EsoGuard testing at our own laboratory with, until recently, the assistance of
RDx, which had continued to provide certain testing and related services for the laboratory in accordance with the terms of a management
services agreement (“MSA-RDx”), dated and effective February 25, 2022. Recently, however, the Company accelerated the development
of internal resources necessary to operate the laboratory entirely on its own. Accordingly, our subsidiary LucidDx Labs and RDx agreed
terminate the MSA-RDx effective as of February 10, 2023, such that LucidDx Labs now operates the laboratory itself, which the Company
believes will improve the efficiency of the performance of the EsoGuard assay.
Competition
The
U.S. market for esophageal cancer (i.e., EAC) and pre-cancer (i.e., BE, with or without dysplasia) screening is large, consisting of
more than 30 million at-risk individuals over the age of 50. Given the large market for pre-cancer screening, we likely will face numerous
competitors, some of which possess significantly greater financial and other resources and development capabilities than us. Our EsoGuard
test faces competition from procedure-based detection technologies such as upper endoscopy, and other screening technologies such as
multi-cancer early detection products. Our EsoCheck device faces competition from other manufactures with devices designed to collect
cell samples from targeted regions of the esophagus. For example, Cytosponge is a small mesh sponge within a soluble gelatin capsule
that dissolves in the stomach and then is pulled thru the targeted region brushing the lining of the esophagus and then later retrieved,
although, unlike EsoCheck, it is unprotected from contamination. Our competitors may also be developing additional methods of detecting
esophageal cancer and pre-cancer that have not yet been announced.
Accordingly,
the market for our products is highly competitive and is characterized by extensive research and clinical efforts and rapid technological
change. In order to compete effectively, EsoGuard and EsoCheck will have to achieve market acceptance, receive adequate insurance coverage
and reimbursement, be cost effective and be simultaneously safe and effective. We believe that the principal competitive factors in our
markets are:
● diagnostic accuracy and the quality of outcomes for medical conditions;
● acceptance by physicians and the medical device market generally;
● ease of use and reliability;
● technical leadership and superiority;
● effective marketing and distribution;
● speed to market; and
● product price and qualification for coverage and reimbursement.
Most
of our existing and potential competitors have substantially greater financial, marketing, sales, distribution, manufacturing and technological
resources. We may be unable to compete effectively against our competitors either because their products and services are superior or
more cost efficient, or because of they have access to greater resources than us. These competitors may have greater name recognition
than we do. Many of these competitors have obtained all desirable FDA or other regulatory approvals, and superior patent protection,
for their products. Certain of our competitors have already commercialized their products, and others may commercialize their products
in advance of our products. In addition, our competitors may make technical advances that render our products obsolete. We may be unable
to respond to such technical advances.
We
will also compete in the marketplace to recruit and retain qualified scientific, management and sales personnel, as well as in acquiring
technologies and licenses complementary to our products or advantageous to our business. We are aware of several companies that compete
or are developing technologies in our current and future products areas. In order to compete effectively, our products will have to achieve
market acceptance, receive adequate insurance coverage and reimbursement, be cost effective and be simultaneously safe and effective.
Esocure
In
connection with our efforts to expand our presence in the EAC diagnostic market, we are also developing the EsoCure Esophageal Ablation
Device, with the intent to allow a clinician to treat dysplastic BE before it can progress to EAC, a highly lethal esophageal cancer,
and to do so without the need for complex and expensive capital equipment. We have successfully completed a pre-clinical feasibility
animal study of EsoCure demonstrating excellent, controlled circumferential ablation of the esophageal mucosal lining. An acute and survival
animal study of EsoCure Esophageal Ablation Device has also been completed, demonstrating successful direct thermal balloon catheter
ablation of esophageal lining through the working channel of a standard endoscope. When resources permit, we plan to conduct additional
development work and animal testing of EsoCure to support a future FDA 510(k) submission.
In
March 2022, both the PAVmed and Lucid board of directors approved entering into an intercompany license between PAVmed and Lucid such
that Lucid will be granted the rights to commercialize EsoCure for the treating dysplastic Barrett’s Esophagus. Under the intercompany
license, Lucid will pay PAVmed a 5% royalty on all EsoCure sales up to $100 million per calendar year, and 8% above that threshold.
Our
Relationship with PAVmed Inc.
We
are a majority-owned subsidiary of PAVmed, and PAVmed has a controlling financial interest. We continue to depend on PAVmed to provide
us various management, technical, research and development, legal, accounting, and administrative services.
PAVmed
owns approximately 73% as of December 31, 2022 and 72% as of March 9, 2023 of the combined voting power of our outstanding
common stock (with such percentage inclusive of shares of our common stock underlying granted but unvested restricted stock awards).
For as long as PAVmed continues to control more than 50% of our common stock, PAVmed will be able to direct the election of all the members
of our board of directors. Similarly, PAVmed will have the power to determine matters submitted to a vote of our stockholders without
the consent of our other stockholders, to prevent a change in control of us, and to take other actions that might be favorable to PAVmed,
without prior notice to other stockholders. PAVmed’s controlling interest may discourage a change of control that other holders
of our common stock may favor.
We
are party to a management services agreement with PAVmed (the “MSA”), as well as a payroll benefits and expense reimbursement
agreement (the “PBERA”). Under the MSA, PAVmed provides management, technical and administrative services to us, including
without limitation services related to research and development, regulatory clearance, manufacture, and commercialization of our products,
as well as services related to corporate financial, accounting and legal matters. The terms of this agreement are intended to be consistent
with the terms that we could have negotiated with unaffiliated third parties; however, they may actually be more or less favorable. Under
the PBERA, as more fully described below, PAVmed has agreed to pay certain payroll and benefit-related expenses in respect of our personnel
on our behalf, and we reimburse PAVmed for the same. PAVmed may elect that our obligations under each of the MSA and the PBERA are settled
by the issuance of our stock (instead of cash), subject to applicable restrictions under securities laws (and, in the case of the PBERA,
subject also to approval by our board). The MSA does not have a termination date, but may be terminated by the our board of directors
at any time. The PBERA likewise does not have a termination date, but may be terminated by PAVmed or Lucid at any time.
Recent
Events
Business
Status of Clinical Trials
We are currently seeking to accelerate
our collection of clinical utility data through a range of trials that can be efficiently executed. These efforts include a planned investigator-initiated,
retrospective analysis of prospectively collected data on the approximately 400 San Antonio fire fighters who underwent testing as part
of a community-sponsored cancer awareness event (in respect of which we expect to publish results
in the first half of 2023); an ongoing investigator-initiated, retrospective, single-center, study with 500 patients (in respect
of which we expect to publish results mid-2023), a virtual-patient randomized controlled trial with intended recruitment of 100-200 physician
participants (in respect of which we expect to publish results this year); a Lucid-sponsored
multi-center, prospective, observational study with 500 patients; and a Lucid-sponsored registry at existing Lucid Test Centers, whereby
all patients undergoing EsoCheck testing will be given the opportunity to provide informed consent and contribute data about their risk
factors, EsoGuard results, and subsequent diagnostic and/or therapeutic journey. Both Lucid-sponsored observational/registry studies expect
to have preliminary results and/or interim analysis before the end of 2023.
As previously disclosed, consequently, we have decided to delay for the time being the two previously commenced clinical
trials, the “EsoGuard screening study” (“BE-1”) and the “EsoGuard case-control study” (“BE-2”),
as we are devoting our clinical resources to the studies cited above, which we expect will more efficiently generate the clinical data
we are currently prioritzing to drive EsoGuard commercialization.
LucidDx
Labs Laboratory Operations Update
On
February 14, 2023, we and our subsidiary, LucidDx Labs Inc., entered into an agreement (the “MSA Termination Agreement”)
with RDx, pursuant to which the parties mutually agreed to terminate the MSA-RDx without cause. The termination was effective as February
10, 2023. Until the termination of the MSA-RDx, RDx had continued to provide certain testing and related services for the Laboratory
in accordance with the terms of the MSA-RDx. Recently, however, we accelerated the development of internal resources necessary to operate
the Laboratory entirely on its own. Accordingly, we believe that termination of the MSA-RDx will improve the efficiency of the performance
of the EsoGuard assay.
Among
other things, the MSA Termination Agreement reduces the remaining amounts of the earnout payments and management fees due under the APA-RDx
and the MSA-RDx to $725,000 (from the $3,450,000 that would otherwise have been payable under the APA and MSA if the MSA had remained
in effect through the balance of its stated term), resulting in a net savings to us of $2,725,000. The payment was satisfied through
the issuance of 553,436 shares of Lucid Diagnostics’ common stock on February 25, 2023. We were not required to make any cash payments
in connection with the termination.
#CheckYourFoodTube
Precancer Testing Events
In
January 2023, we successfully completed our first #CheckYourFoodTube Precancer Testing Event, in partnership with Rachelle Hamblin, M.D.,
M.P.H., and the San Antonio Fire Department (SAFD), to detect esophageal precancer in at-risk members of the department. The SAFD testing
event was held over two weekends in January, which has been designated as Firefighter Cancer Awareness Month by the International Association
of Fire Fighters (IAFF). A total of 391 members, nearly one-quarter of the department, who were deemed by Dr. Hamblin to be at-risk for
esophageal precancer, underwent a brief, on-site, noninvasive cell collection procedure, performed by our clinical personnel using EsoCheck.
Firefighters with suspected esophageal precancer based on a positive EsoGuard result were identified, including some less than forty
years of age, and will undergo appropriate monitoring and treatment, as indicated by clinical practice guidelines, to prevent progression
to esophageal cancer. These events, which we look to expand across the country, are an extension of our expanding satellite Lucid Test
Center (sLTC) program, which brings our precancer testing directly to patients—at their physician’s office and now at large
testing day events. We demonstrated that our nurse practitioners can each perform up to fifty EsoCheck procedures in a day, and our laboratory
team handled over two hundred incoming samples in a day, while maintaining turnaround times at target. These successes provide an excellent
foundation for future testing events as we continue to drive EsoGuard commercialization using all the tools at our disposal.
Payroll
and Benefit Expense Reimbursement Agreement
On
November 30, 2022, PAVmed and we entered into a payroll and benefit expense reimbursement agreement (the “PBERA”). Historically,
PAVmed has paid for certain payroll and benefit-related expenses in respect of our personnel on our behalf, and we have reimbursed PAVmed
for the same. Pursuant to the PBERA, PAVmed will continue to pay such expenses, and we will continue to reimburse PAVmed for the same.
The PBERA now provides that the expenses will be reimbursed on a quarterly basis or at such other frequency as the parties may determine,
in cash or, subject to approval by PAVmed’s and our boards of directors, in shares of our common stock, with such shares valued
at the volume weighted average price of such stock during the final ten trading days preceding the later of the two dates on which such
stock issuance is approved by PAVmed’s and our boards of directors (subject to a floor price of $0.40 per share), or in a combination
of cash and shares. However, in no event shall we issue any shares of our common stock to PAVmed in satisfaction of all or any portion
of the expenses if the issuance of such shares of our common stock would exceed the maximum number of shares of common stock that we
may issue under the rules or regulations of The Nasdaq Stock Market LLC (“Nasdaq”), unless we obtain the approval of our
stockholders as required by the applicable rules of the Nasdaq for issuances of shares of our common stock in excess of such amount.
Financing
Committed Equity Facility and ATM Facility
In March 2022, we entered into a
committed equity facility with an affiliate of Cantor Fitzgerald (“Cantor”). Under the terms of the facility, Cantor committed
to purchase up to $50 million of our common stock from time to time upon our request. While there are distinct differences, the facility
is structured similarly to a traditional at-the-market equity facility, insofar as it allows us to raise primary capital on a periodic
basis at prices based on the existing market price. Through December 31, 2022, 680,263 shares of our common stock were issued under this
facility for total proceeds of approximately $1.8 million.
In November 2022, we also entered into an “at-the-market offering”
for up to $6.5 million of our common stock that may be offered and sold under a Controlled Equity Offering Agreement between us and Cantor
Fitzgerald & Co. In the year ended December 31, 2022, there were no shares sold through the at-the-market equity facility. Subsequent
to December 31, 2022, through March 9, 2023, we sold 230,068 shares through its at-the-market equity facility for approximately $0.3
million.
Series A Preferred Stock Offering
On
March 7, 2023, we entered into subscription agreements for the sale of 13,625 shares of Series A preferred stock (the
“Series A Preferred Stock”). Each share of the Series A Preferred Stock has a stated value of $1,000 and a
conversion price of $1.394. The terms of the Series A Preferred Stock also include a one times preference on liquidation and a right
to receive dividends equal to 20% of the number of shares into which such Series A Preferred Stock is convertible, payable on the
one-year and two-year anniversary of the issuance date. The Series A Preferred Stock is a non-voting security, other than with
respect to limited matters related to changes in terms of the Series A Preferred Stock. The aggregate gross proceeds from the sale
of shares in such offering were $13.625 million.
Senior Secured Convertible Note
Effective as of March 13, 2023, we entered into a Securities Purchase
Agreement (“SPA”) with an accredited institutional investor (“Investor”, “Lender”, and /or “Holder”),
pursuant to which we agreed to sell, and the Investor agreed to purchase a Senior Secured Convertible Note with a face value principal
of $11.1 million (the “March 2023 Senior Convertible Note”). The issuance of the March 2023 Senior Convertible Note is
subject to customary closing conditions.
The March 2023 Senior Secured Convertible Note
would have a 7.875% annual stated interest rate, a contractual conversion price of $5.00 per share of the Company’s common stock
(subject to standard adjustments in the event of any stock split, stock dividend, stock combination, recapitalization or other similar
transaction), and a contractual maturity date of the two-year anniversary of the date of issuance. The March 2023 Senior Convertible
Note would be convertible into or otherwise paid in shares of the Company’s common stock.
Under the March 2023 Senior
Convertible Note, the Company would be subject to certain customary affirmative and negative covenants regarding the
incurrence of indebtedness, the existence of liens, the repayment of indebtedness and the making of investments, the payment of cash
in respect of dividends, distributions or redemptions, the transfer of assets, the maturity of other indebtedness, and transactions with
affiliates, among other customary matters. Under the March 2023 Senior Convertible Note, the Company would also be subject to financial covenants requiring that (i) the amount
of our available cash equal or exceed $5.0 million at all times, (ii) the ratio of (a) the outstanding principal amount of the notes
issued under the SPA, accrued and unpaid interest thereon and accrued and unpaid late charges to (b) the Company’s average market
capitalization over the prior ten trading days, not exceed 30%, and (iii) that the Company’s market capitalization shall at no
time be less than an amount to be agreed upon.
Intellectual
Property
Our
business will depend on proprietary medical device and diagnostic technologies, including the EsoCheck and EsoGuard technology
licensed by us. We intend to vigorously protect our proprietary technologies’ intellectual property rights in patents,
trademarks and copyrights, as available through registration in the United States and internationally. Patent protection and other
proprietary rights are thus essential to our Diagnostics business. We currently have applied for, license or own 19 domestic and
foreign patents covering the EsoGuard and EsoCheck products and related technology. The
date the patents protecting certain of our owned and licensed technology will first begin to expire is as set forth in the table
below (although currently pending patent applications, both foreign and domestic, are positioned to provide protection beyond such
date in each instance).
Technology Year
The EsoCheck and EsoGuard technology is protected by patents in the United States and
internationally, and our policy is to continue to aggressively file patent applications, both independently and in collaboration
with CWRU, as appropriate, to protect this technology and other of our proprietary technologies relating to our Diagnostics
business, including inventions and improvements to inventions. Under the CWRU License Agreement, CWRU has agreed to apply for patent
coverage, at our expense, in any country requested by us, to the extent such protection is reasonably attainable. We seek patent
protection, as appropriate, on:
● the product itself including all embodiments with future commercial potential;
● the methods of using the product; and
● the methods of manufacturing the product.
In
addition to filing and prosecuting patent applications in the United States, we intend to file counterpart patent applications in other
countries worldwide where there is a value in doing so. Foreign filings can be cumbersome and expensive, and we will pursue such filings
when we believe they are warranted as we try to balance our international commercialization plans with our desire to protect the global
value of the technology.
The
term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries
in which we file, the patent term is 20 years from the earliest date of filing a non-provisional patent application. In the United States,
a patent’s term may be shortened if a patent is terminally disclaimed over another patent or as a result of delays in patent prosecution
by the patentee, and a patent’s term may be lengthened by patent term adjustment, which compensates a patentee for administrative
delays by the USPTO in granting a patent, or patent term extension, which restores time lost due to regulatory delays.
We
intend to continuously reassess and fine-tune our intellectual property strategy in order to fortify the position of our business in
the United States and internationally. Prior to acquiring or licensing a technology from a third party, we will evaluate the existing
proprietary rights, our ability to adequately obtain and protect these rights and the likelihood or possibility of infringement upon
competing rights of others.
We also rely upon trade secrets,
know-how, continuing technological innovation, and may rely upon licensing opportunities, to develop and maintain our competitive position.
We intend to protect our proprietary rights through a variety of methods, including confidentiality agreements and/or proprietary information
agreements with suppliers, employees, consultants, independent contractors and other entities who may have access to proprietary information.
We will generally require employees to assign patents and other intellectual property to us as a condition of employment with us. All
of our consulting agreements will pre-emptively assign to us all new and improved intellectual property that arise during the term of
the agreement.
Lucid
also has (directly or through its subsidiaries) proprietary rights to a range of trademarks, including, among others, Lucid DiagnosticsTM,
LUCIDTM, EsoCheck®, EsoGuard®, Collect + Protect®, and EsoCheck Cell Collection Device®. (Solely as a matter of
convenience, trademarks and trade names referred to herein may or may not be accompanied with the requisite marks of “TM”
or “®”. However, the absence of such marks is not intended to indicate, in any way, Lucid or its subsidiaries will not
assert, to the fullest extent possible under applicable law, their respective rights to such trademarks and trade names.)
Health
Insurance Coverage and Reimbursement
Our
ability to successfully commercialize our products will depend in part on the extent to which governmental authorities, private health
insurers and other third-party payors provide coverage for and establish adequate reimbursement levels for the procedures during which
our products are used.
In