PAVM US Equity☆

10-K

1

form10-k.htm

UNITED

STATES

SECURITIES

AND EXCHANGE COMMISSION

Washington,

DC 20549

FORM

10-K

(Mark

One)

For

the fiscal year ended December 31, 2020

OR

For

the transition period from _____ to _____

Commission

File Number: 001-37685

PAVMED

INC.

(Exact

Name of Registrant as Specified in Its Charter)

(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 PAVM 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 [X]

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 [X]

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 the registrant was required to file such reports), and

(2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate

by check mark whether the registrant has submitted electronically every 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 the registrant

was required to submit such files). Yes [X] 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 filer [ ]

Non-accelerated filer [X] Smaller reporting company [X]

Emerging growth company [X]

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. [ ]

Indicate

by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As

of June 30, 2020, 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 $82.3 million, based on 39,007,461

shares of common stock held by non-affiliates and a last reported sales price per share of the registrant’s common stock

of $2.11 on such date.

As

of March 12, 2021 there were 82,460,720 shares of the registrant’s Common Stock, par value $0.001 per share,

issued and outstanding.

DOCUMENTS

INCORPORATED BY REFERENCE

Portions

of the registrant’s definitive proxy statement for its 2021 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, 2020.

TABLE

OF CONTENTS

PART I

Item 1. Business 1

Item 1A. Risk Factors 46

Item 1B. Unresolved Staff Comments 77

Item 2. Property 77

Item 3. Legal Proceedings 77

Item 4. Mine Safety Disclosures 77

PART II

Item 6. Selected Financial Data 79

Item 7A. Quantitative and Qualitative Disclosure About Market Risk 96

Item 8. Financial Statements and Supplementary Data 96

Item 9A. Controls and Procedures 97

Item 9B. Other Information 98

PART III

Item 10. Directors, Executive Officers, and Corporate Governance 99

Item 11. Executive Compensation 99

Item 14. Principal Accountant Fees and Services 99

PART IV

Item 15. Exhibits and Financial Statement Schedules 100

i

FORWARD-LOOKING

STATEMENTS

This

Annual Report on Form 10-K of PAVmed Inc. (“we”, “us”, “our” or “PAVmed” or the

“Company”) contains forward-looking statements that involve substantial risks and uncertainties. All statements, other

than statements of historical facts, contained in this Annual Report on Form 10-K (this “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;

● our 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;

● regulatory and operational risks;

● cybersecurity risks;

● risks related to SARS-CoV-2 /COVID-19 pandemic;

● the impact of the material weakness identified by our management;

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

PAVmed

is a highly differentiated, multi-product, commercial-stage technology medical device company organized to advance a broad pipeline

of innovative medical technologies from concept to commercialization, employing a business model focused on capital efficiency

and speed to market. Since inception on June 26, 2014, the Company’s activities have focused on advancing its lead products

towards regulatory approval and commercialization, protecting its intellectual property, and building its corporate infrastructure

and management team. The Company operates in one segment as a medical device company with four operating divisions which include

GI Health, Minimally Invasive Interventions, Infusion Therapy, and Emerging Innovations. As resources permit, we will continue

to explore internal and external innovations that fulfill our project selection criteria without limiting ourselves to any target

specialty or condition. The Company has ongoing operations conducted in two active majority owned subsidiaries: Lucid Diagnostics,

Inc. (“Lucid Diagnostics” or “LUCID”) incorporated in May 2018 and Solys Diagnostics, Inc. (“Solys

Diagnostics” or “SOLYS”) incorporated in October 2019.

PAVmed

and its subsidiaries have proprietary rights to the trademarks used herein, including, among others, PAVmedTM, Lucid DiagnosticsTM,

CaldusTM, CarpX®, DisappEARTM, EsoCheck®, EsoGuard®, EsoCheck Cell Collection

Device®, EsoCure Esophageal Ablation DeviceTM, NextCathTM, NextFloTM, PortIOTM, and “Innovating

at the Speed of Life”TM. 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, PAVmed or its subsidiaries will not assert, to the fullest extent possible under applicable

law, their respective rights to such trademarks and trade names.

Our

multiple products are in various phases of development, regulatory clearances, approvals, and commercialization.

Item

1. Business - continued

Background

and Overview - continued

As

discussed herein below, our current lines-of-business are as follows:

GI

Health

EsoGuard,

EsoCheck, and EsoCure

EsoGuard

and EsoCheck are based on patented technology licensed from Case Western Reserve University (“CWRU”) through our majority-owned

subsidiary Lucid Diagnostics Inc. 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 dysplasia and related pre-cursors to EAC in patients with chronic gastroesophageal reflux (“GERD”). EsoCure

is based on our patented Caldus Technology. EsoCure is being developed by us to treat BE.

EsoGuard

is a molecular diagnostic esophageal DNA test shown in a published human study to be highly accurate at detecting BE, as well

as EAC. EsoCheck is a non-invasive cell collection device designed to sample cells from a targeted region of the esophagus in

a five-minute office-based procedure, without the need for endoscopy. Both EsoGuard and EsoCheck are commercially available, as

separately marketed products, for physicians to prescribe for U.S. patients.

EsoCure

is in development as an “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. We plan to conduct additional development work and animal testing of EsoCure to support

a planned FDA 510(k) submission later in 2021.

We

are currently marketing the EsoGuard LDT through a network of independent representatives working with our in-house sales management.

The U.S. Center for Medicare and Medicaid Services (“CMS”), finalized the Clinical Laboratory Fee Schedule determination

for the EsoGuard Esophageal DNA Test (CPT code 0114U) in the amount of $1,938.10, with such reimbursement expected to be applicable

from January 1, 2021 to December 31, 2023. In addition, we have entered into a manufacturing agreement with medical device contract

manufacturer Coastline International Inc. to serve as a high-volume, lower-cost manufacturer of the EsoCheck device.

Item

1. Business - continued

Background

and Overview - continued

GI

Health - continued

EsoGuard,

EsoCheck, and EsoCure - continued

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 in vitro diagnostic, or “IVD”, device. The IVD trial consists of a screening study (ESOGUARD-BE-1)

and a case control study (ESOGUARD-BE-2).In September 2019, we entered into an agreement with a clinical research organization

to assist us with two ongoing clinical trials for EsoGuard as an IVD device. The IVD trial consists of a screening study (ESOGUARD-BE-1)

and a case control study (ESOGUARD-BE-2). The IVD trial is now actively enrolling patients after months of delay related to the

pandemic resulting from the outbreak of a novel strain of a coronavirus designated as the “Severe Acute Respiratory Syndrome

Coronavirus 2” - or “SARS-CoV-2”. The pandemic resulting from SARS-CoV-2 is commonly referred to by its resulting

illness of “coronavirus disease-2019” (“COVID-19”) - - and as such, is referred to herein as the COVID-19

pandemic.

In

February 2020 we received Breakthrough Device designation for EsoGuard as an IVD 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.

We

have received ISO 13485:2016 certification for Lucid Diagnostics quality management system and filed a European Union CE Mark

regulatory submission for EsoCheck in November 2020, having confirmed that EsoGuard falls under the self-declaration category

of the European Union regulatory requirements.

Minimally

Invasive Interventions

CarpX

CarpX,

a minimally invasive surgical device for use in the treatment of carpal tunnel syndrome, received FDA 510(k) marketing clearance

in April 2020. After months of restricted access to physicians’ offices and clinics principally due to the “COVID-19

pandemic, the first commercial procedure was successfully performed in December 2020. We have received ISO 13485:2016 certification

for our quality management system and filed European Union (“EU”) “CE Mark” regulatory submission for

CarpX in December 2020.

We

believe CarpX is designed to allow the physician to relieve the compression on the median nerve without an open incision or the

need for endoscopic or other imaging equipment. To use CarpX, the operator first advances a guidewire through the carpal tunnel

under the ligament, and then advanced over the wire and positioned in the carpal tunnel under ultrasonic and/or fluoroscopic guidance.

When the CarpX balloon is inflated it creates tension in the ligament positioning the cutting electrodes underneath it and creates

space within the tunnel, providing anatomic separation between the target ligament and critical structures such as the median

nerve. Radiofrequency energy is briefly delivered to the electrodes, rapidly cutting the ligament, and relieving the pressure

on the nerve. We believe CarpX will be significantly less invasive than existing treatments.

We

are commercializing CarpX in the United States of America (“USA”, “U.S.”, or “United States”)

through a network of independent sales representatives and/or inventory-stocking medical distributors together with our in-house

sales management and marketing teams.

We

may eventually choose to build (or obtain through a strategic acquisition) our own sales and marketing team to commercialize CarpX,

along with some or all of our products, if it is in our long-term interests. We may also choose to enter into distribution agreements

with larger strategic partners whereby we take full responsibility for the manufacturing of CarpX but outsource some or all of

its distribution to a partner, particularly outside the United States, with its own robust distribution channels.

Item

1. Business - continued

Background

and Overview - continued

Infusion

Therapy

PortIO

PortIO

is a novel, patented, implantable, intraosseous vascular access device which does not require accessing the central venous system

and does not have an indwelling intravascular component. It is designed to be highly resistant to occlusion and may not require

regular flushing. It features simplified, near-percutaneous insertion and removal, without the need for surgical dissection or

radiographic confirmation. It provides a near limitless number of potential access sites and can be used in patients with chronic

total occlusion of their central veins. The absence of an intravascular component will likely result in a very low infection rate.

Based

on encouraging animal data, and after months of delay caused by the COVID-19 pandemic, we plan to initiate a long-term (60-day

implant duration) first-in-human clinical study in dialysis patients or those with poor venous access in Colombia, South America

and intend to fulfill the likely FDA request for human clinical data with a clinical safety study in the U.S. following FDA clearance

of our Investigational Device Exemption (“IDE”), submission to begin clinical testing in dialysis patients to support

a future de novo regulatory submission.

NextFlo

NextFlo

is a patented, disposable, and highly accurate infusion platform technology including intravenous “(“IV),” infusion

sets and disposable infusion pumps designed to eliminate the need for complex and expensive electronic infusion pumps for most

of the estimated one million infusions of fluids, medications and other substances delivered each day in hospitals and outpatient

settings in the U.S. NextFlo is designed to deliver highly accurate gravity-driven infusions independent of the height of the

IV bag. It maintains constant flow by incorporating a proprietary, passive, pressure-dependent variable flow-resistor consisting

entirely of inexpensive, easy-to-manufacture disposable mechanical parts. NextFlo testing has demonstrated constant flow rates

across a wide range of IV bag heights, with accuracy rates comparable to electronic infusion pumps.

We

are seeking a long-term strategic partnership or acquiror. As part of a formal M&A process for NextFlo we have been working

with strategic partners to complete certain testing requirements and modifications suitable for the at-home infusion market. The

process is currently active with ongoing discussion occurring with multiple parties while we are simultaneously progressing toward

an initial FDA 510(k) submission for the NextFlo IV Infusion System planned for later in 2021.

Emerging

Innovations

Emerging

Innovations include a diversified and expanding portfolio of innovative products designed to address unmet clinical needs across

a broad range of clinical conditions. We are evaluating a number of these product opportunities and intellectual property covering

a wide spectrum of clinical conditions, which have either been developed internally or have been presented to us by clinician

innovators and academic medical institutions for consideration of a partnership to develop and commercialize these products. This

collection of products includes, without limitation, initiatives in non-invasive laser-based glucose monitoring, mechanical circulatory

support cannulas, single-use ventilators and resorbable pediatric ear tubes. In June 2020, we announced the execution of a letter

of intent to consummate a series of agreements to develop and utilize Canon Virginia’s commercial grade and scalable aqueous

silk fibroin molding process to manufacture PAVmed’s DisappEAR molded pediatric ear tubes for commercialization. Furthermore,

we are exploring other opportunities to grow our business and enhance shareholder value through the acquisition of pre-commercial

or commercial stage products and/or companies with potential strategic corporate and commercial synergies.

Item

1. Business - continued

Background

and Overview - continued

GI

Health - Gastroenterology – Opportunity, Solution, and Strategy

We

believe the development and commercial availability of our EsoGuard diagnostic test is revolutionary, particularly when performed

on samples collected by EsoCheck. Our molecular DNA assay has the potential to save many lives through early BE detection. We

were affirmed in this belief in February 2020 when we received Breakthrough Device designation from the FDA for our EsoGuard Esophageal

DNA Test on esophageal samples collected using its EsoCheck Cell Collection Device in a prevalent well-defined group of patients

at elevated risk for esophageal dysplasia due to chronic GERD. 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. Breakthrough Devices receive priority FDA review, and a bipartisan bill before Congress (H.R. 5333) seeks to require

Medicare to temporarily cover all Breakthrough Devices for three years while determining permanent coverage. Additionally, the

National Cancer Institute (“NCI”) highlighted EsoGuard and EsoCheck as one of a handful of the year’s significant

advances in cancer prevention in the NCI’s 2020 Annual Plan and Budget Proposal submitted to Congress.

Furthermore,

we believe EsoGuard and EsoCheck (and later EsoCure, pending FDA 510(k) clearance) will revolutionize the frequency and manner

that GI physicians interact with patients suffering from chronic acid reflux and other diseases of the esophagus for the following

reasons:

Item

1. Business - continued

Background

and Overview - continued

GI

Health — Gastroenterology – Opportunity, Solution, and Strategy - continued

Our

EsoGuard Opportunity

The

incidence of EAC, the most common cancer of the esophagus, has quadrupled over the past 30 years. Its prognosis remains dismal,

with fewer than 20% of patients surviving at five years. We are pursuing the development of the EsoGuard technology to provide

the more than 30 million diagnosed GERD patients a non-invasive, less costly test by which to detect BE so that patients identified

with the condition may receive surveillance and medical therapies well known to be highly effective at preventing progression

to esophageal cancer.

The

primary risk factor for, and a presumed cause of BE is GERD, commonly known as chronic heartburn or acid reflux, wherein stomach

acid refluxes into the esophagus. GERD affects 20-40% of Western adult populations, according to published epidemiological data.

The repeated exposure to stomach acid can lead to specific metaplastic and dysplastic, i.e. pre-cancerous changes in the

esophageal lining, a condition known as Barrett’s Esophagus (which we refer to as BE).

BE

is most diagnosed in the U.S. by the presence of so-called “salmon colored” mucosa visualized during upper endoscopy

together with columnar epithelium (so-called intestinal metaplasia) seen on in biopsies taken from such an affected area. In BE,

columnar epithelium replaces the stratified squamous epithelium which normally lines the distal esophagus (at the nexus of the

stomach). This metaplastic epithelium is the initial manifestation of a progressive disease process, which, if unabated, continues

through a dysplastic phase and ultimately into EAC. Due to the known risk for progression of BE toward EAC, current guidelines

advise patients with nondysplastic BE to be enrolled in endoscopic surveillance programs in order to detect progression. Endoscopic

surveillance includes extensive biopsy sampling, taken per the Seattle biopsy protocol. For nondysplastic BE, the American College

of Gastroenterology recommends surveillance endoscopy at 3-5 year intervals. For patients with confirmed low grade dysplasia (“LGD”)

and without life-limiting comorbidity, endoscopic therapy is considered as the preferred treatment modality, although endoscopic

surveillance every 12 months is an acceptable alternative. Patients with high grade dysplasia (“HGD”) are to be managed

with endoscopic therapy.

The

only currently-validated approach to assess a patient for BE and EAC, and the current “gold standard”, is white light

esophagogastroduodenoscopy (“EGD,” also commonly known as “upper endoscopy”), together with collection

of multiple biopsy specimens from the potentially affected area in the distal esophagus. The procedure is invasive and expensive.

In the U.S., EGD is almost always done under intravenous sedation in a specialized facility. It requires a patient to be fasting

for several hours beforehand, to take a day off from work, and to be accompanied by a caregiver who also must miss work as a result.

Multiple biopsies must be taken, and each must be read by a highly trained and specialized medical pathologist. Interpretation

of these biopsies is highly subjective; for BE with LGD, pathological interpretation comes with an unacceptably low concordance

rate between pathologists. The EGD procedure itself, the administration of anesthesia, and the procurement of biopsies, all carry

medical risk. No screening alternative exists currently, and no device currently carries an FDA label indication to screen for

any of these conditions. It is our belief that EsoGuard may become the widespread screening test to fulfill this unmet patient

need similar to how pap smears and HPV testing have now become the widespread screening test to help eradicate cervical cancer.

However,

despite the well-accepted understanding that BE may progress to dysplasia and EAC, the clear guidance on the importance of BE

surveillance and treatment, and the broad availability of EGD throughout the U.S., most cases of BE remain undiagnosed. Multiple

studies demonstrate that more than 90% of patients who develop EAC never knew they had BE prior to their EAC diagnosis. A major

opportunity for prevention of this cancer is being missed due to inadequate screening of at-risk populations. The major GI societies

clearly define populations at high risk and advocate screening of such individuals, yet the vast majority go unscreened. It is

estimated that more than 90% of the estimated 13 million high risk individuals in the U.S. for whom screening is currently indicated

do not have it done. Put simply, nearly all EAC patients have evidence of BE but fewer than one in ten will have had the condition

detected prior to their cancer diagnosis.

Item

1. Business - continued

Background

and Overview - continued

GI

Health - Gastroenterology – Opportunity, Solution, and Strategy - continued

Dysplasia

can be treated with ablation, but most patients are diagnosed with EAC at an advanced stage. EsoCheck and EsoGuard are designed

to enhance screening and help clinicians catch BE and dysplasia while it’s still early enough to be treated and eliminated.

Enhancing screening, in this case, means providing better sampling of the esophagus as well as a highly accurate test to determine

whether precursor conditions have occurred.

Nearly

all patients diagnosed with EAC have evidence of BE, and it is accepted that BE is a precursor condition on a spectrum of progression

that in certain individuals will culminate in EAC, but in the vast majority of those with EAC, no prior diagnosis of BE will have

been made. If detected before the EAC esophagus cancer develops, Barrett’s Esophagus can be successfully treated, usually

with non-surgical approaches. Heartburn symptoms, commonly seen in patients with acid reflux with or without BE, can easily be

treated with over-the counter medications, while a diagnosis of BE with LGD or HGD offers options for endoscopic management including

radiofrequency ablation and local resection; these technologies have made LGD and HGD highly treatable with success rates of such

therapies at greater than 90%.

Our

EsoGuard and EsoCheck Solution

EsoCheck

collects cells from the esophagus without the need for endoscopy in a non-invasive five-minute office-based procedure. Its proprietary

and patent-protected “Collect+Protect Technology” protects collected samples from being diluted or contaminated during

retrieval within an easy to swallow capsule the size of a gel cap. The capsule contains a proprietary textured balloon that when

inflated inside the esophagus exposes ridges that have been shown to collect a greater amount of cellular material than predicate

devices based on Good Laboratory Practices (“GLP”) testing results included in our FDA 510(k) submission.

Once

the targeted region of the esophagus is swabbed collecting cells on the balloon’s surface, the Collect+Protect Technology

pulls the collected cells into the capsule where they are then protected during the retrieval process. Avoiding sample dilution

is a key feature of the device since capturing unnecessary cells decreases the ability to detect the needed signal. The sampled

cells can then be sent onto a molecular laboratory to perform any commercially available diagnostic test.

The

use of EsoGuard, on samples collected using EsoCheck, may offer an accurate, lower cost, non-invasive approach, that does not

require endoscopy, to screen for BE and EAC. The use of EsoGuard, on samples collected using EsoCheck, is not intended as a replacement

for EGD. Instead of replacing EGD, it is our vision that the use of EsoGuard, on samples collected using EsoCheck, may “enlarge

the top of the funnel” of high risk individuals who get screened in the first place; those who test positive by EsoGuard

will proceed to an EGD, whether as a confirmatory diagnostic procedure, a therapeutic ablation procedure, or both.

By

focusing the use of these follow-up EGDs on patients with the highest pre-EGD likelihood of a positive finding, and by doing so

more effectively and less expensively than the current risk stratification criteria allow, the use of EsoGuard, on samples collected

using EsoCheck, may enable health care systems to allocate more effectively the resources they currently spend on performing EGDs.

Item

1. Business - continued

Background

and Overview - continued

GI

Health - Gastroenterology – Opportunity, Solution, and Strategy - continued

EsoGuard

and EsoCheck Development and Commercial Status

EsoCheck

is commercially available under a substantial equivalence determination made by the FDA pursuant to a 510(k). On June 21, 2019,

Lucid Diagnostics was notified by FDA that it may market EsoCheck, subject to the general controls provisions of the Food, Drug,

and Cosmetic Act (the “FDCA”), as a cell collection device indicated for use in the collection and retrieval of surface

cells of the esophagus in the general population of adults, 22 years of age and older.

EsoGuard

is commercially available to be prescribed by physicians for patients in the United States as an LDT and has been reported in

an article in Science Translational Medicine to have a high sensitivity and specificity for the detection of Barrett’s

Esophagus with and without dysplasia, as well as for EAC. LDT refers to a laboratory developed test and is a type of molecular

diagnostic test that is designed, manufactured and used within a single laboratory which is also certified pursuant to the CLIA

to support the marketing of the test.

EsoCheck

(i.e., by itself) may be used routinely by physicians to collect esophageal cells for various medical diagnostic purposes,

including to diagnose or manage conditions such as Esophageal Candidiasis (a yeast infection of the esophagus which occurs in

patients with compromised immune systems) and Eosinophilic Esophagitis (a common inflammatory condition of the esophagus) (“EoE”).

EsoGuard (i.e., also by itself) may be performed on cytology samples collected by a means other than EsoCheck, e.g.,

via EGD. However, our present clinical development focus, and the subject of a recent IVD pre-submission meeting with the FDA,

is on assessing the performance of the combined system (i.e., the use of the EsoGuard assay on cells collected using EsoCheck)

as a screening tool to detect BE, with and without dysplasia, and/or EAC, in individuals deemed to be at high risk for these conditions.

Eosinophilic

Esophagitis (“EoE”)

In

March 2020, we entered into a clinical trial research agreement with the University of Pennsylvania (“Penn”) for an

ongoing clinical trial designed to evaluate whether the Lucid Diagnostics EsoCheck Esophageal Cell Collection Device with Collect+ProtectTM

Technology provides a less invasive, more efficient, and cost-effective alternative to endoscopic biopsies in the management of

patients with EoE.

EoE

is a rapidly emerging allergy-mediated inflammatory condition of the esophagus similar to and often associated with inflammatory

bowel disease (“IBD”). Although underappreciated by the medical community and frequently confused with GERD, EoE has

a prevalence comparable to IBD and exacts a significant burden on patients. It can lead to swallowing difficulties, esophageal

scarring, food impaction and pain. Current treatment includes oral steroids and an elimination diet. Since inflammation can persist

despite resolution of symptoms, treatment courses can be very difficult and costly for patients, requiring multiple and frequent

invasive endoscopies with biopsies. To date efforts to replace endoscopy with a non-invasive diagnostic device have proven unsuccessful.

The

“LUCID-PENN” agreement covers a research program entitled “Pilot Study of EsoCheck Compared to Biopsies and

Brush Cytology During Endoscopy for Evaluation of Eosinophilic Esophagitis” (the “Study”) led by principal

investigator Gary W. Falk, M.D., M.S., AGAF. Dr. Falk is a professor of Gastroenterology, the clinical co-director of the Joint

Center for Digestive, Liver and Pancreatic Medicine at the Perelman School of Medicine at the University of Pennsylvania, and

the co-director of the Penn Medicine Esophageal and Swallowing Center at the Hospital of the University of Pennsylvania. He is

also a Director of the International Society for Diseases of the Esophagus and Past President of the American Society of Gastrointestinal

Endoscopy (ASGE).

The

ongoing clinical trial is a prospective cross-sectional pilot feasibility study of ten patients with suspected or established

EoE scheduled for a clinically indicated upper endoscopy. The patients will undergo esophageal sampling using EsoCheck followed

by endoscopy, including brushings and biopsies. The primary endpoint of the trial is the sensitivity and specificity of EsoCheck

versus endoscopic biopsy in the assessment of EoE.

Item

1. Business - continued

Background

and Overview - continued

GI

Health - Gastroenterology – Opportunity, Solution, and Strategy - continued

Barrett’s

Esophagus Screening Tool

We

intend to seek FDA approval for the use of EsoGuard, on samples collected using EsoCheck, as an IVD device through a PMA submission.

The combined system may offer an accurate, lower cost, non-invasive, approach to screen for BE with and without dysplasia, and

for EAC, as compared with the current gold standard, namely diagnostic EGD plus biopsy. EsoCheck used for this purpose is performed

as a five-minute office-based procedure without sedation. Samples collected are sent for laboratory analysis by EsoGuard and typically

result in the issuance of a report of findings to the ordering physician, in under three weeks from the date of the test.

In

September 2019, we entered into an agreement with a clinical research organization to assist us with two ongoing clinical trials

for EsoGuard as an IVD device, which after months of delay due to the COVID-19 pandemic are now actively enrolling patients and

consist of a screening study (ESOGUARD-BE-1) and a case control study (ESOGUARD-BE-2).

In

February 2020, we received Breakthrough Device designation from the FDA for its EsoGuardTM Esophageal DNA Test on esophageal

samples collected using its EsoCheck Cell Collection Device in a prevalent well-defined group of patients at elevated risk for

esophageal dysplasia due to chronic GERD. 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. Breakthrough

Devices receive priority FDA review, and a bipartisan bill before Congress (H.R. 5333) seeks to require Medicare to temporarily

cover all Breakthrough Devices for three years while determining permanent coverage.

EsoGuard

Business Strategy

Near-Term

Strategy

The

EsoGuard technology is progressing through a two-phase regulatory and commercialization strategy which seeks to maximize the long-term

commercial opportunity while providing near-term commercial milestones.

In

June 2019, we received 510(k) marketing clearance for the EsoCheck cell collection device from the FDA, which determined that

EsoCheck is substantially equivalent to legally marketed predicate devices for its indication for use, namely “the collection

and retrieval of surface cells of the esophagus in the general population of adults, 22 years of age or older.” We are also

pursuing other indications for EsoCheck beyond its use to collect cells for the EsoGuard DNA test. We have engaged key advisors

to begin utilizing EsoCheck in other common esophageal conditions such as Esophageal Candidiasis and EoE.

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Near-Term

Strategy - Laboratory Developed Test - “LDT”

EsoGuard

is an approved “Laboratory Developed Test” (“LDT”) and became commercially available in December 2019

after completing CLIA/CAP certification of the test at Lucid Diagnostics commercial diagnostic laboratory partner ResearchDx,

headquartered in Irvine, CA.

As

noted, EsoGuard is an approved “LDT”. A LDT is a clinical laboratory test which is designed, manufactured, and used

within a single-source laboratory. The laboratories that furnish LDTs are subject to regulation under CLIA and state clinical

laboratory licensure laws (where applicable). The FDA takes the position that LDTs meet the definition of a medical device under

the FDCA. Historically, however, the FDA has exercised enforcement discretion with respect to most LDTs, and not actively enforced

the regulatory requirements that otherwise apply to medical device manufacturers (e.g., premarket review, Quality Systems

Regulation, adverse event reporting, establishment registration, device listing). The FDA has traditionally chosen to exercise

enforcement discretion because LDTs were limited in number, were relatively simple tests, and were typically used to diagnose

rare disease and uncommon conditions.

In

October 2014, the FDA published two draft guidance documents describing a proposed risk-based framework under which the FDA proposed

to end enforcement discretion and begin regulating LDTs as medical devices. The FDA’s draft framework proposed, among other

things, premarket review for higher-risk LDTs, such as those that have the same intended use as FDA-approved companion diagnostic

currently on the market. In November 2015, the FDA issued a report citing evidence for the need for additional regulation of LDTs

and stated the FDA is continuing to work to finalize the 2014 draft guidance. However, in November 2016, the FDA announced that

it did not intend to finalize the draft guidance at that time. In January 2017, the FDA issued a Discussion Paper on LDTs, which

confirmed it did not intend to finalize the draft guidance at that time to allow more time for public discussion and time for

the congressional authorizing committees to develop a legislative solution. Various legislative proposals that would give FDA

express authority to regulate LDTs have been proposed since that time, but the chances of any specific proposal being enacted

remain unclear at this time. It is also unclear at this time if or when the FDA may end enforcement discretion for LDTs, and the

FDA may decide to regulate certain LDTs on a case-by-case basis at any time. Action by the FDA to actively regulate our LDT may

materially impact our ability to develop and commercialize EsoGuard as planned.

Near-Term

Strategy - Reimbursement Strategy

Successful

commercialization of our EsoGuard test depends, in large part, on our receipt of adequate reimbursement from government insurance

plans, including Medicare and Medicaid, managed care organizations and private insurance plans. We are in the process of seeking

a Local Coverage Determination (“LCD”) from Palmetto GBA (“Palmetto”), the Medicare Administrative Contractor

(“MAC”) that coordinates coverage for molecular diagnostic tests and will subsequently seek private payer health insurance

coverage for patients. As of yet, no payer has adopted a positive coverage policy for EsoGuard. Until such time, we will need

to obtain reimbursement from payers on a case-by-case basis.

The

U.S. Center for Medicare and Medicaid Services (“CMS”), finalized the Clinical Laboratory Fee Schedule determination

under the gapfill process for the EsoGuard Esophageal DNA Test, CPT code 0114U “Gastroenterology (Barrett’s esophagus),

VIM and CCNA1 methylation analysis, esophageal cells, algorithm reported as likelihood for Barrett’s esophagus,” in

the amount of $1,938.10, with such reimbursement expected to be applicable from January 1, 2021 to December 31, 2023.

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Commercial

third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies.

Third-party payers are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement

for new healthcare products. As a result, there is uncertainty surrounding whether EsoGuard or EsoCheck, or any other product

or service we develop, will be eligible for coverage by third-party payers or, if eligible for coverage, what the reimbursement

rates will be. Reimbursement of esophageal cancer screening by a third-party payer may depend on a number of factors, including

a payer’s determination that tests using our technologies are: sensitive and specific for esophageal cancer and pre-cancer;

not experimental or investigational; approved or recommended by the major guidelines organizations; reliable, safe and effective;

medically necessary; appropriate for the specific patient; and cost-effective.

Near-Term

Strategy - Reimbursement Strategy - Medicare

For

EsoGuard, Medicare reimbursement is critical. CMS relies on a network of MACs to process provider claims for reimbursement, including

claims for diagnostic tests. Where appropriate, MACs draft and finalize LCDs that describe the circumstances under which an item

or service that is not included in the CLFS will (or will not) be covered. Almost all EsoGuard claims will be processed by the

MAC for California, Noridian Healthcare Solutions (“Noridian”). Noridian participates in the Molecular Diagnostic

Services (“MolDX”) Program coordinated by Palmetto. Under the MolDX Program, Palmetto reviews a detailed dossier of

information describing the performance characteristics of molecular diagnostic tests (i.e., data describing the test’s

analytical validity, clinical validity, and clinical utility) and, working collaboratively with other MAC medical directors, decides

whether to cover a test. We will need to work with the MolDX Program to obtain a favorable final LCD before Noridian will pay

claims for EsoGuard.

LDTs

that are covered by Medicare are generally reimbursed under the Medicare CLFS. From time to time, Congress has revised the Medicare

statute, including how CMS establishes CLFS payment rates. The payment amounts established under the Medicare fee schedules (such

as the CLFS) are important because they will determine the amount of reimbursement for a diagnostic under Medicare, and those

payment amounts are also often used as a basis for payment amounts set by other governmental and private third-party payers. For

example, state Medicaid programs are prohibited from paying more than the CLFS rate for clinical laboratory services furnished

to Medicaid recipients.

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