Biodesix, Inc. (NASDAQ:BDSX) Q2 2023 Earnings Call Transcript

Biodesix, Inc. (NASDAQ:BDSX) Q2 2023 Earnings Call Transcript August 7, 2023

Biodesix, Inc. misses on earnings expectations. Reported EPS is $-0.17013 EPS, expectations were $0.21.

Operator: Good day and thank you for standing by. Welcome to the Biodesix Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the call over to your speaker today Chris Brinzey of Biodesix Investor Relations, our first speaker for today’s conference. Please stand by.

Chris Brinzey: Thank you, operator and good afternoon everyone. Thank you for joining us today for a discussion of Biodesix’s second quarter 2023 business highlights and financial results. Leading the call today will be Scott Hutton, Chief Executive Officer. He will be joined by Robin Harper Cowie, Chief Financial Officer. After the prepared remarks, we will open the call for Q&A. An audio recording and webcast replay for today’s conference call will also be available online as detailed in the press release announcement for this call. Today, we issued a press release announcing our business highlights and financial results for the second quarter 2023. A copy of the release can be found on the Investor Relations’ page of the company website.

Actual events or results may differ materially from those projected as a result of changing market trends, reduced demand, and the competitive nature of Biodesix industry. Such forward-looking statements and their implications involve known and unknown risks, uncertainties, and other factors that may cause actual results or performance to differ materially from those projected. The forward-looking statements discussed on this call are subject to other risks and uncertainties, including those discussed in the Risk Factors section and elsewhere in the company’s annual report on Form 10-K for the year ending December 31st, 2022 filed with Securities and Exchange Commission on March 6th, 2023 as well as subsequent quarterly reports on Form 10-Q filed during the 2023 as applicable.

Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company’s press release issued today and in the company’s filings with the SEC. I would now like to turn the call over to Scott Hutton, Chief Executive Officer. Scott?

Scott Hutton: Thank you, Chris. Biodesix is a patient-centric, mission-driven lung disease diagnostics company with a mission to unite physicians, patients in biopharma to transform the standard-of-care and improve outcomes with personalized diagnostics. At Biodesix, we’ve built a comprehensive portfolio of precision diagnostic test to support clinical decision-making across the lung cancer continuum of care. Our core lung diagnostic testing portfolio ranges from initial risk assessment of lung nodules with Nodify Lung testing to post-cancer diagnosis treatment guidance and monitoring with IQLung testing. Nodify Lung consist of two blood-based proteomic test, Nodify CDT and Nodify XL2, which are used by physicians to assess the risk of malignancy of a lung nodule.

IQLung consists of three blood-based tests, the GeneStrat NGS genomic test, the GeneStrat-ddPCR-targeted genomic test, and the VeriStrat proteomic test. Offered as options within IQ lung, these three tests are used to inform treatment decisions and monitor for the rise of resistance mutations, while patients are on therapy. All five of our core lung diagnostic tests are covered by Medicare, and we believe we’re the only diagnostic company with five on-market tests for lung cancer, all with Medicare coverage. We’ve made significant strides, and I’m thrilled with our overall performance in the quarter and the first half of the year. We grew lung diagnostic test volumes and revenue, expanded our gross margin to the low 70% ahead of our year-end goal and reduced our operating expense and cash burn.

Our commitment to a cost-disciplined approach while growing and expanding the business continues to pay off. And this quarter’s results reinforced the team’s progress and outstanding execution on our path to profitability. In addition, we successfully completed a fundraising effort through a private placement, raising $27.5 million in equity funding subsequent to quarter end, to further support our growth and provide near-term financial flexibility. 100% of the funds raised through this private placement were from insiders, including all Board members all Section 16 officers and additional members of the leadership team, which continues to signify our confidence in the future of the company and the extraordinary value that we believe exist.

Time and time again, our long-term investors have demonstrated their steadfast support and unwavering commitment because they, too, believe in the Biodesix team and our goal to make a significant impact in the care of those patients with lung disease. In the second quarter, we reported total revenue of $11.9 million, which excluding non-core revenue from COVID, represented growth of 48% compared to the same period a year ago. The quarter was again highlighted by the impressive growth in our core lung diagnostic testing business, which generated revenue of $11.4 million reflecting approximately 58% year-over-year growth. We reported overall gross margins of 73%, a significant improvement over the 64% gross margin reported in the second quarter of 2022 and the 65% gross margin reported in the first quarter of this year.

We are exceptionally pleased that our core lung diagnostic sales efforts continue to gain momentum during the second quarter, as the number of tests delivered reached the highest in company history for the second consecutive quarter increasing by 75% compared to the second quarter of 2022 and nearly matching the 78% year-over-year growth we saw in the first quarter. The test volumes also represent a 29% sequential increase over the first quarter of 2023. This strong growth continues to be primarily driven by our Nodify lung testing volumes. Our sales team continues to benefit from regular interaction with physicians and care teams, and we are actively participating in an increasing number of peer-to-peer physician educational events. It is worth noting that the positive momentum we witnessed throughout the second quarter has carried over into the start of the third quarter, further reinforcing our satisfaction with the team’s progress and performance.

To further support our clinical adoption and reimbursement, we were pleased to have recently shared several updates on clinical studies that build upon and support the clinical utility of our Nodify lung and IQ lung testing strategies. In May, we presented original data in four separate poster presentations at the International Society for Pharmaceutical and Outcomes Research Conference, providing evidence of the health economic benefit of the Nodify CDT and Nodify XL2 test in the management of pulmonary nodules. Most recently in July, we were thrilled to share data from the prospective real-world Oracle study, an observational registry study to evaluate the performance of the Nodify XL2 test. It is important to remember that demonstrating clinical utility is a critical step necessary to drive adoption of any diagnostic test.

And we’re excited that the Oracle study successfully achieved its primary end point, demonstrating a 74% reduction in unnecessary invasive procedures. Overall, the findings from the Oracle study represent a significant advancement in the clinical evidence for use of the Nodify XL2 2 test in nodule management. In addition to the Oracle publication, physicians from Beth Israel Deaconess to Lane University and Einstein Medical Center published an independent third-party multicenter study, demonstrating that the use of the Nodify XL2 test resulted in a 73% reduction in the number of unnecessary invasive procedures conducted on benign nodules, as compared to the control arm. Looking ahead, we anticipate sharing additional data and updates on other studies, including our Insight study assessing the clinical effectiveness of VeriStrat, our proprietary blood-based proteomic immune profiling test at the upcoming International Association for the Study of Lung Cancer World Conference on lung cancer being held in Singapore, in September, and additional abstracts at the annual CHEST meeting being held in Hawaii in October.

In addition to the growth in volumes driven by our sales team, broadening reimbursement coverage remains an important part of our growth strategy. In July, the Biodesix Nodify CDT test was awarded Advanced Diagnostic Laboratory Test, or ADLT status by the Center for Medicare and Medicaid Services. Receiving ADLT status is a major milestone for the Biodesix team, as this status is reserved for innovative test with Medicare coverage that provide clinical value and new diagnostic information that cannot be obtained from any other test or combination of test, recognizing the unique utility of the Nodify CDT test. Now, Biodesix has three tests, Nodify CDT, Nodify XL 2 and VeriStrat, all with ADLT status. We’ll continue to expand and build upon our reimbursement coverage and expect to have additional updates in the second half of the year.

Moving on to our biopharmaceutical partnerships and services business. In the second quarter, we reported revenue of $423,000, which grew slightly over the first quarter, but it’s still an area that continues to be impacted by delayed enrollment in clinical trials. We remain bullish on the biopharmaceutical partnership and service business, as we continue to have a strong backlog and incoming requests for proposals. And we ended the quarter with $9.3 million under contract, but not yet recognized. While we’re encouraged by the continued strength in the backlog, we assume the challenges our biopharma partners are experiencing will remain for the next few quarters, as projects slow and in some cases, are delayed beyond the originally expected time lines.

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I’ve emphasized this point before and cannot stress it enough. Lung cancer is still the deadliest of all cancers as it claims more lives annually in the United States than the combined total of the next three deadliest cancers, breast, prostate and colon cancer. Time is of the essence when it comes to diagnosing and treating these patients. At Biodesix, we take great pride in our capability and capacity to discover, develop and commercialize a wide range of tests that deliver critical clinical results and insights to health care professionals and care teams swiftly. We strive to offer the best testing turnaround times in the industry for all our tests with the goal of improving patient outcomes. Our company and team experienced a strong quarter and first half of the year.

We maintain confidence in our ability to sustain this momentum driving continued growth in test volumes and revenue throughout the second half of the year and beyond. Now let me turn it over to Robin to review the second quarter 2023 financial performance. Robin?

Robin Harper Cowie: Thanks, Scott. Second quarter total revenue was $11.9 million, an 8% increase over the prior year, including COVID revenue and a 48% increase over the prior year, excluding COVID revenue of $3.0 million from COVID testing volumes in the second quarter of 2022. Core lung diagnostic revenue in the second quarter was $11.4 million, compared to $7.3 million for the second quarter of 2022, an increase of 58% over the prior year. In the quarter, we recorded total lung diagnostic test volumes of approximately 9,800 versus approximately 5,600 for the second quarter of 2022, a 75% increase. The test volume growth was primarily driven by our Nodify nodule management lung testing, which includes Nodify XL2 and Nodify CDT.

The difference in growth rates between volumes and revenue was primarily driven by the timing of Medicare coverage for Nodify CDT achieved in the second quarter 2022. Biopharmaceutical Services revenue was $423,000 in the quarter, compared to $744,000 in the second quarter of 2022 and $411,000 in the first quarter of 2023, a decrease of 43% compared to the second quarter 2022 and an increase of 3% over the first quarter of 2023. As a reminder, this business can fluctuate due to several factors, including contract timing and project execution, but in this instance, reflects the continued delays of enrollment in prospective clinical trials to complete the projects and recognize revenue. As Scott mentioned, we ended the second quarter of 2023 with $9.3 million contracted but not yet recognized as revenue.

These dollars are tied to multiple agreements with different time lines and will be recognized as these projects are executed. Gross margin percentage in the second quarter 2023 was 73% versus 64% in the prior year quarter and 65% in the first quarter of 2023. Current gross margin trends reflect the growth in our higher gross margin lung diagnostic testing business, successful completion of projects to decrease costs and optimize testing workflows and cessation of commercial COVID testing. This margin achievement is ahead of plan, and we anticipate maintaining margins in the low 70s going forward. Overall, operating expense, excluding direct costs and expenses was $19.6 million in the second quarter 2023, compared to $18.6 million for the same period of 2022, and $22.3 million in the first quarter of 2023.

The increase versus last year is primarily from increased sales and marketing expense from increased travel-related costs due to the return to pre-pandemic level access to physicians and increases in other non-employee-related costs. The decrease as compared to the first quarter is related to the realization of savings from our prioritization of projects that are expected to result in near-term revenue and the delay of longer-term projects. Operating expense for the second quarter 2023 includes $1.1 million in non-cash stock compensation expense, as compared to $1.4 million during the second quarter of 2022 and $2.3 million in the first quarter of 2023. Net loss for the second quarter 2023 was $13.4 million compared to a $15.8 million net loss for the same period of 2022 and $18.7 million for the first quarter of 2023, driven partially by the improvements in gross margin and operating expenses.

The decrease in net loss for the quarter included a decrease in non-cash stock-based compensation, and the absence of a one-time loss on extinguishment in the year ago quarter of $3.0 million, resulting from the restructuring of the contingent consideration agreement with Integrated Diagnostics, offset by an increase in interest expense primarily associated with the perceptive term loan facility. If we remove the $800,000 from depreciation and amortization, $1.1 million from stock-based compensation and $2.4 million in interest expense, the loss for the second quarter was $9.1 million as compared to $13.2 million. We’re making the comparable adjustments to first quarter of 2023, a decrease of 31%. We ended the quarter with $17.4 million in unrestricted cash and cash equivalents, as compared to $25.3 million in unrestricted cash and cash equivalents at the end of the first quarter, a decrease of $7.9 million which included the scheduled milestone payment of $2.3 million paid in April 2023 to integrated diagnostics, change in working capital and also includes $5.8 million in tenant improvement dollars, offset by $6.2 million in investment in the new facility.

The cash burn decreased from $17.8 million in the first quarter of 2023, as a result of our commitment to a cost-disciplined approach in growing the business. The cash balance as of June 30, 2023, does not include the $27.5 million raised in the private placement previously discussed, which was completed subsequent to quarter end. In the upcoming fourth quarter, we expect to move into our new state of the art facility in Louisville, Colorado, just down the road from our current Boulder location. The new facility has improved capacity for long diagnostic testing, biopharmaceutical services testing and Collection Kit manufacturing, which we brought in-house in 2022. During the construction of the new facility, materials and equipment were incorporated to optimize energy efficiency and reduce emissions, advancing some of our longer-term ESG goals.

We remain focused on two major goals, growing our revenue by helping more physicians treat more patients than ever before and making sequential progress on our path to profitability. Second quarter results showed our progress and success towards both of those goals, and we are maintaining the guidance provided earlier this year, a full year 2023 revenue of $52 million to $55 million. Our guidance assumes continued strong year-over-year growth in our core lung diagnostic testing business, broader reimbursement of our five on-market tests as well as modest expected growth in our biopharmaceutical services business. Now let me turn it back to Scott. Scott?

Scott Hutton: Thanks, Robin. In closing, I want to express my gratitude to all the incredible members of the Biodesix team, who’ve shown unwavering belief in and dedication to our mission, vision and culture. Our collective commitment and daily contributions are centered around making a positive impact on the lives of patients and I’m truly thankful for your efforts. We have again experienced remarkable double-digit growth in the past quarter, attributed to the exceptional performance of our long focused sales team who have been instrumental in fueling our growth and success. We’ve published critical clinical data that demonstrates the utility of our test supporting both physician and payer adoption and achieved a major reimbursement milestone.

Additionally, we’ve improved our already strong gross margins ahead of plan. Looking ahead, our focus remains on driving near-term revenue growth while maintaining a disciplined approach in reducing expenses and cash burn. By aligning these strategic priorities, we are confident in our ability to sustain our growth trajectory, make progress on our path to profitability and deliver value to our shareholders. We look forward to moving into our new state-of-the-art facility that affords us the opportunity to maintain our growth and expand in an efficient and effective manner. Once again, I extend my sincere appreciation to each and every member of the Biodesix team for your invaluable contributions to our success. Together, we’re making a real difference and positively impacting physicians and the patients they treat.

Robin, the Biodesix team and I are as excited as we’ve ever been about the future of Biodesix and the opportunities that lie ahead. With that, I’ll turn the call over to the operator for questions.

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Q&A Session

Operator: Thank you. We will now conduct a question-and-answer session. [Operator Instructions] Our first question comes from the line of Andrew Brackmann. Your line is now open.

Maggie Boeye: Hey, everyone. This is Maggie Boeye on today for Andrew. Thanks for taking our questions. Maybe first to start on the guidance for the year. You reiterated your top line outlook today. Can you talk about kind of the pacing for the third and fourth quarter within these assumptions, maybe both on the core lung diagnostics side and then the biopharma services side?

Robin Harper Cowie: Yeah. Hi, Maggie, thanks for hopping on. We haven’t seen — or we don’t expect any real change in the pacing for the quarters. We still expect it to look sort of like what we saw last year, with a step up in the third quarter and then a further step up in the fourth. With our biopharma services, that one is the one that is more — more difficult to predict. It’s very lumpy. We’ve seen great interest coming into the company, more request for proposals than ever before. But just things are slow and sort of delayed. So that one, we hope to see some good uptick in the second half of the year, but put more strength and more emphasis on the lung nodule management and lung diagnostics portion of the revenue.

Maggie Boeye: Got it. That makes sense. And maybe just one on volume growth on that core lung sides. So you’ve now had two really strong quarters of growth in a row. Can you maybe break apart that growth and talk about how much of its being driven by greater existing account utilization or even new account utilization or any other geography [ph] here? Thank you.

Scott Hutton: Yes. Thank you, Maggie. This is Scott. Appreciate the question. Yes. As we stated before, we’ve had and experienced great interest and adoption really across all pulmonology groups, which also includes kind of community, rural and academic. So we continue to see growth across all segments. We think that the Oracle publication will continue to increase that. And we’re exceptionally pleased with the sales rep access. So for us, there’s not one specialty within the pulmonology group where we’re seeing greater or less adoption. It really is equal. And I think it speaks volumes about the clinical utility, which was also supported in Oracle, where we demonstrated a 74% reduction in unnecessary invasive procedures.

Maggie Boeye: Great. Thanks so much.

Scott Hutton: Thank you, Maggie.

Operator: Thank you. Please stand by for our next question. Thank you. Our next question comes from the line of Kyle Mikson of Canaccord Genuity. Your line is now open.

Kyle Mikson: Great. Hey, guys. Thanks for taking my questions. Congrats on the quarter. So a similar line of thoughts, the 75% growth year-over-year for test volume, I’m just — I guess, like could you like just parse out how much of that Scott is from recurring, sort of, like stickiness among clinicians and reordering? I think that’s an interesting dynamic that like such outsized growth, it seems like it’s a lot of like inorganic almost, but a lot of your tests have been on the market for a while and have Medicare coverage for a year. So if you could just double click on that, I’d be kind of good to hear?

Scott Hutton: Yes. Thanks, Kyle. Appreciate the question. Yes. We haven’t disclosed that metric. Obviously, we track that closely. What I’m comfortable sharing today is that we’ve been pleased really with that stickiness in that reorder rate. And we’ve seen that not only stay, kind of, consistently strong, but grow over time, which is what you want, right? As an individual physician or healthcare practice gains experience, you hope they see the greater value in the clinical utility of the test. And that’s consistent with what we’ve seen as we’ve tracked this over time. One of the other metrics we’ve looked at, and again, we don’t share the actual results publicly is as somebody onboards and begin ordering the test and applying those test results, at what point in time do they become sticky.