Biodesix, Inc. (NASDAQ:BDSX) Q1 2023 Earnings Call Transcript May 14, 2023

Operator: Good day, and thank you for standing by and welcome to the Biodesix First 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 conference over to your speaker today Chris Brinzey of Biodesix Investor Relations. Please go ahead.

Chris Brinzey: Thank you, operator, and good afternoon everyone. Thank you for joining us today for a discussion of Biodesix’s first 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 first 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 31, 2022 filed with Securities and Exchange Commission on March 6, 2023 as well as on form 10-Q filed today for the first quarter 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, and biopharma to transform the standard of care and improve outcomes with personalized diagnostics. At Biodesix we build 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 the initial risk assessment of lung nodules with the Nodify lung testing strategy, to post cancer diagnosis, treatment guidance and monitoring with the IQ lung testing strategy. Nodify lung consists 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.

IQ lung consist 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 the IQ lung testing strategy, these three tests are used to inform treatment decisions and monitor for the rise of resistance mutations, while patients are on therapy All five tests in our core lung diagnostic testing portfolio 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. Throughout the quarter, we’ve continued to make excellent progress. And I’m pleased with the start to the year. Looking at our financial performance, we reported total revenue of $9.1 million for the first quarter 2023, which represents growth of 38% compared to the same period a year ago.

The quarter was again highlighted by the impressive growth of our core lung diagnostic testing business which generated revenue of 8.6 million reflecting approximately 86% year-over-year growth. We’re exceptionally pleased with not only the growth in core lung diagnostic testing volumes, but in the accelerating ramp of that growth. Core lung diagnostics quarterly test volumes increased by 78%, compared to the first quarter of 2022, the highest quarterly year-over-year growth in nearly two years, primarily driven by our Nodify lung testing volumes. Following the seasonality seen in the beginning of the first quarter, our sales team has benefited from being in front of physicians and care teams on a day-to-day basis, as well as an increasing number of peer-to-peer physician educational events.

Importantly, the momentum seen through the end of the first quarter has continued. And we’re pleased with the start to the second quarter. In addition to the growth and volumes driven by our sales team, broadening reimbursement coverage remains an important part of our growth strategy. Building on the recent announcements of the first four private payer coverage policies for the Nodify XL2 we’re making excellent progress and expect to have additional updates for you in the coming months and quarters, including the anticipated first private coverage for our Nodify CDT test expected later this year. To further support our clinical adoption and reimbursement, we also anticipate several updates on clinical studies we are conducting that will build upon and support the clinical utility of our Nodify lung, and IQ lung testing strategies.

Specifically, we anticipate sharing additional data and updates from the Oracle study evaluating the performance of Nodify testing, and updated data from our Insight study, assessing the clinical effectiveness of VeriStrat our proprietary blood based proteomic immune profiling test. Moving to our biopharmaceutical partnerships and service business, in the first quarter, we reported revenue of $411,000 for the quarter, which continues to be impacted by timelines for existing and new agreements resulting from delayed enrollment and clinical trials. On a positive note, we continue to have a strong backlog and we ended the quarter with $9.1 million under contract, but not yet recognized. While we’re encouraged by the continued strength in the backlog, we assume the challenges our pharma partners are experiencing will remain for the next few quarters, as Project Flow, and in some cases are delayed beyond our originally expected timelines.

Longer term, we believe our ongoing efforts and advancements in explainability and transparent AI provide what we believe are unique insights and clarity to healthcare professionals and biopharmaceutical and academic research teams by providing the ability to identify key biological mechanisms, driving specific outcomes for patients subgroups that may require a different approach or different treatment. I’ve said it before and cannot reiterate it enough. Lung cancer kills more people in the United States annually than the next three deadliest cancers combined; breast, prostate and colon cancer. Time matters when treating these patients. We pride ourselves on Biodesix’s ability to discover develop and commercialize a broad range of test that can quickly provide critical results and insights back to health care professionals and care teams with best in class turnaround times for all tests to help improve patient outcomes.

With our strengthened financial position, along with the products and team in place, we’re confident in our ability to drive continued strong test volume and revenue growth in 2023 and beyond. Now, let me turn it over to Robin to review the first quarter 2023 financial performance. Robin?

Robin Harper Cowie: Thanks Scott. First quarter total revenue was 9.1 million is 38% increase over the prior year. Core lung diagnostic revenue in the first quarter was 8.6 million compared to 4.6 million for the first quarter of 2022 an increase of 86% over the prior year. In the quarter we recorded total test volumes of approximately 7600 versus approximately 4300 for the first quarter 2022 a 78% increase. The growth in test volume was primarily driven by our Nodify lung nodule testing, which includes Nodify XL2 and Nodify CDT tests. The difference in growth rates between volume and revenue was primarily driven by Medicare coverage for Nodify CDT achieved in the second quarter of 2022. Biopharmaceutical services revenue was 411,000 in the quarter compared to 915,000 in the first quarter 2022 a decrease of 55%.

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 project and recognize revenue. As Scott mentioned, we ended the first quarter of 2023 with $9.1 million contracted but not yet recognized as revenue. These dollars are tied to multiple agreements with different timelines and will be recognized as these projects are executed. COVID testing revenue in the quarter was negligible and as we have guided should not be modeled to contribute to revenue in 2023. In connection with the expiration of the public health emergency declaration today, May 11 the company will no longer provide COVID-19 diagnostic testing services commercially.

Gross margin percentage in the first quarter of 2023 was 65% versus 51% in the prior year quarter. Current gross margin trends reflect the growth in our higher margin core long diagnostic testing business and receiving Medicare coverage for our Nodify CDT test. Gross margin as a percentage of revenue for the first quarter of 2023 compared to the prior year quarter also reflects the expected decrease in the lower margin COVID testing revenue from a year ago. Looking to the remainder of 2023. We expect the overall gross margin percentage to continue to increase as a result of several factors, including the benefit of Medicare coverage for Nodify CDT tests, the benefit of recently announced commercial payer coverage decisions for Nodify XL2 as well as additional commercial coverage as we move through the year and the operational efficiencies resulting from the growth and volumes for all of our tests.

Overall operating expense excluding direct costs and expenses was 22.3 million in the first quarter 2023 compared to 17.8 million for the same period of 2022. The increase in operating expense for the quarter is primarily driven from increased sales and marketing expense from the hiring of sales team members increased travel related costs due to the return to pre-pandemic level access to physicians and increases in other non-employee related costs. Operating expense for the first quarter of 2023 includes 2.3 million in non-cash stock compensation expense as compared to 1.3 million during the first quarter of 2022. Net loss for the first quarter of 2023 was 18.7 million, compared to a 15.6 million net loss for the same period of 2022. The increase in net loss for the quarter included the increase in non-cash stock based compensation, an increase of 1.3 million in interest expense primarily associated with the perceptive term loan facility and the increase in costs from the expansion of our commercial team and efforts.

We ended the quarter with 25.3 million in unrestricted cash and cash equivalents as compared to 43.1 million in unrestricted cash and cash equivalents at the end of 2022, a decrease of 17.8 million, which includes the scheduled milestone payment of 2.2 million paid in January 2023 to integrated diagnostics, an annual royalty payments of 0.7 million. After considering these among other operating items our cash burn for the quarter for all non-financing activities was approximately 12.6 million. We remain focused on revenue growth and driving additional cost savings measures primarily in areas that do not drive near term revenue growth that will positively impact 2023 as we move through the year. Turning now to our 2023 guidance. We are maintaining the guidance provided last quarter of total revenue of 52 million to 55 million.

Our guidance assumes continued strong year-over-year growth in our core long diagnostic testing business brought a reimbursement of our five on market tests, as well as modest expected growth in our biopharmaceutical services business. Our guidance does not project any COVID-19 revenue for 2023. The midpoint of this guidance represents approximately 60% annual revenue growth as compared to prior year quarter long and biopharmaceutical services revenue. Now let me turn it back to Scott. Scott?

Scott Hutton: Thanks, Robin. In closing, I would like to thank all Biodesix teammates, for their belief in and dedication to the Biodesix’s mission, vision and culture, which revolves around our collective commitment and daily contributions to positively impact patients lives. In so doing, we have established an exceptionally strong double digit growth trajectory driven by our lung focus sales team. We are expanding reimbursement of our on market test with multiple coverage decisions from Medicare and private payers that we anticipate will contribute to our 2023 growth. Supporting this effort, we continue to successfully expand the growing body of clinical data to support the clinical utility of all five of our core lung diagnostic tests.

We have established strong gross margins, which continue to improve with the scaling of our core lung diagnostic testing and reimbursement. And we are focusing on near term revenue drivers with a cost disciplined approach. With that, I’ll turn the call over to the operator for questions.

Q&A Session

Operator: Thank you so much presenters. [Operator Instructions] Your first question comes from the line of Andrew Brackmann of William Blair. Your line is now open.

Operator: Thank you so much.

Operator: Thank you so much. And your next question comes from the line of Alex Vukasin of Canaccord Genuity. Your line is now open.

Operator: Thank you so much. Your next question comes from the line of [indiscernible] of Morgan Stanley. Your line is open.

Operator: Thank you so much. And presenters, there are no further questions at this time. Thank you for participating presenters. This concludes today’s conference call and you may now disconnect. Have a great day.