Biodesix Inc (BDSX) 2024 Q2 法說會逐字稿

Good day and thank you for standing by. Welcome to the Biodesix's Q2 2024 earnings conference call. (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, Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Today, Biodesix's released results from the second quarter of 2024. Leading the call today will be Scott Hutton, Chief Executive Officer. He will be joined by Robin Harper Cowie, Chief Financial Officer.

An audio recording of today's call and the press release announcement with the quarterly results can be found in the Investor Relations section of the company's website at .biodesix.com. As today's call includes forward-looking statements, we encourage you to review the statements contained in today's press release and the risks and uncertainties described in our SEC filing, which identify certain factors that may cause the company's actual events, performance, and results to differ materially from those contained in the forward-looking statements made on today's webcast.

In addition, we will discuss non-GAAP financial measures on this call. Descriptions of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release.

With that, I'd now like to turn the call over to Scott Hutton, Chief Executive Officer. Scott?

Thank you, Chris, and thank you all for joining us today. I'm thrilled to report that it's been another strong quarter marked by exceptional performance in all areas of the business. For 2024, our team and organization remain committed to delivering on three key goals, which include driving increased revenue through the adoption of our lung diagnostic test and our biopharma services, implementing operational efficiencies to continue to deliver strong gross margins, and maintaining a strict cost-disciplined approach on our path to profitability.

In the second quarter, we excelled in all three key goals, delivering 51% growth in revenue year-over-year, 78.4% gross margins, and 38% improvement in adjusted EBITDA year-over-year. Based on this continued strong performance, we're raising our 2024 total revenue guidance to $70 million to $72 million, up from the previously provided guidance of $65 million to $68 million.

This change in guidance reflects our continued confidence in the business, and we believe the first-half results have set a strong trajectory for continued success in 2024 and beyond. Our lung-focused commercial team is making considerable progress selling our five Medicare-covered tests to help improve early lung cancer diagnosis and treatment decisions. They delivered 42% growth in test volumes over second quarter of last year.

In order to address this massive multibillion-dollar market opportunity, we're continuing to grow and expand the lung-focused commercial team, and in the second quarter had an average of approximately 61 fully-trained sales representatives, as compared to an average of 55 in the first quarter of 2024.

As a reminder, it takes about three months before a Biodesix rep is fully trained, and by that point, they're paying for themselves. Consistent with the plans we've shared before, we will expect to add approximately six to eight reps per quarter to better reach more physicians. In addition to the growth in test volumes, we've added a number of new reimbursement coverage policies for Nodify XL2 over the last several months.

The coverages include policies from various Blue Cross Blue Shield plans, including Highmark, HMSA in Hawaii, Kansas City, Louisiana, North Carolina, South Carolina, Rhode Island, Tennessee, and Vermont, plus private plans such as Geisinger, HealthPartners, Medica, and others. We're pleased with the steady advancement in reimbursement and remain focused on adding more private payer coverage policies for our tests.

In addition, we've also added more contracts, which, in combination with these coverage policies, have led to improvements in the average revenue received per test result delivered. Combining the improvements in average revenue received with the growth in test volumes resulted in 44% growth in revenue from lung diagnostic tests.

We continue to generate clinical data to help drive awareness and adoption of our tests. In May, we presented new data at the 2024 American Thoracic Society International Conference in San Diego, highlighting the ability of our Nodify XL2 test to identify benign nodules in patients with emphysema.

Emphysema is a common comorbid pulmonary condition in patients with lung nodules. This presentation demonstrates how the Nodify XL2 test can successfully assist with ruling out lung cancer regardless of patient's emphysema status. Enrollment and altitude, our prospective randomized trial evaluating the clinical utility and performance of our Nodify test, continues at a number of major academic institutions.

This study is being overseen by a third-party independent data monitoring committee that will be determining potential interim analysis and will provide more updates in the coming quarters following their meetings.

We also published new data in the Annals of Oncology that highlights the role of our GeneStrat testing to monitor the efficacy of new therapeutic regimens. Our tests utilizing the Bio-Rad ddPCR technology to analyze circulating tumor DNA have been included in a variety of studies and publications from Biodesix, biopharmaceutical partners, and consortia partners.

Data has been presented showcasing the utility of the targeted test for detecting treatment resistance, detecting cancer recurrence even before imaging, and monitoring treatment response, such as the data included in this peer-reviewed publication.

Speaking of our biopharmacist services business, we continue to see the momentum that began in the second half of last year, growing 228% over second quarter 2023. This service combines our multi-omic data with our artificial intelligence platform to uncover novel, unbiased insights that our customers use to personalize patient care and help improve disease detection, evaluation, and treatment. We're achieving growth through additional projects from existing customers as well as new contracts with new customers from a steady number of incoming RFPs and opportunities.

Moving to operations, our team continues to deliver steady and consistent growth margins of 78.4%, which represents the fourth quarter in a row in the upper 70s. Not only have we been effective in providing our test with industry-leading turnaround times, we've also been efficient in delivering those results.

With our commitment to an effective, efficient, and cost-disciplined approach, we've built a commercial and operational platform that will help facilitate long-term, consistent, sustainable, and profitable growth. I believe everyone is beginning to appreciate the operating leverage that exists within the business and our efforts to demonstrate the team's significant progress and outstanding execution on our path to profitability.

We not only have an incredible opportunity but a responsibility to transform the standard of care in lung cancer. Lung cancer is still the deadliest of all cancers as it claims more lives annually in the United States than the next three deadliest cancers combined, breast, prostate, and colon cancer.

Time is of the essence when it comes to diagnosing and treating these patients. By discovering, developing, and commercializing tests with demonstrated clinical utility and best-in-class turnaround times, we believe that our diagnostic tests play a critical role in these efforts to treat the right patients quickly and effectively.

Finally, in addition to providing product and service excellence, we believe we're building something unique and special here at Biodesix. In June, we were named to Inc. Magazine's 2024 Best Workplaces. This prestigious award is only granted to approximately 500 US companies each year from across all industry sectors, both public and private firms of all sizes. This is one of our highest honors as it validates and affirms our entire organization's commitment to a culture of excellence. It is a reflection of our amazing team and their commitment to making a difference in patients' lives, and I want to thank everyone for their hard work and dedication.

With that, let me turn it over to Robin to review the second quarter 2024 financial performance. Robin?

Thanks, Scott. Second quarter total revenue was $17.9 million, a 51% increase over the prior year and 21% increase over the first quarter of this year. Lung diagnostic revenue in the second quarter was $16.5 million from approximately 13,900 tests as compared to $11.5 million from approximately 9,800 tests for the second quarter of 2023, representing a 44% growth in revenue and 42% growth in test volume.

In prior earnings calls, we have provided updates on our efforts to resolve certain administrative challenges imposed by a select few Medicare Advantage plans. While we do not have more to report at this time, we continue to be in discussions around a resolution. Any potential revenue resulting from a resolution are not included in our revenue guidance.

Biopharma services revenue was $1.4 million in the quarter compared to $400,000 in the second quarter 2023, an increase of 228%. Even with the completion and recognition of significantly more revenue than in prior quarters, our pipeline is robust and we ended the quarter with approximately $8.1 million contracted but not yet recognized as revenue. Growth margin percentage in the second quarter 2024 was 78.4%, up 5.7 percentage points versus 72.7% in the prior year quarter and consistent with 78.6% in the first quarter of 2024.

Following a variety of operational improvements over the last year in both our lung diagnostic testing and biopharma services, we have delivered on four straight quarters of growth margins in the upper 70s and expect that the growth margins will remain steady in the upper 70s going forward.

Overall operating expense excluding direct costs and expenses was $22.3 million in the second quarter 2024 compared to $19.6 million for the same period of 2023, a 14% increase. Operating expense for the second quarter 2024 includes $2.7 million in non-cash stock compensation expense, depreciation and amortization and asset impairment as compared to $1.9 million during the second quarter 2023.

The increase in operating expense versus the prior year quarter is primarily the result of an increase in sales and marketing costs to support lung diagnostic sales growth to enhance product awareness and drive adoption as well as an increase in depreciation expense related to the leasehold improvements in our new Louisville Colorado office and laboratory.

Net loss for the second quarter 2024 was $10.8 million, an improvement of approximately $2.5 million or 19% as compared to a $13.4 million net loss for the second quarter of 2023 and $13.6 million or 21% improvement for the first quarter of 2024. It is important to note that net loss for this quarter included a net $600,000 of one-time other expenses that are not expected to occur going forward but increase the net loss in the quarter.

Adjusted EBITDA which excludes non-cash and other one-time expenses was a loss of $5.6 million compared to a loss of $9.1 million for the second quarter of 2023, a 38% improvement. This is our straight quarter of year-over-year improvement in adjusted EBITDA which is driven by our increase in revenue, strong gross margins and our focus on actively managing our operating expenses.

We ended the quarter with $42.2 million in unrestricted cash and cash equivalents as compared to $11.5 million at the end of the first quarter which included an increase of $51.3 million in net proceeds raised in an oversubscribed and upsized underwritten public offering and concurrent private placement and a decrease of $13.8 million from milestone payments paid in the period for both the scheduled second and scheduled third quarter as a result of the acquisition of integrated diagnostics in 2018.

Pre-payment of the third quarter milestone resulted in cash savings from avoided interest. We are pleased to note that the final integrated diagnostics milestone payment is expected to be made at the end of the third quarter bringing these milestone payments to a close.

Cash flow from operations excluding the milestone payments which for clarity are labeled on the statement of cash flows as contingent considerations also made significant improvements quarter-over-quarter. In the first quarter of 2024 net cash and cash equivalents used in operating activities was $15.3 million inclusive of $3.4 million for contingent consideration therefore it was $11.9 million of cash used in operations in the first quarter exclusive of the contingent consideration.

For the first half of 2024 net cash and cash equivalents used in operating activities was $33.9 million inclusive of $17.2 million for contingent consideration therefore it was $16.7 million exclusive of that amount or $4.8 million of cash used in operations during the second quarter 2024 exclusive of the contingent consideration payment.

The difference of $7.1 million which is a 60% improvement in cash used in operations during the second quarter '24 versus the first quarter of '24 is again the result of our increase in revenue strong gross margins and focus on actively managing our operating expenses.

Finally turning to 2024 guidance as Scott mentioned we are increasing the 2024 total revenue guidance to $70 million to $72 million up from $65 million to $68 million reflecting the strength of the first half and our confidence in the second half of 2024 and beyond.

Now let me turn it back to Scott. Scott?

Thanks Robin. Overall we are exceptionally pleased with the progress in the quarter and through the first half of the year. We are increasing our 2024 revenue guidance and we continue to make substantial progress on our path to profitability.

We are transforming the standard of care and our organization is motivated every day knowing that we're making a significant impact to healthcare professionals their patients and those patients families. I believe our future is brighter now than at any point in our company history.

With that I'll turn the call over to the operator for questions

(Operator Instructions) Andrew Brackmann William Blair & Company.

Hi Scott. Hi Robin. Good afternoon. Thanks for taking the question. Maybe just to start here you're obviously seeing some nice momentum in the business especially on the volume side this quarter. Anything you can share in terms of where you're seeing that strength where you're winning be that in certain accounts different institutions group practices or even geographies? Thanks.

Yeah great question Andrew. No we're seeing consistent growth across all opportunities and sectors from a product perspective as we've stated in the past. Nodify our nodule management tests are driving and fueling that growth but as we continue to expand the sales force as a reminder starting the quarter at 60 and continuing to expand by six to eight each quarter we know we're reaching positions that we've never reached.

So in those territories it's easy to see growth come from kind of new accounts and new ordering positions and in the more mature accounts we're seeing broader adoption within a practice and then we're also seeing growth in total test volumes. So pretty balanced pretty equal across the board nothing that's glaring in terms of a deficiency or an opportunity for improvement at this time.

Perfect and then maybe just on pricing thanks for all the color on sort of the wins this quarter. Certainly looks like you saw some improvement quarter-over-quarter in the second quarter. Just first how should we sort of be thinking about continued improvement just given the wins that you had so far this year? And then secondly just can you level set up on where the funnel stands for additional contracts or coverage policies moving forward? Thanks.

Yeah, thanks. We in our guide we are not building in any real improvements in reimbursement and in additional coverage policies so we tried to take a fairly conservative approach in the guide itself. Obviously from a business perspective, the team is out working on expanding both coverage and contracts for all of our tests. We've had a lot of good wins including some recent wins we look forward to telling everyone about for XL2 and are anticipating starting to see some momentum here for CDT as well.

As a reminder to everybody Medicare accounts for about 60%-ish of our business so each individual private payer coverage policy does not necessarily move the needle a lot. The momentum and the number of them coming in together does start to improve it. So we've got a great funnel there's some real excitement out there and as I've said for a lot of years one of the hardest things is getting attention of payers and making sure they understand the problem you're trying to solve and payers know this problem.

They know we're missing cancers and so we need to diagnose cancers earlier and they know they're paying for unnecessary invasive procedures on benign nodules and our nodule management test can help address both of those issues.

Great thanks so much.

Daniel Brennan, TD Cowen

Hey, good afternoon. This is Kyle on for Dan. Thanks for taking the questions. I wanted to start with one -- maybe if you could elaborate in the ongoing Salesforce expansion what's been the impact thus far upon demand creation and just test volumes? Thank you.

Yeah thanks for the question Kyle good to hear from you. You know this quarter as everyone knows we completed a fundraise intra quarter. Part of the use of proceeds were continued investment in an expansion of the Salesforce. So we brought those sales reps on a little bit later this quarter than comparatively what we had done in prior quarters. So one way of really kind of looking at the most recent additions is yes we've continued to see them begin paying for themselves at the three month mark. These new team members really had a limited amount of time to impact the quarter.

So we were really excited to see the team that was already in place prior to those additions go out and continue to excel and grow. What we do know is that we continue to see sales rep productivity in and around $1 million per rep target annualized.

So it's always going to be advantageous for us to bring those new team members on earlier in the quarter giving them an opportunity to contribute as quickly as they can and impact the overall year. That's remained pretty consistent, Kyle. So nothing has changed in the recent months or quarters.

Got it. Thank you and then just want to go back to the altitude study, which you mentioned in the prepared remarks. Is it still on track for year-end '24 completion and what's your level of confidence in the trial working?

Yeah, great question. We feel really good about the study design. It's difficult to comment on kind of how it's going, since we're blinded from that data. But we worked with a number of major academic institutions and really prominent pulmonologists many of whom contributed to the ATS standard for prospective trial design. So we feel confident in the study design. We've had others look at it and kind of confirm that our approach is best-in-class.

From a timing perspective we stated in prior calls that due to early enrollment delays due to the pandemic that we were a little delayed and we were off. So we do not expect complete enrollment in closing the study in 2024. It'll be probably late '25 going into early '26. But that's the other reason that we have highlighted the data safety management board and the role they'll play.

They're going to meet here in the next couple of months and we'll wait to receive feedback from them. And at that time I'll be able to answer questions about interim analysis any sort of data that they want to share. But we're really pleased enrollment has continued to pick up and site engagement is really high.

Got it. Thank you.

(Operator Instructions) Thomas Flaten Lake Street Capital Markets - Analyst

Good afternoon. Thanks for taking the questions. With the Louisville facility being complete are there any significant investments that will be made in that facility? I'm assuming no but then also flipping to De Soto. Are there any investments there we should be aware of you guys making in the near term?

Hi Thomas. Great question. No you -- you've nailed it. As we moved into this facility, really at the beginning of the year, no needed expansion investment or anything that needs to occur here in Colorado. We have begun looking at how best we set the Kansas laboratory and team up for long-term sustainable results and we will be looking at improving their facility giving them space to grow and expand.

But that won't occur this fiscal year, so we'll begin looking at that kind of in that 2025 to 2026 time horizon. But just as a reminder the Colorado facility is our headquarters. It's 80,000 square feet. The majority of the growth and expansion will occur here.

The needs of the team in Kansas really are related to the two nodify tests and running those, and it's a much smaller footprint so we feel really good about the real estate options there. And we'll try to be mindful of cost as we as we enter that project but it really is about better enabling that team to work effectively and efficiently.

And we'll provide more details as we get closer.

Got it. Appreciate it. And just to confirm Scott so the six to eight ads per quarter on the sales team that has you ending the year 75 ish. Is that the right number for us to be thinking about?

Yeah, Thomas. I think you're thinking about it exactly how we are. The key component like I said earlier, is the sooner we can bring them on the more time they have to contribute. If we bring, let's say we end the year at [75 truth] is we'll probably have four or five of them that will begin coming on later in the quarter. And that really just sets us up for success to come out of the gate strong as we enter 2025. But your numbers and the cadence of additions is exactly how we're planning.

And then just one quick final one kind of following on from an earlier question about where you guys are winning. I was curious if there are quote unquote mature accounts or pulmonologists in in terms of having been called on a lot, that you don't feel are fully penetrated. I don't know if there are such people but I would be curious if there are. What is their hesitancy to kind of going all in with the nodify products?

Yeah it's a great question. It really in any one of those scenarios it's going to vary. It'll vary by practice. It'll vary by referral patterns and the patient population they see. There's nothing glaring nothing standing out that limits us. And what we've seen is continued or deepened penetration into those accounts.

We now have a handful of accounts that have exceeded their 300 order and we have one that's over 500 nodified test results. So you can see the longer we're in those accounts we are seeing, broader and continued use and adoption. We've tracked over time -- what we really see is once an account gets to kind of that 10 to 20 test ordered and we can have a consultative review of those test results we find that reorder rates jump pretty significantly.

And then once they get beyond that 40 to 50 it's pretty linear as they continue to grow and scale from there. We've not seen anything new or in recent months or quarters that have changed that. And so we feel really good that we can continue to add the sales reps that we're planning on adding enabling them to get out and really share the value that the nodify test offer and we're excited to do so and continue to provide these strong results.

Excellent. I appreciate you taking the questions and congrats on an awesome quarter.

Thanks, Thomas.

And I'm showing no further questions. I would now like to turn the conference back to Scott for closing remarks.

Thank you, operator. It's an exciting time here at Biodesix . We've worked long and hard to build the best pulmonology focused commercial team in diagnostics. With first mover status and lung nodule management and an ever increasing body of robust clinical data we are building on the momentum we created as we further increase our clinical and payer adoption in this extremely large and underserved population.

We've had a great start to the year and with a strong balance sheet to execute our plan towards profitability we view 2024 as a pivotal year of execution and we look forward to updating you on our continued progress and success on upcoming earnings calls. Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect.