Biodesix Inc
NASDAQ:BDSX
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Biodesix Inc
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Welcome to the Biodesix Q1 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 first speaker today, Chris Brinzey, Investor Relations. Please go ahead.
Thank you, operator, and good afternoon, everyone. Thank you for joining us today for a discussion of Biodesix First Quarter 2024 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 of 2024. 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 the diagnostics 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, 2023, filed with the Securities and Exchange Commission as well as subsequent quarterly reports on Form 10-Q filed during 2024 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. This call will also include a discussion of non-GAAP financial measures, which are adjusted to exclude certain specified items. A reconciliation to the most directly comparable GAAP financial measure is available in the press release we issued today.
I would 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. It's been a great start to the year, and I'm thrilled with our performance in the first quarter. Our organization and all team members remain committed towards delivering upon the 3 goals we outlined last quarter. These include driving increased revenue through the adoption of our lung diagnostic test and our biopharmaceutical and diagnostic services, implementing operational efficiencies to improve gross margins and maintaining a cost disciplined approach on our path to profitability.
Achieving these 3 goals is all about successful execution of our business plan, and I believe our first quarter results highlight the commitment of our team to making this happen and we are on track to meet and exceed our goals for the year. I'm pleased to share that total revenue grew 64%, driven by our seventh consecutive quarter of greater than 50% growth in lung diagnostic test volumes and over 100% growth in our biopharmaceutical services revenue. Gross margins were 79%, which continues to rank among the highest in the diagnostic industry.
On top of that, we improved our adjusted EBITDA by 48%, making yet more progress on our path to profitability. Our pulmonology focused sales team is comprised of sales consultants managing territories and associate sales consultants who focus on developing additional business in existing accounts in those territories. After a positive pilot program, we started building out the associate sales consultant team in 2023. In the first quarter, we had an average of approximately 55 fully trained sales representatives, including both the territory managers and associates and started the second quarter with approximately 60.
Today, this model has been implemented in more than 50% of our sales territories, and we plan to continue strategically expanding through the remainder of the year by adding about 6 to 8 additional sales representatives and associates per quarter. Overall, this model has proven to be very effective in strengthening account retention and expanding within an account by adding physician users. It also creates a successful fully vetted and fully trained bench to backfill territories as needed and rapidly expand into new territories to drive further growth.
In our biopharmaceutical services business, we continue to see the momentum that began in the second half of last year. Like our lung diagnostic testing, we're achieving growth through additional projects from existing customers as well as new contracts from new customers from an increasing number of incoming RFPs and opportunities. In addition to the lung diagnostic and biopharmaceutical service advancements made in the quarter, we were thrilled to announce our new co-development agreement with Memorial Sloan Kettering Cancer Center. This expands on our earlier research collaborations and will accelerate the development of new diagnostic tests aimed at improving cancer treatment options and outcomes. Our Chief Development Officer, Dr. Gary Pestano, and Dr. Howard Scher from MSK, shared an update on this new collaboration at the 31st International Precision Medicine Tricon Media.
The framework presented demonstrates our pipeline strategy that builds on our strength in product development, quality, reimbursement and commercialization and gain strength from selectively partnering with premier clinical institutions, such as MSK, and also with other strategic partners in the technology and regulatory space. Building on our existing body of clinical data, a new manuscript in which our liquid biopsy ddPCR testing was an important component was published in collaboration with the Friends of Cancer Research and we shared a number of presentations at the American Association for Cancer Research Annual Meeting.
The AACR data demonstrated our advancements in liquid biopsy testing, including the real-world value of actionable variant testing in the community as well as informing clinicians with actionable information to make rapid and optimal treatment decisions. We also continue to enroll in altitude our prospective randomized trial evaluating the clinical utility and performance of our Nodify testing that's been conducted at a number of major academic institutions. This study is being overseen by a third-party independent data monitoring committee that will be determining updates on potential interim analysis, and we'll provide more updates in the coming quarters.
Finally, moving to operations. Our team continues to deliver on test process automation and workflow optimization projects covering commercial diagnostics and biopharmaceutical services that continue to drive improvements in gross margin. We ended the first quarter with 79% gross margins, an increase of 14 points over last year and another 2-point enhancement over an already strong fourth quarter. We've been exceptionally effective in providing our tests with industry-leading turnaround times and have made great strides in becoming even more efficient in the delivery of those tests. With our commitment to an effective, efficient and cost disciplined approach, we built a commercial and operational platform that will help facilitate long-term, consistent, sustainable growth. And I believe everyone is beginning to appreciate the operating leverage that exists within the business model and our efforts to demonstrate the team's significant progress and outstanding execution on our path to profitability.
Before I turn the call over to Robin, I'd like to reiterate our commitment to transform the standard of care in lung cancer and improve patient outcomes with personalized diagnostics. 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 3 deadliest cancers, 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.
With that, let me turn it over to Robin to review the first quarter 2024 financial performance. Robin?
Thanks, Scott. First quarter total revenue was $14.8 million, a 64% increase over the prior year. We delivered approximately 11,900 lung diagnostic test results in the first quarter of 2024 versus approximately 7,600 test results for the first quarter of 2023, a 57% increase. Lung Diagnostic revenue in the first quarter was $13.8 million, compared to $8.6 million for the first quarter of 2023, an increase of 60% over the prior year. This was driven by continued strength in testing volume growth despite continued challenges with certain Medicare Advantage plans.
As we've discussed in prior earnings calls, we continue to experience delay in some Medicare Advantage payments for our Medicare covered tests from certain payers. While we continue to work with the plans to resolve the administrative hurdles, the backlog of claims continues and is now approximately $3.5 million to $4 million. We will continue to provide updates on our calls as we work towards a satisfactory resolution and as a reminder, we have excluded both the collections of any of the backlog and the prospective collections from tests from these payers from our guidance in 2024 as we work to resolve the administrative issue.
Biopharmaceutical services revenue was $1.0 million in the quarter compared to $400,000 in the first quarter of 2023, an increase of 149%. Importantly, we continue to see continued strength in the number of incoming requests in this area of our business, and we ended the quarter with $9.0 million contracted but not yet recognized as revenue. Gross margin percentage in the first quarter of 2024 increased to 79%, up 14 percentage points versus 65% in the prior year quarter and 77% in the fourth quarter of 2023. The steady improvement we have seen and the current gross margin trend reflects the growth in our lung diagnostic testing and the successful completion of projects to decrease costs and optimize testing workflows. As we've made such large improvements over the last year, we anticipate that the margins will remain fairly steady in the mid- to upper 70s going forward.
Overall operating expense, excluding direct costs and expenses, was $22.7 million in the first quarter of 2024 compared to $22.3 million for the same period of 2023, only 2% growth versus 64% growth in revenue demonstrating the operating leverage that exists within the business model. The increase in operating expense versus the prior year quarter is primarily the result of an increase in noncash stock-based compensation and depreciation expense related to the leasehold improvements in our new Louisville, Colorado office and laboratory plus increased sales and marketing costs to support lung diagnostic sales growth to enhance product awareness and drive adoption partially offset by a decrease in research and development costs.
Specifically, operating expense for the first quarter 2024 includes $4.1 million in noncash stock compensation expense, noncash depreciation and amortization and asset impairment as compared to $3.1 million during the comparable period in 2023 and $2.1 million in the fourth quarter of 2023. Net loss for the first quarter of 2024 was $13.6 million compared to $18.7 million net loss for the same period of 2023 and $9.1 million for the fourth quarter 2023, the decrease in net loss for the quarter was driven primarily by the increase in revenue, improvements in gross margin and reduction in certain operating expenses, including R&D expense.
The increase in net loss versus the fourth quarter reflects an increase in the depreciation expense related to the leasehold improvements in our new Louisville, Colorado office and laboratory and noncash stock compensation. To provide better clarity of progress on our path to profitability, during the third quarter of last year, we started reporting adjusted EBITDA, which excludes certain noncash items and COVID-19 testing revenue and direct costs and expenses.
Adjusted EBITDA for the first quarter of 2024 was a loss of $6.96 million compared to a loss of $13.32 million for the first quarter 2023, a 48% improvement. The improvement in adjusted EBITDA in the quarter demonstrates our focus on actively managing our operating expenses, our success in improving gross margins and driving growth in top line revenue, resulting in a decrease to our cash burn. While we ended the quarter with $11.5 million in unrestricted cash and cash equivalents as compared to $26.3 million at the end of the fourth quarter, I did want to highlight important subsequent events that have strengthened our balance sheet putting us in a well-capitalized position for continued growth going forward.
In April, we announced the closing of $55 million in gross proceeds raised in our successful oversubscribed and upsized underwritten offering and concurrent private placement. This fund raise strengthens our balance sheet, expanded our investor base and provides us the runway to accomplish our goals of growing the top line and achieving profitability. After taking into consideration underwriting fees and commissions, the company collectively raised net proceeds from the equity offering of approximately $51.5 million. Subsequent to the end of the quarter on April 1, the company made the scheduled milestone payment of $5.3 million for the acquisition of Integrated Diagnostics in 2018. In addition, we prepaid the July 1, 2024 milestone payment of $8.4 million, which included interest through the date of payment, saving approximately $160,000 in interest. The company has 1 payment of $6.1 million remaining due on October 1, which does not accrue interest. Finally, turning to 2024 guidance. We are reiterating our plan to deliver $65 million to $68 million in total revenue and are excited to deliver on our year of execution.
Now let me turn it back to Scott.
Thanks, Robin. It's been a great start to the year, and we've delivered our seventh straight quarter of greater than 50% growth in lung diagnostic testing volume, over 100% growth in biopharma services revenue, 79% gross margins and substantial progress on our path to achieving profitability. And with the additional capital in place to support our long-term growth, I believe our future is brighter now than at any point in the company history.
We remain committed to executing upon our 3 goals: driving increased revenue by accelerating the adoption of our lung diagnostic test and biopharmaceutical services, implementing operational efficiencies to improve gross margins and maintaining a strict cost discipline to achieve profitability. By aligning these 3 strategic efforts, we are confident in our ability to sustain our aggressive growth trajectory, make progress on our path to profitability and deliver value to the health care professionals, their patients and all shareholders. We are transforming the standard of care and are excited to be making such a significant impact.
With that, I'll turn the call over to the operator for questions.
[Operator Instructions] Our first question comes from Andrew Brackmann from William Blair.
Maybe just starting here on the rep side of things. Maybe just sort of talk to us about rep productivity by cohort. You've added a handful -- you've added a significant number of reps over the last handful of years. So just any color that you can provide on what you're seeing from these different groups from those hiring classes and how that plays into your confidence in volume ramp for the rest of the year?
Yes. Thank you, Andrew. Appreciate the question. Yes, we have continued to kind of maintain a 6 to 8 sales professionals being added per quarter. We've continued to maintain about a 3-month time frame from a new hire getting to a position where they're paying for themselves. So that gives us confidence that what we're doing is working in terms of training and onboarding. Now when you look at the United States and where we have territories, we know that, especially in the West, we still have a number of territories that are too large. So when we place an individual in 1 of those territories, we know that, that ramp might be a little bit lengthier and those individuals are going to have potentially a higher cost associated with their day-to-day activities. So they aren't all created equal. But -- because we are seeing that kind of path to profitability and their efforts be somewhat similar, it gives us confidence that we can continue to grow.
We also are able to assess penetration and adoption within territories. And we know that we're just beginning to scratch the surface in this massive opportunity. So as we look at the full year, continuing to add 6 to 8 sales professionals per quarter. We expect that we'll end the year somewhere around 70 to 72 that are contributing. The real key will be in that last cohort how early do we bring them on and how much are they able to contribute probably into the second or third month of the quarter. So for us, we factored that in, in our plans coming into the year. And we've guided really from a model and a position that -- or a framework, I should say, that's built upon that sales rep productivity and that sales rep expansion.
Now we have talked a lot about the associate sales consultant. We've got -- we're approaching 50% of our sales territories actually having an associate sales consultant. That mix will change. It's going to be based upon productivity. It's going to be based upon size of territory and the real opportunity to continue to grow and expand. But we're grateful that we introduced that and piloted that a little over a year ago, and we see a lot of upside there remaining. I hope that was helpful, Andrew.
Yes. Very helpful. Great color. Maybe I guess just sticking on the commercial infrastructure here for a minute. As you've established that channel in pulmonology, can you maybe just talk to us at a super high level on how you're thinking about further leveraging that channel moving forward, be that through new products that are organically developed or even partnerships or M&A?
Yes. Great question. We feel that it's one of our strongest assets. All of us know that many efforts commercially don't succeed the first or second time. So we don't take that lightly, the fact that we've built a fully integrated commercial team and channel and having the successes that it's having, we know that there's greater opportunities. We also hear it from our pulmonology customers, where they present new disease states or challenges. And really, they're all based upon a critical clinical question that remains unanswered. So we know there's additional opportunities just to provide value. We also know that there's a means by which we could potentially do so in an accretive fashion by adding additional products to our sales reps' bags and meanwhile, decreasing the size of their territory.
Those are all on the road map and the horizon. This has been an interesting year with our success as we've had a number of companies reach out to talk to us about opportunities to sell their products to distribute it. And we said no. For us, it's laser focused. We're so under-penetrated in this opportunity. We're focused, first and foremost, on really continuing to invest in the sales channel and the reason I state that is in the future, I still believe that the sales team can add 2 to 3, maybe even 4 more products as long as they're appropriate for that call point. And we're going to find a means by which we do that, whether that's organic or inorganic.
Our next question comes from Kyle Mikson from Cannacord Genuity.
Congrats on the quarter. I guess on that note, revenue numbers should by almost $1 million core lung and biopharma had with momentum and they're getting back on track, I guess, I guess why not raise the revenue guidance. I'm just kind of curious, like given that momentum and the field looks pretty open here. Is there anything to look out for in the lung diagnostics market in the near term that you see?
Yes. Thanks, Kyle. Great question. For us, on this journey, one of the things we focused on is really building trust, and we've been very consistent about the opportunity, very consistent about our priorities and so as we focus on trust, getting the 2024 year off to a great start, putting up a good quarter was our first priority. And I think we've done that, and I think you acknowledge that. We know once we've done it once, we want to do it twice. And so if anything, we're just being mindful of managing expectations, it's early in the year. I'm certain that we'll talk a little bit about the LDT FDA ruling. Some of those uncertainties just caused us to pause and "don't want to get over the tips of our skis" but we are very bullish on the year. We feel that we've got a lot of momentum. And I think you nailed it.
The core lung diagnostic business continues to perform exceptionally well with our seventh consecutive quarter of greater than 50% growth. And we're really excited to see that rebound we've been talking about on the biopharma services. And so to put up another strong quarter there have greater than $9 million of contracted business yet to be recognized on the biopharma services front, we feel really good about that. But on the biopharma services front, that's been the area that's been quite lumpy whenever you're dealing with partners or third parties you've got to make certain that their priorities remain consistent and strong throughout the year. And both of those contracts are reliant on us receiving samples. And so we'll continue to talk a lot about the upside that we see. But for us, it's really -- let's just execute, let's put up strong performance, and let's have those conversations at the end of the second quarter.
That was great, Scott. And on the -- on that note, the biopharma revenue, I guess, the services side of things, funding is definitely getting better. There's been IPOs, there's been private deals. So I'm wondering if this revenue contribution recently where you're looking at in the near term, this is $9 million in contracted revenue. Is that like new RFPs or just the completion of new deals? Is that -- both deals? Is that going to be what the revenue kind of gets rolled in by? And then what happens when the plumbing situation in the biotech world kind of levels out a bit? Could there be like a bolus of this biopharma revenue in the first quarter and second quarter, maybe? Or would there be kind of like growth throughout the year with the flush force for year-end possibly?
Yes, it's a great question. For us, as we've focused on building that trust and report with our partners, what we've seen is a lot of continuation and build on contracts that's the ideal way to do it, where you partner with a partner, say, for an early-stage discovery effort it works well. You move on to the second phase, you move on to the third and those contracts become larger. But more importantly, you become a greater importance to that drug discovery and development effort. So we've seen a number of those that have continued.
We have seen new RFPs come in from new partners, and we're proud to share that we've signed some of those agreements. We don't really attribute any of that to new fundraising efforts. I think those biopharmaceutical companies that have completed some of those fundraising efforts, they're more on the horizon. There are going to be targets for us moving forward. And when it comes to revenue recognition and achievement, it really is dependent upon the type of agreement that we sign and whatever their hypothesis is and what we're trying to help them answer the question, too. If it's retrospective samples, there's a likelihood that it can have a near-term impact once we receive those banked samples.
If it's a prospective trial or study, obviously, those are a little bit easier to forecast, but those are going to be spread out over multiple years. So we look at that $9 million under contract and the best way to look at that is we'll recognize the majority, if not all, of that revenue over the next 2, maybe sliding a little bit into 3 years. So it gives you confidence that there's a good book of business that's built, it will continue in a sustainable fashion for quarters to come. And then the sales team is out continuing to expand that funnel. So great opportunity. You highlighted the fundraising market for biopharmaceutical companies. One of the things we saw historically with the year-end push. We haven't seen that recently. So we'll keep you updated as we progress through this year to see if we actually anticipate a significant hockey stick towards the end of the year. But at this point in time, it's too early to say, but we'll be well positioned to capitalize if it presents.
Okay. That was great, Scott. And a final one for Robin. It's actually a 2-part question. First is on the kind of like unpaid MA, the Medicare Advantage claims, I think it was $3.5 million to $4.0 million in claims. I guess we've been hearing that for at least a few quarters now. Is there a possibility that you lose the opportunity to recognize that revenue after like a certain period of time? Or is there just -- you have unspecified amount of time to capture that. And therefore, you're probably good to go even if it takes years to capture. That's the first part. Second one is on the the $6 million payment, I think it was -- I think is going to be paid in October. How was that structured? Is that just like a standard in your OpEx or something? It's just like baked in there? Or is it like incremental almost like they kind of spaced out a bit.
Yes. Kyle, the Medicare Advantage because we didn't recognize that revenue as an accrual in the period that the tests were performed. It will be recognized upon cash collections. So there is no clock for our ability to recognize it when the cash comes in, that's when we'll recognize it. So we're in good shape there, and we'll keep you all updated as we make progress. No interaction or transaction with a payer is fast. And so yes, it's been -- it feels like a lot of quarters that we've been talking about this, which can be frustrating, but it's sort of the nature of the beast.
The $6 million to be paid in October is just the last payment of the milestone payments for Indi. So we had it set up that we were paying quarterly over the span of multiple years on those milestones and all but the last milestone carried interest. Following our fund raise in April, we actually prepaid the July 1 payment which saved us about $160,000 in cash. So that's cash that stays in the business and doesn't leave. We did not prepay the October 1 milestone because there is no interest. So there's no real incentive for us to move it forward.
Our next question comes from Thomas Flaten from Lake Street.
Rob, just a follow-up on the Medicare Advantage. Aside from maybe a desire just not to pay you, is there any commonality in the reasons for not payment? And what I'm getting at is, is there a a trigger, which could unlock a substantial portion of that backlog? Or is it just a whole mess of individual claims that need to be adjudicated as such?
It's a massive individual claims, but it's a pretty consistent sort of administrative hurdle. So if we can address the administrative hurdle that's been placed in front of us, it should lock up a good portion -- unlock a good portion of those. And so it's not like we have to deal each on a claim-by-claim basis. I'd say it's a more common issue across multiple claims. .
Got it. Got it. And just sticking with you, Robin, on the gross margins, you indicated that they would stay in the mid- to high 70s. So if we call that like a 400 basis point swing. What caused it to move around within that window? What would cause it to be 76 next quarter versus 79 this quarter?
Yes, it's really a mix. So if we have a higher biopharma and we have -- and the biopharma gross margins can be varied based on what the type of contract is. The last couple of quarters have been very strong, which have contributed to our high growth margins. But if we have a contract that comes in, that's a slightly lower gross margin, and that's a bigger portion of the business for the quarter, then you could see some movement. There's nothing that we would expect to cause any sort of issues from like a process or productivity standpoint, it's really just mix of tests in biopharma.
Got it. Got it. And then just a quick final one. Any whispers on the potential for guidelines changes, particularly with ACCP here in the fall?
Thomas, thanks for the question. We're eager to hear as you highlighted, the CHESS guidelines usually received some sort of update or adjustment in and around their Annual Society Meeting and Conference which occurs in the October, November time frame. They have not given any guidance other than to state and comment that it's been nearly 10 years since they have updated them, they're woefully behind and they've got to make a change. So we're eager to see what they are willing to disclose heading into that fall convention timing. We continue to focus on data development and commercially, we're going to do what we can to ensure that anyone that's associated with guidelines has an opportunity to be exposed to our testing.
They appreciate the value that it provides and they can go into those discussions with their own experiences that are personal in nature but can help drive broader adoption across the industry. So we feel like we've put ourselves in a good position and again, we'll wait and see. And that really extends outside of just not just CHESS, but into NCCN and even the Fleischner guidelines, we continue to make inroads there. And we'll let everybody know as soon as we're informed and hear something. And whether it's this year or not, it is definitely a focus and a priority to continue to develop our test, develop data and put ourselves in the best position possible.
This concludes the Q&A session. I will now turn it over to Scott Hutton 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 module management, and an ever-increasing body of robust clinical data, we're building on the momentum we created as we further increase our clinical and payer adoption in this extremely large and underserved population. Ultimately, it is all about the health care professionals and their patients that they treat. And we believe in our unique ability to scale and have a material impact in the future. 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 our next earnings call. Thank you.
This does conclude the program. You may now disconnect.