Good morning. My name is Joanne and I will be your conference operator today. At this time, I would like to welcome everyone to the Biodesix Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Chris Brinzey, you may begin the conference.

Thank you, operator and good morning everyone. Thank you for joining us today for a discussion of Biodesix second quarter 2022 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 2022. 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, 2021 filed with the Securities and Exchange Commission on March 14, 2022 as well as subsequent quarterly reports on Form 10-Q filed during 2022 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. With that, I would now like to turn the call over to Scott Hutton, Chief Executive Officer. Scott?

Thank you, Chris. As a reminder, Biodesix is a patient-centric, mission-driven lung disease diagnostic company with a mission to unite biopharma, physicians and patients to transform the standard of care and improve outcomes with personalized diagnostics. In our last call in May, we were excited to share that towards the end of the first quarter, we were experiencing strong sales growth in our core lung diagnostic testing, driven in part by sales access returning to pre-pandemic levels. I am thrilled to say that, that strength continued through the second quarter. We finished Q2 with total revenue of $11 million, which includes core long diagnostic testing revenue of $7.3 million, reflecting a very strong 52% year-over-year growth and 56% growth over the first quarter of this year. This was a record quarter in terms of revenue and delivered test volumes. As we begin to put many of the challenges of adapting to a post-pandemic world behind us, we are confident that this momentum will carry through the end of the year and beyond. Stepping back for a moment, we believe we have one of the most comprehensive suites of diagnostic test with 5 blood-based tests available to support clinical decision-making across the lung cancer continuum from initial risk assessment of lung nodules with Nodify lung testing strategy to post-cancer diagnosis treatment guidance and monitoring with the IQ lung testing strategy. The Nodify lung testing strategy consists of two blood-based proteomic tests; Nodify CDT and Nodify XL2, which are used by physicians to assess the risk of malignancy of a lung nodule. This helps prioritize higher-risk nodules for invasive diagnostic procedures while also helping avoid unnecessary procedures on very low-risk nodules. In June, we announced that Medicare began covering the Nodify CDT lung nodule test at a price of $649. This is…

Thanks, Scott. We are pleased with our second quarter total revenue and core long diagnostics revenue, which exceeded consensus estimates. Overall, total revenue was $11.0 million compared to $11.9 million for the second quarter of 2021 and represented an increase in revenue from our 5 core lung diagnostic tests and offset by an expected decrease in COVID testing as testing moved more towards at-home rapid antigen testing. Our second quarter core lung diagnostic testing revenue was $7.3 million from total volumes of approximately 5,600 tests versus $4.8 million from total volumes of approximately 4,000 tests for the second quarter of 2021. This represents 52% revenue and 40% volume growth over the second quarter of 2021 and 56% revenue and 30% volume growth over last quarter. The growth in test volume was primarily driven by our Nodify CDT and Nodify XL2 tests and the recent launch of the GeneStrat NGS test. Biopharmaceutical Services revenue was $0.7 million compared to $1.0 million in the second quarter of 2021, a decrease of 29%. As we have said before, this business can fluctuate due to several factors, including contract timing and project execution, but in this instance, reflects the continued impact that pandemic has had on extension of prospective clinical trial time lines and shipping of samples needed to complete the projects and recognize revenue. We ended the quarter with up to $7.8 million contracted but not yet recognized, $2.2 million of which is currently on the balance sheet as deferred revenue as we have already collected the cash. COVID testing revenue was $3.0 million in the second quarter of 2022 versus $6.1 million in the year ago quarter, an anticipated decrease, which we discussed in our May earnings call. The increase in the second quarter over the prior quarter was due to a…

Thank you, Robin. So as you’ve just heard, it’s been a busy, productive and rewarding quarter. I’m extremely proud of the Biodesix team and excited for us to continue to grow as we progress through 2022. The Biodesix team remains steadfast in our commitment to: one, improve the lives of patients impacted by lung disease. Two, integrate Biodesix testing into physician practices, providing all the testing needed for a lung patient through the continuum of care. One patient, one trusted company, multiple test, personalized results. Three, discover and develop new diagnostic tests like our risk of recurrence test, primary immune response test, and the newly announced molecular minimal residual disease test. Four, lead the way with AI explainability and transparency. Five, conduct numerous clinical studies to demonstrate. And reinforce the real-world performance of our test. And six, grow and expand our biopharmaceutical partnerships to aid in their research, drug development, clinical trials, and development of companion diagnostics. In closing, I’d like to thank all Biodesix teammates for their dedication to the Biodesix mission, vision and culture, which revolves around our collective commitment and daily contributions to positively impact patients’ lives. With that, I’ll turn the call over to the operator for questions.

[Operator Instructions] Your first question comes from the line of Brian Weinstein with William Blair. Your line is open.

Hi, guys. Good morning.

Hi, Brian.

Hi. We start – just some questions on the guidance in particular. Can you help maybe break that down a little bit between the core lung, the COVID and the biopharma. There is obviously a lot of moving pieces. Robin, I think you talked about COVID really trailing off. I’m not sure how to think about biopharma. And then on the core lung side, what that would look like? I mean, it would appear to us that given the momentum that you guys are seeing, it sounds like access is pretty open. You can talk about that if you want, certainly. But now the CDT reimbursement coming in at a higher level than I think that we would have anticipated, it would seem like that core lung franchise should have some pretty good momentum behind it. So can you just talk about how you thought about all of that with the guidance and breaking that down for us?

Sure. Good morning, Brian. Yes. Well, obviously, we’re very pleased with the growth momentum in the core lung diagnostics and with the price for Nodify CDT. We do expect to continue to have strong growth. But I think, as I mentioned earlier, we’ve been very cautious about adding new heads and growing the size of the organization this year, trying to maintain or reduce our expected spend in burn, which could potentially temper some of that higher level growth versus if we just continue to wholesale expand the sales team. From COVID and biopharma, yes, we expect COVID to drop off due to the expiration of the contract with our State of Colorado partner. And with the biopharma delays in shipping and extension of the time lines for those studies, we sort of look at COVID and biopharma as offsetting each other. So we think with our lung diagnostics, we’re on track, as we’ve talked about over the course of the year, and with COVID and biopharma somewhat offsetting each other, that’s how we got and remain at our revenue guidance of 37.5% to 39.5%.

Yes. It just feels as there may be some conservatism that’s built into that core lung, which I guess I understand just given prior uncertainty and whatnot. And you guys just kind of getting back on your feet a little bit. Is that an appropriate characterization that there is some conservatism that’s sort of built in here? Because again, just given the higher CDT reimbursement than what we would have thought and the momentum that you’re seeing that it would seem that those numbers could actually be a bit higher. I just want to make sure that there is nothing that you’re seeing in the end market that’s concerning or anything like that, that would kind of put a lid on that growth or it’s just conservatism being – just given what we’ve seen over the last couple of years.

You’re absolutely right, Brian. It’s conservatism. We’re trying to plan and anticipate that we could potentially have another COVID wave that sneaks up on us. I think what we’ve learned over the last couple of years is nobody really can predict COVID or how it impacts hospitals and physicians in their general population. So yes, there is absolutely conservatism built into the lung diagnostic forecast.

Okay, thank you. And then on the lung portfolio, Scott, maybe you can talk a little bit about the sales cycle there. what you’re seeing in terms of physician willingness to engage with you guys, and how long it takes to kind of close an account and what kind of utilization you’re seeing? You’re not providing physician metrics there, you are providing test volume, which we appreciate, certainly. But can you just talk about sales cycle, how long it takes to close to a kind of just feedback that you’re hearing in general.

Yes. Thanks, Brian. Great question. As a reminder, we launched Nodify XL2 and Nodify CDT, both right into the pandemic headwind. So the way we look at this is we went into lockdown, we launched these two products. We were doing the best we could remotely. So now with our returning to a pre-pandemic state of access, we’re out there really educating and informing physicians on these two new products. In many cases, we’re introducing them to Biodesix and our full portfolio of products and test capabilities. We’re being received and welcomed exceptionally well. And as you’ve seen, it results in the strong and significant growth we’ve experienced. It really depends from an individual sales rep perspective on the prior history experience with the Biodesix sales reps pre-pandemic. In some cases, as you’ll recall, we’re out introducing ourselves because we’ve expanded the sales force significantly. Pre-IPO, we stated that we would double the size of the sales force in 2021. We did that. We continue to focus on expanding the sales force. Given the current market and economic environment, we’re more mindful of where we expand and when we expand, and we prioritize those areas that are underpenetrated with a high incidence and prevalence of lung cancer, where we think we can go in and make a significant positive impact in patient care. With the major society meetings for pulmonologists coming up in the fall, we think we’ve got a great opportunity to continue to increase those face-to-face interactions. And if you think about it, when I state that we launched Nodify CDT and XL2 going into the pandemic headwind, we’ve not attended CHEST since the launch of those two meetings in-person. So we’re looking at this as a huge opportunity to continue to build on the momentum that we’ve got already. Is that helpful, Brian?

Yes, it is. I appreciate that. And then one last one for Robin. Robin, can you just talk about operating cash flow expectations for the year? Obviously, you will have access to different sources of capital. So on the financing side, but just in terms of the cash flow from operations, so how should we think about the burn for the full year there?

Yes. We anticipate, as our revenue grows, obviously, operating cash flow will improve and our burn will reduce across the year. We noted in the remarks today that this quarter included $7 million of non-cash expenses. I believe I noted last earnings call that due to the changes in our debt structure, the reorganization of the Indi milestone payments and all of the other movements we’ve made we had more expense hitting the interest expense line. And so we saw that for sure in the second quarter, and we will continue to see that as we move forward through the rest of this year and into 2023. We plan to utilize the liquidity options we have over the rest of the year and into 2023. And also, we will continue to look at other options and other facilities that could further enhance our cash position to get us to cash flow breakeven.

Okay. Alright. I’ve got a bunch more, but we will deal with those off-line. So thank you guys for taking the questions.

Your next question comes from the line of Max Masucci with Cowen. Your line is open.

Hi. Thanks for taking the questions. Great to see the continued momentum in the lung cancer diagnostics business. So first one, just based on today’s release and commentary from prior calls, it’s safe to say that XL2 and the CDT volumes continue to ramp nicely. I’m curious, is there any detail you can provide around the amount of Nodify CDT volumes that you were processing or taking in before the Medicare coverage hit but not getting paid on. And so with the CDT reimbursement starting to flow in during June going forward, I’m just trying to understand if there is potential for a near-term revenue boost, if you do start getting paid on some CDT volumes that you have – that you’ve been taking in previously but not getting paid on prior to the coverage one?

Good morning, Max. Yes, we’re very pleased, obviously, with the Medicare coverage and the pricing that we received. We have received some payments on tests that we brought in prior to the coverage through – as we move through the appeals process. As with Medicare, you’re never 100% certain how all of the claims volumes and the timing of those will flow. So we’re not projecting any major backlog or large numbers here. We’re just really looking to the future and projecting the full coverage of the test at the 649 moving forward.

Okay, great. And even before CDT earned Medicare coverage, I think my understanding is that it was frequently being ordered in tandem with XL2. So maybe can you just remind us what the frequency is of both CDT and XL2 being ordered together versus on a standalone basis? And then just given the bundled approach of the risk assessment strategy, how do you expect the Nodify CDT Medicare coverage to influence the frequency of XL2 ordering and just that bundled type approach?

Hi, Max. Great question. Yes, as we stated in the past, what we’ve seen as physicians become comfortable and knowledgeable on the benefits of Nodify testing is both tests being ordered together. Physicians really see both the benefit of a rural in-test and a rural out-test. And so with Nodify CDT being run first that really falls in line with physician thinking, right, if they are trying to find those patients with likely malignant nodules so that they can intervene, we all know that since we’re dealing with the dead least of all cancers, early detection and diagnosis increases the likelihood of a positive outcome. So, with a positive or a likely malignant result, those physicians then know to intervene. At that point in time, we do not run the XL2 test because there is no need. So, we have seen them ordered predominantly together. And then it really just depends upon whether XL2 is run and those percentages will vary based upon each individual physician practice and how they are targeting and selecting patient populations. We do anticipate and expect coming out of the pandemic because physicians pulled those at-risk patients to stay away and stay healthy, as they come back out, they are prioritizing the high-risk patients. And so when you referenced the Medicare coverage for CDT, we think there is upside and a positive impact as we see more utilization or positive likely malignant test results for Nodify CDT.

Great. I appreciate that color. And maybe one final question for Robin, just around biopharma. I mean is there any update or detail around just the size of the biopharma backlog and where it stands or even maybe the growth in the biopharma revenue backlog, if some of the conversion has occurred a bit slower due to factors that are not specific to Biodesix. We have seen it for many other companies. So, detail around the size of the backlog, the growth in the backlog. And then maybe even the percentage of the backlog that’s coming from prospective versus retrospective studies.

Sure, happy to. We currently have a $7.8 million in backlog, the currently signed contracts that are not yet recognized revenue. We are pleased with that number and really pleased actually with the funnel. For contracts, the number of contracts and the size of the contracts that are under negotiation and moving forward, really gives us confidence in our long-term biopharma business. You are exactly right that the conversion factor is really hard to calculate right now due to the outside factors. And we really have sort of three time lines here that are sort of pre-COVID, the 2 years of COVID and now, hopefully, what is post-COVID. And they really all are very, very different. So, it’s hard to compare each other. The larger portion of the backlog is in prospective studies. The retrospective studies tend to be shorter timelines because the samples are already collected, and the biggest factor for us in getting those done is sample shipment. So, we have mentioned and I have seen others mention as well delays in getting samples in the door. So, that does push off some of the retrospective projects from being completed. But because the larger portion of our – of the business right now is prospective, any delays or extensions of timelines really does impact the revenue in the current quarter.

Great. Super helpful. Thanks again.

Your next question comes from the line of Kyle Mikson with Canaccord. Your line is open.

Hey. Thanks. Congrats on the quarter. So, Robin, I want to start with the CBT reimbursement $649 solid rate. It’s not on the CMS ADLT list, at least when I last checked. I guess this ADLT an option for CDT. Obviously, many of your tests have been granted ADLT status and enjoy those higher payment rates, like could CDT join that group? And if so, when could that happen?

Great question Kyle and good morning. There is a potential for ADLT, but I would not expect an increase in the price for ADLT Category A, which if CDT were to receive that status, that’s the category it would be under. The price for the test for the first nine months is actually the list price on the first data test is offered, and that list price for us is $649. So, we actually did receive our original list price from Medicare already. So, we are already above where we had expected to be. So, I would not expect any change to that price. And I also can’t really comment about ADLT timelines if we were able to get that status sort of at the mercy of CMS.

Okay. Alright. Thanks. So, on gross margins, mid-60s through second half of the year, does that basically mean that the fourth quarter gross margin could be like flat to 2Q levels? I am just wondering like why that would be just given you would assume volumes would increase. You have the reimbursement here in the back half. So, maybe could you just walk through the puts and takes, Robin, the gross margins?

Sure. I would expect a couple of points uptick, so – but just not major increases. So, in the mid-60s, perhaps up to the 67% by the end of the year, I think makes sense. The biggest drag right now on gross margins is the GeneStrat NGS launch. As with every test as you are ramping and scaling – getting to scale is really a critical factor for strong positive gross margin contribution.

Okay. That was great. And then Scott, it would be meaningful if VeriStrat was found to be predictive of give yes, no yes. Could you just walk through the path to develop like a VeriStrat and panadiagnostic. And I am wondering if the biopharma partnerships are in place today that could look enable them?

Yes. Good morning Kyle. Great question. Yes, we do offer all of our commercial tests as available options for biopharma partnership continued research. And so we have a significant amount of data that they could support, but we are not capable at this point in time of disclosing any of that. I think what I would focus on is kind of connecting the dots to what we said a few months ago related to kind of cracking or breaking the black box. We know that historically, a number of diagnostics couldn’t clearly communicate what they were measuring and in what quantities are abundant. And we have broken that black box. And so our efforts with transparent AI and explainability, we feel strongly that we will have the ability to highlight exactly what proteins and what abundance and combinations we are measuring with VeriStrat. And we think that leads to renewed conversations that allow us to build, hopefully, towards companion diagnostic opportunities. And then the same, that will build towards the introduction of primary immune response and risk of recurrence. We think it’s critically important that as more and more clinical interest shifts towards proteomics that we would be the leader on the LDT and commercially available proteomic test front to highlight exactly what proteins are being measured and most importantly, continue to invest in data development. And we have got our INSIGHT trial, which you may recall, we have got over 4,500 patients enrolled in that where we have the ability to highlight patient response to different real-world treatments in combination with the VeriStrat test result. So, much more to come there, Kyle, but you are thinking about it exactly how we are and how the conversations with physicians and biopharma are going.

Okay. That sounds promising. Thanks Scott. If I could just ask another one before I hop off. There is obviously a lot going on at Biodesix right now. A lot of good things of [indiscernible] do ups, congrats on all those kind of updates. What are you doing, I guess to ensure you can kind of thoughtfully contribute to all your projects like all the current test, the pipeline tests while still executing business as usual and continuing to improve performance as you have done, obviously, in the recent quarters. We are all excited for you, and we are confident in Biodesix, the company is not very large, obviously, just kind of be a question worth asking. Thanks.

Yes, it’s a great question, and thanks for the kind words, Kyle. We appreciate that. We take all of that to heart. We think we punch above our weight class. It’s taken a little bit of time for people to start to see that. But we don’t want people to think is that we are not mindful and intentional with our time, energy, effort, and expenses. So, for us, it really is about the greatest impact. We know that our notified testing strategy has the largest market opportunity. We also know that we can have the most significant impact there. Since those are the two tests that we have commercialized most recently and prior to the pandemic and then NGS to follow the pandemic. We are going to focus on Nodify, on the sales front. We think that that’s the introduction, kind of that warm handoff as the patient comes into – with some concern to assess whether they have a malignant nodule or not. So, for us, that’s the top priority. We mentioned it on the call. We are very mindful of sales force expansion. We are going to continue to expand opportunistically, but we are going to pull back if we don’t think we can get a near-term return. I think the same applies to our product pipeline and R&D efforts. We really want to be focused on near-term return. We are proud to share that we believe we are the only company focused in lung with five on-market tests that all have reimbursement that benefits us, as Robin said, as we strive to get closer to profitability. And so we may pull a few levers here and shift some things in our product pipeline cadence as we progress. But the nice thing about that is we have got many shots-on-goal. Again, we continue to punch above our weight class, if you will. And we think that this opportunity will continue to fuel us. But more to come in the future quarters as we continue to make progress. And as Robin said, we will start to highlight and tease out when we think we can get to profitability. But we feel really good about where we are at today.

Great. Thanks Scott. Thanks Robin.

[Operator Instructions] And the next question comes from the line of Tejas Savant with Morgan Stanley. Your line is open.

Hello. This is Yuko on for Tejas. Thank you for taking our questions. Could you elaborate on the scope of the research partnership with MSK on developing novel MRD test? And what are the financial implications from the agreement?

Yes, great question and good morning. We didn’t disclose the specific details. But what we can tell you is really it’s a broad research discovery and development agreement. And so we highlighted MRD because that’s the first and the highest priority. We will look forward in future earnings calls and quarters to highlight progress being made and give greater detail as we progress through that. But we think this is critically important. To Kyle’s question, when you think about our shots-on-goal and opportunities, we think it says a lot about not only who we are, our culture and our capabilities to have someone like Memorial Sloan Kettering partner with us. And so those type of relationships and partnerships give you great access to physicians that are treating patients. And in an integrated system, you have got the ability to align and focus on a common goal. And so we think that the product development efforts in partnership with them, there is potential to accelerate timelines when compared to a diagnostics company going at it alone. So, we are very, very excited about that. It’s very promising. And again, we think it says and speaks volumes about who we are. And we expect to have more partnerships and collaborations like this in the future.

Great. Thank you for that color. And then some of the companies noticed staffing shortages in hospitals and physician offices. Are you seeing the same? And if so, does that represent a headwind for the lung diagnostic products?

Yes, it’s a great question. And I think all of us experience that in our day-to-day lives, we are all consumers of something, and we have seen delays. I don’t think that healthcare is insulated from that. I think we all have read the press [ph]. We are starting to understand that there is potential for increased nursing and physician shortages. For us, I wouldn’t state that we are insulated from it. But at this point in time, we are not seeing a significant impact. We continue to monitor it. Obviously, we are focused on building strong relationships with those healthcare professionals, their practices, and their teams. But the way we look at it is if they are scheduling patient visits, we know that they have got the staffing to support that. And because we are offering blood-based testing, we really don’t see any constraints at this point in time. But again, we are watching it closely. We want to be mindful of the different challenges that healthcare professionals have gone through, not just in the last few weeks and months, but over the last few years. They are tired, they are overworked, they are frustrated. Most importantly, they are excited to get back to a pre-pandemic state to treat those patients that they have dedicated themselves to treating and positively impacting. So, we will keep you posted as we progress through future quarters if and when that becomes an issue. But at this point in time, we don’t see that being a rate limiter.

Got it. That’s great to hear. And then a quick one for Robin, with the interest expense – interest rates going up, should we anticipate any changes in that interest expense line? And then could you also provide color on how we should think about OpEx trends for the remainder of the year with ongoing inflationary pressures?

Yes. I would say that our interest expense should remain fairly similar to what we had in the second quarter for the remainder of the year, less because of increasing interest expense because our current – our debt and what we have – those contracts are already in place, but more from the restructuring and the facilities we put in place in the second quarter. As for OpEx, I would anticipate slight increases in OpEx across the rest of the year, anticipating further cost and pressures from inflation and on travel. And as Scott mentioned, we are very excited for the second half of this year to have actual in-person conferences again. This will be the first time since 2019 that our conferences are all in-person and that our teams will be there for the first time in 2 years or 3 years. So, I would anticipate some slight increases in OpEx as we move forward.

Okay. Thank you very much.

There are no further questions at this time. This concludes today’s conference call. You may now disconnect.