Good day and thank you for standing by. Welcome to the Biodesix's Fourth Quarter 2023 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 Chris Brinzey, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us today for a discussion of Biodesix's fourth quarter and year-ended 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 fourth quarter and year-ended 2023. A copy of the release can be found on the Investor Relations page of the company's 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-ended December 31st, 2023, which was filed today with the Securities and Exchange Commission. 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. Happy to share that, 2023 was a great year of execution at Biodesix. We've been focused on three goals, driving increased revenue through the adoption of our lung diagnostic test and our biopharma and diagnostic services, implementing operational efficiencies to improve gross margins and maintaining a strict cost discipline. In 2023, we delivered approximately 38,700 lung diagnostic tests, which represent 65% growth over 2022. We increased our gross margins over the course of the year to 77% and we improved our fourth quarter adjusted EBITDA by 55% over the comparable period. Our team and culture have never been stronger, and you see that strength reflected in our results. I want to express my sincere gratitude to our team for their hard work and dedication to improving the lives of patients and the healthcare professionals that serve them. Our top priority remains the ongoing adoption of our five blood-based tests for patients with potentially cancerous lung nodules and those with lung cancer. This past quarter, we delivered approximately 10,900 test results, reflecting growth of 54% as compared to the approximately 7,100 test results delivered in the fourth quarter of 2022. This is the sixth straight quarter of at least 50% year-over-year growth, primarily driven by our notified CDT and XL2 lung testing volumes. Lung nodule management is by far the largest market we serve and will continue to be the largest driver of lung diagnostic test volume growth. Our industry-leading commercial team was responsible for driving this outstanding growth in 2023. We continued to invest and expand our organization throughout the year, finishing with approximately 50 fully trained representatives, with an additional 10 that came on board late in quarter four. On average, our sales representatives began paying for themselves within two to three months. Therefore, we expect…

Thanks, Scott. Fourth quarter total revenue was 14.7 million, a 53% increase over the prior year. Full-year revenue in 2023 was 49.1 million, a 49% increase over prior year excluding 2022 COVID revenue of 5.2 million, and a 28% increase over full-year revenue in 2022 including COVID revenue. As Scott mentioned, we delivered approximately 10,900 lung diagnostic test results in the fourth quarter versus approximately 7,100 test results for fourth quarter 2022 and approximately 38,700 lung diagnostic test results for full year 2023 versus 23,500 test results for the full year 2022, a 54% increase and 65% increase respectively. Test volume in the quarter was our sixth straight quarter of at least 50% year-over-year growth. Lung diagnostic revenue in the fourth quarter was 12.8 million compared to 8.2 million for the fourth quarter of 2022, an increase of 55% over prior year. Lung diagnostic revenue for the full year 2023 was 45.1 million, a 54% increase over the full year 2022. As we've discussed in prior earnings calls, we continue to experience delays 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 continues to grow and ended the year at approximately $3 to $3.5 million, up from 2.5 to 3 million reported in our third quarter earnings call. We will continue to provide updates in our calls as we work towards a satisfactory resolution. Biopharmaceutical services revenue was 1.9 million in the quarter compared to 1.35 million in the fourth quarter 2022 and 3.9 million for the full year 2023 compared to 3.7 million for the full year 2022, an increase of 38% and 6% over the respective prior year comparable periods. As a reminder, this business can fluctuate due to…

Thanks, Robin. We've again achieved impressive and high double-digit growth in the past quarter attributed to the exceptional performance of our consultative lung-focused commercial team who've been instrumental in fueling our success. We've improved our already strong gross margins and made substantial progress on our path to profitability. 2024 is a year of execution on our three goals, driving increased revenue by accelerating the adoption of our lung diagnostic tests and biopharma services, implementing operational efficiencies to improve gross margins, and maintaining a strict cost discipline. By aligning these three strategic efforts, we're confident in our ability to sustain our aggressive growth trajectory, make progress on our path to profitability, and deliver value to the healthcare professionals, their patients, and all shareholders. We are transforming the standard of care and are excited to be making such a significant impact. Finally, we've completed the move into our new 80,000 square foot, state-of-the-art corporate office and clinical laboratory in Louisville, Colorado. We believe this new facility provides another competitive advantage as it enables us to grow and expand in an efficient and effective manner. With that, I'll turn the call over to the operator for questions.

[Operator Instructions]. Our first question will come from the line of Andrew Brackmann with William Blair.

Scott, Robin, good morning. Thanks for taking the question. I have a few. Maybe to start here on revenue guidance for the year, it's nice to see that solid growth outlook that you did talked about. You may be helped parse out some of the build there. I guess I'm just looking for things related to sort of rep ads, utilization increases, new accounts, revenue per test, any color there might be appreciated. Thanks.

Good morning, Andrew. Thanks for the question. We talked a lot about Salesforce expansion and growth. As you just heard, we exited the year right at about 50 sales reps contributing. We're going to continue to grow and expand that Salesforce. What we do know from a past performance and obviously a modeling perspective, we've seen our sales professionals come on and start to pay for themselves in about three months. The one thing we're mindful of is as we continue to expand into territories where we haven't had representation prior, that ramp may be a little bit slower. Then as we look at promoting associate sales consultants into open territories, which we've done, we had five that we promoted towards the end of the year, which really demonstrates that our plan and approach is working. We still know that those are going to be junior young sales professionals. We've really looked at this trying to improve forecast accuracy, ensure that we put them in a position to succeed. What we've seen from a sales rep productivity number really is we can get them into that $750,000 to $1 million per rep in a pretty reasonable timeframe. One of the things we've disclosed in the past is we have seen some sales professionals get north of $1.5 million per rep, but we cut their territory. We were never really striving to see could we get them to $2 million. We wanted to make certain that we could cut territories and then demonstrate that they could grow again. We just wrapped up our national sales meeting, Andrew, and share this with you. We have a back-to-back top sales rep of the year. What makes that most remarkable is two years ago she won with an associate sales consultant. At the end of the year, we split her territory, promoted the sales consultant into one half of that territory. They both finished in the top five. What we've really proven out is we can go deep. I use the word consultative. I think the more we put our sales professionals in healthcare professional offices, they're going to find that we are consultative. We bring tremendous value. The clinical value of our test isn't really questioned. Again, we haven't seen where we can cap out on that sales rep productivity number just yet. We factored all of the past performance into modeling really what we think in that guide range is achievable for us this year. Is that helpful?

Very helpful. Thanks for all that color. I guess related to the outlook here, you're making really nice progress on the margin front and sort of reducing operational burn. Can you maybe just sort of talk about how we should think about further reductions in that burn metric this year and the sort of leverage that you expect in the model throughout 2024?

Andrew, you've actually been out here and you've seen the facility. The new facility really should empower us to continue to make some improvements. We've focused over the last three to four years on workflow and operational efficiencies. Obviously, we've made those and achieved those. One of the things most may not appreciate is that old facility was really constructed for one product in the laboratory. And so we ran out of space. We were limited in what we were able to do. Moving into the new facility gives us the ability to move forward with growth and expansion in mind. We think that we're set up to continue to improve that. We're also mindful that we believe we've got industry-leading gross margins. We're aware maybe two other diagnostic companies that are in the ballpark may be slightly better. We also want to be realistic. We're still forecasting for modest improvements there to take us into that mid and keep us in that mid-70s range.

From an operation expense standpoint, it remains one of our top goals and focus for 2024, maintaining that strict cost discipline, being very efficient and effective with our cash to keep driving down our overall burn and make continued progress on our path to profitability.

That's great. And then maybe if I could, just a bigger picture question here. It's been a couple of years since USPSTF updated their screening guidelines. We should hopefully get some sort of update on the development of quality measures there for screening later this year. I think it's safe to say there's going to be a lot of tailwinds in nodule identification over the next couple of years. For Biodesix in particular, aside from continuing to invest in that commercial team, can you talk about some of the things that are in your control to really ensure that you're going to be that go-to solution for nodule management as all these tailwinds play out here over the next few years? Thanks.

It's a really insightful question, Andrew. Thank you. Yeah, I think you're right. We're all eager to see what USPSTF change in screening guidelines does and what that impact is. Obviously, everybody's got their fingers crossed that it improved those numbers and that we see more early detection and diagnosis. Because we're dealing with the deadliest of all cancers, we know right now that the first thing that will improve outcomes is that early detection and diagnosis. So, we'll eagerly sit back and wait for that. We also know and we've seen what the HEDIS measures did in breast cancer. And so, right now, we're anticipating HEDIS measures for lung cancer to go into effect in the third and fourth quarter of this year. That'll also continue to drive not only increased awareness, but hopefully it helps drive broader adoption of nodule management clinics, screening programs. So, for us, as you referenced, the expansion of our sales force is not just about hiring new sales professionals. It's empowering them to partner with those healthcare professionals and clinicians to work on nodule management programs. And so, we spend a lot of time in peer-to-peer education where some physicians will share their experiences on nodule management programs, their experiences with patients that have been identified through a screening program. So, we're collaborating across this entire care continuum. And we think that's one of the ways that not only will we become a trusted partner, but that this becomes sustainable, right? It's not just about driving test volume adoption. It's about building relationships and partnering to make the biggest impact we can in the deadliest of all cancers.

All right. Thank you. I'll leave it there. Thanks, Scott. Thanks, Robin.

Thanks, Andrew.

Our next question will come from the line of Kyle Mikson with Canaccord Genuity.

Hi, thanks. Congrats on the year. Robin, two questions for you to start on financials. On working capital, I think like current assets, such as a constituent will set materially in 4Q. Just wondering why that was and anything to read into in terms of how networking capital and cash conversion cycle could kind of progress in the near term. And then secondly, could you – you probably did this, but could you quantify the MA backlog in terms of revenue? Like, you know, either revenue or volume, I guess. That'd be helpful just to kind of understand how to, you know, establish comparison in this guidance, sir. Thanks.

Yeah, absolutely. And good morning, Kyle. Thanks for the question. Working capital did see a step up towards the end of the year. We do typically see that in fourth quarter just from timing and holidays. We see insurance companies slow down a little bit towards the end of the year. But also with the increase in test volumes, we do expect an increase in AR. There are no delays or anything of concern to be aware of. About the Med Advantage backlog, it's really just a couple of Medicare Advantage companies. The rest are paying quite well and on time. It is now about $3 to $3.5 million worth of backlog. That's about a half a million from the fourth quarter – or sorry, from the end of the third quarter, so that increase in the fourth quarter. And we removed all of that from our guidance for 2024. So, we do not have any anticipated collections on the backlog included in our guidance. We also removed any anticipated collections from current claims from those impacted health plans from the guidance as well to try and minimize any sort of variability that you see in our revenue. Now, obviously, that means if we're able to get to rapid resolution there, that we should see some upside. And we are working diligently with those plans to get these administrative hurdles resolved. So, once we have anything more to share on that, we will be very happy to share it.

Yeah, that was great. Thanks so much, Robin. And then, Scott, one for you on, I guess, kind of some of the legislation kind of guideline stuff out there. The first is on the biomarker legislation. Obviously, expanding private-payer, commercial-payer coverage has been kind of an ongoing effort for you. You have these biomarker laws that could really kind of deepen your penetration possibly in that segment, produce the heavy lifting for you. So, is that fair to say? I mean, I think Colorado is going to be evaluating that legislation this year, I believe. So, is that a tailwind or not, I guess? And then, just secondly, I think NCCN has this new concurrent tissue and blood-based testing, you know, guidelines for lung cancer. I mean, does that affect you at all? I'm just wondering if these things are maybe like drivers of performance like in this year that wouldn't be affected or included, I mean, in this guidance range.

Yeah. Good morning, Kyle. Great questions. You know, I'll start with the last. Definitely, there is an opportunity for us there in the tailwind, especially on our IQLung portfolio of the franchise, where we offer two genomic blood-based tests and then our proprietary VeriStrat test where we measure a patient's immune system status or ability for the immune system to respond to that tumor. You know, for us, it does create increased awareness. We have the most rapid turnaround times for those tests. And I think some aren't quite aware, we actually do offer tissue testing to our biopharma partners. So, that fits squarely kind of in our wheelhouse. I think on the individual state biomarker bills, I think Robin may be the best to provide an update on that, and I'll turn it over to her.

Yeah, it's a great question. There have been a lot of biomarker bills passed over the last couple of years, Louisiana, Arizona, Illinois leading the way. You're right, Colorado is considering it in this legislative session. We really look at this as maybe a door opener. They are focused on the payers and trying to help get more rapid payer coverage for tests that have been proven and have Medicare coverage or other reviews that prove that the test has clinical utility. Our team are actively working with health plans in the states that the bills have already gone live. And we'll see how that turns out. The big question is, most of the states have not yet implemented the regulations that will dictate how they will require the coverage and how it will be enforced. So, it's really a work in progress, but it's something we're tracking very, very closely.

Okay. Actually, on that note, since NCCN guidelines are so important for the private payer, commercial payer segment, would this reduce the need to get into guidelines or even negate that push by you?

Yeah, it's a really good question. I think we're approaching it as if it won't negate it. I think for us, getting into guidelines, whether that's NCCN, ACCP, Fleischner that really would be a great tailwind for us. As we've stated before, ACCP, which is the chest guidelines, would be the most appropriate for us. This is where developing and presenting the best data possible. And as you get that out there, enabling and empowering physicians to make the right decisions. We've highlighted historically that chest or ACCP has been delayed. They're behind. So, they've made very few actual updates for lung nodule management and lung cancer detection and diagnosis in the last couple of years. So, if we can agree that they're behind, it's really a matter of when do they catch up and then how broadly do they go in updating those guidelines. NCCN is going to be slightly more on the treatment guidance front, which could benefit us on our IQ Lung. So, we're going to continue to fuel that by funding studies, producing and publishing the best and highest quality data possible, and working with those private payers to make certain that if they have questions, we're answering those questions with data.

Okay, that was great, Scott. There's one more before I hop off about the portfolio. So, I think the pipeline tests were not mentioned possibly at all in the remarks. Maybe just like, either update us on these tests like at the MRD tests or peer or anything like that. And then maybe like we should expect any news or updates this year or next year possibly from those assets.

Yeah, thanks, Kyle. Yeah, just as a reminder for everybody, we have three products in our pipeline. We have a primary immune response test where we're able to identify those patients that will respond favorably to an immunotherapy regimen. We also have risk of recurrence, which is a pre-surgical resection blood-based test where we can identify those patients with the highest likelihood of recurrence. And then MRD would be our post-surgical resection blood-based test where we can identify those patients with minimal residual disease who are also likely to recur. We believe we'll be the first company to have both a pre-surgical and post-surgical blood draw that can help identify those patients with the highest likelihood of recurrence. And that those two tests would cover both kind of a multi-omic approach, both proteomic and genomic. Given our prioritization of kind of progressing towards profitability, Kyle, we've slowed commercialization of those. So we're not planning on launching any of those three tests here in 2024. And I think everybody understands when you first launch a test and you have to build kind of that experience and that data, oftentimes those are no-pay tests. And so for us, ensuring that we've got a path to reimbursement for those will help guide us in our timeline of commercialization. We'll continue to provide updates as we progress. I wouldn't anticipate hearing much on the risk of recurrence or primary immune response front. We've already discovered, developed, and validated those. Those are still being offered for biopharmaceutical partners in a research use only basis. The MRD project, though, I fully expect we'll be providing updates here in the coming weeks and months as we continue to progress and collaborate with Memorial Sloan Kettering. They've been a tremendous partner. And I think what you'll find is working together collaboratively. We believe that this is an engine that will enable us to fuel future growth and potentially add additional products in addition to the MRD product.

Okay. Have these pipeline tests been driving some of the biopharma revenue recently or could that be upside going forward?

It definitely is upside. Yeah, we offer them, Kyle. It really is dependent upon the different biopharmaceutical companies, their studies, the critical questions they're trying to answer that they think we can help them answer. It was not, or those two were not the big drivers in the fourth quarter. We saw a tremendous amount of continued interest in our, really, our treatment guidance portfolio. So, everything within IQ Lung, the GeneStrat ddPCR, the GeneStrat NGS, and the VeriStrat test. Those were the big drivers of biopharma interest. And I think it's fair to say that early in 2024, it continues to be that way. A lot of interest. We're making a lot of progress on numerous fronts with a handful of major biopharmaceutical companies.

Yeah, thanks, Scott. Thanks, Robin. Appreciate it.

Yeah, thank you, Kyle.

Our next question will come from the line of Tejas Savant with Morgan Stanley.

Hi, team. Good morning. Thanks for taking the questions, Madison, on for Tejas. I was just wondering to start off, with lung diagnostics volume growing at about 65% in 2023, driven primarily by Nodify Lung testing. So, I'm wondering how sustainable you think that growth is as we start to see tougher comps year-over-year in 2024?

Yeah. Hi, Madison. Good morning. Great question. You know, for us, it's really a factor of the number of sales professionals we have, the opportunity within the territories we place them, and in some cases, whether that territory and sales consultant has an associate with them. You know, with six straight quarters of greater than 50% growth, that's really the bar that we've established and the goal that we've challenged the team to kind of hit and exceed that growth performance. We stated that we hired 10 additional sales professionals at the end of 2023. The nice thing is, is based upon our track record, we know that within about three months, they're going to be paying for themselves and contributing. And so, we did that with that goal in mind. We really wanted them to be hired, trained, on-boarded, out in the territory, and fully capable of contributing as soon as possible in 2024. So, we'll continue to invest in the sales and commercial channel expansion. Historically, we've hired approximately six sales reps per quarter. Obviously, we shared that we hired 10 in the fourth quarter. So, we've demonstrated we can increase that number. We just want to be very mindful of that expense and cash burn and making certain that we set them up for an immediate or a near-term return. So, we believe that we can continue to achieve those strong numbers. You're spot on. As we continue to grow, the year-over-year comps become more and more challenging. It would be really challenging if we were static and not continuing to expand the sales force. We still know that there's a number of pulmonologists that we haven't reached because of our limited coverage. And we also know that we're less than 1% penetrated into this market opportunity, and it's a massive opportunity. So, we feel confidently we can continue to grow, expand, invest in that commercial channel, and that we'll see a return on that investment.

Got it. Okay. That makes sense. And I think you previously talked about an interim analysis for the ALTITUDE study. I was just wondering if we should be expecting to see some data from this sometime this year?

Yeah. So, as a reminder, ALTITUDE is our prospective randomized trial for Nodify that's being conducted at a number of major academic institutions in North America. We implemented a DSMB, a Data Safety Management Board, in 2023. So, the nice thing about that, Madison, is an interim analysis is really out of our control. The Data Safety Management Board will help guide that and direct that, and they're meeting on a quarterly basis. So, that select group of individuals will come together again in March, and then I believe June is the following meeting. So, I think we'll learn more as we progress through those meetings. At this point in time, we're not anticipating an interim analysis, but what I am able to share at this point in time is we have seen enrollment improvement and increase over the last 18 months, kind of exiting the pandemic, and we've actually brought on a few additional academic institutions. So, we feel confident that this is going to continue to be a meaningful data release. It's still just a question of when the Data Safety Management Board and the primary investigators deem that to be necessary. If we were to do something this year, it would be at chest in that October-November time frame. So, we'll learn more, and you can expect greater insight into that in the following earnings calls.

Got it. That makes sense. Thanks so much for the time, guys. I'll hand it on over.

Great. Thanks, Madison.

That concludes today's question and answer session. I'd like to turn the call back to Scott Hutton for closing remarks.

Thank you, Operator. We've worked long and hard to build the best pulmonology-focused sales team in diagnostics and believe that this is just the beginning of our growth as we just scratched the surface with less than 1% penetration of this addressable market. With first-mover status in lung nodule management and an ever-increasing body of robust clinical data, we're building the momentum we've already created as we increase our clinical and payer adoption in this extremely large and underserved population. Ultimately, it's all about healthcare professionals and the patients they treat, and we believe in our ability to make a more significant impact in the future. This year, we delivered 65% lung diagnostic test volume growth, saw a return to growth in our biopharma services business, expanded our sector leading gross margins to the mid-70s, and improved adjusted EBITDA by 24%. At Biodesix, we have a culture of teamwork, quality, and execution and constantly work to deliver on our goals to increase our reach and adoption and improve our operational effectiveness and efficiencies on our path to profitability. 2024 is a pivotal year of execution, and we look forward to updating you on our continued progress and success on the next earnings call. Thank you.

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