...If you're not familiar with Biodesix, we're a blood-based diagnostic company. Commercially, we focus on lung disease, covering that full continuum of care. On the biopharma services front, we are pan-disease or pan-cancer. As Kyle said, we went public in October of 2020, and had five on-market tests, all with Medicare coverage, all with private payer coverage. And we found the pandemic, like most, to be an disruption and a distraction, and pulmonologists were disproportionately impacted. So, we're really excited that we've gone back to the growth trajectory we forecast, starting in 2022 as we exited that pandemic.
In our most recent earnings call, greater than 51% revenue growth for the eighth straight quarter, 77% gross margins, and our biopharma services business has started to recover, and we shared 228% growth over prior years. So, really excited about the progress we've made commercially, and eager to share more today.
Thanks for that, Scott. Yeah, I mean, what was with the other drivers of the two key performance besides just, you know, volume was strong and everything? Like, I mean, there's - talk about like ASP, ASP, like revenue per test-
Yeah.
Maybe some of the specific tests and why those are doing well.
Yeah. So of our five tests, two of them are pre-cancer diagnosis, where we have our nodule management test called Nodify. There it's two tests. One is a rule-in test, identifying those patients with a likely malignant nodule, and then the opposite is a rule-out test, identifying those patients with a benign lung nodule. That's really our growth driver, accounting for greater than 80% of our commercial revenue growth. There, we're very fortunate and privileged to have a first-mover advantage. And not only is that an honor and a privilege, but it's a responsibility, so we're out building that market. We're educating physicians on how best they can implement those two tests to help guide their clinical decision process. We did highlight that we had some improvement in ASP.
Those two tests have been on market less than four years, so we have Medicare coverage. We've continued to bring on additional private payers. I'll remind everybody that lung cancer really is kind of a Medicare disease state, where most of the patients that are being tested are Medicare covered, but each and every private payer that we bring on will continue to increase that price. So we feel strong about that. Three of our five tests have advanced diagnostic laboratory status too, which really helps us not only with the strong price point, but we submit those pricing claims to CMS on a monthly and quarterly basis, which continues to encourage a strong revenue.
That was great. And then I think, like, you added, like maybe 10-ish private or commercial payers during the quarter, you-
Yeah, it was a strong-
- announcing-
Yeah, it was 10. It was a strong quarter.
Okay, did that... You know, how does that flow through to the P&L and the results going forward?
Yeah, it's, I'd say, it's gonna be small. It depends on who they are. Some were regional players in smaller markets, some were larger. But that's really the goal, goal is continue to increase that private payer coverage over time. The majority of those were related to Nodify XL2, which has been on market a little bit longer. On CDT, it's lagging behind, but on a similar timeframe and trajectory. So we would expect similar successes with Nodify CDT in coming quarters. But the goal is really to continue to ensure that we've got the broadest number of lives covered, and more and more private payers not only become aware, but issue cover guidance.
Okay, that was great. Thanks. And then on the biopharma side, like an important kind of segment of the business for you, you have this like a metric that you provide, contracted revenue, that you don't-
Yeah
... recognize as revenue, I guess it's almost like a backlog of biopharma, you know, dollars. I think that like decreased a little bit, like from 1 Q to 2 Q-
Yeah
... from maybe around $9 million, let's say, to like $8 million or so, most recently. There are some dynamics at play there if you just walk through those.
Yeah, so we've been sharing that metric for a little over a year now, and, and the whole goal in that, as Kyle said, really is to give guidance that the book of business is building. The majority of those contracted dollars are gonna be recognized over a kind of a 12- to 18-month time horizon. There was a decrease. There's always gonna be a little bit of a decrease because on any given quarter, we're working through those contracts and those samples, and so, we saw that, but we were off a little bit in bringing new contracts on. I'm happy to share and disclose that month of July was one of our strongest months ever, and we signed an additional $1.3 million, so that number is back up just under $10 million.
The biopharma services team, which is a small team within the Biodesix team, is having a great year. The request for proposals coming in also are on a record cadence. So we feel like we've got a good opportunity to continue to grow and scale that business.
What remains in terms of like, you know, bottlenecks on the core lung diagnostic side? Why is that? I mean, it's growing very fast, and volume is growing. I mean, like, you know, over 40%, 50% annual growth, but what could really, you know, unlock more volume growth rather than... I mean, just besides just like the sales rep expansion.
Yeah, you know, and I'm glad you finished with sales reps because I was gonna start there. We still are kind of mid-single digit penetration at best. If you really look at this time horizon, when we went public in October of 2020, we had 20 sales reps. There's over 14,000 pulmonologists, so it's impossible for those 20 to get there. We've started this quarter with 61 sales reps, so even though we've grown and expanded, we're still scratching the surface. So I still think that that is for every dollar spent, we can forecast what that return is. We're just trying to balance how rapidly and how fast do we spend with being mindful of getting to profitability. And so, we'll continue to bring on about six to eight sales professionals per quarter.
The best way to think about this year is we fully expect to exit the year with about 71-72 sales reps contributing. And we'll continue to hire that, you know, through the end of the year so that we start next year with approximately 75 sales reps positioning us for a strong year. When it comes to other catalysts, there's a number of things in the works. We've highlighted that the CHEST guidelines, ACCP guidelines, have not been updated in 10 years. So, we're eager each and every year about this time. We're here in Boston this week. Ironically, the CHEST meeting will be here in Boston starting October sixth. So we'll look forward to see if they make any material updates to their guidelines.
We know that that can help and be a rate accelerator, if you will. We also continue to expand both with EMR integration and a lot of national account plans, which is more of a top-down push, where administration pushes it and promotes it within all of their member institutions. Those also have the ability to be kind of rate accelerators, if you will. The great news is we've published two different validation studies. We continue to publish and present. I don't think there's any data that anyone's waiting on, although we continue to invest heavily in data development. ALTITUDE is our prospective randomized trial that's ongoing. We've stated that we've turned that over to a Data Safety Management Board, that'll continue to review the performance of that test.
So we'll look forward to sharing an update as to whether there's an interim analysis that comes out here in the coming months. But all in all, for us, it's continuing to put those building blocks in place to enable our sales team to go out and build this market, and they're doing an exceptionally strong job with that. But we'll continue to focus on coverage, focus on private payers, focus on data development, and EMR integration and guidelines are the two next items that should help significantly.
I think in the past you talked about like HEDIS quality, HEDIS quality measures-
Yeah
...that could go into effect maybe in the second half of 2024. I guess, like, yeah, in the next few months, possibly. Does that still is that still like a, you know, a potential, you know, tailwind, is that... And then, like, maybe just walk through what that really means.
Yeah. So, from a qualitative perspective, the HEDIS measures, the best example you can give is if you look back for breast cancer screening. And so the way to think about it from a pulmonology perspective is, we believe that those will be implemented here, probably in the third or fourth quarter of 2024. But there's gonna be a one- to two-year implementation cycle. But what we see is pulmonologists today changing their practice. They're spending a lot more time focused on screening. Many of them have created nodule clinics, management clinics, and when you talk to them about why they're doing that, they're preparing for a bolus. They're preparing for a large expansion in the patient population through the HEDIS measures that should drive lung cancer screening adoption.
Sadly, as each and every one of you know, lung cancer remains the deadliest of all cancers, yet we still have less than 10% of the screen-eligible population participating in a screening program. So we know that we can make a big, big impact and difference here. We're working with many clinics today. They're implementing our tests today in advance and preparing. You know, one such clinic reached out recently, and what they stated is, by implementing Nodify, they're actually getting more early-stage diagnoses than ever before. And I think that's one of those qualitative metrics that starts to support implementation of the test, and I think the screening implementation will be equally as exciting. For those that aren't as familiar, lung cancer screening is still just an annual low-dose CT scan.
So pretty simple to administer, pretty well-defined. Unfortunately, we just don't have the adoption that we need.
As compliance for lung cancer screening like increases, that's, you know, a direct tailwind, I guess, to Biodesix?
Yeah, it's a big tailwind. So our tests are approved, whether that nodule is found through a screening program or an incidental finding. Right now, the majority of those patients are incidental findings, and it's a massive, addressable market. So anything we do to increase that, really just creates a greater opportunity for us.
Okay, and then back to kind of like Sales force dynamics. So your call point, the pulmonologist, it's relatively the, you know, the same, I guess, throughout, like, most of your tests. Does that enable you to, like, have a maybe a smaller sales force compared to like... You know, it doesn't have to be like a thousand reps or something like that-
Yeah.
It could be, like, much less.
Yeah, no, great, great question. I think in the diagnostic space, you always look towards some of those larger companies. If you're calling on a primary care kind of call point, where you've got hundreds of thousands of primary care physicians, I think that justifies it. For us, 14,000 is a big number when you consider pulmonologists. But we do believe that we can do this with a much smaller, dedicated direct sales force. And I think we've demonstrated that. We talked a little bit about sales rep performance. We had stated in our most recent fundraise early in Q2 that the use of proceeds would go to fuel continued sales force expansion, but that we weren't gonna bring those sales reps on until we completed that fundraise.
So we were a little delayed in bringing those sales reps on in the quarter. And subsequently, what did we see? We saw the highest sales rep productivity numbers that we've seen with the existing sales force. So it really does demonstrate that what the sales team is doing is working, continuing to get data out there is working. But we also don't believe we've seen any of our sales territories cap or max out. We have begun aggressively cutting and splitting territories, but the number one goal there was to do it early, so that sales professionals could go out and farm and hunt, and demonstrate that they could grow those territories without impacting their earning potential. Right now, average sales rep productivity is just a little north of $1 million per sales rep.
On the high end, we have seen sales reps get north of $1.7 before we cut their territories. So I think we really want to start pressure testing what does the cap look like for this sales team? But I think you've nailed it. In such a defined call point, where all patients with that disease state are getting referred into the same specialty, I think we can be much more effective and efficient than maybe what you've seen from some of the other diagnostic companies.
Okay, that's great. And then, yeah, like, on the topic of, like, spending and investing, I guess, so, you had a bunch of pipeline tests that you were thinking about.
Yeah.
Where do those stack up in the priority list at this point?
Yeah, so the test that Kyle's referencing, one, we call Primary Immune Response. This is a proteomic blood-based test, where we can identify those patients that will respond favorably to an immunotherapy versus those that will not. The second test, we call Risk of Recurrence. This is another proteomic blood-based test, pre-surgical resection, where we can identify those patients that will recur. And then more recently, through our announcement with Memorial Sloan Kettering, we stated that we were currently partnering with them to develop an MRD test. So all three have been validated. They're in varying forms of validation. But earlier this year, and even as we exited last year, we said that we would slow investment there, really because of the importance of demonstrating that we can get to profitability.
So we continue to make progress there. We've not updated any commercial timeline plans. At this point in time, based upon reimbursement, we won't commercialize any of those three tests in 2025, and fully plan on giving more of a development pipeline development update in the middle of 2025. There are other advancements that continue to be made. So we think if we've demonstrated anything, it's whether it's organic or inorganic, we have a development or a discovery and development engine that can fuel this company for many years to come. We're just gonna fuel that at the appropriate time when we know that profitability is not a question, but we've answered that.
Okay, interesting. And then kind of like, you know, a recent pipeline test that was, like, unlocked and launched was GeneStrat NGS. You have GeneStrat... I guess, yeah. GeneStrat's a genomic test, VeriStrat, proteomic test. Those are not as driving as much growth as the Nodify segment, Nodify Lung segment. How was the NGS test done so far? It's kind of a competitive space, I suppose. Yeah, just in terms-
Yeah
... of market share and stuff.
Yeah, it's a great question. When you think of our portfolio in the five tests, we have two pre-cancer diagnosis, you know, the two Nodify products for nodule management. And then post-cancer diagnosis, as Kyle said, we have a GeneStrat ddPCR or targeted test. We have the GeneStrat NGS or broad-based test, and then VeriStrat, our proprietary proteomic blood-based test. You know, that is a very competitive space. Post-cancer diagnosis, you have a number of companies offering MRD liquid biopsy, and they're also covering all cancer types. We really are focused on lung across that continuum of care, and with our primary call point being pulmonology, we've seen more pulmonologists than ever before ordering those tests.
And the way to think about that, if they're gonna refer a patient on, they're utilizing those test results to help guide who they refer the patient on to, based upon those test results. And then second, it decreases wait time for treatment, so that when those patients are referred on to a medical oncologist, they more or less arrive with test results in hand. So, you know, historically, if a medical oncologist was gonna wait on tissue testing results, that could be a wait of up to three weeks. And so we've really prided ourselves on having the quickest turnaround time for our test, and then also with our commercial strategy, ensuring that any medical oncologist that sees value in those test results gets them as early and as soon as they can.
For us, that is, those are not our top drivers. In the Nodify space, we've got a first-mover advantage. It's also a significant difference in addressable market size. Sadly, as I said, lung cancer is the deadliest of all cancers. Approximately 236,000 people in the United States this year will be diagnosed with lung cancer. There's five million nodules eligible for testing. So again, we're gonna be there, we're gonna compete. Those individuals that utilize our test find value in them, and we'll continue to support those through existing research and development efforts, and also continue to study those. But the main driver for us is and will continue to be the nodule management test.
Okay, and then, maybe just going back to, like, the financial results, and you increased your guidance, revenue guidance for the year. Like earlier in the year, you were- and even like last year, I think you were talking about how there were some MA, Medicare Advantage claims that were-
Correct
... just, like, not being recognized as revenue, just being like, just, you know, not being collected, just issues with, like, maybe like rev cycle. Maybe you could talk about that. But the... In terms of those claims, is that all? I don't feel like that didn't come up on the quarterly call. Is that all done?
Yeah. So the Med Advantage, we had a grouping of claims that were rejected, and so those are being appealed. There was no change in coverage, there was no rationale for the rejection. And so, and that provider paid prior and has continued to pay post. So, we believe that it's just a matter of time, but to make this as clean as possible, we removed that from the guide. So it's purely upside as we work through kind of resolution there. And it has not continued. It's been inconsistent. So, the one thing we all know, being in this space is, payers, you know, at any point in time may withhold a payment. We're trying to ensure that we've got the best practices to give them the information they need.
And in this scenario, we've done that, and we think there will be resolution here soon. It's gone on a lot longer than we would have liked, but the fact that we removed it from our guide and we increased our guidance up to $70-$72 from $65-$68, hopefully gives a lot of confidence that we're gonna continue to grow and scale at a rapid rate.
Yeah, and clearly, with that kind of an increase, you're also expecting like more, you know, volume to increase nicely as well year-over-year, which would help... You know, I'm guessing that's gonna help gross margin too. Gross margins for the company have been over 70% or so for the past, like, you know, throughout the company's history, more or less, those are among the top in diagnostics in the industry. Now, there's probably upside there. You have this guidance for the year now of, I think, like high 70% gross margins. I mean, as revenue increases, gets above a, you know, a $100 million, et cetera, could you get to like over 80% or something like that? How do you think about the gross margin trajectory, maybe like, you know, in the medium term?
Yeah, I think the key thing that you said there is we're already best in class. We're only aware of one diagnostic company that has stronger gross margins, and we're talking about a percentage point. We forecast to stay in that mid- to upper-70% range. Can we get to 80%? We certainly can, and I think you nailed it. As we continue to grow and scale, obviously we're going to become more effective and more efficient in running those samples. Additionally, we do have some improvement efforts going on in the laboratory, and so the team there is committed to not only making those two tests the fastest turnaround test, but also the most profitable test that they can be.
So, we fully expect gross margins will stay where they are, if not improve ever so slightly. But even on this quarter, it is a reminder that as biopharma services grows, it can impact that, so it's a blended gross margin. We saw a slight decrease this quarter compared to prior quarter, and most of that was based upon different biopharmaceutical service contracts that we were running. So on any given quarter, we could see small fluctuations, but 80% is definitely achievable.
Great. And then, you know, as the top line, as revenue is increasing, as margins are, you know, industry leading, like we're talking about, the OpEx, the SG&A, the salesforce investments don't have to be as, you know, as aggressive as other companies, I guess, as we talked about before. You're kind of funneling to this, you know, a cash flow break even, a profitability, or maybe adjusted EBITDA break even, kind of like, you know, time point, I suppose. Like, how are you guys thinking about that as you progress further and further to burn less and less cash, basically, you know, in recent quarters?
Yeah, you know, I think what you've seen is significant improvement on the adjusted EBITDA performance, this most recent quarter, really decreasing our burn. We can sustain that and maintain that, and that's what is factored in, so we fully expect that performance to stay consistent. Now, again, you might have fluctuations, ever so slightly on any given quarter. And then we've stated even as recently in our most recent fundraise, we really are triangulating in on the second half of next year on adjusted EBITDA profitability.
You know, the key for us is demonstrate we can maintain that strong growth, demonstrate that those gross margins are also sustainable, and then also prove to people that we can be one of the few diagnostic companies that can get to profitability, and then on a comparator basis, possibly be the one that got there faster. And so it's not just about that. As we get there, we wanna be mindful and intentional about how we reinvest in the business. With three pipeline tests, with a partnership with MSK that can help fuel additional discovery and development efforts, and with the first-mover advantage and the only dedicated salesforce in lung, we think this is really a channel that we can leverage and be opportunistic about continuing to invest in and add things to their bag.
I know our Salesforce is not only very competitive, but they're excited about that.
Okay. So maybe like finally, when you think about next year, 2025, is it fair—like, you know, the company's, you know, been growing, its revenue base has been growing like really, really strongly the past few years, and you're getting to this break-even point next year. So next year you basically have milestones include maybe potentially over, again, over like 25% revenue growth and volume growth, and ASP getting just better and better, and then you have break-even as well. Is there anything else that we should be like, you know, excited about that we're not really focusing on?
No, I think, you know, Kyle, you know us well, and I think you've nailed it. We'll keep everybody updated on ALTITUDE and whatever that Data Safety Management Board guides us to share and release. So I think there's a high likelihood that there will be an update, whether that's a full interim analysis or not. We'll be excited about that and no reason to expect anything other than continued strong data that differentiates us. I think, as Kyle said, bringing on additional private payers. And then as we really look more broadly, you know, guideline inclusion is out of our control, but we feel like we've done enough to put data that's not only strong and robust out there, but differentiated. And so, we'll give updates on all of that.
But as you said, I think continuing Salesforce expansion, getting to as many of those physicians as possible, increasing that penetration, we think we can continue to maintain that strong growth. And that $70 million-$72 million updated guidance, the midpoint of that has us growing at about 45%. So if that's any good indication as to our confidence that we can maintain that as we head into the year, we think, we think there's no better time to be a part of-