Terrific. Good afternoon, Dan Brennan . I'm the Life Science Tools and Diagnostics Analyst here at TD Cowen. We're wrapping up, at least our final session of the 45th Annual TD Cowen Global Health Care Conference here with Scott Hutton, CEO of Biodesix Robin Cowie. So Scott, welcome and thank you for being here.
Yeah, thank you, Dan.
Maybe with the quarter just announced and we're running around here at the conference, but obviously we looked at the results and kind of how you guys presented the guide you had pre-announced. Maybe just walk through kind of the full quarter, just kind of hit the quick highlights there and then how are you thinking about the year ahead?
Yeah, well, I'll start with the latter first. We think 2025 is going to be a transformative year for Biodesix. We have continued to put up exceptionally strong growth quarter over quarter, gross margins at the high 70% range, industry leading in diagnostics. For us, this is an execution play. Let's continue to build up the sales force. Let's continue to support those lung cancer patients that are in need of one of our five on-market Medicare covered tests.
The top line guide you said, I think bracketed where consensus is. Maybe walk through, again, you had the call yesterday, but for the benefit of the people listening here, and it'll give some fodder here, just walk through some of the key underpinnings to how you thought about 2025 outlook.
Yeah, you know one of the things we know is that we're still underpenetrated, but lung cancer is the deadliest of all cancers. We still have a massive opportunity to continue to expand and grow. One of the key ways we do that is growth and expansion within our commercial team. We plan on hiring an additional six sales professionals per quarter. We started the year at 71 sales professionals, and we hope to end the year right around 95 sales professionals. What we've demonstrated historically is within about three months they can cover their own costs, pay for themselves. Somewhere in that month six to nine, they get up to approximately $1 million per rep in sales rep productivity. We've continued to see that over time. We allowed that performance and historical track record to help guide us there.
We still think it's a numbers game. We know there are pulmonologists out there that we still have not met with. We've got to continue to expand and ensure that we've got coverage across the U.S.
Maybe just walk through, you had some sales turnover, which I think was forced in the back half of the year. I guess walk through the decision process around which you kind of made those changes and how investors can feel comfortable that the current team in place is not going to have any similar issues.
Yeah, you know so in the third quarter, we highlighted that Dan's referencing is we addressed some poor performers and exited them from the organization. That's never something you take lightly. We did it in the third quarter because the belief was if we didn't do it then, they know that they were underperforming and they probably were going to start looking for a job and opt out. We did it proactively. We also disclosed during the earnings call that we were conducting a pilot at the same time. Part of that pilot, those learnings that were going on caused us to call timeout and slowed that hiring. We didn't disclose that at that point in time. Now that we've come back out, we've hired, we're at full force heading into 2025.
We've communicated that we're going to start to expand a little bit into primary care, knowing that 49% of incidentally found lung nodules are managed in primary care. We feel like we are poised to maintain that strong sales rep productivity and continue to meet those strong growth expectations.
Obviously adding salespeople, the key initiative obviously to getting the product use case up and getting visibility. What are the other ways that you try to promote visibility? Like our work, when we reinitiated coverage here at Cowie, or TD Cowen, excuse me, we found resounding positive feedback from the doctors about the utility of the test. The penetration is still nascent, right? Less than 1% penetrated in your addressable market. With a really good test that doctors like and a really low penetration, that's a great issue to have. Beyond just adding feet on the street, what are the ways you're trying to drive awareness?
Yeah, data development is always key, right? Putting out new data. Not only does it help with payers in the long run, but it does help get you back in front of physicians. It isn't always just clinical utility. It might be a secondary or tertiary question that they're asking. For us, we've referenced Altitude, which in the pulmonology community is a first-of-its-kind randomized controlled trial. We have managed that through a data safety management board. We're blinded to the data. That data safety management board is picking up kind of their cadence or frequency of meetings. We fully anticipate and expect that we'll learn more from them in the coming months. There's a higher likelihood this year that we're getting close to met the primary endpoint to where we could publish that prospective randomized data.
That's big because it's never been conducted in the pulmonology community. Secondarily, we announced a study that we call Clarify. This is a retrospective chart review of commercial cases. We view it as a complementary study to Altitude so that we don't have to go back and wait for a new patient one year to see what that outcome was. Let's go back and look at those patients and see how they did. As part of that, we're going to pull a bunch of data. We're going to look at how does our test compare to PET. We're also looking at time to diagnosis and potential for stage shift. We think these are meaningful data points that could also be catalysts for future growth.
Maybe when you, and we'll stay high level and then we'll dig into sales force and kind of the data set. If we think about, walk us through the guidance for reaching EBITDA positivity. Kind of what is that predicated upon? Is this all within your control? Just kind of give us a sense of kind of what needs to happen in order to reach that target.
Yeah, it's a great question. I've talked a little bit about that sales rep productivity, adding those heads. That's really it. We did a bottoms-up analysis based on what was in our control. We feel with a high level of confidence that that guide is within our control. Some of the other catalysts that may occur, things like guideline inclusion, HEDIS measure rollout, those things are not factored into that. We view that as upside and potential tailwinds when they occur. We look at it and say our clinical or commercial testing really accounts for about 90% of our revenue. That biopharmaceutical partnership and services side of the business, it'll continue to contribute anywhere from 7%-10% of revenue this year. Again, when we looked at it, it was, let's build a model that's bottoms up. It's based upon feet on the street, their sales rep productivity.
We feel with a high level of confidence that that's in reach. It gets us right on that brink of $100 million. As you said, most importantly in the second half of this year, getting to adjusted EBITDA break even. Shortly thereafter, getting to cash flow positivity, which we haven't disclosed exactly when that'll be. It will be in 2026, but we'll look forward to providing greater insights as we progress through the year.
Maybe just on the sales force productivity, like when we relaunched, we did a lot of work on that, looking at the math, and it could suggest that there's a real nice upside potential to where the consensus numbers sit if those productivity levels hold. What's the range of productivity? Is it very wide per rep? And kind of as you add more reps, I mean, you're basically almost doubling, you're taking up your reps by 50%. What's the confidence level that you can maintain that level of productivity as you expand?
Yeah, you know one of the things we've done historically is we've cut territories a little bit earlier because we wanted to prove that out. First and foremost for us, we wanted to prove that we could go deeper when there was more focus and attention. Secondarily, we wanted our sales professionals to appreciate that we weren't taking something away from them. We were going to make them more effective also. On the high end, we have had sales professionals get upwards of close to $2 million in annualized revenue, and then we cut their territory. That gives us great confidence to know that there still is an abundance of opportunities that remain untapped. At the lower end of that performance range, it's really a function of how long have they been in territory.
All of our territories, which we've now stated that we have 48 territories currently, we'll add two territories by the end of the year to have 50 sales territories. We use claims data. We look at referral patterns. We try to make certain that each and every sales professional has plenty of room to grow and a high earning potential.
HEDIS, you mentioned we did some checks on that and other diagnostic companies talk about that extremely positively as a critical factor. Just again, remind us on the timetable and the potential impact kind of when this goes into effect.
Yeah, you know so if you're not that familiar with the HEDIS measures, really the simplest way to look at this is we're trying to drive screen adoption. Unfortunately, in lung cancer, it depends upon which report you see, but the screen eligible population that participates is estimated to be between 7% and 10% of the population. So we're grossly underpenetrated into that opportunity. HEDIS is going to implement qualitative measures and metrics by which physicians are not only tracked and graded, but also incented and compensated. What we hope is there's a resultant impact that influences screen eligible patients to participate. The positive screen patients then come in, increasing testing opportunities for us. HEDIS hasn't made any changes in terms of communication as it relates to lung cancer yet this year.
They stated they would begin rolling those measures out at the end of 2025. What we know from collaborating with a number of physicians is they're already planning and preparing for it. They're organizing, working on screening methodology, adopting new screening programs, and subsequently creating nodule management clinics. We feel confidently that this puts us in a position to capitalize when that occurs. We think that that's a catalyst for growth in 2026, to be honest, as you start to roll this out. I think 2026 and 2027 are the big years for growth. Right now, the screening methodology for lung cancer still remains a low-dose CT. We're eager and cheering on a number of diagnostic companies that are focused on blood-based lung cancer screening because the more modalities out there, we think the higher the compliance in that patient population.
Back to HEDIS then, is it a function that doctors are kind of looking to use your tests, but they're not looking that hard just because they don't get compensated enough for it or the insurance companies aren't? Just kind of walk back through again and kind of what the motivation is and kind of how much of a lift that could be if this when these go into effect.
Yeah, you know it really has less to do with motivating them to use our test. It's really about the patient population and the addressable size of that market. If you've got 7%-10% of the screen eligible patients participating, then you look at it and say, we're not hitting 90%-93% of the eligible population. Right now, if you take that and you remove 90%-93%, then what are we dealing with? We're dealing with incidentally found nodules. They're massive. It's estimated that upwards of 5 million patients present annually with an incidentally found nodule. That's a huge opportunity. We're missing on the screen detected population. We look at it and say, this is just going to grow the addressable market significantly. As it does, it really comes back to those healthcare practices.
Are they set up to manage and triage the additional patients that come their way? What we know from implementation of Nodify Lung testing that we offer is that physicians that utilize that have the ability to pull a patient forward to an intervention with a positive CDT, increasing the likelihood of an earlier identification or diagnosis. There is a positive impact, but we have to support screen eligible patients participating because we know that they are at a higher likelihood of lung cancer.
I think on the call yesterday, you talked about CHEST and possible guidelines. Just kind of give us an update on your thoughts there.
Yeah, sadly, and from a patient perspective, I think it's very disappointing. CHEST, which is the largest pulmonology society physician group, has not updated their guidelines in nearly 12 years. Sadly, when you think of that, they haven't included things like blood-based molecular testing or biomarkers. They have not included or updated robotic-assisted bronchoscopy, things that are considered standard of care today. In prior years, when Dan asked that question, we really had no idea when the society was planning on updating. We just knew that they were behind. What I shared was they went on record at the end of last year acknowledging and admitting they were behind, but also disclosing that they were updating the guidelines and planned to publish those updates this year in 2025. That's a big shift from when we were talking a year ago.
We don't have a timeline on when to expect those updates, but we think it's material. What we've achieved and done to this point is without guideline inclusion. We think that would be a wonderful tailwind for us, but also for patients. Since we are the first mover in the market, any inclusion that referenced biomarkers and references their ability to help risk stratify this patient population should put us in a wonderful position. Other than that, we don't have a lot of intel other than really looking at the studies we have, the data we continue to publish. We feel like we've put enough data out there to be incorporated in those guidelines, and we're excited to see those updates.
How does the guideline or how would that impact insurance? I mean, you already covered very well on the Medicare side. Just speak to if in fact you were to get in the guidelines, which would be terrific news, is it a function of that you'd have more commercial payers jump on board and say, we're going to cover you and that drives growth? Or is just doctors see guidelines regardless of coverage and they say, we're going to do this?
I think it's a blend. It's a little bit of all of the above. We know that there are some physician groups that might be laggards or late-stage adopters, and they may just use that as a reason to say no, kind of an easy objection. In those cases, we've tracked who they were. And so that we know at least when we get guideline inclusion based upon their feedback, let's go back in and present the data package. That also happens in some large integrated networks where they really look at it and say, hey, for us to have a top-down push through our organization, we want to ensure that it's in guidelines. It gives us that license to hunt, the ability to go back in and have a conversation, share data. As you educate them, you're also empowering them to do what's right.
On the payer front, it never hurts. We know that the payers are always looking for any reason to not pay. For us, for this eligible population, we look at it and say, in lung cancer, the majority of patients are going to be Medicare covered, 60%-65% of our patient population to date. Private payers, we brought on 18 new private payers covering Nodify XL2 last year. We're going to continue to increase that, but it definitely helps. It's a starting point. Oftentimes when you meet with a payer, that's one of the first questions. They want to see the data package. They want to understand what the physician society group has done to include those tests. I keep using the phrase tailwind. I do think there's an inflection point.
It's difficult to forecast and really measure that, but it is also kind of validation to what we've been stating is that there's great utility here. We have a number of the leading thought leaders and institutions that have implemented our testing and are utilizing it. We think that speaks volumes.
I mean, if guidelines, let's say September 1, they say we're going to include in guidelines, could your volumes go up over the ensuing two years? I mean, could you be 50%, 60%? How would we think about how quickly that could happen?
Yeah. We've gone back and looked at other diagnostic tests, and you don't really see a massive inflection point like that. I think for us, it would be an accelerator. It's difficult to quantify. It really is about getting in front of pulmonologists, enabling them to use the best testing possible to triage the population. I think it would open doors that may currently be closed to us.
Got it. Yeah. Maybe speak on, obviously, Altitude. I'm sure on any of these calls or investor meetings, you're going to dig through it. It'd be interesting just to get a sense on when we see the data, what are the two or three outcomes we could see and kind of how would you frame the impact on the test and the outlook?
Yeah. For Altitude, it's really about clinical utility. We published a study called Oracle, and then prior to that was the Panoptic. What we've demonstrated there is clinical utility. Now you're confirming that in a randomized controlled trial. That's really the difference. People look back and say, hey, if you haven't done the randomized prospective trial, then what have you really said? Have you cherry-picked? We feel pretty confident at this point in time that it will state the same. The secondary, not necessarily endpoints, but things you're looking at here is if you change behavior, then what's the positive impact to the healthcare system? Minimizing unnecessary, invasive, costly procedures. We demonstrated that in Oracle and Panoptic. We feel confident that this is going to do the same.
Do you feel therefore that Altitude could be what sways? Who knows? Maybe CHEST gets swayed over the goal line with that. Absent that, will Altitude be a helpful marketing message? Excuse me, but will it be like a real big impact with doctors given that you've already established utility in prior studies?
Yeah. You know, one of the ways we look at it is because we've got a first mover advantage. It's putting a moat around the business. I think it sets the bar high for any potential competitor that looks at it and says, for us to compete, we've got to do a randomized controlled trial and exceed those expectations. Early-stage companies, that might be difficult to think of what that looks like. For us, I feel pretty confident that it will do both. It'll open new doors for us. It'll start the conversation. If CHEST guidelines are updated prior to our publishing, obviously it's not going to hurt. It would just be additive. If they haven't published the guidelines, then it should only help.
The reason I state that when I stated that it was a first of its kind for pulmonology, when you go back to, I believe it was 2018, ATS, the American Thoracic Society, published how to properly design a prospective study for pulmonology. We worked with those physicians to design this study and followed that. We look at it and say, if they published what the expectations for study design should be and we've met those criteria and it's a positive outcome, then we've done everything we could. I also anticipate that we'll have multiple interim analysis out of Clarify that we published this year that will be even more compelling. One of the things we know when we talk to pulmonologists, they tell us that PET scans are ordered on every patient and they don't even look at the results.
They said every one of those patients turns up positive, using their phrase, they're glowing. We don't even do it, but it's just part of the workflow. Talk about an unnecessary procedure. So many of those physicians said, if you can get some sort of comparator showing that your test has more impactful results guiding treatment than PET, then now you're even closer to guidelines. We're really focused on continuing to develop data, distancing ourselves from the competition, and being that consultative sales force that is trusted within the pulmonology community.
When you think about the Altitude data, what would be the kind of process by which it could impact you? First, we'd see a headline result and we'd say it worked or it didn't work, and then you have to wait for publication. Is it the publication that would help drive more enthusiasm or would the data basically saying it worked be enough?
You know, I also oftentimes go back and just look at who the enrolling sites are. So one of the things that we know is if you're an enrolling site, which we've clearly disclosed that there's 26 major academic institutions, that also means they're not commercially enrolling. And so when you close a site, if they've been a participant in the trial and it's a positive trial, you've increased the likelihood that they immediately convert and utilize commercially. So one way of thinking of that would be if you can take a high percentage of those 26 sites, move it to a commercial order to where every patient they treat utilizes the test. Now you can see that that's a nice tailwind to help influence growth and trajectory. Secondarily, I think then it's the implementation and the rollout over a period of time.
What's the perspective salespeople get when they go in and they meet with a doctor and the doc says, no, I'm not ready, I don't want to do this?
We've talked a little bit about it. There's a couple of easy objections. Are you in guidelines? No, but no test is, right? We haven't seen an update in guidelines in 12 years, like I've said prior. That's an easy one. Secondarily, and I think everybody here can kind of smile, it's, I don't need your test, I don't get it wrong, right? We have to go in and improve and educate and inform. We have to remind people that pulmonologists don't have blood draw capabilities on site. They don't have a history of ordering a blood-based biomarker or a molecular test. We really have to go in, kind of educate, inform, and empower them to do that.
Now, with our track record, one of the other things we implement is we have a clinical review tool where it's HIPAA compliant, where we have a scatter plot showing every commercial patient that we've utilized, and we show them the decision-making change and behavior change that's occurred as a result. We're educating not just on the data, but we're also looking at it and stating, hey, these are your peers. This is what's occurring across the United States. We're leading commercially, and we want to demonstrate that it's not that they're being left behind, but they can apply those same learnings. We really go in in an educational opportunity.
I think this year when I talk about it being transformative and you look at it and say, HEDIS measures, guideline inclusion, publishing Altitude potentially, multiple interim analysis on Clarify, we've done everything we can to put ourselves in a wonderful position with payers and with physicians that continue to expand and adopt this within their practice.
The gross margins are terrific. Are those sustainable longer term?
Yeah, they are. I am really, really proud of the team and a shout out to our development team. A couple of initiatives last year where we really were trying to focus on improving through just efficiencies and small improvements here and there. We can continue to maintain these. There is modest room for improvement as we grow to scale, as you get more tests run. We are proud of that. Any diagnostic company that is between the 75%-80% gross margin range really is in a unique position. We have similar gross margins on our biopharma services. For us, as we continue to grow and scale, we feel pretty confident that we can get to the adjusted EBITDA profitability and then progress towards cash flow positivity in 2026.
Just kind of remind us of the patent position around Nodify.
Yeah. Nodify is made up of two different unique tests, both blood-based proteomic tests. One, we're measuring proteins in combination with clinical factors, and the other is autoantibodies. A proprietary test, we have focused on building a strong IP portfolio to protect them, and we've continued to add on to them. There is also significant know-how that goes into that that defends us. Again, with no known competition coming for the next two-plus years, we have got ourselves really well positioned from an IP perspective, and we'll continue to invest in that. The team is constantly trying to research what we can do to improve those tests.
There is a competitor out there. Just kind of walk through where you see that competitive landscape evolving to.
Yeah. You know, if you go all the way back to 2018, at that point in time, we would have assumed there were four to five competitors in the space now. Unfortunately, one of those failed in validation back in the 2018, 2019 timeframe. Another that was in the space has exited the space, and their subsequent product that they.