All right. Good afternoon. My name is Doug Schenkel. On behalf of UBS, it is my pleasure to welcome Robin Cowie, Chief Financial Officer, and Tim Dupont, Head of Sales Operations and Project Manager, as well as leader for digital diagnostic development at Biodesix. Thanks to the two of you for joining us this afternoon.
Thanks for having us.
It is our pleasure, Doug. Thanks.
So, over the next half hour, there are a few things we want to talk about. Most importantly, we want to talk about Nodify adoption, commercial execution, the financial model, and since we have you here, Tim, we want to take advantage and dig in on digital diagnostics. In terms of the roadmap, we will start with the patient pathway, we will get into sales operations, we will talk about commercial, and then, as I said, we will get into digital. So, Nodify, for those of you who do not know the company, and I will take a shot, and if I am messing anything up, please clean up for me.
So this is a blood-based nodule risk assessment tool. Nodify CDT flags likely malignancy. Nodify XL2 identifies likely benign nodules. And there are, what is it, about 1.6 million U.S. patients who have incidental nodules identified annually. So, it is a big opportunity.
Clean up for me if I am messing anything up.
Yeah, there is actually a lot more now. So that number is almost 15 years old.
Yeah, is that right?
The current estimates are 5 million-6 million annually in the U.S. So a massive problem in our healthcare system.
Yeah. Yeah. All right, we got the products, we got the opportunity. In the third quarter, diagnostic testing was $23 million, up 16% year-over-year. You did 19,400 tests, up 24%. You are expected to do, I think, still over $100 million for the year.
Yeah, correct.
So 15% at the midpoint. That being said, good growth, big opportunity. To just do a quick Q3 recap, maybe just starting with the obvious question, because you did come up a little bit light of expectations. How confident are you that the third quarter shortfall was transitory rather than something more than that?
Yeah, that is obviously the most important question. We spent a lot of time once the trends mid to late quarter started to become apparent, really diving in to understand what was happening across the business, what we were seeing, to make some changes and interventions and to ensure that we are seeing results from those changes. We are happy to report that October was our strongest month of new physician acquisition. We saw our base customer ordering patterns improve in October, and so we are feeling good about the changes we have made and how that is rebounding.
Some of this is, I mean, just to push a little bit more, there were some changes in the number of the street from a sales rep standpoint. That is part of this, right?
That is a big driver, yeah.
Okay. I thought you guys said something like there was greater-than-expected primary care seasonality.
Yes.
I feel like there has been a little bit of that across the group. Could you talk about that a little bit more?
Sure. We started expanding our commercial efforts from pulmonology into pulmonology referral networks down into primary care about a year ago this time. So the third quarter of last year was our first real group of sales reps calling on those physicians. This was the first third quarter we saw with any real volumes to really understand what happens. And some of the things we learned is that patients are more willing to delay or forego appointments with primary care-
In that channel, yeah.
-than they are with specialists.
Yeah.
Right? Once they have got an issue and they are seeing a specialist for it, they tend to keep those appointments, although we do see seasonality with vacations. But primary care was just different.
Okay. That is something we have to be mindful of, right? Because this channel, it accounts for what, about 15% of volume?
It is about half, yeah.
How much is it?
It is about half.
Is it that large?
Oh, 15% of our volume.
Yeah.
50% of the market.
50% of the market, but it is pretty quick that this has grown to be. I know 50 was going to be big, but in a short period of time, it already accounts for 15% of patient volumes.
Yeah. Mm-hmm.
Okay. All right, so we just need to be mindful of the dynamics as mix change, changes by channel. Tim, what have you learned about primary care ordering behavior, and as you're moving deeper into this channel, how does that affect your view of the ultimate opportunity?
Yeah. What we know is that the decision-making criteria for a pulmonologist versus a primary care physician with respect to a nodule are a little bit different. Decisions about things like when to biopsy or when to do an additional procedure are made at the pulmonologist. What a primary care physician is really looking to do is to understand whether they maintain that patient for active surveillance in the community, in their primary care practice, or whether they refer to a pulmonologist. There's fundamentally really different decision criteria that they're working through. The second part of your question, Doug, was?
Just based on this knowledge, and as you go deeper into that channel, based on what you're learning and what you're seeing, do you think of the opportunity any differently than you did a year ago?
No, I think we continue to see both quantitatively in our data as well as qualitatively in our discussions with physicians that the value proposition of using Nodify Lung in primary care is really resonating. For example, our internal sales leadership group has a chat where we share a variety of different success stories. Just this last week, we had one from primary care where there was a physician who ordered Nodify Lung on a patient who had a smaller nodule, and ultimately, we had a positive detection of an antibody within our CDT test. That patient ultimately went on to biopsy and had an early-stage cancer identified. In those scenarios, we're really able to understand the value proposition of the test in that particular area of the channel.
Can you talk about what happens as the mix between CDT and XL2 evolves from an ASP and from a margin perspective?
Absolutely. Our tests, Nodify XL2 is used in nodules that are 8 to 30 millimeters.
In smaller nodules, in 4 to 8 millimeters, you don't really need XL2 because the physician is planning on doing CT surveillance. CDT can come in and identify those early-stage cancers, like Tim just mentioned, and help get them intervention much faster than they would have if they waited a year to do another scan. In accounts where they are ordering on the smaller nodules, we're seeing a good halo effect where we're actually capturing more of their patients that are in the eight to 30 as well, partly because they're ordering more often. It's top of mind. We're seeing nice increases in ordering from those physicians in both the small and the larger nodules. With adding in the small nodules, which happened in the second quarter, we see a decrease in the overall average ASP because CDT is a lower-priced test.
It is still exceptionally high gross margins. We were six straight quarters above 80%.
Right.
It has not had any impact on margin, but does on the average ASP. But we have seen good coverage policy pickups over the last couple of quarters, so the individual test collections have improved for both Nodify CDT and Nodify XL2.
Even though we are good on margin, there is a dynamic when it comes to mix at the ASP line.
Yeah.
But in terms of the size of the opportunity that opens up with this, that is more than enough to make it worthwhile-
Absolutely.
-even with some of the trade-offs in price.
Yes.
Okay. All right. I think we talked a bit about what drove the Q3 dynamics, the change to the guidance outlook, unpacking what's going on in the primary care channel and the mix. Anything else that you'd want to communicate to folks coming out of Q3 now that we have a few days between the print and where we are today?
Yeah, I think what the print doesn't capture are some of the milestones that occurred in the quarter and subsequent to the end of the quarter with CHEST, which is the pulmonology society-
Yeah.
-annual meeting. The biggest thing that occurred for us, well, I guess there were three major announcements. Starting with CHEST, for the first time, CHEST has endorsed and put out a structured framework for how to design and implement nodule management programs. And biomarkers like Nodify are a key component of that program. CHEST is now 13 or 14 years delayed in updating their guidelines.
Yeah.
There has been a dearth of information for physicians to engage and to understand how to handle this massive patient population. We are very excited about that. CHEST is actively distributing that framework out to their members, and our team is busy meeting with folks. We think that is really key because, as you saw in the third quarter, and with most diagnostic companies, it is a really high-touch sales model. But implementing programs like this, where there is software that is identifying the patient, that all of the processes are automated inside the systems, takes a lot of that reliance on the high-touch model out. We have seen that work really well. We talked about two systems on the West Coast-
Yeah.
-that we are implementing. We are really excited about that. It takes some time, but it is a really efficient model that we think that this program will help drive more of that across the country.
Interesting. It is helpful to hear you describe it because it was described to me as, hey, this is a step forward. It is a new framework. But it is still not formal guidance in the guideline inclusion, right?
Yeah.
Recognizing this is almost preposterously, if that is a word, taking as long as it is taking.
Yeah.
What kind of additional evidence do you think they are looking for to go from the framework to actual guideline inclusion?
I am not sure that they are looking for additional evidence. I think it has just taken a really long time because there was such a huge amount of information. Robotic bronchoscopy is not covered in the guidelines yet.
Yeah. Yeah, you are not alone.
No.
Yeah.
There is a lot of standard of care that has not yet been captured. I think it is more, at this point, process. We have heard rumors that it could be early 2027, like first quarter, second quarter. But it has been years, so we will wait and see.
Yeah, and as Robin says, it's in some ways a compounding problem. As the length of time continues to increase, there are more considerations for things that they hadn't put within the guidelines prior.
Right. More time to think. Yeah.
Exactly.
Okay. We talked about lower sales capacity in Q3. You averaged, I think it was roughly 101 reps in the quarter. I think you talked about being up to 110, or at least around 110, and trying to get to about 115-
That's right.
-by year end. I think the plan is to hire six to eight more folks quarterly for a little while. Is that the right way to think about things?
Correct. We think that's the optimal size for our recruiting, hiring, and training infrastructure.
Yeah.
We've found that that's the right size to reduce dropout and really optimally train these folks to hit the street running.
Tim, I don't know if I want to call it a rebuild, but as you're kind of recalibrating and expanding, I think we've got what you view as kind of the progression in terms of number of hires you need to or you plan to make-
Yeah.
-quarterly. But how quickly do you think these folks can go from hire to productivity?
Yeah, it's a good question. I think historically we've seen reps begin to pay for themselves within a quarter. So, our intention is certainly to have them trained and contributing as soon as we possibly can.
Yeah. I mean, you guys are quicker than most companies we follow in terms of getting to break even in productivity. I mean, you can't really do much better than a quarter, right?
Yeah. It's-
We're constantly trying.
You're trying, I guess. Yeah.
It's certainly not without effort to try to make it a little bit quicker. But yeah, I think part of it is making sure, as Robin suggested, that the hiring cadence is calibrated such that it captures our organizational's ability to execute and make sure that the folks that hit the street are trained and can contribute quickly, and that we do make sure that we have capacity to train any other attrition that may happen within the team in those classes. So, that's a really important part of making sure that we can have teams in the field and contributing as quickly as possible.
That kind of more mature or fully productive, whatever you want to call it, is that more two to three quarters?
Yeah.
Yeah. That is reasonable.
The six to nine months is about where we see them really catch stride.
But we have got folks in the field who have been there for a couple of years who are still growing.
Okay.
We have not seen them really top out.
You won't cap them. Yeah.
Yeah.
October was your strongest month of new physician acquisition this year. Existing customers continue to grow. When I think about how you altered guidance coming off of Q3, you seem to capture, reflect some of the dynamics that hit you in Q3. It doesn't seem like you have a lot baked in for recovery. Was the intent, just from a guidance philosophy standpoint, to not fully necessarily acknowledge the fact that you had a lot of momentum in October and you could get back some of that revenue hypothetically, but recognizing, hey, there's two months left in the year. Let's be careful coming off of a quarter that wasn't exactly where you wanted it to be. Is that a fair way of describing things?
It's definitely fair. On our Biopharma Services side, we had expected more in the fourth quarter. We often see a higher fourth quarter. We've experienced some contract execution delays, accrual in prospective study testing, things like that our backlog, if you will.
Yeah.
Our funnel is actually stronger than second quarter. It's just the timing is pushing out. That contributed as well, and we just wanted to ensure that we've got six, seven weeks left that we're capturing those actuals.
Right. From a growth standpoint, really thinking about 2027, we have talked about adding more reps, maybe cutting things a different way, and they are related, but as we think about expanding the number of ordering physicians versus going deeper into accounts, what is the bigger opportunity? With that in mind, are reps presumably incentivized that way?
On the which is a larger opportunity question, I would say there is a lot of room on both sides.
Okay.
Right? I would say where we are relative to total market penetration gives us a lot of opportunity within physician acquisition.
Yeah.
Then we know, because we have been building this market -
Yeah
-when we got into it, had to put together all of the infrastructure associated with the market itself. What I mean by that is pulmonologists didn't draw blood in their offices. Guess what? Our tests are blood tests. So, we had to start to build the infrastructure to support things like that. Patient identification, without a formal guideline recommendation, as we just discussed. Patient identification may, in fact, be more prone to being manual. What I mean by that is a physician would have to remember, or a provider ordering would have to remember to consider this patient in the context of the inclusion criteria of the test, and then actually physically get a piece of paper and place that order.
I think there's a lot of room to run on new physician acquisition, but as we build more programmatic ordering with things like the CHEST announcement from last week that includes biomarker recommendations.
We'll have more opportunities to do things like programmatic algorithmic ordering of our tests and continue to leverage the infrastructure that we've built for things like blood draw, as well as electronic ordering capabilities where we do see better average orders per customer when we have integrations executed, for example. I think there's a lot of opportunity in those areas, Doug.
Both in new physician acquisition as well as going a little bit deeper in the accounts.
And the incentive structure, do you think you have that where it should be in terms of making sure folks are doing both?
We do. Yeah, we do. We think we have not only the incentive structure, but the actual team member composition in order to do that.
Okay.
And I think one of the things that we spend a lot of time on as a commercial leadership team is understanding whether we're accurately identifying the right person for what each territory and actual job code, so to speak, on the sales team needs, whether that's a more retention-focused role or whether a more, as you would stereotypically call it, hunter-like role-
-who would be acquiring new business. So, we spend a lot of time making sure that we're optimizing our profiles for our hires to those.
Robin, earlier you talked about the fact that you highlighted two major health systems that are beginning to embed Nodify into standardized nodule management pathways, and that ties nicely together with the new CHEST framework. Health system economics, how do they differ from other customers? In terms of, I would think that the fighting through the sand and the gears to get people to order gets better, but just in general, in terms of your ability to be more efficient from an ordering standpoint and just in general what they're paying, how do the economics differ in health systems?
Yeah. In health systems, particularly integrated networks where the payer is associated with it, they're really looking much more broadly at the problem.
With so many people with lung nodules, unfortunately most of them fall through the cracks.
And so, payers and health systems know they have two problems.
Yeah.
They're intervening on patients that don't need those interventions.
They're missing cancers. From an economic standpoint, if they can address both, and those two tests really help them address both of those problems, then they're addressing more of their patients, they're catching cancers earlier, and they're avoiding unnecessary care.
Is there any willingness to acknowledge the value you're creating in ways that can be monetized in a different way for Biodesix?
We have used the health economics-
Yeah.
-to help really shore up our pricing, and with PAMA, and we're reporting our private payer and other paid rates, we've been very successful at maintaining our Medicare rates. That health economics discussion goes into that. We've also had great conversations with various payers about other types of models and other types of incentives, and engagement with them to help drive care and help drive utility, really show utility. But those are a little bit harder to do. You have to have an interested and willing partner on the other side.
I want to pivot over to digital for a few minutes. You're developing a radiomics-based lung nodule risk assessment with Vanderbilt, targeting commercialization in 2028 as a complement to the blood-based Nodify portfolio. How do you envision digital risk assessment products fitting alongside the current portfolio? Maybe we can start there.
Sure. We believe that the information that we'll get from an image, or I'll call it a DICOM file, which is a type of image, is fundamentally complementary to the image that we'll obtain through the biology that our current on-market products assess. The test is designed, and what we've stated is that it's optimized for high specificity. We'll identify patients that are likely to be malignant through its signal, and we believe that fundamentally it will be complementary to the test that we have on market today.
Is it done concurrently, or where does it fit in terms of the workflow?
Part of what we're doing right now is we've opened a new study called the STRATIFY Study. We announced this three weeks ago at CHEST. Part of the study will be looking at clinical utility of our Nodify CDT and Nodify XL2 tests, but there will be another endpoint associated with validation of the radiomic classifier associated with the blood test concurrently. We believe them to be complementary, and the STRATIFY Study will help us understand the optimal solution to bring to market in the best interest of patient care, and in the best interest of furthering the performance of our tests.
Do you think it gets used across the board, or is that another thing that we have to see in the study? If it's successful, is this used alongside every time, or is there a chance it would be used in some subpopulation?
I think we're going to have to let the study tell us-
Okay.
-some of those pieces to unpack.
Okay.
I think the other important thing is, we know in healthcare that no single biomarker answers all the questions or even gives you the full complete answer. By capturing the information from imaging as well as the information from blood, we think it will answer the question for more patients, reduce down sort of our indeterminate, where they are still in that
Right.
I am not sure range. Lung is an interesting space because there are over 50 different lung diseases, and all of them get imaging. This is not just a platform to add a Nodify test. This is a broad platform that will allow us to discover and develop more digital diagnostics, more multimodal diagnostics to help address some of these questions in lung that right now really do not have good answers.
You are uniquely positioned to do this based on all the samples you have worked on.
All the samples. The STRATIFY Study will bring in blood samples and CT scans.
We'll have the largest database of essentially multimodal data, and then we've got a 100-person sales team-
Right.
-who are the only real diagnostic sales team calling on pulmonology. We're going to develop more tests and drop it in their bag.
Yeah, absolutely. I think the commercial channel's a really important piece of this as well, as Robin pointed out.
Beyond STRATIFY, are there other milestones that we should be looking out for to measure your success, as we think about 2027 and 2028?
Yeah, we'll see additional data releases. In a couple weeks at RSNA, you'll see the first platform data on the digital platform. It's fundamentally different than the existing radiomic classifiers that are out there now. That will fairly shortly thereafter be followed by the first publication on the study itself, or on the test itself, so you get to start to see some performance data from the test.
And there's lots of focus in the community, our community, on the ability to potentially take datasets like this, multimodal datasets, and potentially use those in partnership with biopharma or even AI-driven biopharma, either companies or initiatives within existing companies, existing biopharmas. Do you think there's any opportunity with this to participate in those types of arrangements moving forward?
Absolutely. Absolutely. Data is everything.
Right.
And we've been using AI since the beginning of our company, using machine learning to help discover new tests and classifiers. So we have our AI platform is called the Diagnostic Cortex, and we've been using that for years, but you're exactly right. Through the data that we have and the samples that we have through a variety of our clinical studies, we have a pretty rich dataset for biopharma to tap into.
Is that something that you've actively gone out and tried to work with Biopharma on, especially as you move forward with the new studies?
We have. It hasn't been the biggest area that we've pushed, but we've done tokenization and other things with the data-
Yeah.
-to help tie our samples to additional data to make a really rich dataset for mining.
Yeah, I think these are opportunities we will continue to explore. I think on the commercial side, we're uniquely positioned given, as Robin suggested, the 50-plus indications that oftentimes begin with a CT scan.
Another important development last week was greater detail on two complementary MRD programs, a tumor-informed assay with Bio-Rad and a tumor-naive methylation assay with Thermo Fisher. Can you tell us a little bit more about these partnerships and how we should think about these if they are successful over the next few years?
Yeah. We have taken a slightly different approach to both our pipeline generation and advancement, specifically around MRD as well as some other programs in our arsenal, in which we are partnering. Our partners are bringing things to the table as well, which is a really cost-effective and efficient way to move this forward. For both tests, we have partnered with Memorial Sloan Kettering Cancer Center to help validate and move those forward. MSK has presented data on the tumor-informed MRD over the last year at various society meetings. Our plan for these tests is to develop distributed tests. The tumor-naive version will be on the Thermo platform and can be available across the U.S. and across the world, likewise with Bio-Rad for the tumor-informed.
We are not planning on building a massive oncology sales force and trying to go head-to-head with some of the other larger players, but more trying to help develop something in a distributed fashion that maybe addresses a different portion of the market.
Putting the CFO hat fully on, as you think about balancing growth opportunities, the desire to invest in new things, or invest more in existing things that could drive programs, that could drive growth. Also balance that with the progress you have made towards profitability, and you did a masterful job, you and the team, in continuing to grow through a tough period where self-sufficiency became really important for the industry and for Biodesix. As we are sitting here today, how do we think about the balance? I mean, the environment is better. How do you balance growth and the march towards profitability?
Yeah, our focus primarily is on the commercial efforts.
Yeah.
Growing the sales team, so we will see some increased spend there. We have built the infrastructure, customer care, billing, marketing, all of the support mechanisms needed internally to help support the team as they improve productivity and we get closer to profitability. We are really driving that top line. Revenue growth is going to be our biggest driver to get to profitability. We think we are getting close with targeting end of next year for that major milestone. Balancing it with leveraging our partners to help us continue to make real meaningful progress without the massive amounts of spend on the-
Right, without additional infrastructure or R&D beyond what we discussed.
Yes.
Just recognizing we are running out of time, if we are sitting here a year from now, what are the two or three metrics or milestones that you would want us to point to and say, the company has moved beyond a bump in the road in Q3 and reestablished itself on the growth trajectory that you think you are capable of?
From a metric standpoint, it's the number of sales heads and it's rep productivity, really looking at tests per rep so that you take any reimbursement fluctuations out of the mix to really judge how they're doing in the field. We have a lot of new reps, and so as they are progressing down their ramp, this time next year is when they really should be fully coming into their own. We also, at this point next year, would hope that we've made some announcements on timing of the new tests and seen some new data announcements as well throughout the year. We're pushing forward on all of those fronts and feel like we're set up really well going into 2027 to have a really banner year.
All right. Let's leave it there. Rob and Tim, really appreciate you both taking the time. Thank you.
Thank you.
Excellent. Thank you, Doug.