Q2 2021 Biodesix Inc Earnings Call

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Good day, and thank you for standing by welcome to the diodes ethic second quarter, 2021 and financial results and business update conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session ask a question. During this session you will need to press star 1 on your telephone.

And if you acquire any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Chris and the Investor Relations. Please go ahead.

Thank you operator, and good afternoon, everyone. Thank you for joining us today for a discussion and biotech Inc. Second quarter 2021 business highlights and financial results.

Leading the call will be Scott Hutton, Chief Executive Officer.

Scott will then be joined by Robin Harper Cowie Chief Financial Officer.

After the prepared remarks.

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 nothing for this call.

Today, we issued a press release announcing our business highlights financial results for the second quarter 2021 copy of the release can be found on the Investor Relations page of the company website.

As a reminder, actual events or results may differ materially from those projected as a result of changing market trends reduced demand and the competitive nature of biotech Essex and industry.

Such forward looking statements and their implications involve known and unknown risks uncertainties and other factors that may cause actual results for performance differ materially from those projected.

The forward looking statements discussed on this call are subject to other risks and uncertainties, including those discussed and the risk factors section and elsewhere and the company's annual report on form 10-K year ended December 31, 2020 filed with the Securities and Exchange Commission on March 16.

2021, as well and subsequent quarterly reports on form 10-Q filed during 2021 if applicable additional.

Information concerning factors that could cause results to differ materially from our forward looking statements are described in greater detail and the Companys press release issued today and and the company's filings with the SEC.

I would now like to turn call over to Scott Hutton, Chief Executive Officer Scott.

Thank you, Chris and welcome everyone to Bioethics second quarter 2021 earnings Conference call.

I'm planning to kick the call off with highlights then turn it over to Robin for our financials, and then I'll come back with a deeper discussion on the business.

Bioethics is our patient centric mission driven diagnostics company. Our mission is to improve every patient's care by empowering physicians with Swift comprehensive and actionable insights.

To that and it was a productive quarter with 180% year over year growth and total revenue are first for blood based tests, which make up our core lung diagnostic testing grew 109% year over year and 20% over the prior quarter.

We ended the quarter with $56.3 million and cash which was a $1 million increase over Q1.

In addition, we're happy to announce we're bringing forward the launch of our 72 hour liquid next generation sequencing test to the beginning of next year, which will increase our core lung diagnostic testing menu to 5 test.

This broad portfolio, a blood based test coupled with our focused sales strategy allows our sales team to provide multiple solutions for the same patient at various parts of their journey.

The bioethics portfolio of lung diagnostic test is continuing to advance as well we have multiple studies underway, including the altitude beacon insight and Oracle prospective studies to continue to build the data supporting our on market test as well as our pipeline tests, including risk of recurrence.

And primary immune response.

Our progress and the quarter reflect our commitment to improving patient outcomes through high quality test and clinical data.

Now, let me turn it over to Robyn to review the second quarter financial performance Robin.

Thank you Scott our second quarter total revenue was $11.9 million compared to $4.2 million for the second quarter of 2020, representing an increase of 180%.

Particularly pleased with the improved trends and our non Covid business, which includes our core lung diagnostic testing and Biopharma services, which grew revenue by 102% year over year, and 3% sequentially highlighted by strength and our core lung diagnostic business, which grew 109% year over year and 20% sequentially.

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The quarter over quarter growth and lung diagnostic revenue reflects a rebound as pulmonologists shifted from treating patients with COVID-19 to their more normal pre pin debit and workflows.

As a result of our successful growth strategy, we triggered the previously disclosed notify XL to gross profit milestone from the acquisition of integrated diagnostics.

Turning to Biopharma services second quarter, 2021 revenue was $1 million compared to $6 million and the year ago quarter, and $1.7 million and the first quarter of 2021.

As we've said this business can fluctuate due to several factors, including contract timing, which can be longer under normal circumstances, but and this particular instance reflects the continued impact of COVID-19 has had on overall clinical trial enrollment.

Spite the impact it had and our quarter prospective trials and our farmers biopharmaceutical activities. In this area remain robust and we remain confident that we will see further improvements in the coming quarters. Overall Biopharma services remain a significant long term opportunity for Baird, Essex, particularly as prospective clinical trials begin to ramp back up.

As anticipated we did see a sequential decrease and total revenue as compared to the first quarter of 2021, which was driven primarily by the decline and COVID-19 testing services.

Covid testing revenue was $6.1 million and the second quarter versus $23.2 million and the first quarter of 2021.

As discussed on our last quarterly call. The decline was the result of rapidly falling COVID-19 case volumes across the country and the corresponding decrease in demand for our COVID-19 testing services.

And we've said before we continue to expect COVID-19 testing services to represent a decline and piece of our overall revenue going forward.

Gross margin percentage and the second quarter 2021 was 40% for 56% and the second quarter 2020.

The decrease and margins over the prior year period was driven primarily by the significant year over year growth of our lower margin COVID-19 testing revenue, which was $6.1 million and the <unk>.

Quarter versus $1.4 million and the second quarter of 2020.

Gross margin in the quarter compared favorably to the 37% gross margin seen in the first quarter of 2021.

The 300 basis point improvement and gross margin over the first quarter with a result, and the growth and our higher margin lung diagnostic testing services revenue offset by the sequential decline and COVID-19 revenue at.

This dynamic is expected to continue during the recovery from the pandemic, we will expect to see strong margin improvement and the remainder of 2021.

Overall operating expenses, excluding direct costs and expenses for $15.4 million and the second quarter 'twenty, 1 compared to $8 million for the same period of 2020 and $16.2 million for the first quarter of 'twenty 1.

The year over year increase was primarily driven by non cash stock compensation increases as a result of becoming a publicly traded company and investments and expansion of our sales force as well as research and development team.

The sequential decline was primarily due to the reduction and the second quarter 2021 change and contingent consideration, which resulted from the milestone achievement and the second quarter and now reflects a portion of the change and interest expense, representing the time value of money for the fixed and determinable obligation as well as a reduction and performance based compensation.

<unk> elements, including stock compensation costs.

After beginning the expansion of our commercial organization launching multiple new clinical trials and investing and our pipeline. The net loss for the second quarter 2021 was $11.4 million compared to a net loss of $8.3 million for the second quarter of 2020, and 7 zero million for the first quarter of 2021.

Net loss includes noncash expense related to contingent consideration and stock based compensation of $1.5 million recognized during the second quarter of 'twenty, 1 compared to income of $9 million and expense of $2.7 million and the second quarter of 2020, and first quarter of 'twenty 1 respectively.

Finally, turning to the balance sheet. We ended the quarter was $56.3 million and cash and cash equivalents and increase of approximately $1 million over the first quarter of 2021, primarily as a result of the collection of working capital balances from the first quarter of 2021.

In addition to further enhance our capital structure, we have applied for loan forgiveness on our $3.1 million PPP loan and expect to receive confirmation of forgiveness pending final review by the small business administration.

Looking forward due to the rapidly evolving nature of the pandemic testing strategies, which include variance vaccinations and the resulting impact on health care and the U S. We are not providing revenue or earnings guidance. At this time, we do however expect year over year revenue growth with our gross margin percentage continuing to improve as lower margin COVID-19 testing.

Service revenue is replaced with higher margin long diagnostic testing revenue. We continue to expect that COVID-19 testing revenue will decline throughout the year subject to any major changes and the rate of the pandemic and our ability to enter into further testing services.

However, we will continue to provide COVID-19 testing to our health care schools and other employer group partners and expect to evolve our offering as the country continues to move forward and we learned to live with COVID-19.

And while we expect to increase our overall operating cost during 2021 due to the execution of our growth strategy and investments and bringing new products to market. We are maintaining a disciplined focus on costs and are continuing to evolve our offering with the future launch of our new NGF test.

Now I will turn the call back to Scott.

Yeah.

Yes.

Thank you Robyn.

Remember our mission is to improve every patient's care by empowering physicians with Swift comprehensive and actionable insights and we will do so by integrating bioethics molecular tests into physician practices, providing all of the testing needed for a lung patient through their continuum of care.

And 1 patient 1 trusted company multiple test.

We continue to build our company for long term sustainable growth by investing and our sales infrastructure as we remain on track to double the size of our direct and dedicated sales force and 2021.

The expanded sales force will better allow us to reach more physicians to provide them with a portfolio of test to manage their patients from pre diagnosis of lung cancer through treatment guidance and monitoring of their disease.

Our test results to aid the physician and making more informed decisions to direct the right patients onto biopsy. Your surgery helped many more avoid unnecessary intervention and help guide treatment decisions.

As we previously stated the first quarter of 2021 would be our high watermark for COVID-19 testing revenue followed by a steady decline in subsequent quarters.

And while the overall rate of testing and the U S has tapered off from the prior quarter. We will continue to offer support to communities, both locally and across the country with our work safe COVID-19 testing program.

While we have demonstrated a bioethics over the last 15 months as a resilience and ability to adapt the bioethics team remains diligent and our efforts to meet the needs of our partners physicians and their patients.

1 of the exciting recent developments is our new liquid biopsy 52 gene next generation sequencing test.

The test was shown in a recent publication to have an unprecedented 72 hour turnaround time, which is significantly faster than the 7% to 14 days. It takes for other NGF test on the market.

Again time to treatment for patients with cancer is critical and we strive to provide reliable blood based tests as quickly as possible to support physicians and their patients.

And the NDS test compliments to 36 hour <unk> DD PCR genomic test and a 36 hour very strapped proteomics tests currently offered with the expanded coverage of broader molecular markers.

The tests are used at different points and the patient's continuum of care and provide a more complete testing offering to the physician for the care of their lung cancer patients.

Our NGF test has been available for research and clinical trial used since 2018, and we're excited to make it broadly available for clinician US early next year and.

<unk> test will be yet another option for a national home phlebotomy team to add to their array of bioethics blood test and if deemed necessary by the physician can be facilitated in the convenience of a patient's home.

We also continue to support the development and use of our diagnostic test by adding to the body of evidence demonstrating their utility and value.

We have multiple studies, including for prospective studies currently underway and.

Site continues to measure the impact and utility of the various threat test.

The altitude and Oracle registry study evaluating the efficacy and utility of the notify XL too and notify CDT test and the Beacon lung trial evaluating the efficacy and utility of our primary immune response to test. These.

And these studies and our continued efforts are a key component to our business and drives both clinical adoption and reimbursement.

We announced a number of new initiatives and the quarter that will help us expand our pipeline of diagnostic test and broaden our research capabilities.

1 was with data and data connectivity company that <unk> is using to link data from the lung cancer specific portion of our biobank to other data sources and this allows us to provide compliant and secure access to a more comprehensive database to our internal researchers and our academic and Biopharma research partners.

And.

We also added a partnership with fear to utilized years Protium <unk> product suite to drive novel Proteomics insights for translational research and to help define the biological underpinnings for new test and Biopharma services.

Bioethics has become a trusted partner and run sphere technology in conjunction with our other technologies and the diagnostic cortex AI platform for Biopharma partners with interest and research and development.

Lastly, I want to close with a thank you to all bioethics teammates, whose efforts commitment and daily contributions make it possible to achieve our ambitious mission to help improve the lives of patients.

With that I'll turn the call over for questions.

Thank you as a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.

And our first question comes from Tejas Savant with Morgan Stanley. Your line is open.

Hi, This is Hugo on for <unk>. Thank you for taking our questions. While Covid testing revenue. This quarter came in below where we were with the Delta Varian driving up the number of Covid cases could you comment on what Youre seeing more recently on the Covid testing side.

Yes, great question. Thank you Hugo.

And we monitor daily whats going on with the pandemic as does everyone else and as we've said before our new normal really is this constant unprecedented change and so for US we are seeing a slight increase and testing.

And we continue to monitor that as it focuses on transitioning to Delta like you said and then potentially even lambda most.

And most importantly, we're here standing by and ready to assist our partners with testing as they see needs, but at this point in time as you heard Robin State, we really are continuing to focus on decreasing that forecast quarter over quarter.

Got it that was Super helpful. And then previously you mentioned that Pulmonologists unlimited clinic volume.

They're focusing their efforts on treating patients with Covid would you provide some color around the rebound youre seeing around the lung business.

Yes, great question.

In the second quarter, we saw Pulmonologist return to kind of a near and level of pre pandemic.

Encouraged by this.

And unfortunately based upon your first question focusing on the Delta variant, we continue to monitor this daily and weekly as we know that as ICU beds Phil.

And Theres, a chance that pulmonologist get pulled back into the front line. So again, we're going to continue to monitor that but recent days weeks and months.

We saw pulmonologists returning to pre pandemic levels, focusing mainly on non COVID-19 patients and it resulted in the productive quarter that you saw.

Okay.

Great. Thank you very much.

Thank you and then.

Our next question comes from Brian Weinstein with William Blair. Your line is open.

Brian are you there.

Jeremy.

There you go Brian we can hear you now.

We may have lost you again, Brian.

Operator, I think we May have lost Bryan maybe its best if we go to the next question and we can come back to Brian.

Our next question comes from the line of Kyle Mike Chen from Canaccord. Your line is now open.

Thanks, Scott and Robin.

And well so and <unk>.

Nice to see the diagnostics core testing business kind of grow sequentially. The 20% growth I'm. Just wondering if you think that could continue going forward based on what youre seeing and the practices and everything right. Now could you just talk about maybe your assumptions for the second half of the year, just given I know, it's uncertain and everything but the directional commentary it could be helpful. Just in the core business.

Thank you Kyle yes, we feel we feel really good as we focus on those things that are in our control supporting those pulmonologist needs. We've seen a significant increase as you referenced.

As we continue to progress we're mindful that the pandemic is dramatically different now in 2021 and then it was in 2020.

Our conversations with Pulmonologists and increase our confidence level that there'll be able to progress through this surge.

Better than they did in 2020.

And they've learned a lot they have applied those learnings and they've got broader capabilities as do we so.

Focusing on those things and our control we feel good that we'll be there and the ready to continue to support them, but we will continue to monitor case loads volume bed availability and potential shutdowns and support our positions as best we can.

Okay. That's helpful. Scott Thank you.

And I was also wondering about the gross margin maybe this is for on for Robyn.

Just maybe first if you could provide like the core the core loan and <unk> gross margin and the quarter.

And what have you from a kind of break that out for that'd be helpful and also.

Yeah.

And the 10-Q, there was something about like a termination of an agreement with Iran. Like a royalty I don't know if thats going to be material on gross margin, but could that help from the second half of the year and beyond.

Guys could you just kind of a <unk>.

First of all for me thanks.

Sure Hi, Kyle.

And the lung diagnostic gross margins continued to be very strong and while we don't break them out specifically and the Q. They.

And they do reflect what we saw pre COVID-19. So if you look back at 2019, we were in the 70% to 75% gross margin range.

And that continues for the non Covid business.

And.

The bio Rad change is expected to have a minimal impact.

And it's not expected to be have a material.

Change on gross margins.

Okay. Thanks, guys quick question on the sales force nice to see that ramping big fans and RASM as planned could you just remind us how the retro comps.

Wondering if there's like incentives that emphasize the lung testing over COVID-19 just to make sure they are kind of incentivize.

For post pandemic. Thank you.

Yes, great question Kyle Thank you.

We've not disclosed to date, but I'm happy to clarify.

Our field based sales team is not compensated on Covid testing.

And nor have they been throughout.

When we shifted back in early 2022, a remote or virtual work environment and clinic began shutting down.

And we kept our entire sales team intact, there were no furloughs no layoffs.

We wanted them.

Demonstrating resilience, becoming as creative as possible and shifting all physician meetings for our core long diagnostics towards virtual.

We wanted to be prepared for the rebound as we opened up earlier this year and we believe confidently and strongly that that's why you've seen the performance that you have we did not want our sales team shifting focus.

We will as a country get through the pandemic and as we do we're going to remain focused on what matters, most which is partnering and collaborating with physicians to better enable them to treat their patients.

Great and if I could just 1 last question for me bigger picture based on revised recommendations from the USPS TF CMS is considering and adjustment to which reimbursement policies for low dose <unk> lung cancer screening.

And the eligibility criteria includes lowering the screening start age and so many commercial payers have already expanded coverage by adopting lenient and recommendations ahead of Medicare, which is obviously pretty uncommon.

And thats going to have any downstream impact on pyoderma Thanksgiving.

<unk> management offerings.

We saw.

Saw the USPS TF recommendation at least the draft recommendations over a year ago.

And given the broad support from physicians and medical society as expected that to happen.

<unk> included this change in our in our projections and and how we're looking at the business and mainly it means there'll be more and more patients getting screened which is great. Because we know that catching cancer early it's the best way to improve outcomes and even potentially affect a cure.

And anticipate that that will.

Lead to the.

Very very large number of nodules that are found so that 5 million lung nodules that we estimate includes this change for.

For the Tam.

Okay. Thanks Robin.

Thanks, a lot for taking my question and talk to you soon.

Great. Thank you Kyle.

Thank you as a reminder to ask a question you will need to press star 1 on your telephone or net.

Next question comes from.

And I'm actually showing no more questions. At this time. This does concludes today's conference call and thank you for participating you may now disconnect.

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