Q3 2024 Biodesix Inc Earnings Call
Yeah.
Speaker Change: Good day, and thank you for standing by and welcome to biotech third quarter 2024 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone you didn't hear an automated message advising her hand. This race to withdraw your question. Please press star one again.
Speaker Change: Please be advised today's conference is being recorded I would now like to turn the conference over to your Speaker today, Chris brings me bio districts of Investor Relations. Please go ahead.
Chris Brings: Thank you operator, and good morning, everyone. Today biogas ex released results from the third quarter of 2024.
Leading the call today will be Scott Hutton Chief Executive Officer. He is joined by Robin Harper Kelly Chief Financial Officer.
Chris Brings: An audio recording of today's call and the press release announcement with the quarterly results can be found in the Investor Relations section of the company's website at <unk> Dot com.
Chris Brings: Today's call includes forward looking statements. We encourage you to review the statements contained in today's press release and the risks and uncertainties described in our SEC filings, which identify certain factors that may cause the company's actual events performance and results to differ materially from those contained in the forward.
Chris Brings: Statements.
Chris Brings: On today's webcast.
Chris Brings: In addition, we will discuss non-GAAP financial measures on this call descriptions of these non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release.
Speaker Change: I would now like to turn the call over to Scott Hutton, Chief Executive Officer Scott.
Scott Hutton: Thank you, Chris and thank you all for joining us today.
Scott Hutton: Our key business fundamentals facilitate our ability to transform the standard of care and improve patient outcomes with personalized diagnostics.
Scott Hutton: Commercial execution has been and continues to be enabled by a strong culture as well as the foundation built upon scientific clinical and operational excellence.
Scott Hutton: And I'm happy to report that it has been another quarter of solid year over year growth.
Scott Hutton: As I've stated previously 2024 is a year of execution and our team continues to deliver on three key goals which include.
Scott Hutton: Driving increased revenue through the adoption of our lung diagnostic test and Biopharma services.
Scott Hutton: Implementing operational efficiencies to continue to deliver strong gross margins and maintaining a strict cost disciplined approach on our path to profitability.
In the third quarter, we delivered 35% year over year growth in revenue.
Scott Hutton: 77% gross margin and a 6% improvement in net loss.
Scott Hutton: Our quarters growth was slightly under our expectations driven in part by the Hurricanes in the southeast.
Scott Hutton: Slower sales team expansion and timing of completion of Biopharma service projects.
Scott Hutton: However, due to a variety of factors I will discuss in a moment our experience in and expectations for the fourth quarter lead us to reiterate our 2020 for full year revenue guidance of $70 million to $72 million.
Scott Hutton: And our expectation that we will achieve adjusted EBITDA breakeven in the second half of 2025.
Scott Hutton: Yeah.
Let's start with an update on the adoption of our lung diagnostic test.
Test volumes grew 34% over the third quarter of last year and as we've discussed the timely expansion of our sales team is a critical component of our overall growth strategy.
Scott Hutton: Our approach has been to hire the right sales team members that help advance our long term strategic growth, while positively impacting our culture mission and vision.
In this quarter, we focused on adding sales teammates in new territories, and upgrading talent and other sales territories to further set ourselves up for success in the fourth quarter and into 2025.
Scott Hutton: The third quarter had an average of 63 contributing sales team members and we graduated a large sales training class in early October who will contribute in the fourth quarter.
Given the timing of hiring and the graduation of the class we anticipate that our average number of fully contributing sales team members in the fourth quarter will be between 70 and 75.
Scott Hutton: Catching up to our planned sales team member count at the end of 2024.
Scott Hutton: For 2025, we'll keep adding an average of six to eight sales team members per quarter as we continue to build out the organization needed to address the significant market opportunity.
Scott Hutton: I also want to comment on the impact of the Hurricanes that hit Florida in the South Eastern United States in September and October we observed in the last two weeks of the third quarter that many patients physicians and our local bioethics team members were forced to evacuate their homes and businesses, thus affecting the normal volume of testing in those.
Regions.
Scott Hutton: While these communities are in the early stages of recovery, we expect most health care providers to return to normal service levels in the near future and the long term impact to our business will be minimal.
Scott Hutton: Before we go on the entire bioethics team wishes to acknowledge the communities who continue to face the devastating effects of the recent hurricanes, our thoughts are with our teammates health care providers patients and residents of those communities as they continue the long process of recovery.
Scott Hutton: Now back to the quarter lung diagnostic testing revenue grew 40% year over year with the difference in test volume growth and revenue growth driven by our previously announced reimbursement successes and new coverages added this quarter.
Scott Hutton: We added new coverage policies in the third quarter for notify <unk> from Blue Shield of California.
Lou Cross Blue Shield, Nebraska, Centene, Fallon and security Health plan in Wisconsin.
Scott Hutton: We're pleased to add these policies to our existing Medicare and other private payer coverages and we remain focused on adding more policies for all of our test.
Scott Hutton: In order to support expanded adoption and coverage of our test we continue to focus on clinical excellence by generating quality data and initiating new studies.
Scott Hutton: Early in October at the chest annual meeting in Boston, The largest Pulmonology conference of the year, New data was presented from a cohort of 35000 patients who receive notified lung testing in a real world clinical setting.
Scott Hutton: The presentation demonstrated that national clinical use patterns and reclassification rates are consistent with prior published data highlighting the high proportion of results that up or down classify patients into actionable risk categories with clear guideline recommended diagnostic plans.
Scott Hutton: This was one of several presentations and the scientific program at chest featuring notified lung testing.
Scott Hutton: Demonstrating continued interest in the role our test play and the clinical assessment of lung nodules.
Scott Hutton: Reception to this educational content with exceptional leading to hundreds of positive interactions with health care professionals and new partnership opportunities.
Scott Hutton: Generally we're seeing an increased focus on lung nodule biomarkers at medical conferences, including chest last month in Boston, Massachusetts, and the American Association of Bronco, <unk>, and interventional Pulmonology or AAP, IP and Charlotte North Carolina in August.
Scott Hutton: We believe this interest and excitement is a strong leading indicator of continued adoption of notified lung testing given our first mover advantage and progress in generating evidence that demonstrates the benefits to health care providers health systems and their patients.
Scott Hutton: The company also announced a new complementary clinical study named clarify.
A multicenter retrospective chart review study evaluating the impact and utility of the blood based proteomics integrated classifier and auto antibody test in the real world.
Scott Hutton: Clarify will collect patient outcomes and other clinical information on 4000 patients who've received notify testing in clinical practice with at least one to two years of available follow up.
The clarify study uses a cost effective study design that is faster to execute and confirm performance of the notified CDT and notify XL to test in a broad population of patients across the country.
Scott Hutton: This study allows us to focus on diverse patient subgroups that historically may not have been studied in other clinical studies to further demonstrate the effectiveness of the test in the real world.
Scott Hutton: We expect to release interim data in 2025 and complete the study in 2026.
Scott Hutton: We're also making progress with altitude, which is designed to assess clinical utility of the notified tests through a prospective randomized controlled trial.
Scott Hutton: It is continuing to accrue patients and a third party data safety management Board is scheduled to meet early first quarter of 2025 to review the progress of the trial and discuss the potential for an interim data release.
Scott Hutton: We will provide additional updates following their review.
Scott Hutton: Finally, new health economic and outcomes research data on our notify test will be presented at the professional society for health Economics and outcomes research meeting known as <unk> in Barcelona, Spain later this month.
Let's move now to our Biopharma services business, which is enabled by our scientific and operational expertise.
Scott Hutton: Saw increasing demand for our services and grew to $1 under contract, but not yet recognized as revenue to $11 $1 million.
Scott Hutton: Up from $8 1 million at the end of the second quarter.
Scott Hutton: Revenue in the quarter was a 17% decrease versus third quarter of last year.
Scott Hutton: Reflecting the delay in timing of sample receipt and the resulting completion of a larger project that shifted from the last week of September into the first week of October.
Scott Hutton: We're excited about the growth in the funnel through an increasing number of rfps contracts and projects.
Scott Hutton: This is a differentiated service offering that leverages, our multi omics platforms and research and development expertise to help deliver insights that our biopharma partners use to personalized patient care and help improve disease detection evaluation and treatment across all disease types.
Scott Hutton: Across the board the fourth quarter is off to a great start with an excellent chest meeting filled with customer interactions leading to opportunities for the sales team to drive additional clinical adoption.
Scott Hutton: New data presentations and the announcement of the clarify study are further establishing our position as the market leader in lung nodule risk assessment.
Scott Hutton: The momentum from chest, the new data and study the.
Scott Hutton: The addition of the newly graduated class a sales team members and the completion of the large Biopharma project already in the quarter are all contributing to the achievement of our 2020 for guidance.
Speaker Change: With that let me turn it over to Robyn to review the financial performance Robin.
Robyn: Thanks, Scott and good morning, everyone.
Robyn: Third quarter total revenue was $18 2, million% to 35% increase over the prior year.
Robyn: One diagnostic testing revenue in the third quarter was $17 2 million from approximately 13900, <unk> as compared to $12 3 million from approximately 10400 tests for the third quarter of 2023.
Robyn: Representing 40% growth in revenue and 34% growth in test volumes.
Biopharma services revenue was $1.0 million in the quarter compared to $1 2 million in the third quarter 2023, a decrease of 17%. The Biopharma services revenue was impacted by the timing of sample receipt and project completion between the end of the third quarter and beginning of the fourth quarter 2024.
Speaker Change: As Scott discussed our pipeline is robust and we ended the quarter with approximately $11 1 million contracted but not yet recognized as revenue, which is a record high.
Robyn: Gross margin percentage in the third quarter 2024 was 77.0% up from 76, 1% in the prior year quarter and down slightly from 78, 4% in second quarter of 2024 are.
Robyn: Our gross margins remain consistently in the upper seventies as expected even when impacted by Biopharma services margins from the completion of a large project spanning the end of the third quarter and beginning of the fourth quarter.
Robyn: Overall operating expense, excluding direct costs and expenses was $22 6 million compared to $17 4 million for the third quarter of 2023 or 29% increase operating expense for the third quarter 2024 includes 3.0 million and noncash stock compensation expense.
Robyn: And depreciation and amortization as compared to $1 7 million during the third quarter of 2023.
Robyn: The increase in operating expense versus the prior year quarter is primarily the result of an increase in sales and marketing costs to support long diagnostic testing sales growth to enhance product awareness and drive adoption as well as an increase in depreciation expense related to the leasehold improvements in our Lewisville, Colorado Office and laboratory.
Robyn: Opened in January 2024.
Robyn: Net loss for the third quarter 2024, with $10 3 million, an improvement of 6% as compared to $10 9 million net loss for the third quarter of 2023, and $10 8 million or 5% improvement versus the second quarter of 2024.
Robyn: Adjusted EBITDA, which excludes noncash and other onetime items was a loss of $5 6 million compared to a loss of $5 four for third quarter 2023, and a loss of $5 6 million for second quarter 2024.
Robyn: We ended the quarter with 31 4 million in unrestricted cash and cash equivalents as compared to $42 2 million at the end of the second quarter, which included the final milestone payment of $6 1 million for the acquisition of integrated diagnostics in 2018.
Robyn: Last quarter, we provided a breakdown of our cash flow from operations, excluding the milestone payments, which continued to show improvement in the third quarter for clarity the milestone payments are labeled on the statement of cash flows as contingent consideration.
Robyn: Net cash and cash equivalents used in operating activities net of the milestone contingent consideration was $4 6 million for the third quarter versus $4 8 million in the second quarter and $11 9 million in the first quarter.
Speaker Change: As Scott mentioned, we are reaffirming our 2024 total revenue guidance of 70% to $72 million and we expect to achieve adjusted EBITDA profitability in the second half of 2025.
Speaker Change: Finally, I want to call out some good corporate housekeeping actions that we took this morning, we are refreshing our ATM program before it expires. This month and have filed a prospectus for a new $50 million program, ensuring we maintain flexibility and access to this tool going forward. We also put up a resale registration.
Speaker Change: Statement to register a restricted pre IPO hype and compensatory shares for some of our largest director shareholders to our knowledge, none of our directors or their affiliates intend to sell any shares at this time.
Speaker Change: Now I will turn it back to Scott for some closing thoughts before the Q&A.
Scott Hutton: Thank you Robin.
Overall, we're pleased with the team's execution, leading to solid revenue growth and steady gross margins for the third quarter and the momentum building in the fourth quarter, helping to reinforce our full year 2020 for revenue guidance and adjusted EBITDA profitability milestone for the second half of 2025.
Scott Hutton: At <unk>, we have both the opportunity and the responsibility to transform the standard of care and the diagnosis and management of patients with lung cancer.
I am compelled to state that lung cancer remains the deadliest of all cancers, claiming more lives annually in the United States than the next three deadliest cancers combined breast prostate and colon cancer.
Scott Hutton: Time is of the essence, when it comes to diagnosing and treating patients today.
Scott Hutton: Today is November one and we are joining the international lung cancer community and kicking off lung cancer awareness month with many activities to encourage education and screening for lung cancer.
We went all eligible people to get lung cancer screening to help catch this deadly cancer early.
Scott Hutton: We will also be marking national lung cancer screening day on Saturday November nine and hope you will share information with your family and friends to get informed about screening.
Scott Hutton: Let's now move to questions operator, let's start with the Q&A session.
Speaker Change: Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered you were seeing with yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Speaker Change: Our first question comes from Andrew Brachman with William Blair. Your line is open hi.
Andrew Brachman: Hi, Scott Robin Good morning, Thanks for taking the question.
Andrew Brachman: Maybe to start here on chest, Scott I think you referenced in your prepared remarks that it resulted in some momentum again this year for the business can you maybe just be a little bit more specific on your sort of expectations for how that might play out and the utilization metric going forward for your ordering docs and I guess related to that from your standpoint, just high level can you talk about how.
Interest in the notify a franchise that's sort of evolved at that conference over the last few years.
Scott Hutton: Yes, great question. Thank you Andrew.
Scott Hutton: As I stated it was a record chest for us this year when we showed in Boston really reminded ourselves that this is only the third chess back in person since the pandemic started so.
Scott Hutton: Really a huge opportunity for us to show continued to educate inform and empower physicians based upon our progress that we've made on notify.
Scott Hutton: When it comes to the leads in our expectations.
Scott Hutton: What we've noticed over the last three chest those three that were in person.
Scott Hutton: Three years ago, we were back reintroducing ourselves welcoming people back after a long hiatus due to COVID-19.
Scott Hutton: About a year ago, when we were in Hawaii, what we noticed.
Scott Hutton: We had a lot of peer to peer introductions physicians walking into the booth and introducing us to a friend or someone they trained with this year. What we noticed was we weren't really pulling people into the booth, we had people lining up they've heard of us they'd read the papers.
Scott Hutton: Question is changed and we think it's a wonderful evolution to where now the questions were.
Scott Hutton: If I haven't met my local Rep Who's my local Rep. What is workflow integration look like and how soon can you come in and help me and my staff with that so we saw that really is a shift from historically a push to a pull which is wonderful when you really consider adoption in a commercial product.
Scott Hutton: Our expectations coming out of chest, we look at it as those are always going to be hotly.
Scott Hutton: Hot leads.
Scott Hutton: Who comes in on their own accord ask for a follow up we turn those leads back over to the sales reps immediately following the meeting and here we are a couple of weeks out.
Scott Hutton: Every one of those those physicians will have received kind of a follow up call and introduction to their local rep. If they hadn't met them and then a follow up scheduled so that we can go through.
Scott Hutton: How best do we implement notify testing into their practice.
Scott Hutton: No.
It's changed a lot and we're proud of it we keep reminding ourselves we are a first mover advantage, but we're also developing this market and so each and every interaction is a significant opportunity for us to educate.
Scott Hutton: On the merits of notified testing.
Scott Hutton: And what we noticed that this meeting was a big shift.
Limited competition, we've talked about that.
Scott Hutton: Even during some of the panel presentations and some of the debates it really was a reference to.
Scott Hutton: If youre interested in biomarker or molecular testing.
Scott Hutton: Essex is.
Scott Hutton: As the company to go visit and so we are referenced by name they even encouraged people to stop by our booth and so from a health care professional standpoint, we've seen not only significant growth in adoption, but to see that peer to peer referral gives us a lot of confidence that the tests are impacting not only those patients.
Scott Hutton: That those physicians treat but they're making a big difference in the health care practice.
Scott Hutton: We're really grateful.
Speaker Change: Chest happens each year in the fall the best thing about the timing for US Andrew is it gives us the ability to follow up on those leads now hopefully we see some traction here in the fourth quarter on those new leads but really sets us up for those to be part of the contributing accounts that aid growth in driving fueled that growth early in 2025.
Speaker Change: Perfect. Thanks for thanks for all that color.
Speaker Change: Maybe as my follow up second question here just on the model I think during the third quarter you guys started talking more about this goal of positive adjusted EBITDA in the second half of next year can you, maybe just sort of give us some high level building blocks to get to that point, how should we be sort of thinking about those underlying drivers. Thanks.
Yes, it's great question Youre right I believe it was August when I shared that we plan to get to adjusted EBITDA profitability in the second half of next year.
Speaker Change: We're really fortunate to have the laboratory team that we do that has worked on on efficiencies to drive gross margins for our notified testing.
Speaker Change: Nearly 80% and that high 70% range puts us in a unique category, where we're one of the leaders across all diagnostics.
Speaker Change: Obviously, as we grow and scale there is an opportunity to have some gross margin improvement, albeit minimal, but as we continue to expand the sales force. This really is about increased test volumes associated with increased revenues.
Speaker Change: We're going to manage the <unk>.
Speaker Change: Same way, we always have we're going to be very very prudent with when and where we invest and spend money.
Speaker Change: And I think what we've demonstrated over the last not only few quarters, but few years is that we are on a trajectory to get there. We can continue to invest in the business and.
Speaker Change: And ultimately theres going to be a great return, but really it's normal course theres no big changes you won't see anything big in the 2025 model that deviates, it's really about continuing to fund and fuel our commercial engine and driving that top line growth.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you Andrew one moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Carl Mixon with Canaccord Genuity. Your line is open.
Carl Mixon: Hey, guys. Thanks for the questions.
Carl Mixon: Starting with Biopharma Scott you said it was a large project that shifted from the end of the third quarter into <unk> and that was the driver of the sequential revenue decline are.
Carl Mixon: Are you expecting revenue in that segment and Biopharma to kind of like the increase sequentially in <unk>, maybe just and also like any budget flush dynamics youre thinking about and is your forecast for the full year Biopharma revenue unchanged relative to the <unk> update, albeit some shifting in like revenue and timing and stuff.
Speaker Change: Yeah, Hey, Kyle Great question.
Speaker Change: I'll go in reverse order, yes, it remains unchanged.
Speaker Change: All of the contracts as we get closer to engineer all the contracts are kind of slotted.
Speaker Change: Got them in Q in the laboratory.
Speaker Change: This was really at the end of the third quarter. It was really based upon receipt of samples.
Speaker Change: And so.
Speaker Change: Feet of samples was delayed a few weeks.
Speaker Change: We did receive a start receiving those samples with about two to three weeks left in the quarter and as they came in obviously time, just really ran out the good news and I'm happy to report all of those samples from that pretty significant run have been run.
Speaker Change: And have been re purpose and delivered back to the Biopharma partners. So we looked at it is really just a push.
Speaker Change: As we look at the fourth quarter, we're always mindful of time right. We know what we have in queue. At this point in time, we will be ready for any bluebirds that present, but again as we progressed through the quarter the likelihood decreases, but we feel confident in our projections for the fourth quarter and as you've noted this book of.
Speaker Change: <unk> continues to grow and we're really proud and excited to share that we've got $11 $1 million under contract, but not yet recognized as revenue.
Speaker Change: That really demonstrates that we're poised and set up for a strong start to 2025 and feel pretty confident that this can continue to grow and we can leverage that progress and momentum and Kyle youre exactly right.
Speaker Change: The aggregate second half number we expect to be sure on on track for what we talked about in the second quarter just.
Speaker Change: The mix of third quarter and fourth quarter. It is just a little bit different but the total should be the same.
Speaker Change: Okay that sounds good.
Speaker Change: So much so.
That was great. So.
Speaker Change: I've got Brian that because the guidance was reaffirmed in <unk>.
Speaker Change: Biopharma is a pretty small portion of the business. So I guess that declined also the core <unk> business kind of like you missed our model as well.
Speaker Change: And you said that was it sounds like that's really what the hurricane impact. So could you just like possibly quantify that hurricane and Bath and does that similar to the last question does that kind of get recapture over time as well.
Speaker Change: Yes so.
Speaker Change: Hurricane really impacted the last.
Speaker Change: Week, and a half or so of the quarter.
Speaker Change: And as you know we're focused in lung and the southeast is the tobacco belt. It has the highest incidence and prevalence of lung cancer in the country and so therefore as a.
Speaker Change: Accounts for a very significant portion of our business. So just wrapping those states for two weeks absolutely impacted our quarter.
Speaker Change: We do anticipate that.
Speaker Change: That the Delorme diagnostics again second half should be about the same.
Speaker Change: Some push between third and fourth quarter, but thats part of why we reaffirmed full year guidance at the $70 million to $72 million or keeping that full year guidance the same.
Speaker Change: Okay, Perfect and then just one quick one.
Speaker Change: First Scott.
Scott: Jumping off the test comments in the last nine questioning anything about the findings of the insights that you presented at Chester and even like him.
Scott: Some of them.
Speaker Change: What you're already hearing from some of the attendees and stuff at the conference does that change your view on the addressable market opportunity that you have an agile management and then how do you think about like penetration of that market given how lung cancer screening is could evolve over time I guess.
Scott: Yes.
Speaker Change: It doesn't change any of our long term projections or beliefs, it really reaffirms and validates what we've said and what we believe.
We've stated we're going to continue to invest in data development.
Speaker Change: And I think thats, what we see whereas two years to three years ago, when we had.
Speaker Change: Panoptic and then starting to release the Oracle data.
Speaker Change: Physicians are entry they want more data they ask for additional questions. So each and every opportunity we have to present more data it's a positive.
Speaker Change: Specially when you start to see the results of that data, which is consistent across the board.
Which is one of the reasons we were so excited to announce the new study clarify which is the retrospective chart review study because that allows us to dive deeper into some of those individual and specific questions that physicians may have so we think that it's an opportunity for us to begin to build the market.
Speaker Change: Provided much content and data as possible raise the bar is high as we possibly can and I think thats, what we saw the feedback and I'll share. This in one of the one of the sessions. It was a pro versus con session.
Speaker Change: Where the physicians are set up to debate or Biomarkers ready, whereas you can imagine it pretty much was the debate across whether the notified tests was ready for full adoption or not.
Speaker Change: Con was never made.
The physician Didnt present, a con.
Speaker Change: So there wasn't much of a pro versus con debate. So as we sat in that it's pretty easy to leave that and say hey, we've done a good job, we're not going to rest on that and we're not going to stop for us. It really is about continuing to demonstrate that we're going to invest in this portfolio when it comes to penetration.
Speaker Change: We still think we're in the low to mid single digits and penetration, it's a massive market opportunity and as you've highlighted with broader screening adoption. This only grows and creates more of a backlog of patients and a difficulty and challenge for health care professionals. So we're.
Speaker Change: Really excited to see what happens on the on the lung cancer screening front.
Speaker Change: Unfortunately in lung cancer. The best you can find in the literature is anywhere from say, a 4% to 10% adoption for those screen eligible patients. So we are not getting to the right patients early enough. So we're excited about that.
Speaker Change: He just measures that will start to rollout towards the end of this year and into 2025, those will help drive screen awareness and adoption and then you might've heard there we're really excited.
Speaker Change: To bring a lot on the lung cancer awareness front. This month and it's really about awareness, we know with lung cancer early detection in diagnosis leads to the most positive long term outcomes possible and so we're going to continue on that fight.
Speaker Change: Okay, that's perfect, but just maybe quickly Scott as you just mentioned that how does the introduction of blood based screening test for lung cancer like over the medium term I guess, the fact, what you've kind of just set about did have to naturals.
Understanding what to do with us.
Speaker Change: Yes so.
Speaker Change: We're a big fan of the research that's been conducted thus far there's a number of companies out there that are investing in.
Speaker Change: Our research related to blood based screening products like you said some of those are single cancer early detection tests focused specifically on lung others are multi cancer early detection tests that might include multiple cancers.
Speaker Change: And also lung.
Speaker Change: What we've seen thus far as the data is promising unfortunately in some of those cases, we have seen more false.
Speaker Change: Positive than actual positives and so I think the physician community is really looking at it saying hey, we need to see improvement in those test results before theres broad adoption.
Speaker Change: But because this is a screen eligible population it'll benefit us notify is the appropriate test for both incidentally found nodules and screen detected nodules.
Speaker Change: So when we talk to physicians they see this as additive they think of it in terms of enrichment and so from a referral perspective, if you use a blood based screener a positive screening test would then get referred on to a pulmonologist, who would still need to do a resultant Cte and then post that image would add notify testing.
Speaker Change: They will use those results to pull the appropriate patients forward and the example, we've used our positive notify CDT, which has a rule in test will then lead to a bronchoscopy on the opposite in a positive notify XL to test, which is a rule out test would allow them to manage that patient population.
Speaker Change: Confidently through <unk> surveillance and monitoring over time.
Speaker Change: The biggest challenge that the physicians, we work with tell us is.
Speaker Change: Their plates are already full theres. So many patients out there they can't get to them all.
Speaker Change: If and when blood based screening test takeoff most physicians state that it is going to break the system and so that's really where they look at notify and say I'm not going to be able to spend as much time, but I can do a mobile phlebotomy or remote phlebotomy and I can bring in the patients that are positive when I need to I got a free my clinic time up.
Happy to go in greater detail, but I hope that's helpful.
Speaker Change: Yes that was great that's perfect stopping so much thanks Robyn.
Speaker Change: Scott.
Number four our next question.
Speaker Change: Our next question comes from Dan Brennan with TD Cowen Your line is open.
Dan Brennan: Great. Thank you thanks for taking the questions.
Dan Brennan: Maybe just on sales force expansion and productivity, you're a few quarters now with some reps had it looks like the lung diagnostic revenue per rep has been kind of steady if not increasing a bit to about $1 million just kind of how do we think about that productivity level from here and kind of how do you kind of contemplated that when you kind of set guidance.
Speaker Change: Yes, it's a great question.
Dan Brennan: Yes.
Dan Brennan: We've demonstrated that we can continue to increase and grow and drive greater sales rep productivity.
Dan Brennan: From a modeling perspective, the math is really simple, but it's right at about $1 million.
Dan Brennan: And then we shared in the past there have been some territories and reps, where we have kept their productivity to then in turn split the territory and so it is a little bit of a blend or a mix as we think of what we will do across the United States. We've shared that early sales force build out started in.
Dan Brennan: The southeast and we've worked our way West we still have a few territories west of the Mississippi, where those individuals' cover a large geography.
Dan Brennan: What we know there is the <unk>.
Dan Brennan: More time, they spend on the road, whether it's behind the windshield or in the air not only to drive up cost, but we know their productivity is going to be less to the decrease in the amount of time. They can spend with physicians. So we're confident as we continue to grow and scale that we can drive higher sales rep productivity as we make more progress we still.
Dan Brennan: Have not seen and most much of this has been intentional, but really haven't seen one of our sales professionals cap out we've had a number of them demonstrate that they can get north of the one 5%.
Dan Brennan: Per rep and Thats, when we started to cut some territories. So.
Dan Brennan: So for us, it's pretty linear we still state with with less than 10% penetration into this market opportunity. We can continue to grow in scale.
Dan Brennan: And drive sales Rep productivity higher you may also recall.
Dan Brennan: About a year ago, we started implementing the associate sales consultant role.
Dan Brennan: That's really going to aid us in driving that sales rep productivity higher so you'll you'll see us provide greater detail as we head into 2025 on the on the mix and how many actual sales consultants will hire versus associated sales consultants, but I think as we head into 2025 somewhere in that one to one.
Dan Brennan: $5 million per sales rep is the appropriate sales rep productivity number.
Dan Brennan: Great.
Speaker Change: Thank you for that.
Speaker Change: Revenue growth has been certainly very strong last couple of quarters.
Speaker Change: This ratio remains nascent right versus <unk>.
Speaker Change: $5 million incremental lung nodules, you've got really good coverage you've got good data out there from Oracle just wondering.
Speaker Change: In terms of further inflections in the topline growth rate like what are the triggers for that do you think.
Speaker Change: Yes.
Speaker Change: Work with some of the large integrated networks and large health care systems, and one way we look at it as our sales reps on a day to day basis do what we refer to as kind of a bottoms up selling theyre knocking on doors. They are introducing the product in themselves we spend a lot of time.
Speaker Change: <unk> from a tops down and so we think theres great opportunity for us to have broader adoption across the entire system.
We're making lots of progress on that front, just hasnt really been able to get to a point, where we can disclose or announced any of those I fully anticipate and expect we'll make additional progress those would provide greater inflection points for us in 2025 and beyond. Additionally.
Speaker Change: We've talked about it a little bit earlier I think you just got to continue to invest in data development I think anything we can do to continue to educate inform and empower physicians to not only order the test, but also continue to expand utilization and so we think physicians will become more comfortable with broader utilization of notify.
Speaker Change: But for us.
Speaker Change: One that sits out there on the horizon. If you will is guideline inclusion and we've stated this in the past.
Speaker Change: Our Pulmonology partners within Chester ACP have not updated their guidelines in 10 years.
Speaker Change: And then I will state that again 10 years.
Speaker Change: So we think of that.
Speaker Change: Put enough data out there. This is not a scenario where they've updated guidelines are not included us and we think there's a big differentiation. There. So we're confident that as we continue to grow and scale knowing that some of those individuals that are involved in guideline establishment have experienced with notify they attend those meetings they've.
Speaker Change: Read the data and the publications and so for US I think guideline inclusion at the point in time in which the chest guidelines are updated would also be.
Speaker Change: Nice inflection point for us.
Speaker Change: Is that helpful. Dan.
Dan Brennan: Yeah, that's great. Thank you.
Dan Brennan: Yeah perfect. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: The next question comes from sung <unk> Nam with Scotia Bank. Your line is open.
Speaker Change: Hi, Thanks for taking the question.
Speaker Change: Maybe one for Robin.
Speaker Change: Really nice to see the revenue per test outgrowth, I think based on our model. It seems like a record quarter was wondering if there may have been any kind of one time cash collection from prior periods or could we anticipate that type of cadence.
Speaker Change: Going forward based on the funnel.
Private payer opportunities that you guys might have.
Speaker Change: Good morning, Sanjay Thanks for the question.
Speaker Change: Happy to report that is all current quarter so no.
Speaker Change: No impact from unusual one time items from prior periods. So.
Speaker Change: You are correct its one of our best Asps.
Speaker Change: Asps.
Speaker Change: <unk>.
Really quite pleased with how the <unk>.
Speaker Change: <unk> wins that we've been able to announce over the last several quarters have really started to impact the <unk>.
Impact our day to day Asp's.
Speaker Change: Okay.
Speaker Change: Great and then just my.
Speaker Change: My follow up is on clarify.
Speaker Change: Maybe for Scott or Robin just kind of curious you talked about underrepresented population are you guys potentially also looking at.
Speaker Change: Different clinical characteristics that may have been.
Speaker Change: Or what about just the the patient cohort what that entailed.
Speaker Change: Yes, it's a really good question, thanks sung <unk>.
The way we look at it is.
Speaker Change: There are a couple of different lenses.
Speaker Change: The answer is in short yes.
Speaker Change: The one that we're looking at as part of that chart review is really notify in conjunction with or alongside the utilization of pet scans and.
Speaker Change: And so we know in this patient population. Many pulmonologist are frustrated and disappointed with the results they get from a pet scan and some of that is going to be because of false positives. It could be related to where they are located geographically if theyre in the historic Coxey belt in region. It can negatively impact those pet result.
Speaker Change: So as we pull those charts really looking at notified performance against the Pet result, and so that was one of the big topics at chest and a lot of the questions. We received we think thats going to be of great value.
Speaker Change: But then we look at other subgroups when you start to consider a different race and ethnicity, we get a lot of questions about the performance of the test across different patient populations and so our ability to dive deeper into that to demonstrate exactly how the test performed in those different populations are subgroups, which.
Speaker Change: We fully expect it will perform to the highest standards and consistent with what we've seen to date.
Speaker Change: But this is really the tip of the iceberg I think we've highlighted it a chart review analysis based upon the greater than 35000 patients we've already enrolled clinically.
Speaker Change: Targeting 4000 of them with one to two year outcomes as key that's the other thing to add to this is we can go into those charts and we can quickly.
Speaker Change: What ended up happening with that patient long term.
One year time point at a two year time point, we will do the same within altitude, but as we know any patient that's enrolled in altitude today.
Speaker Change: Clock starts and we have to wait two years. So that was part of it for us as we looked at and said there is a handful of questions that we think we can answer we think those questions are meaningful and valuable it's not really about expanding utilization. It's more about answering some of those clinical questions physicians have is that helpful. Sanjay.
Sanjay: Yes very helpful. Thank you so much.
Sanjay: Yes. Thank you.
Speaker Change: One moment for our next question.
Our next question comes from Bill Bonello with Craig Hallum. Your line is open.
Bill Bonello: Hey, Thanks, a lot just a couple of things just to start up Robyn can you clarify your answer on your expectations.
Speaker Change: <unk>.
Speaker Change: <unk> volume in Q4.
Bill Bonello: I wasn't sure I was understanding you right.
Speaker Change: Yes.
Speaker Change: We expect that for the full year will end up.
Speaker Change: Where we had said before in that 70% to $72 million in total.
Speaker Change: With the Biopharma, we expect that.
Speaker Change: Excuse me the second half number.
Speaker Change: Is the same no matter, how you mix it between third and fourth quarter and similar to lung diagnostics. So in aggregate. If you look back at where we thought we would be.
Speaker Change: We're still at the same point, so we don't expect a shift even despite the push ups.
Speaker Change: Some of the test from third quarter.
Speaker Change: Okay. So I mean are you thinking and maybe you just don't want to say, but are you thinking that that lung volume should be up sequentially. In Q4, yes, yes, we are.
Speaker Change: Okay.
Speaker Change: Okay. So that's helpful.
Speaker Change: And so just.
Speaker Change: Got you mentioned at the beginning of the call that.
Speaker Change: You sort of elaborate on.
Speaker Change: Reasons to feel comfortable with maintaining the guide in Q4, I mean, I think I think.
Speaker Change: What I've heard is well there was some biopharma.
Speaker Change: Delayed from Q3 to Q4.
Speaker Change: There will be more productive salespeople is there anything else you were calling out.
Speaker Change: Hi.
Speaker Change: You should have confidence in Q4.
Yes, great to hear from you Bill and you referenced some of the impact and we know that you reside in Florida. So we're glad that you had minimal impact from the Hurricanes and we're safe.
Speaker Change: No for us.
Speaker Change: From an execution perspective this year, we've really been able to look at that sales rep productivity those individual territories and we still see the same progression on their onboarding and then their return. So we feel confident that we have plenty of room to continue to invest in sales force expansion.
Speaker Change: So that's really it we there are some additional papers and publications that will be coming out those always helped right gives us additional data to share, but theres no deliverable here in November or December. This is still really about execution Kieran, okay, and our chief commercial officer and Mark <unk>.
Speaker Change: <unk> our head of sales.
Speaker Change: It's really about them leading that team.
Speaker Change: You highlighted it.
Speaker Change: We referenced a significant addition to the sales team a large class that went through training.
Speaker Change: Happy to share that those those eight to 10 individuals are already out in the field, they're contributing now and so it brings that sales rep number up so from a math perspective.
Speaker Change: On an annualized basis, they may get to $1 million per sales rep annually, but we will have significant contribution from those eight to 10 in addition to the.
Speaker Change: 63 that we had performing throughout the year.
Speaker Change: Okay, that's actually helpful.
Speaker Change: Yes, that's really helpful. And then just on the timing of the hiring I mean was there anything it sounds like you you will catch up but you havent moved maybe slightly more slowly above what you had expected is that just sort of the mix of of people candidates that you had and who you felt.
Speaker Change: <unk> with ore.
Speaker Change: There are more reasons to move more slowly.
Speaker Change: Yes, it's a really good question and I would say the short answer is yes, we will always err on the side of being slow if we don't feel like we have the right fit.
Speaker Change: I still feel adamant that each and every teammate that we bring onboard will impact the culture ever so slightly and so we take a lot of time to ensure that they are a good fit that there can be a success here. They can thrive and they can not only have great, earning potential but have a long career.
Speaker Change: You may recall.
Speaker Change: We hinted that we were going to be off when we started the fundraise.
Speaker Change: In May April may timeframe.
Speaker Change: Traditionally we try to hire sales professionals as early in the quarter. So that we don't have a negative SG&A impact without seeing the return.
Speaker Change: Because the fund raise some of the net proceeds were for sales force expansion. We stated back then that we wouldn't begin hiring until we completed the fundraise. So we were very intentional going back to Q2 about being slow and bringing them on because we didn't want to exit Q2 at that time with.
Speaker Change: <unk> added SG&A expense without the return so that really set us off and then we just made a decision that.
Speaker Change: We didn't want to compromise and who we were hiring we still wanted to go through our vetting process, our onboarding and training process and so I think it was really just that once we started slow and delayed in Q2. There was a ripple effect. We were we were pulling them forward and that's why we've disclosed that we had that large class now that gets us back.
Back on track So I think the way to think about it is we will exit the year.
Speaker Change: We're in the 70 to 75 range, if you split the difference and call. It 73 sales reps.
Speaker Change: That's where it will start the year and then we'll begin that cadence of hiring earlier in Q1 of 2025.
Speaker Change: Okay. That's really helpful. And then just one last one.
Speaker Change: On the Biopharma.
Speaker Change: <unk> backlog can you tell us sort of anything about the nature of those.
Speaker Change: Contracts like do you have a sense of how far off it is for bookings to convert to revenue in.
Speaker Change: What.
Are we thinking gosh, 80% of this converts to revenue 50% of it might convert to revenue.
Speaker Change: Over what time period, how do we kind of think about that.
Speaker Change: Yes, it's a great question I think generally the way we look at it when we when we share. This is that it will be 100% of that revenue will be achieved over a three year time horizon.
Speaker Change: Well, we really see is youre going to get somewhere in that 70% to 80% of the revenue is going to be achieved in kind of a 12 to 18 month timeframe and it really depends upon the nature of the study, they're all a little bit different it breaks down to is this a retrospective analysis, where they can send and bank samples.
All in bulk or is it a prospective analysis, where we get patient samples on a regular cadence over a lengthy period of time, so they're all a little bit different we look at them in aggregate, but again, we definitely see that that's 70% to 75% to 80% recognized in that 12 months to 18 months.
Speaker Change: Timeframe and then all of it within a three year time horizon. If it goes any further than three years. Then I think you can state, yes, the likelihood of achieving 100% of it drops off significantly.
Speaker Change: Okay.
Speaker Change: Really helpful. So theyre not projects that are contingent upon the pharma company hitting some kind of milestone, which then will determine whether they move to the phase of <unk>.
Speaker Change: Working with you or not.
Speaker Change: Correct, Yes, I think the way to think about this is we arent, we arent bridging across phases of development for them, we're within a phase so as they move to kind of phase two they start a contract with us and our results that we delivered to them. We look at it and say that's going to help inform and educate them as to whether.
Speaker Change: They move on to the next phase and then when they do we also track that we see significant progress.
Speaker Change: Where are we kind of embed ourselves early and then we are part of that discovery and development effort within that individual Biopharma franchise. The good news is is across that $11 $1 million in contracted dollars yet not received payment for you see a nice blend new customers existing customers and.
Speaker Change: <unk> customers that have built on their development and progress.
Speaker Change: Okay. That's really helpful. Thank you so much yes. Thank you.
Speaker Change: One moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Thomas Flaten with Lake Street Capital markets. Your line is open.
Thomas Flaten: Good morning. Thanks, I appreciate you taking the questions just to follow up on the Hurricane discussion. We've had so Middleton became a week and a half or so after helene.
Thomas Flaten: So two parts of this.
Speaker Change: There is the one thing about evacuations and then the actual hurricanes happening, but if you look at the first couple of weeks of October was there still some lingering challenges there from a from a customer perspective in generating samples how long did that go on.
Speaker Change: Yes, Thomas Great question, there definitely was and I think we all saw it what was interesting about that was it also coincided with chest. So what we saw was when.
Speaker Change: When we were in Boston.
Speaker Change: Some physicians coming up to us and saying, Hey, I've got to leave chest early I need to get back you need to help my family.
Speaker Change: Even had some of our teammates that were impacted we have a pretty significant bioethics team representation in the state of Florida We've.
Speaker Change: We've got 15 Bioethics team members that live in Florida.
Speaker Change: I'm happy to report that they're all safe, but that gives us an indication when we see them evacuate we also know when they can get back in so we can start to track if theyre back in then you assume that many other in the community are.
Speaker Change: That impact not just for Helene and kind of the hurricanes this year, but we've seen it over time.
Speaker Change: It doesn't happen immediately there is a lag.
Speaker Change: I would state this in our Hearts go out to all of those impacted.
But I think where the greatest impact is and we're still trying to track and monitor is going to be more up into the Carolinas.
Speaker Change: The inland flooding was pretty significant we do note that even to date.
Speaker Change: The access there is limited.
Speaker Change: So for US we do the best we can to track those physicians, we don't necessarily have the ability to track an individual patient that scheduled but in working with those practices will continue to support them I think the way we look at it Thomas is we know that there is a backlog of patients and most pulmonology offices are booked.
Speaker Change: Out months in advance so as they return they already have a full schedule to return back to the question is is how quickly can they add those patients that were missed over those last few weeks back into that queue. We don't see.
Speaker Change: <unk> bolus or kind of a push or catch up if you will it's really related to the number of office visits that a physician can take on any given day.
Speaker Change: So our sales reps continue to work kind of a one by one assessing what's going on within their territory. They communicate that to us and we're happy to report that we have seen the recovery begin and improve over the last few days and weeks.
But there is always a little bit of a lingering lingering impact and we will continue to support those practices.
Speaker Change: And most importantly, we'll be there as they start treating those patients again.
Speaker Change: But we're excited to state that we don't see a long term impact we don't think that will impact us into Q4 at all.
Speaker Change: Thanks for that.
Speaker Change: Not to not to parse the sales reps and too much but you mentioned in your prepared comments Scott.
Speaker Change: Not only added territories, but you also upgraded certain and your average number of productive reps was a little bit below where we were thinking you'd be so when you add six to eight reps per quarter should we think that all of those are new territories or is it going to be a blend of clinical upgrades.
Speaker Change: Versus new territories that are coming in yes.
Speaker Change: Yes. The goal is that it's net so it will be six to eight additions.
Speaker Change: So we're very proactive you know one of the best things about being a growth company within.
Speaker Change: Within the Bioethics culture, we're exceptionally competitive we're passionate.
Speaker Change: We're very transparent our sales team members know where they rank they know what their performance looks like they know that we have high expectations not just because thats, what we expect but because we have the right and the honor to help these physicians treat patients and so.
Speaker Change: What you traditionally see across all commercial teams is that if a sales professional is looking for another alternative that we usually try to maximize their earning potential here or wherever they are both apart later in the year. So that they can start with a new entity at the beginning of the year. This year we anticipated.
Speaker Change: Some of that and so we were a little more proactive and so we addressed some underperformers in the third quarter.
Speaker Change: Because we wanted to make certain that we had.
Speaker Change: Our fully dedicated productive sales professional that was going to be with us in 2025 in that territory. So thats a little bit of what you saw in Q3.
Very excited about where we stand with the team.
Speaker Change: So that's why that number was a little bit off.
Speaker Change: As you stated is we backfill a few of those territories with those new hires.
Speaker Change: And so the net in from Q2 to Q3 was really an addition of two.
Speaker Change: So thats, how we look at this and say we need to make up for four to six and we already feel like we've done that and have been addressing that over the last few weeks.
Speaker Change: Got it and just one final one if I may Rob at any update on the Medicare advantage issue issues.
Speaker Change: It's a great question.
Speaker Change: I feel like a little bit like a broken record we are continuing to go back and forth and work with them on it Unfortunately no.
Speaker Change: No change in the backlog.
Speaker Change: The Great news is it hasnt expanded to other groups that still remains really now.
Speaker Change: Just one to two one to two payers. So no expansion, we continue to see good payment out of the other Medicare advantages and we're continuing to work on addressing your backlog.
Speaker Change: Great I appreciate it thanks, so much.
Speaker Change: And I'm not showing any further questions at this time I'd like to turn the call back to Scott for any following remarks.
Scott: Thank you operator, it's an exciting time here at Bioethics and we believe we have the best Pulmonology focused commercial team in diagnostics with first mover status in lung nodule management, and an ever increasing body of robust clinical and economic data, we have the momentum for greater clinical and payer adoption for this large underserved.
Scott: <unk>, we view 2024 is a pivotal year and we look forward to updating you on our full year progress on our next earnings call in closing I want to express my gratitude to all of the remarkable team members that the bioethics office in labs.
Scott: What we've shown is unwavering belief and dedication to our mission vision and culture, our collective commitment and daily contributions are centered around making a positive impact on patients' lives and I am truly thankful for the entire team's efforts.
Scott: You.
Speaker Change: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Speaker Change: Okay.
Speaker Change: Okay.
Yes.
Speaker Change: Okay.
Speaker Change: Sure.