Good day and thank you for standing by. Welcome to the Biodesix Q2 2024 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today. Chris Brinzey, Investor Relations, please go ahead.

Thank you. Operator, and good afternoon, everyone. Today Biodesix released results from the second quarter of 2024. Leading the call today will be Scott Hutton, Chief Executive Officer. You will be joined by Robin Harper Cowie, Chief Financial Officer. 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 biodesix.com. As 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 looking statements made on today's webcast. 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. With that, I'd now like to turn the call over to Scott Hutton, Chief Executive Officer. Scott?

Thank you, Chris and thank you all for joining us today. I'm thrilled to report that it's been another strong quarter marked by exceptional performance in all areas of the business. For 2024 our team and organization remain committed to delivering on three key goals, which include driving increased revenue through the adoption of our lung diagnostic test and our biopharma services, implementing operational efficiencies to continue to deliver strong gross margins and maintaining a strict, cost disciplined approach on our path to profitability. In the second quarter, we excelled in all three key goals, delivering 51% growth in revenue year over year, 78.4% gross margins and 38% improvement in adjusted EBITDA year over year. Based on this continued strong performance, we're raising our 2024 total revenue guidance to $70 million to $72 million, up from the previously provided guidance of $65 million to 68 million. This change in guidance reflects our continued confidence in the business, and we believe the first half results have set a strong trajectory for continued success in 2024 and beyond. Our lung focused commercial team is making considerable progress selling our five Medicare covered tests to help improve early lung cancer diagnosis and treatment decisions. They delivered 42% growth in test volumes over second quarter of last year. In order to address this massive, multi-billion dollar market opportunity, we're continuing to grow and expand the lung focused commercial team. And in the second quarter, had an average of approximately 61 fully trained sales representatives, as compared to an average of 55 in the first quarter, 2024. As a reminder, it takes about three months before a Biodesix rep is fully trained, and by that point, they're paying for themselves, consistent with the plans we've shared before. We will expect to add approximately 6 to…

Thanks Scott. Second quarter total revenue was $17.9 million, a 51% increase over the prior year and 21% increase over the first quarter of this year. Lung diagnostic revenue in the second quarter was $16.5 million from approximately 13,900 tests as compared to $11.5 million from approximately 9800 tests for the second quarter of 2023 representing a 44% growth in revenue and 42% growth in test volumes. In prior earnings calls we have provided updates on our efforts to resolve certain administrative challenges imposed by a select few Medicare Advantage plans. While we do not have more to report at this time, we continue to be in discussions around a resolution. Any potential revenue resulting from a resolution are not included in our revenue guidance. Biopharma services revenue was $1.4 million in the quarter compared to $400,000 in the second quarter 2023, an increase of 228%. Even with the completion and recognition of significantly more revenue than in prior quarters. Our pipeline is robust, and we ended the quarter with approximately $8.1 million contracted, but not yet recognized as revenues. Gross margin percentage in the second quarter 2024 was 78.4% up 5.7 percentage points versus 72.7% in the prior year quarter, and consistent with 78.6% in the first quarter of 2024. Following a variety of operational improvements over the last year in both our lung diagnostic testing and biopharma services, we have delivered on four straight quarters of gross margins in the upper 70s, and expect that the gross margins will remain steady in the upper 70s going forward, overall operating expense, excluding direct costs and expenses was $22.3 million in the second quarter 2024 compared to $19.6 million for the same period of 2023, a 14% increase. Operating expense for the second quarter 2024 includes $2.7 million in non-cash,…

Thanks, Robin. Overall, we are exceptionally pleased with the progress in the quarter and through the first half of the year. We are increasing our 2024 revenue guidance, and we continue to make substantial progress on our path to profitability. We are transforming the standard of care, and our organization is motivated every day knowing that we're making a significant impact to healthcare professionals, their patients and those patients' families. I believe our future is brighter now than at any point in our company history. With that, I'll turn the call over to the operator for questions.

[Operator Instructions]. Our first question will come from Andrew Brackmann of William Blair.

Maybe just to start here, you're obviously seeing some nice momentum in the business, especially on the volume side this quarter. Anything you can share in terms of where you're seeing that strength, where you're winning, be that in certain accounts, different institutions, group practices, or even geographies. Thanks.

Yes. Great question. Andrew, no, we're seeing consistent growth across all opportunities and sectors from a product perspective, as we've stated in the past, Nodify, our nodule management test or driving and fueling that growth. But as we continue to expand the sales force, you know, as a reminder, starting the quarter at 60 and continuing to expand by 6 to 8 each quarter, we know we're reaching physicians that we've never reached. So in those territories, it's easy to see growth come from kind of new accounts and new ordering physicians. And in the more mature accounts, we're seeing broader adoption within a practice. And then we're also seeing growth in total test volume. So pretty balanced, pretty equal across the board, nothing that's glaring in terms of a deficiency or an opportunity for improvement at this time,

Perfect. And then maybe just on pricing. Thanks for all the color on sort of the winds this quarter, certainly it looks like you saw some improvement quarter over quarter and the second quarter. Just first, how should we sort of be thinking about continued improvement, just given the wins that you had so far this year? And then secondly, just, can you level set up on where the funnel stands for additional contracts or coverage policies moving forward? Thanks.

In our guide, we are not building in any real improvements in reimbursement and in additional coverage policies, so we tried to take a fairly conservative approach in the guide itself, obviously from a business perspective, the team is out working on expanding both coverage and contracts for all of our tests, we've had a lot of good wins, including some recent wins we look forward to telling everyone about for XL2 and are anticipating starting to see some momentum here for CDT as well. As a reminder to everybody, Medicare accounts for about 60ish percent of our business. So while each individual, private payer coverage policy does not necessarily move the needle a lot the momentum and then the number of them coming in together does start to improve it. So we've got a great funnel. There's some real excitement out there. And as I've said for a lot of years, one of the hardest things is getting attention of payers and making sure they understand the problem you're trying to solve and payers know this problem. They know we're missing cancers, and so we need to diagnose cancers earlier, and they know they're paying for unnecessary invasive procedures on benign nodules and our nodule management test can help address both of those issues.

Our next question will be coming from Dan Brennan of TD Cowen.

This is Kyle on for Dan. Thanks for taking the questions. I want to start with one, maybe if you could elaborate on the ongoing sales force expansion, what's been the impact thus far upon demand creation and just test volumes? Thank you.

You know this this quarter, as everyone knows, we completed a fundraise intra-quarter part of the use of proceeds were continued investment in and expansion of the sales force. So we brought those sales reps on a little bit later this quarter than comparatively what we had done in prior quarters. So one way of really, kind of looking at the most recent additions is, yes, we've continued to see them begin paying for themselves at the three month mark, these new team members really had a limited amount of time to impact the quarter, so we were really excited to see the you know, the team that was already in place prior to those additions go out and continue to excel and grow. What we do know is that we continue to see sales rep productivity in and around the $1 dollars per rep target annualized. So it's always going to be advantageous for us to bring those new team members on earlier in the quarter, giving them an opportunity to contribute as quickly as they can and impact the overall year. That's remained pretty consistent. Kyle, so nothing, nothing has changed in the recent months or quarters.

Got it. Thank you. And then trying to go back to the altitude study, you know, which you mentioned in the prepared remarks. Is this still on track for year end '24 completion? And what's your level of confidence in the trial working?

Yes, you know, great question. We feel really good about the study design. It's difficult to comment on kind of how it's going, since we're blinded from that data. But you know, we worked with a number of major academic institutions and really prominent pulmonologists, many of whom contributed to the ATS standard for prospective trial design, so we feel confident that in the study design, we've had others look at it and kind of confirm that our approach is best in class. From a timing perspective we stated in prior calls that due to early enrollment delays due to the pandemic, that we were a little delayed and we were off so we do not expect complete enrollment in closing the study in 2024 it'll be probably late '25 going into early '26 but that's other reason that we have highlighted the data safety management board and the role they'll play. They're going to meet here in the next couple of months, and we'll wait to receive feedback from them, and at that time, I'll be able to answer questions about interim analysis, any sort of data that they want to share. But we're really pleased enrollment has continued to pick up, and site engagement is really high.

Our next question will be coming from Thomas Flaten of Lake Street Capital Markets.

With the Lewisville facility being complete, are there any significant investments that will be made in that facility? I'm assuming no. But then also flipping to DeSoto , are there any investments there we should be aware of you guys making in the near term.

Great question. No, you've, you've nailed it. As we moved into this facility, really, at the beginning of the year, you know, no needed expansion investment or anything that needs to occur here in Colorado, we have begun looking at how best we set the Kansas laboratory and team up for long term sustainable results. And we will be looking at improving their facility, giving them space to grow and expand but that won't occur this fiscal year, so we'll begin looking at that kind of in that 2025, to 2026 time horizon. But just as a reminder, the Colorado facility is our headquarters, it's 80,000 square feet. The majority of the growth and expansion will occur here. The needs of the team in Kansas really are related to the two Nodify tests and running those, and it's a much smaller footprint. So we feel really good about the real estate options there, and we'll try to be mindful of cost as we as we enter that project. But it really is about better enabling that team to work effectively and efficiently.

We will provide more details as we get closer.

Got it. Appreciate it, and just to confirm, Scott so the 6 to 8 adds per quarter on the sales team that has you ending the year 75. Is that the right number for us to be thinking about?

Yes, Thomas, I think you're thinking about it exactly how we are. The key component, like I said earlier, is, you know, the sooner we can bring them on, the more you know, time they have to contribute if we bring, you know, let's say we end the year at 75 truth is, we'll probably have 4 or 5 of them that will begin coming on later in the quarter, and that really just sets us up for success to come out of the gate strong as we enter 2025 but your numbers and the cadence of additions is exactly how we're planning.

And then just one quick final one, kind of following on from, from an earlier question about where you guys are winning. I was curious if there are mature accounts or pulmonologists, in terms of having been called on a lot that you don't feel are fully penetrated. I don't know if there are such people, but I would be curious if there are, what is their hesitancy to kind of going all in with the Nodify products?

Yes, it's a great question. It really in any one of those scenarios, it's going to vary. It'll vary by practice. It'll vary by referral patterns and the patient population they see. There's nothing glaring, nothing standing out that limits us, and what we've seen is continued or deepened penetration into those accounts. We now have a handful of accounts that have exceeded their 300th order, and we have one that's over 500 Nodify test results. So you can see the longer we're in those accounts, we are seeing broader and continued use and adoption. We've tracked over time what we really see is, once an account gets to kind of that 10 to 20 test ordered, and we can have a consultative review of those test results, we find that reorder rates jump pretty significantly, and then once they get beyond that 40 to 50, it's pretty linear, as they continue to grow and scale from there. We've not seen anything new, or in recent months or quarters that have changed that. And so we feel really good that we can continue to add the sales reps that we're planning on adding, enabling them to get out and really share the value that the Nodify tests offer, and we're excited to do so and continue to provide these strong results.

I'm showing no further questions. I would now like to turn the conference back to Scott for closing remarks.

Thank you, operator. It's an exciting time here at Biodesix, we've worked long and hard to build the best pulmonology focused commercial team in diagnostics. With first mover status in lung nodule management and an ever increasing body of robust clinical data. We are building on the momentum we created as we further increase our clinical and payer adoption in this extremely large and underserved population. We've had a great start to the year, and with a strong balance sheet to execute our plan towards profitability, we view 2024 as a pivotal year of execution, and we look forward to updating you on our continued progress and success on upcoming earnings calls. Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect you.