Good day and thank you for standing by. Welcome to the Biodesix Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the call over to your speaker today, Chris Brinzey of Biodesix Investor Relations, our first speaker for today's conference. Please stand by.

Thank you, operator, and good afternoon everyone. Thank you for joining us today for a discussion of Biodesix's second quarter 2023 business highlights and financial results. Leading the call today will be Scott Hutton, Chief Executive Officer. He will be joined by Robin Harper Cowie, Chief Financial Officer. After the prepared remarks, we will 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 announcement for this call. Today, we issued a press release announcing our business highlights and financial results for the second quarter 2023. A copy of the release can be found on the Investor Relations page of the company website. Actual events or results may differ materially from those projected as a result of changing market trends, reduced demand, and the competitive nature of Biodesix's industry. Such forward-looking statements and their implications involve known and unknown risks, uncertainties, and other factors that may cause actual results or performance to differ materially from those projected. The forward-looking statements discussed on this call are subject to other risks and uncertainties, including those discussed in the Risk Factors section and elsewhere in the company’s annual report on Form 10-K for the year ending December 31st, 2022 filed with the Securities and Exchange Commission on March 6th, 2023, as well as subsequent quarterly reports on Form 10-Q filed during 2023 as applicable. Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company’s press release issued today and in the company’s filings with the SEC. I would now like to turn the call over to Scott Hutton, Chief Executive Officer. Scott?

Thank you, Chris. Biodesix is a patient-centric, mission-driven lung disease diagnostics company with a mission to unite physicians, patients, and biopharma to transform the standard of care and improve outcomes with personalized diagnostics. At Biodesix, we've built a comprehensive portfolio of precision diagnostic tests to support clinical decision-making across the lung cancer continuum of care. Our core lung diagnostic testing portfolio ranges from initial risk assessment of lung nodules with Nodify Lung testing to post-cancer diagnosis treatment guidance and monitoring with IQLung testing. Nodify Lung consists of two blood-based proteomic tests, Nodify CDT and Nodify XL2, which are used by physicians to assess the risk of malignancy of a lung nodule. IQLung consists of three blood-based tests: the GeneStrat NGS genomic test, the GeneStrat-ddPCR targeted genomic test, and the VeriStrat proteomic test. Offered as options within IQLung, these three tests are used to inform treatment decisions and monitor for the rise of resistance mutations while patients are on therapy. All five of our core lung diagnostic tests are covered by Medicare, and we believe we're the only diagnostic company with five on-market tests for lung cancer, all with Medicare coverage. We've made significant strides, and I'm thrilled with our overall performance in the quarter and the first half of the year. We grew lung diagnostic test volumes and revenue, expanded our gross margin to the low 70% ahead of our year-end goal, and reduced our operating expenses and cash burn. Our commitment to a cost-disciplined approach while growing and expanding the business continues to pay off. This quarter's results reinforce the team's progress and outstanding execution on our path to profitability. Additionally, we successfully completed a fundraising effort through a private placement, raising $27.5 million in equity funding subsequent to quarter end, to further support our growth and provide near-term financial flexibility. 100% of the funds raised through this private placement were from insiders, including all Board members, all Section 16 officers, and additional members of the leadership team, which continues to signify our confidence in the future of the company and the extraordinary value that we believe exists. Time and again, our long-term investors have demonstrated their steadfast support and unwavering commitment because they, too, believe in the Biodesix team and our goal to make a significant impact in the care of those patients with lung disease. In the second quarter, we reported total revenue of $11.9 million, which excluding non-core revenue from COVID, represented growth of 48% compared to the same period a year ago. The quarter was again highlighted by impressive growth in our core lung diagnostic testing business, which generated revenue of $11.4 million, reflecting approximately 58% year-over-year growth. We reported overall gross margins of 73%, a significant improvement over the 64% gross margin reported in the second quarter of 2022 and the 65% gross margin reported in the first quarter of this year. We are exceptionally pleased that our core lung diagnostic sales efforts continue to gain momentum during the second quarter as the number of tests delivered reached the highest in company history for the second consecutive quarter, increasing by 75% compared to the second quarter of 2022 and nearly matching the 78% year-over-year growth we saw in the first quarter. The test volumes also represent a 29% sequential increase over the first quarter of 2023. This strong growth continues to be primarily driven by our Nodify lung testing volumes. Our sales team continues to benefit from regular interaction with physicians and care teams, and we are actively participating in an increasing number of peer-to-peer physician educational events. It is worth noting that the positive momentum we witnessed throughout the second quarter has carried over into the start of the third quarter, further reinforcing our satisfaction with the team's progress and performance. To further support our clinical adoption and reimbursement, we were pleased to have recently shared several updates on clinical studies that build upon and support the clinical utility of our Nodify lung and IQLung testing strategies. In May, we presented original data in four separate poster presentations at the International Society for Pharmaceutical and Outcomes Research Conference, providing evidence of the health economic benefit of the Nodify CDT and Nodify XL2 tests in the management of pulmonary nodules. Most recently in July, we were thrilled to share data from the prospective real-world Oracle study, an observational registry study to evaluate the performance of the Nodify XL2 test. It is important to remember that demonstrating clinical utility is a critical step necessary to drive adoption of any diagnostic test. We're excited that the Oracle study successfully achieved its primary endpoint, demonstrating a 74% reduction in unnecessary invasive procedures. Overall, the findings from the Oracle study represent a significant advancement in the clinical evidence for the use of the Nodify XL2 test in nodule management. In addition to the Oracle publication, physicians from Beth Israel Deaconess, Lane University, and Einstein Medical Center published an independent third-party multicenter study demonstrating that the use of the Nodify XL2 test resulted in a 73% reduction in the number of unnecessary invasive procedures conducted on benign nodules, as compared to the control arm. Looking ahead, we anticipate sharing additional data and updates on other studies, including our Insight study assessing the clinical effectiveness of VeriStrat, our proprietary blood-based proteomic immune profiling test at the upcoming International Association for the Study of Lung Cancer World Conference on lung cancer being held in Singapore in September and additional abstracts at the annual CHEST meeting being held in Hawaii in October. In addition to the growth in volumes driven by our sales team, broadening reimbursement coverage remains an important part of our growth strategy. In July, the Biodesix Nodify CDT test was awarded Advanced Diagnostic Laboratory Test, or ADLT status by the Center for Medicare and Medicaid Services. Receiving ADLT status is a major milestone for the Biodesix team, as this status is reserved for innovative tests with Medicare coverage that provide clinical value and new diagnostic information that cannot be obtained from any other test or combination of tests, recognizing the unique utility of the Nodify CDT test. Now, Biodesix has three tests, Nodify CDT, Nodify XL2, and VeriStrat, all with ADLT status. We'll continue to expand and build upon our reimbursement coverage and expect to have additional updates in the second half of the year. Moving on to our biopharmaceutical partnerships and services business, in the second quarter, we reported revenue of $423,000, which grew slightly over the first quarter, but still an area that continues to be impacted by delayed enrollment in clinical trials. We remain bullish on the biopharmaceutical partnership and service business, as we continue to have a strong backlog and incoming requests for proposals. We ended the quarter with $9.3 million under contract but not yet recognized. While we're encouraged by the continued strength in the backlog, we assume the challenges our biopharma partners are experiencing will remain for the next few quarters, as projects slow and in some cases, are delayed beyond the originally expected timelines. I've emphasized this point before and cannot stress it enough. Lung cancer is still the deadliest of all cancers as it claims more lives annually in the United States than the combined total of the next three deadliest cancers: breast, prostate, and colon cancer. Time is of the essence when it comes to diagnosing and treating these patients. At Biodesix, we take great pride in our capability and capacity to discover, develop, and commercialize a wide range of tests that deliver critical clinical results and insights to healthcare professionals and care teams swiftly. We strive to offer the best testing turnaround times in the industry for all our tests with the goal of improving patient outcomes. Our company and team experienced a strong quarter and first half of the year. We maintain confidence in our ability to sustain this momentum, driving continued growth in test volumes and revenue throughout the second half of the year and beyond. Now let me turn it over to Robin to review the second quarter 2023 financial performance. Robin?

Thanks, Scott. Second quarter total revenue was $11.9 million, an 8% increase over the prior year, including COVID revenue, and a 48% increase over the prior year, excluding COVID revenue of $3.0 million from COVID testing volumes in the second quarter of 2022. Core lung diagnostic revenue in the second quarter was $11.4 million, compared to $7.3 million for the second quarter of 2022, an increase of 58% over the prior year. In the quarter, we recorded total lung diagnostic test volumes of approximately 9,800 versus approximately 5,600 for the second quarter of 2022, a 75% increase. The test volume growth was primarily driven by our Nodify nodule management lung testing, which includes Nodify XL2 and Nodify CDT. The difference in growth rates between volumes and revenue was primarily driven by the timing of Medicare coverage for Nodify CDT achieved in the second quarter of 2022. Biopharmaceutical Services revenue was $423,000 in the quarter, compared to $744,000 in the second quarter of 2022 and $411,000 in the first quarter of 2023, a decrease of 43% compared to the second quarter of 2022 and an increase of 3% over the first quarter of 2023. As a reminder, this business can fluctuate due to several factors, including contract timing and project execution, but in this instance reflects the continued delays of enrollment in prospective clinical trials to complete the projects and recognize revenue. As Scott mentioned, we ended the second quarter of 2023 with $9.3 million contracted but not yet recognized as revenue. These dollars are tied to multiple agreements with different timelines and will be recognized as these projects are executed. Gross margin percentage in the second quarter 2023 was 73% versus 64% in the prior year quarter and 65% in the first quarter of 2023. Current gross margin trends reflect the growth in our higher gross margin lung diagnostic testing business, successful completion of projects to decrease costs and optimize testing workflows, and cessation of commercial COVID testing. This margin achievement is ahead of plan, and we anticipate maintaining margins in the low 70s going forward. Overall, operating expenses, excluding direct costs and expenses, was $19.6 million in the second quarter 2023, compared to $18.6 million for the same period of 2022, and $22.3 million in the first quarter of 2023. The increase versus last year is primarily from increased sales and marketing expenses from increased travel-related costs due to the return to pre-pandemic level access to physicians and increases in other non-employee-related costs. The decrease as compared to the first quarter is related to the realization of savings from our prioritization of projects that are expected to result in near-term revenue and the delay of longer-term projects. Operating expenses for the second quarter 2023 includes $1.1 million in non-cash stock compensation expense, as compared to $1.4 million during the second quarter of 2022 and $2.3 million in the first quarter of 2023. Net loss for the second quarter 2023 was $13.4 million compared to a $15.8 million net loss for the same period of 2022 and $18.7 million for the first quarter of 2023, driven partially by the improvements in gross margin and operating expenses. The decrease in net loss for the quarter included a decrease in non-cash stock-based compensation and the absence of a one-time loss on extinguishment in the year-ago quarter of $3.0 million, resulting from the restructuring of the contingent consideration agreement with Integrated Diagnostics, offset by an increase in interest expense primarily associated with the perceptive term loan facility. If we remove the $800,000 from depreciation and amortization, $1.1 million from stock-based compensation and $2.4 million in interest expense, the loss for the second quarter was $9.1 million as compared to $13.2 million, a decrease of 31%. We ended the quarter with $17.4 million in unrestricted cash and cash equivalents, compared to $25.3 million in unrestricted cash and cash equivalents at the end of the first quarter, a decrease of $7.9 million which included the scheduled milestone payment of $2.3 million paid in April 2023 to Integrated Diagnostics. The change in working capital also includes $5.8 million in tenant improvement dollars, offset by $6.2 million in investment in the new facility. The cash burn decreased from $17.8 million in the first quarter of 2023 as a result of our commitment to a cost-disciplined approach in growing the business. The cash balance as of June 30, 2023 does not include the $27.5 million raised in the private placement previously discussed, which was completed subsequent to quarter end. In the upcoming fourth quarter, we expect to move into our new state-of-the-art facility in Louisville, Colorado, just down the road from our current Boulder location. The new facility has improved capacity for lung diagnostic testing, biopharmaceutical services testing, and Collection Kit manufacturing, which we brought in-house in 2022. During the construction of the new facility, materials and equipment were incorporated to optimize energy efficiency and reduce emissions, advancing some of our longer-term ESG goals. We remain focused on two major goals: growing our revenue by helping more physicians treat more patients than ever before and making sequential progress on our path to profitability. Second quarter results showed our progress and success towards both of those goals, and we are maintaining the guidance provided earlier this year of a full year 2023 revenue of $52 million to $55 million. Our guidance assumes continued strong year-over-year growth in our core lung diagnostic testing business, broader reimbursement of our five on-market tests, as well as modest expected growth in our biopharmaceutical services business. Now let me turn it back to Scott.

Thanks, Robin. In closing, I want to express my gratitude to all the incredible members of the Biodesix team, who've shown unwavering belief in and dedication to our mission, vision, and culture. Our collective commitment and daily contributions are centered around making a positive impact on the lives of patients, and I am truly thankful for your efforts. We have again experienced remarkable double-digit growth in the past quarter, attributed to the exceptional performance of our lung-focused sales team who have been instrumental in fueling our growth and success. We've published critical clinical data that demonstrates the utility of our tests supporting both physician and payer adoption, and achieved a major reimbursement milestone. Additionally, we've improved our already strong gross margins ahead of plan. Looking ahead, our focus remains on driving near-term revenue growth while maintaining a disciplined approach in reducing expenses and cash burn. By aligning these strategic priorities, we are confident in our ability to sustain our growth trajectory, make progress on our path to profitability, and deliver value to our shareholders. We look forward to moving into our new state-of-the-art facility that affords us the opportunity to maintain our growth and expand in an efficient and effective manner. Once again, I extend my sincere appreciation to each and every member of the Biodesix team for your invaluable contributions to our success. Together, we're making a real difference and positively impacting physicians and the patients they treat. Robin, the Biodesix team, and I are as excited as we've ever been about the future of Biodesix and the opportunities that lie ahead. With that, I'll turn the call over to the operator for questions.

Thank you. We will now conduct a question-and-answer session. Our first question comes from the line of Andrew Brackmann. Your line is now open.

Hey, everyone. This is Maggie Boeye on today for Andrew. Thanks for taking our questions. Maybe first to start on the guidance for the year. You reiterated your top-line outlook today. Can you talk about kind of the pacing for the third and fourth quarter within these assumptions, maybe both on the core lung diagnostics side and then the biopharma services side?

Yeah. Hi, Maggie, thanks for hopping on. We haven't seen or we don't expect any real change in the pacing for the quarters. We still expect it to look sort of like what we saw last year, with a step up in the third quarter and then a further step up in the fourth. With our biopharma services, that one is more difficult to predict. It's very lumpy. We've seen great interest coming into the company, more requests for proposals than ever before. But just things are slow and sort of delayed. So that one, we hope to see some good uptick in the second half of the year, but put more strength and more emphasis on the lung nodule management and lung diagnostics portion of the revenue.

Got it. That makes sense. And maybe just one on volume growth on that core lung side. So you've now had two really strong quarters of growth in a row. Can you maybe break apart that growth and talk about how much of it is being driven by greater existing account utilization or even new account utilization or any other geography here? Thank you.

Yes. Thank you, Maggie. This is Scott. I appreciate the question. Yes, as we stated before, we've had and experienced great interest and adoption really across all pulmonology groups, which also includes community, rural, and academic. So we continue to see growth across all segments. We think that the Oracle publication will continue to increase that. And we're exceptionally pleased with the sales representative access. For us, there's not one specialty within the pulmonology group where we're seeing greater or less adoption. It really is equal. And I think it speaks volumes about the clinical utility, which was supported in Oracle, where we demonstrated a 74% reduction in unnecessary invasive procedures.

Great. Thanks so much.

Thank you. Please stand by for our next question. Thank you. Our next question comes from the line of Kyle Mikson of Canaccord Genuity. Your line is now open.

Great. Thanks for taking my questions and congrats on the quarter. Regarding the 75% year-over-year growth in test volume, could you break down how much of that comes from recurring orders and clinician loyalty? It seems like such significant growth could be somewhat inorganic, especially considering that many of your tests have been available for a while and have had Medicare coverage for a year. I'd appreciate your insights on that.

Yes. Thanks, Kyle. I appreciate the question. Yes, we haven't disclosed that metric. Obviously, we track that closely. What I'm comfortable sharing today is that we've been pleased really with that stickiness in that reorder rate. We've seen that not only stay consistently strong but grow over time, which is what you want, right? As an individual physician or healthcare practice gains experience, you hope they see greater value in the clinical utility of the test. That's consistent with what we've seen as we've tracked this over time. One of the other metrics we've looked at, and again, we don't share the actual results publicly, is as somebody onboards and begins ordering the test and applying those test results, at what point in time do they become sticky? We expect to get into that 10 to 20 tests per account or physician range. Then we go in and we focus on what we call a clinical utility review with them to make sure they understand how each test result not only impacted that individual patient but potentially changed their approach. That's resonated for us over time. It's a great question; it's critically important to us, and we see equal value in not only getting ordering physicians to continue to order more but also for our sales professionals to go out and open new accounts.

Thanks, Scott. The nodule management side of the business is a significant contributor to our growth. I'm interested in discussing the other segment, GeneStrat, and its treatment guidance. Can you shed light on the competitive dynamics in that market and how our market penetration has been developing? We haven't heard much about that in our recent calls.

Yes. No, it's a good point. The IQLung portion of our test, which includes VeriStrat, GeneStrat NGS, and GeneStrat ddPCR. The GeneStrat portion is our genomic offering. We see and receive great value and feedback in offering both a broad-based NGS panel and the targeted ddPCR panel. I think where the greatest value is on the targeted panel is turnaround time, getting the physician those genetic results that they need in less than 36 hours. That's critical, especially early-stage disease before you prescribe treatment. We introduced, as you said, the NGS test more recently and felt like that complemented the ddPCR test. We're the only company out there offering both in that clinical setting. But again, I think part of our reach limitations are based upon focusing specifically on lung cancer. So where the NGS test has a broader application, our sales professionals have stayed focused on lung cancer. We know that we aren't expecting to hit significant competitive conversions and drive up that market share list on the NGS front. For us, it's more about being that trusted consultative sales company that physicians go to for the answers they need in lung disease and lung cancer.

Perfect. And on the gross margins, this is great to see the 73% low 70s, already kind of approaching mid-70s. And it sounds like we should expect low 70s going forward. That is helpful guidance, I guess, just to model out. But I was just curious how the tempered biopharma revenue is going to impact gross margins going forward too. I know it's probably somewhat uncertain and hard to predict, but I was just curious if you guys could just comment on that.

Yes, it's a great question, and I think you kind of answered it. It is uncertain because we did state that we've got $9.3 million under contract, so we're able to forecast and plan accordingly. We have taken that into account. So when we state that we fully expect to stay in that low 70% range, that's inclusive of the biopharmaceutical agreements that we currently have in place. Now as our biopharmaceutical team is out there trying to get more contracts, that can obviously change and shift, but we don't see that directionally negatively impacting gross margins in the near future.

Awesome. And then just a final one for me. Rob, you talked about you guys are moving into the facility. Is there any CapEx implications from that, or is it already kind of built out and everything?

Yes, we still have some tenant improvement funds that we plan to use in the third quarter, along with some capital expenditures in that quarter and the fourth quarter. By the end of the year, we will be ready to operate in the new laboratory facility in 2024. However, testing in the new facility will not start until the New Year. We anticipate seeing similar capital expenditures in the third and fourth quarters as we have in the first and second quarters.

So there wouldn't be like a step up temporarily?

No step up in the amount of CapEx, but a step down in the tenant improvement dollars that come in. We'll exhaust that here in the third quarter, and then the final amount will be all out of pocket for CapEx.

Interesting. Thanks Robin, thank you, Scott. Congrats guys.

Thank you, Kyle.

Thank you. Our last question comes from the line of Tejas Savant of Morgan Stanley. Your line is now open.

Hello, this is Yuko on the call for Tejas. Thank you for taking our question. Just following up on some of the biopharma business comments here. Could you comment on how delays on prospective clinical trial enrollment and sample delivery have trended over the course of the quarter and into July? And also could you provide a degree of customer concentration for the $9.3 million under contract?

Hi Yuko. Thanks for the question. Yes, when we think about the trends, one of the things that we have found encouraging and we're excited about is we have seen access to retrospective samples and prospective trial enrollment increase and pick up. We've been watching that closely over time and have really been waiting for that. The nice thing about having the significant amount of dollars under contract that we have is knowing that it really comes back to access, timing, and cadence. We feel like there is movement and progress there, and that's encouraging for us. We've also seen a record number of requests for proposals moving forward, so we feel like we're in a really, really strong position. When we break down those requests for proposals and the $9.3 million currently under contract, we haven't really disclosed what the tests are. We offer all of our commercial tests as part of our biopharmaceutical offering, and then we offer a number of additional tests, both tests that we have created and offer for research use only and just have chosen to not commercialize, but also we offer custom assay development. It really is a broad spectrum of different projects and tests or assays that we're offering, and the biopharmaceutical partners are really coming to us at varied stages of their own development and research. So, we feel like we're fairly balanced. We're also balanced, I'd say, across sizes of the biopharmaceutical companies, where we've got some small biopharmaceutical companies coming in along with some of the major more significant names that everybody might know. Is that helpful, Yuko?

Yes, that was great. Thank you so much, Scott. Also, with the upcoming CHEST Conference, what presentation and presence do you anticipate to have there? It's a conference that you have historically been present at. And then is it possible that we could see interim data from ALTITUDE at CHEST?

Yes. Great question. We look towards the annual CHEST meeting as one of the biggest opportunities for us. If you're not familiar with it, it's the largest Pulmonology Society Physician Society Conference on an annual basis, usually held in October and November. This year's meeting has been pulled up, so it's early October. We're not yet able to disclose exactly what will be presented and published as a number of the items that we've already had accepted are embargoed until we get closer to the event. We've got a number of other efforts that are still in the works. We put a lot of pressure on ourselves to make certain that we show up representing who we are. We think this CHEST will be equally as impactful as the last, where we have an opportunity to get in front of a number of pulmonologists with an ever-increasing book of data. We're excited about that. Getting the Oracle data out now when we could give them more time to digest it and to research it on their own. We fully expect to have great robust conversations there. As for interim data on ALTITUDE, it really is going to be based upon enrollment. We're very pleased with enrollment; we've had a number of back-to-back months with record numbers of enrollments. I don't expect to have interim data or analysis to share at CHEST because we would already be doing that analysis. I think as we get closer to the end of the year, we'll look at that and maybe do an interim analysis share sooner in the year next year, not waiting for CHEST. This is critically important for us. We know that a prospective randomized trial in this space is significant. We're excited to get that data out there, and we're really proud to be working with a number of major academic institutions on that study.

Great. Thank you so much for the color.

Yes. Thank you, Yuko.

Thank you for your question. This now concludes our question-and-answer session. I'd now like to pass the call back over to Scott Hutton, Chief Executive Officer for Biodesix for closing remarks.

Thank you, operator. We've worked long and hard to build the best pulmonology-focused sales team in diagnostics. I think that's just the beginning of our growth. With a first-mover status in lung nodule management and an ever-increasing body of robust clinical data, we're eager to provide updates on our progress and how we continue to build on the momentum already created as we increase our clinical data and payer adoption in this extremely large market opportunity. Ultimately, it's all about physicians and the patients they treat, and we believe in our ability to make a more significant impact in the future. Our research, development, and laboratory teams are continuously delivering on operational improvements and cost savings, maintaining a high level of compliance and positively impacting our already strong gross margins while exceeding our standard of best-in-class operations as evidenced by our unmatched turnaround times on test results delivery. We've prioritized a quality-focused Biodesix team and culture and trust that our cost discipline approach and resulting reduction in operating expenses and cash burn will provide greater clarity and assurance around our path to profitability. We look forward to updating you on our continued progress and successes on the next earnings call and hosting you in our new state-of-the-art and highly accredited facility soon. Thank you.

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