Good day and thank you for standing by. Welcome to Biodesix, Inc. Third Quarter 2024 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, today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Brinzey, Biodesix, Investor Relations. Please go ahead.

Thank you, operator, and good morning, everyone. Today, Biodesix 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 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. I would 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. Our key business fundamentals facilitate our ability to transform the standard of care and improve patient outcomes with personalized diagnostics. Commercial execution has been and continues to be enabled by a strong culture as well as a foundation built upon scientific clinical and operational excellence. I am happy to report that it has been another quarter of solid year-over-year growth. As I've stated previously, 2024 is a year of execution. Our team continues to deliver on three key goals which include driving increased revenue through the adoption of our lung diagnostic test and 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 third quarter, we delivered 35% year-over-year growth in revenue, 77% gross margins, and a 6% improvement in net loss. Our growth this quarter was slightly under our expectations, driven in part by the hurricanes in the Southeast, slower sales team expansion, and timing of completion of biopharma service projects. However, due to a variety of factors I will discuss in a moment, our experience and expectations for the fourth quarter lead us to reiterate our 2024 full-year revenue guidance of $70 million to $72 million and our expectation that we will achieve adjusted EBITDA breakeven in the second half of 2025. 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. As we've discussed, the timely expansion of our sales team is a critical component of our overall growth strategy. 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 in other sales territories to further set ourselves up for success in the fourth quarter and into 2025. 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, catching up to our planned sales team member count at the end of 2024. For 2025, we'll keep adding an average of 6 to 8 sales team members per quarter as we continue to build out the organization needed to address the significant market opportunity. I also want to comment on the impact of the hurricanes that hit Florida and the Southeastern United States in September and October. We observed in the last 2 weeks of the third quarter that many patients, physicians, and our local Biodesix team members were forced to evacuate their homes and businesses, thus affecting the normal volume of testing in those regions. While these communities are in the early stages of recovery, we expect most healthcare providers to return to normal service levels in the near future, and the long-term impact on our business will be minimal. Before we go on, the entire Biodesix team wishes to acknowledge the communities who continue to face the devastating effects of the recent hurricanes. Our thoughts are with our teammates, healthcare providers, patients, and residents of those communities as they continue the long process of recovery. 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 coverage added this quarter. We added new coverage policies in the third quarter for Nodify X2 from Blue Shield of California, Blue Cross Blue Shield Nebraska, Centene, Salon, and Security Health Plan in Wisconsin. 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 tests. 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. 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 35,000 patients who received notified lung testing in a real-world clinical setting. 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 classified patients into actionable risk categories with clear guideline-recommended diagnostic plans. This was one of several presentations in the scientific program at CHEST featuring notified lung testing, demonstrating continued interest in the role our tests play in the clinical assessment of lung nodules. Reception to this educational content was exceptional, leading to hundreds of positive interactions with healthcare professionals and new partnership opportunities. 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 Bronchology and Interventional Pulmonology, or ABIP, in Charlotte, North Carolina, in August. 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 healthcare providers, health systems, and their patients. The company also announced a new complementary clinical study named CLARIFY, a multi-center retrospective chart review study evaluating the impact and utility of the blood-based proteomic integrated classifier and auto antibody test in the real world. CLARIFY will collect patient outcomes and other clinical information on 4,000 patients who've received notified testing in clinical practice with at least 1 to 2 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 Nodify XL 2 tests in a broad population of patients across the country. 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. We expect to release interim data in 2025 and complete the study in 2026. We're also making progress with ALTITUDE, which is designed to assess clinical utility of the notified test through a prospective randomized controlled trial. It's continuing to accrue patients, and the third-party data safety management Board is scheduled to meet early in the first quarter of 2025 to review the progress of the trial and discuss the potential for an interim data release. We will provide additional updates following their review. Finally, new health economic and outcomes research data on our Nodify test will be presented at the Professional Society for Health Economics and Outcomes Research Meeting, known as ISPOR in Barcelona, Spain later this month. Let's move now to our biopharma services business, which is enabled by our scientific and operational expertise. We saw increasing demand for our services and grew the dollars under contract but not yet recognized as revenue to $11.1 million, up from $8.1 million at the end of the second quarter. Revenue in the quarter was a 17% decrease versus the third quarter of last year, reflecting the delay in the 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. We're excited about the growth in the funnel through an increasing number of RFPs, contracts, and projects. This is a differentiated service offering that leverages our multi-omic platforms and research and development expertise to help deliver insights that our biopharma partners use to personalize patient care and help improve disease detection, evaluation, and treatment across all disease types. 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. New data presentations and the announcement of the CLARIFY study are further establishing our position as the market leader in lung nodule risk assessment. The momentum from CHEST, the new data and study, the addition of the newly graduated class of sales team members, and the completion of the large biopharma project already in the quarter are all contributing to the achievement of our 2024 guidance. With that, let me turn it over to Robin to review the financial performance. Robin?

Thanks, Scott, and good morning, everyone. Third-quarter total revenue was $18.2 million, a 35% increase over the prior year. Lung diagnostic testing revenue in the third quarter was $17.2 million from approximately 13,900 tests compared to $12.3 million from approximately 10,400 tests for the third quarter of 2023, 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 of 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, 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. 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 the second quarter of 2024. Our gross margins remain consistently in the upper 70s 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. Overall, operating expense, excluding direct costs and expenses, was $22.6 million compared to $17.4 million for the third quarter of 2023, a 29% increase. Operating expense for the third quarter 2024 includes $3.0 million in noncash stock compensation expense and depreciation and amortization compared to $1.7 million during the third quarter of 2023. The increase in operating expense versus the prior year quarter is primarily the result of an increase in sales and marketing costs to support lung 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 Louisville, Colorado office and laboratory which opened in January 2024. Net loss for the third quarter 2024 was $10.3 million, an improvement of 6% compared to a $10.9 million net loss for the third quarter of 2023, and $10.8 million, or 5% improvement versus the second quarter of 2024. Adjusted EBITDA, which excludes noncash and other one-time items, was a loss of $5.6 million compared to a loss of $5.4 million for the third quarter of 2023 and a loss of $5.6 million for the second quarter 2024. We ended the quarter with $31.4 million in unrestricted cash and cash equivalents 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. 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. 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. As Scott mentioned, we are reaffirming our 2024 total revenue guidance of $70 million to $72 million, and we expect to achieve adjusted EBITDA profitability in the second half of 2025. 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 statement to register restricted pre-IPO pipe 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. Now, I'll turn it back to Scott for some closing thoughts before the Q&A.

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 2024 revenue guidance and adjusted EBITDA profitability milestone for the second half of 2025. At Biodesix, we have both the opportunity and the responsibility to transform the standard of care in 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. Time is of the essence when it comes to diagnosing and treating patients. Today is November 1, and we are joining the international lung cancer community in kicking off lung cancer awareness month, with many activities to encourage education and screening for lung cancer. We want all eligible people to get lung cancer screening to help catch this deadly cancer early. We'll also be marking national lung cancer screening day on Saturday, November 9 and hope you will share information with your family and friends to get informed about screening. Let's now move to questions. Operator, let's start with the Q&A session.

Our first question comes from Andrew Brackmann with William Blair.

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 in 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 franchise has sort of evolved at that conference over the last few years?

Yes. Great question. Thank you, Andrew. As I stated, it was a record CHEST for us this year. When we showed in Boston, we really reminded ourselves that this is only the third CHEST back in person since the pandemic started. So really a huge opportunity for us to show, continue to educate, inform, and empower physicians based upon our progress that we've made on Nodify. When it comes to the leads in our expectations, what we've noticed over the last three CHEST, those three that were in person, three years ago, we were back reintroducing ourselves, welcoming people back after a long hiatus due to COVID. About a year ago, when we were in Hawaii, what we noticed as 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 had heard of us, they had read the papers. The questions changed, and we think it's a wonderful evolution to where now the questions were, if I haven't met my local rep, who's my local rep, what does workflow integration look like? And how soon can you come in and help me and my staff with that? So we saw that really as a shift from historically a push to a pull, which is wonderful when you consider adoption in a commercial product. Our expectations coming out of CHEST are that these are always going to be hot leads. Somebody who comes in on their own accord, asking 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. Every one of those physicians will have received a follow-up call, an introduction to their local rep if they hadn't met them, and then a follow-up scheduled so that we can go through how best to implement notified testing into their practice. It's changed a lot and we're proud of it. We keep reminding ourselves we have 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 on the merits of notified testing. And what we noticed at this meeting was a big shift. Limited competition; we've talked about that even during some of the panel presentations and some of the debates it really was a reference to, if you're interested in biomarker or molecular testing, Biodesix is the company to go visit. And so we were referenced by name. They even encouraged people to stop by our booth. From a healthcare 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 that those physicians treat, but they're making a big difference in the healthcare practice. So we're really grateful 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 it really sets us up for those to be part of the contributing accounts that aid growth and drive and fuel that growth early in 2025.

Perfect. Maybe as my follow-up and 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?

Yes, it's a great question. You're right. I believe it was in August when I shared that we plan to get to adjusted EBITDA profitability in the second half of next year. For us, we're really fortunate to have the laboratory team that we do that has worked on efficiencies to drive gross margins for our notified testing, having nearly 80% in that high 70% range puts us in a unique category where we're one of the leaders across all diagnostics. Obviously, as we grow in scale, there's 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. We're going to manage the same way we always have. We're going to be very, very prudent with when and where we invest and spend money. I think what we've demonstrated over the last not only a few quarters but a few years, is that we are on a trajectory to get there. We can continue to invest in the business. Ultimately, there's going to be a great return. But so really, it's in the normal course. There's 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 in driving that top-line growth.

Our next question comes from Kyle Mikson with Canaccord Genuity.

Scott, you mentioned that a significant project was pushed from the end of the third quarter into the fourth quarter, which led to the sequential revenue decline. Do you anticipate an increase in revenue for the biopharma segment in the fourth quarter? Additionally, are there any considerations regarding budget flush dynamics? Is your full-year revenue forecast for biopharma still the same as what you provided in the second quarter update, despite the shifts in revenue timing?

Yes, Kyle, that's a great question. I'll address it in reverse order. Yes, it remains unchanged. As we approach the end of the year, all of the contracts are lined up. We have them queued in the laboratory. At the end of the third quarter, this was largely dependent on when we received the samples. There was a delay of a few weeks in receiving those samples, but we did start to receive them with about two to three weeks left in the quarter. Unfortunately, time ran out as they came in. The good news is that all of those samples from that significant run have been processed and returned to the biopharma partner. We consider this just a push. As we move into the fourth quarter, we remain aware of time and what we have in the queue. We are prepared for any unexpected opportunities that may arise. However, as we move through the quarter, the chances of these opportunities decrease. We are confident in our projections for the fourth quarter. As you mentioned, our book of business continues to grow, and we're excited to report that we have $11.1 million under contract that has not yet been recognized as revenue. This shows that we are well positioned for a strong start to 2025, and we believe we can build on that progress and momentum.

And Kyle, you're exactly right. The aggregate second-half number, we expect to be on track for what we talked about in the second quarter. Just the mix of third quarter and fourth quarter is just a little bit different, but the total should be the same.

Okay, that's good to hear. I mention this because the guidance has been reaffirmed, and biopharma represents a relatively small part of the business. Additionally, the core lung business seems to have underperformed based on our model. It appears that a hurricane impacted this performance. Could you quantify the effect of that hurricane? And, similar to the previous question, will this be something that can be recovered over time?

Yes. The hurricane significantly affected the last week and a half of the quarter. As you're aware, our focus is on lung health, and the Southeast is known as the tobacco belt, where the incidence and prevalence of lung cancer are the highest in the country. This region comprises a substantial portion of our business, so the disruption in those states for two weeks definitely impacted our quarter. We expect that the lung diagnostics will remain about the same in the second half. There may be some shifts between the third and fourth quarters, but this is why we have reaffirmed our full-year guidance in the range of $70 million to $72 million.

Okay, perfect. I have a quick question for Scott. Building on the comments made at CHEST, do the findings and insights shared at the conference, including feedback from attendees, alter your perspective on the market opportunity in nodule management? Additionally, how do you view the potential market penetration considering the evolution of lung cancer screening over time?

Yes. 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, and I think that's what we see. Whereas 2 to 3 years ago, when we had Panoptic and then starting to release the Oracle data, physicians are intrigued; they want more data, they ask for additional questions. So each and every opportunity we have to present more data, it's positive, especially when you start to see the results of that data which is consistent across the board. This 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. We think that it's an opportunity for us, again, to build the market, provide as much content and data as possible, raise the bar as high as we can. And I think that's what we saw. The feedback, and I'll share this in one of the sessions, it was a pro versus concession where the physicians were set up to debate our biomarkers ready. Well, as you can imagine, it pretty much was a debate across whether the notified test was ready for full adoption or not; the con was never made. The physician didn't present a con. So there wasn't much of a pro versus con debate. 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, we still think that we're in the low to mid-single digits in penetration. It's a massive market opportunity. 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 healthcare professionals. So we're really excited to see what happens on the lung cancer screening front. 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. We're excited about that. The HEDIS measures that will start to roll out towards the end of this year and into 2025 will help drive screen awareness and adoption. And then you might have heard there, we're really excited to bring a lot of the lung cancer awareness front this month. It's really about awareness. We know with lung cancer, early detection and diagnosis lead to the most positive long-term outcomes possible. We're going to continue on that fight.

Okay. That was perfect. But just maybe quickly, Scott, you just mentioned that. How does the introduction of blood-based screening tests for lung cancer like over the medium term, I guess, affect what you've kind of just said about detecting nodules and understanding what to do with those?

Yes. So we're a big fan of the research that's been conducted thus far. There are a number of companies out there that are investing in 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 and also lung. What we've seen thus far is the data is promising. Unfortunately, in some of those cases, we've seen more false positives than actual positives. So I think the physician community is really looking at it saying, hey, we need to see improvement in those test results before there's broad adoption. But because this is a screen eligible population, it will benefit us. Nodify is the appropriate test for both incidentally found nodules and screened detected nodules. So when we talk to physicians, they see this as additive. They think of it in terms of enrichment. From a referral perspective, if you use a blood-based screener, a positive screening test would then get referred to a pulmonologist who would still need to do a result in CT, and then post that image would add notified testing. They'll use those results to pull the appropriate patients forward. The example we've used is a positive notified CDT, which is a rule-in test would then lead to a bronchoscopy; on the opposite, a positive Nodify XL 2 test, which is a rule-out test, would allow them to manage that patient population confidently through CT surveillance and monitoring over time. The biggest challenge that the physicians we work with tell us is their plates are already full. There are so many patients out there. They can't get to them all. If and when blood-based screening tests take off, most physicians state that it's going to break the system. 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 to free my clinic time up.' Happy to go into greater detail, but I hope that's helpful.

Yes. No, that was great. That's perfect, Scott.

Our next question comes from Dan Brennan with TD Cowen.

Great. Maybe just on sales force expansion and productivity, you're a few quarters in now with some reps at, it looks like the lung diagnostic revenue per rep has been kind of steady, if not increasing a bit to above $1 million. Just kind of how do we think about that productivity level from here? And kind of how do you contemplate that when you set guidance?

Yes, it's a great question. We've demonstrated that we can continue to increase and grow and drive greater sales rep productivity. From a modeling perspective, the math is really simple; it's right at about $1 million. Dan, we shared in the past, there have been some territories and reps where we have capped their productivity to then, in turn, split the territory. It is a little bit of a blend or a mix as we think of what we'll do across the United States. We've shared that early sales force build-out started in 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. What we know there is the more time they spend on the road, whether it's behind the windshield or in the air, not only does it drive up cost, but we know their productivity is going to be less because it decreases the amount of time they can spend with physicians. So we're confident as we continue to grow in scale that we can drive higher sales rep productivity as we make more progress. We still have not seen, and much of this has been intentional, we 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 $1.5 million per rep, and that's when we started to cut some territories. For us, it's pretty linear. We still stay with less than 10% penetration into this market opportunity. We can continue to grow and scale and drive sales rep productivity higher. You may also recall about a year ago, we started implementing the associate sales consultant role that's really going to aid us in driving that sales rep productivity higher. You'll see us provide greater detail as we head into 2025 on the mix and how many actual sales consultants will hire versus associate sales consultants. I think as we head into somewhere in that $1 million to $1.5 million per sales rep is the appropriate sales rep productivity number.

Great. Revenue growth has been certainly very strong last couple of quarters. Penetration remains nascent, right, versus 5 million incremental lung nodules. You've got really good in coverage. You've got good data out there from Oracle. Just wondering in terms of further inflections in the top-line growth rate, like what are the triggers for that, do you think?

Yes. We work with some of the large integrated networks and large healthcare systems. One way we look at it is our sales reps on a day-to-day basis do what we refer to as kind of bottoms-up selling. They're knocking on doors, introducing the product themselves. We spend a lot of time working from a tops down and so we think there's great opportunity for us to have broader adoption across an entire system. We're making lots of progress on that front. Just haven't really been able to get to a point where we can disclose or announce 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, we talked about it a little bit earlier. I think you just got to continue to invest in data development. Anything we can do to continue to educate, inform, and empower physicians to not only order the test but also continue to expand utilization. We think physicians will become more comfortable with broader utilization of Nodify. But for us, the one that sits out there on the horizon, if you will, is guideline inclusion. We've stated this in the past; our pulmonology partners within CHEST or ACCP have not updated their guidelines in 10 years and I'll state that again, 10 years. So we think that we've put enough data out there. This is not a scenario where they've updated guidelines and not included us. We think there's a big differentiation there. We're confident that as we continue to grow in scale, knowing that some of those individuals that are involved in guideline establishment have experience with Nodify. They attend those meetings, they've read the data and the publications. For us, I think guideline inclusion at the point in time when the CHEST guidelines are updated would also be a nice inflection point for us. Is that helpful, Dan?

Yes. Yes, that's great.

Your next question comes from Sung Ji Nam with Scotia Bank.

Maybe one for Robin. It's really nice to see the revenue per test growth. I think based on our model, it seems like a record quarter. I was wondering if there may have been any kind of one-time cash collection from prior periods? Or could we anticipate this type of cadence going forward based on the funnel of private payer opportunities that you guys might have?

Thanks for the question. I'm very happy to report that it's all current quarter. So no impact from unusual one-time items from prior periods. So you are correct. It's one of our best ASPs, really quite pleased with how the reimbursement wins that we've been able to announce over the last several quarters have really started to impact our day-to-day ASP.

Great. And then, just my follow-up is on CLARIFY. Maybe for Scott or Robin. Just kind of curious, you talked about underrepresented population. Are you guys potentially also looking at different clinical characteristics that may have been overlooked before? Curious about just the patient cohort, what that entails?

Yes, that's a great question. Thank you, Sung Ji. We approach this from several different perspectives. To sum it up, yes, we're examining Notify alongside the use of PET scans. We understand that many pulmonologists in this patient group often feel frustrated with the PET scan results, partly due to false positives and potentially influenced by geographic location. If they are in a certain region, it can adversely affect those PET results. As we analyze the data, we're focusing on Notify's performance in relation to PET results, which was a significant topic at CHEST, generating many questions. We believe this will be very valuable. Additionally, we are considering various subgroups, including different races and ethnicities, since we receive numerous inquiries about how well the test performs across diverse patient demographics. We aim to investigate this further to illustrate how the test functions in those different groups or subpopulations, and we expect the performance to meet high standards, consistent with what we have observed so far. This is just the beginning. We've highlighted a chart review analysis involving over 35,000 clinically enrolled patients, specifically targeting 4,000 of them with one to two-year outcomes, which is crucial. We can quickly assess long-term outcomes for those patients at one-year and two-year milestones. We will take a similar approach with ALTITUDE. As we know, the enrollment clock for any patient in ALTITUDE starts now, and we have to wait for two years. As we considered this, we identified several questions that we believe are significant and valuable. It's less about expanding usage and more about addressing the clinical questions that physicians have. Does that clarify things, Sung Ji?

Yes. Very helpful. Thank you so much.

Our next question comes from Bill Bonello with Craig-Hallum.

Just a couple of things. To start, Robin, can you clarify your expectations regarding loan volume in Q4? I wasn't sure I understood you correctly.

Yes. We expect that for the full year, we'll end up where we had said before in that $70 million to $72 million in total. With the biopharma, we expect that the second half number 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, we're still at the same point. So we don't expect a shift even despite the push of some of the tests from the third quarter.

Okay. Are you anticipating that lung volume will increase sequentially in the fourth quarter?

Yes. Yes, we are.

Okay. That's helpful. And so just Scott, you mentioned at the beginning of the call that you sort of elaborate on reasons to feel comfortable with maintaining the guide in Q4. I mean, I think what I've heard is, well, there was some biopharma delayed from Q3 to Q4; there will be more productive salespeople. Is there anything else you were calling out on why we should have confidence in Q4?

Yes. Great to hear from you, Bill. You referenced some of the impacts, and we know that you reside in Florida, so we're glad that you had minimal impact from the hurricanes and were safe. For us, from an execution perspective, this year, we've been able to look at that sales rep productivity, those individual territories, and we still see the same progression on their onboarding and their return. We feel confident that we have plenty of room to continue to invest in sales force expansion. So that's really it. There are some additional papers, some publications that will be coming out. Those always help, right? It gives us additional data to share. But there's no deliverable here in November or December. This is still really about execution. Kieran O'Kane, our Chief Commercial Officer; and Mark DeBlock, our Head of Sales; it's really about them leading that team. You highlighted it. We referenced a significant addition to the sales team, a large class that went through training. Happy to share that those 8 to 10 individuals are already out in the field. They're contributing now. It brings that sales rep number up. From a math perspective, on an annualized basis, they may get to $1 million per sales rep annually, but we'll have significant contribution from those 8 to 10 in addition to the 63 million that we had performing throughout the year.

That's really helpful. Regarding the timing of the hiring, it seems like you'll catch up, but your pace has been slightly slower than you originally anticipated. Is that mainly due to the mix of candidates you had and your level of comfort with them, or were there other factors that contributed to the slower progress?

Yes, that's a great question. The short answer is yes. We prioritize being careful if we don't feel confident in the fit. I strongly believe that every new teammate influences the culture, even in small ways. We invest considerable time in ensuring they are a good fit, can succeed here, thrive, and have not only strong earning potential but also the opportunity for a long career. You may recall that we mentioned we would have a slower start when we initiated the fundraising around April-May. Typically, we aim to hire sales professionals early in the quarter to avoid any negative impact on SG&A without seeing returns. Due to the fundraising, some of the proceeds were allocated for expanding the sales force, and back then, we stated we wouldn’t start hiring until the fundraising was complete. We were deliberate in Q2 about being cautious and selective in our hiring to avoid increasing SG&A expenses without returns at the end of that quarter. This decision meant we committed to not compromising on the hiring process, including our vetting, onboarding, and training processes. Because we began slowly and experienced delays in Q2, it created a ripple effect that is now being addressed, which is why we've announced the significant class of new hires that will help us get back on track. As a result, we expect to finish the year with around 70 to 75 sales reps, and if we average that, it puts us at approximately 73 sales reps to start the year. Then, we’ll pick up the pace of hiring in Q1 of 2025.

Okay. That's really helpful. And then just one last one. On the biopharma backlog, can you tell us sort of anything about the nature of those contracts? Like do you have a sense of how far off it is for bookings to convert to revenue and what are we thinking, gosh, 80% of this converts to revenue, 50% of it might convert to revenue and sort of over what time period? How do we kind of think about that?

Yes, it's a great question. I think generally, the way we look at it when we share this is that it will be 100% of that revenue will be achieved over a 3-year time horizon. What we really see is you're 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 time frame. 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 in bank samples all in bulk? Or is it a prospective analysis where we get patient samples on a regular cadence over a lengthier period of time? They're all a little bit different. We look at them in aggregate. But again, we definitely see that 70%, 75% to 80% recognized in that 12 to 18-month time frame, and then all of it within a 3-year time horizon. If it goes any further than 3 years, then I think you can state yes, the likelihood of achieving 100% of it drops off significantly. That's correct. Yes, I think the way to think about this is we aren't bridging across phases of development for them. We're within a phase. They move to kind of Phase 2, they start a contract with us, and our results that we deliver to them help inform and educate them as to whether they move on to the next phase. When they do, we also track that. We see significant progress, where 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 across that $11.1 million in contracted dollars not yet received payment for, you see nice blend of new customers, existing customers, and existing customers that have built on their development and progress.

Our next question comes from Thomas Flaten with Lake Street Capital Markets.

I appreciate you taking our questions. Just a follow-up on the hurricane discussion we've had. So Milton came 1.5 weeks or so after Helene. So, two parts to this. There's the one thing about evacuations and then the actual hurricane happening. But as you look at the first couple of weeks of October, was there still some lingering challenges there from a customer perspective in generating samples? How long did that go on?

Yes, Thomas, great question. There definitely was. What was interesting about that was it also coincided with CHEST. What we saw was when we were in Boston, some physicians coming up to us and saying, 'Hey, I've got to leave CHEST early, I need to get back and help my family.' We even had some of our teammates that were impacted. We have a pretty significant Biodesix team representation in the State of Florida; we’ve got 15 Biodesix team members living in Florida. I am happy to report that they're all safe. 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 they're back in then you assume that many others in the community are. That impacts not just for Helene and kind of the hurricanes this year, but we've seen it over time. It doesn't happen immediately. There is a lag. I would state this, 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; the inland flooding was pretty significant. We do note that even to date, access there is limited. We do the best we can to track those physicians. We don't necessarily have the ability to track an individual patient that's scheduled, but in working with those practices, we'll continue to support them. I think the way we look at it, Thomas, is we know that there's a backlog of patients, and most pulmonology offices are booked out months in advance. As they return, they already have a full schedule to return back to. The question is, how quickly can they add those patients that were missed over those last few weeks back into that queue? We don't see a major 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. Our sales reps continue to work kind of 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's always a little bit of a lingering impact. We'll continue to support those practices, and most importantly, we'll be there as they start treating those patients again. 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.

And not to parse the sales rep thing too much but you mentioned in your prepared comments, Scott, that you not only added territories but you also upgraded some and your average number of productive reps was a little bit below where we were thinking you'd be. So when you add 6 to 8 reps per quarter, should we think that all of those are new territories? Or is it going to be a blend of upgrades versus new territories that are coming in?

Yes. The goal is that it's net. It will be 6 to 8 additions. We are very proactive. One of the best things about being a growth company within the Biodesix culture is we're exceptionally competitive. We're passionate. 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 that's what we expect, but because we have the right and honor to help these physicians treat patients. What you traditionally see across all commercial teams is that if a sales professional is looking for another alternative, they'll usually try to maximize their earning potential here or wherever they are; they'll depart later in the year so that they can start with a new entity at the beginning of the year. This year, we anticipated some of that, and we were a little more proactive. So we addressed some underperformers in the third quarter because we wanted to make certain that we had a fully dedicated productive sales professional that was going to be with us in 2025 in that territory. That's a little bit of what you saw in Q3. We're very excited about where we stand with the team. That's why that number was slightly off as you stated, is we backfilled a few of those territories with those new hires. The net from Q2 to Q3 was really an addition of 2, so that's how we look at this and say we need to make up for 4 to 6, and we already feel like we've done that and have been addressing that over the last few weeks.

Got it. And just one final one, if I may. Robin, any update on the Medicare Advantage issues?

It's a great question. I feel like a little bit like a broken record. We're continuing to go back and forth and work with them on it. Unfortunately, no change in the backlog. The great news is it hasn't expanded to other groups. It still remains really now just 1 to 2 payers. So no expansion. We continue to see good payment out of the other Medicare advantages, and we're continuing to work on addressing the backlog.

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.

Thank you, operator. It's an exciting time here at Biodesix, 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 population. We view 2024 as 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 the remarkable team members at the Biodesix office and labs. What we've shown is 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 patients' lives, and I'm truly thankful for the entire team's efforts. Thank you.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.