Good day and thank you for standing by. Welcome to Biodesix's Q1 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there’ll be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to Chris Brinzey. You may begin.

Thank you, operator, and good afternoon, everyone. Today, Biodesix released results from the first quarter of 2025. 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 filing, 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. At Biodesix, our mission is to transform patient care and improve outcomes through personalized diagnostics that are timely, accessible, and address immediate clinical needs. We leverage a multimodal approach that includes genomics, proteomics, and radiomics combined with AI to discover, develop, and commercialize innovative diagnostic tests for physicians, biopharmaceutical, life sciences, and diagnostic companies to help improve patient care. In 2025, we are focused on three main goals: growing our top-line revenue, improving operational effectiveness and efficiencies that will result in a positive adjusted EBITDA in the fourth quarter, and advancing our pipeline for future growth and expansion. In the first quarter, we made progress on all three by growing revenue by 21% year-over-year, all while decreasing our year-over-year spend in SG&A, improving our already strong gross margins by 80 basis points to 79.4%, and presenting clinical data on multiple pipeline products. Lung diagnostic revenue, which grew 18%, was our 16th straight quarter of greater than 15% year-over-year growth. Starting with the clinical offering in lung diagnostics, our major focus is on lung nodule management, where nodules are either found incidentally when the patient has an image taken for another purpose or during lung cancer low dose CT screening. Throughout last year, a growing number of ordering pulmonologists provided feedback that our Nodify XL2 and Nodify CDT test may better address gaps within lung nodule management if they're ordered upstream within their referral network. This would help optimize the referred patient population by identifying those at higher risk of lung cancer that should be referred on to the interventional pulmonologist, while lower risk patients remain with the primary care physicians for monitoring. As noted in our last earnings call, we conducted a commercial pilot in the second half of last year to assess the viability of expanding into the pulmonologist referral network, which mainly consists of primary care physicians, where claims data shows that 50% of the patients with nodules are managed. While there's a large number of primary care physicians practicing in the U.S., a limited group of approximately 15,000 primary care physicians provide care for approximately 80% of those patients who are managed at primary care. The concentrated nature of the nodule referral network and support of the pulmonologist means we can reasonably access those patients with nodules in the primary care setting. As a first mover in lung nodule diagnostics, we have the responsibility to build this market, which will increase patient access. As a reminder, historically, pulmonologists do not routinely order blood-based tests for their patients and therefore typically do not have phlebotomy services on-site. In order to integrate into pulmonology practice workflow, there are a variety of logistical challenges that must be overcome, such as appropriate patient identification, facilitating test ordering through digital means, including EMR integration, and coordinating blood draws. Since the launch of Nodify, we have developed a nationwide mobile phlebotomy network to support those physicians who do not have on-site phlebotomy capabilities. Additionally, in 2023, we introduced the Tasso Capillary Blood Draw device, which enables on-site blood collection. Not surprisingly, completing blood collection on-site before a patient leaves the facility results in 30% more tests delivered than if the patient leaves and needs to schedule a blood draw at another time. Similarly, since Nodify launch, we've expanded our digital test ordering capabilities through our Biodesix physician portal and early EMR integrations. In 2024, we contracted with Redox, an EMR integration specialist to enable efficient and cost-effective site-level integrations. Based on our portal adoption and early integration efforts, we've seen success and our digital ordering has increased by 58% over the last year. Customer retention in those who utilize digital ordering is 40% higher than those who do not. We're still only scratching the surface with digital integrations. However, this is a costly endeavor. As we balance our cost-disciplined approach with the need to expand and accelerate the number of physicians utilizing digital ordering, we have selectively engaged additional EMR providers for broader and more significant EMR integrations in 2025 and beyond to facilitate streamlined test ordering. During the primary care commercial pilot in the second half of 2024, we gained critical information about primary care practices, not only in how they manage lung nodules, but also their familiarity and expertise with incorporating diagnostic testing into standard practice, particularly blood-based testing and access to phlebotomy services, all of which is now guiding our primary care commercial strategy. While EMR integration is an important driver in all practice types, primary care providers already have processes in place for ordering diagnostic testing and phlebotomy services to facilitate blood draws on-site, which is expected to relieve some of the logistical challenges we've been working to overcome in pulmonology. As part of the primary care commercial strategic effort, we have shifted to a territory-based sales approach. The territories are anchored by a senior pulmonology sales rep, with primary care sales reps and associate reps providing support and driving adoption across specialties and care settings. In the first quarter, we've reconfigured our sales team from 71 sales reps in the fourth quarter to 65 sales reps in order to accommodate the territory-based approach, consisting of 49 territories with 49 pulmonology sales reps and 16 associate sales reps. Average sales rep productivity remains strong at an annualized $1 million of revenue per rep throughout the reconfiguration. Additionally, in the first quarter, we began recruiting the new primary care sales reps; the profile of the primary care sales rep as well as their onboarding and sales training are slightly different than that of the pulmonology rep. We've taken a cost-conscious, mindful approach in recruiting the right Biodesix team members to support the expanded market touch point. Hiring the right team has taken more time than we had originally anticipated, putting us one quarter behind plan in hiring and therefore revenue, which will impact our guidance. Robin will provide greater detail on adjusted revenue guidance later on the call. Historically, we have planned to hire six sales reps per quarter. To support this new plan and catch up starting in the second quarter, we're now planning to hire 10 sales reps per quarter, ending the year with 50 territories covered by approximately 95 total sales reps in the fourth quarter. Overall, we believe reconfiguring our sales team in this way will allow us to continue building this market and increasing patient access in both pulmonology and primary care. With a lung focused sales team in place, we are continually looking for ways to further leverage this commercial channel. A complementary area we've been evaluating is radiomics and digital diagnostics. Imaging is a critical tool in the diagnosis and monitoring of lung disease, and AI tools are being developed to augment clinical workflows and decision-making across a range of indications. Our near-term interests are in applications to better identify nodules and images and help to identify the risk of cancer for those nodules. While the potential clinical utility of digital diagnostics is obvious, the practical application of how these AI-based tests could fit into a physician workflow was an area that we needed to better understand. In addition to the primary care commercial pilot in the second half of last year, we also ran a commercial digital diagnostic pilot to assess the specifics of adding these types of tests into our portfolio and the physician workflow. As a result of the successful completion of the commercial digital diagnostics pilot, we are pleased to welcome Dr. Michael Kammer as our Head of Radiomics. Dr. Kammer brings biomedical and AI experience exploring the benefits of integrating imaging and blood-based biomarkers. Radiomics is an integral component of lung care, and we're now uniquely positioned to combine AI and Radiomics with the biological insights provided by our blood test. We will provide more details on these efforts in the coming months. Turning to our pipeline, our goals are to develop new tests and expand indications for our existing tests. Our current pipeline consists of a new combination MRD test that combines genomic MRD with our proteomic risk of recurrence test and expanded indications for VeriStrat, including into other tumor types and into immunotherapy selection. At the third Molecular Medicine TriCon in March and again at the AACR Annual Meeting in April, we provided updates on the approaches we're taking in MRD, specifically the inclusion of our genomic and proteomic tests as measures of early clinical endpoints. This approach is unique from other MRD tests in that it combines our genomics and proteomics platforms; the proteomic information from our risk of recurrence test provides insights into the patient's immune profile, while the tumor-informed genomic component leverages ddPCR for disease monitoring. The test will be offered as a complete package and not separate genomic and proteomic testing. We expect this test will be available for use by biopharma through our development services offering by the end of 2025. As we continue to make progress, we will provide updates on the potential timeline for commercial launch, including revenue expectations. Turning to VeriStrat, data was presented at both the AACR Liquid Biopsy Meeting and the molecular medicine TriCon meeting on our pioneering immune classifier. VeriStrat has been studied in nine solid tumor types over the last 20 years. The new data was in metastatic, castrate-resistant prostate cancer. The data showed that VeriStrat stratifies patients who are more or less likely to respond to standard of care hormonal therapy. Technical methodology data from this study will also be presented at the upcoming American Society for Mass Spectrometry meeting. For new tests and indications we develop outside of our commercial lung focus, we plan to partner for distribution or out-license these products for commercialization. In addition to the new prostate hormonal therapy indication, new data on the use of VeriStrat in immunotherapy and chemo combination treatment from the prospective registry study Incyte will be presented at ASCO entitled Host Immune Classifier to Predict Survival with Chemo Immunotherapy in PD-L1 Greater Than 50% Metastatic Non-Small Cell Lung Cancer. In addition to this data, new preliminary results from another study showed that VeriStrat may also be valuable in predicting response to immunotherapy in a wide spectrum of metastatic solid tumors. It is clear from this data that the test and its ability to assess patients' immune status is a versatile and powerful tool. As a result, we plan to continue studies expanding the indications for the use of VeriStrat. Based on the strength of the immunotherapy data, we have replaced the Biodesix primary immune response test in our pipeline with the expanded VeriStrat immune therapy indication. In addition to the data being presented on our pipeline, we are continuing to make progress with our studies for our on-market products. The CLARIFY study is a retrospective chart review evaluating the use of Nodify testing in real world clinical practice, expecting to enroll approximately 4,000 patients. Since the launch of the study in late October 2024, we've already accrued 800 patients and are on track to release interim data from the study in the second half of this year. Finally, enrollment and patient follow-up in our prospective randomized clinical study, ALTITUDE, is progressing well under the supervision of the Data and Safety Monitoring Board. We'll provide additional updates as they're available. We know there's been a lot of new information provided on our pipeline and data. Due to this, we're planning an R&D day in the fall to provide greater insights into the progress being made. More details to come.

Thanks, Scott, and good afternoon, everyone. First quarter total revenue was $18 million, a 21% increase over the prior year. Lung diagnostic testing revenue in the first quarter of 2025 was $16.3 million from approximately 13,800 tests as compared to $13.8 million from approximately 11,900 tests for the first quarter of 2024, representing 16% growth in test volumes and 18% growth in revenue. While the first quarter was impacted by normal seasonality, abnormal weather and fire events, and the respiratory illness season, our lung diagnostics test volume was mostly impacted by the number of sales reps we had in the field. Development services revenue was $1.7 million in the quarter, representing 61% growth over the first quarter of 2024. We ended the quarter with $10.9 million under contract but not yet recognized as revenue, which is a 21% increase over the prior year. Turning to operational effectiveness, we continue to make strong progress. Our gross margin percentage in the first quarter of 2025 was 79.4%, up from 78.6% in the first quarter of 2024. Even with the existing macroeconomic uncertainties, we expect gross margins to remain in the upper 70s through the rest of the year. Overall operating expense, excluding direct costs and expenses, was $23.4 million in the first quarter, which was a 3% increase over the first quarter of 2024. Cost containment and operational efficiencies resulted in a year-over-year decrease in SG&A of 1%. Total SG&A was $20.4 million versus $20.6 million despite having 10 more sales reps in the field in the first quarter of this year versus last year. The minor increase in total operating expense was driven by an increase in R&D expense of $900,000 from $2.9 million versus $2 million due to the investment in clinical studies to help advance adoption of our lung diagnostic tests and advancement of our pipeline. Net loss for the first quarter of 2025 was $11.1 million, an improvement of 18% year-over-year. Adjusted EBITDA, which excludes non-cash and other one-time items, was a loss of $6.2 million which was an 11% improvement year-over-year. We ended the quarter with $17.6 million in unrestricted cash and cash equivalents, compared to $26.2 million at the end of the fourth quarter of 2024. Cash used in the first quarter includes annual cash payments for accrued expenses, such as payments for short-term incentive compensation plans and royalty payments. Subsequent to the end of the quarter, we drew down on the $10 million Tranche C loan from Perceptive Advisors, increasing our cash reserves to a pro forma cash balance of $27.6 million thus strengthening our balance sheet. Based on the existing and anticipated hiring of our sales team, we anticipate an acceleration of growth in the second half of 2025. As Scott discussed, based on the reconfiguration of our sales organization, we had 65 sales reps in the first quarter versus 71 in the fourth quarter of 2024. Based on the number of reps in the field in the quarter and the subsequent hiring delay, our commercial expansion is approximately one quarter behind our original plan. Including the results of the first quarter and the shifting of the sales rep hiring and strategy implementation, we are revising revenue guidance to $80 million to $85 million for the year. Because of strong gross margins and cost efficiencies in combination with the new rep hiring plan, we expect to achieve adjusted EBITDA positivity in the fourth quarter.

To summarize our achievements over the last few quarters, we have continued to develop the pulmonology diagnostic market moving from early adopters into early mainstream users. We have grown test volumes from pulmonology year-over-year. We have conducted two pilot programs to explore expansion of our sales efforts through the pulmonology referral network into primary care and radiomics digital diagnostics. We have maintained average sales rep productivity in excess of $1 million revenue per rep. We have leveraged learnings from the primary care commercial pilot to reconfigure our sales organization and begin implementation of the referral network strategy that will expand our access to the total market. We have controlled cost and gained operational efficiencies to increase our already high gross margins and gain operational leverage. We have advanced our radiomics and AI efforts and we've presented data on our pipeline of tests for future growth and expansion. I'm also proud to share that, for the second year running, Biodesix has been recognized as a top workplace in 2025. While we look forward to sharing more specific details in the coming days, I can say that, winning another award like this speaks volumes about our team and culture. Before moving on to questions, I want to restate that we have the best lung-focused team in diagnostics and continue to make significant progress in building a market in an area that has not historically used diagnostics in the way that other medical or oncology specialties have. With first-mover status in lung nodule management and an ever-increasing body of robust clinical and health economic data, we are generating the momentum to drive greater clinical and payer adoption as we move through 2025 and beyond. With all this happening, it's a very exciting time here at Biodesix. We look forward to sharing more with you in the coming quarters. Let's now move to questions.

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

Great. Thank you. Thanks for the questions. Maybe the first one just digging into the sales force changes or rather the kind of bit of slower hiring there. I mean, Scott and Rob, can you just elaborate a little bit on what was different about hiring these primary care sales reps than you anticipated and kind of the confidence level in the new guide that you provided? Any more details you can provide would be great? And then I have a follow-up.

Yes. Thanks, Dan. Yes. As we stated in shifting from a pulmonology focus into the primary care focus, what needed to be discovered was target hiring profile, background, experience, and network. And so, we worked through that. We've continued to apply those learnings. And throughout the recruiting process here in the last few weeks, we've also continued to hone in on that ideal profile. Additionally, we're new to them. If you think about it, we've been building a pulmonology focus, so those that have experience in lung or with pulmonologists became aware of Biodesix. The general practitioner sales consultants are those with experience and relationships in that network; we were new to them. So, it took a little while to introduce, share our strategy, and get them comfortable with it. Since then, we've made significant progress and we feel very confident and comfortable that we've got the right hiring profile and the right target, and we're moving forward as rapidly as possible.

And then in terms of the leadership there, is it the same leader, Scott, kind of who sits at the top, both pulmonologist or the PCP or do you have a distinct sub-unit leader for the PCP side given the different profile of those salespeople?

Yes, great question. No, we've kept the same leadership team and structure. Internally, we're referring to this as a POD-based structure. So, in each of those 50 territories, as we stated, we'll have 50 pulmonology sales consultants. Those really are going to be your more senior sales professionals. We'll have a number of associate sales consultants supporting them and also the primary care sales consultants will be supporting those pulmonology-focused sales reps. So your regional sales directors and your area vice presidents will remain the same and everybody will report up to them.

And did you guys discuss what the outlook is for Q2 versus the back half of the year? I know you said you're one quarter behind, but the number of reps you're looking to hire remains the same by year-end. So it's like you're planning to catch up. So I'm just wondering if there's any color on the expected pacing given that revenue per salesperson math.

Yes, absolutely. We have a pretty good sized class of reps that are finishing up training and will be going live here soon in the second quarter, end of May, beginning of June. We anticipate that we will have an average of 70 to 75 reps in the second quarter, and then are looking to be in sort of the 85 range for the third quarter and 95 for the fourth.

And in terms of kind of what you've learned so far on the PCP side, any early color on the ordering pattern, how those doctors are kind of using your technology? Just wondering what the early learnings are there.

Yes, as we've mentioned, we are not reaching out to all primary care physicians directly. Instead, we are utilizing the referral network and claims data to identify where most patients are located. These practices are aware that they have a large number of patients and recognize the challenges in determining whom to refer. Last year, many pulmonologists expressed a desire for their referral networks to start ordering our tests earlier, which aids them in deciding whom to refer. Although it's still early, we anticipate a shift in practice; pulmonologists believe that by moving the process upstream, they will be able to detect and diagnose cancer in patients sooner. We're beginning to see some progress in this area. The key is having pulmonologists support us and leverage their referral networks so that when a patient is referred to them, they have a higher chance of correctly identifying the right patient for referral. Overall, pulmonologists and primary care physicians have responded positively so far.

And maybe a final one, just maybe to Robin. Just on the drawdown of the $10 million EBITDA positivity by Q4, what's the latest update on kind of capital needs now with this $10 million and how we think about the burn as we move into '26 and the available cash you'll have?

We are, as you mentioned, working hard on catching up our sales organization. And so, while on the revenue side, we're about a quarter behind, we've maintained our low operating expense and sales and marketing was actually a little bit down year-over-year in the first quarter. So, the combination of the anticipated sales growth, the number of sales reps, and that tight control on OpEx, we feel confident about achieving adjusted EBITDA in the fourth quarter just as we had stated before. The additional $10 million gives us more confidence. We have more cash on the balance sheet. It gives us a little bit more flexibility. We continue to believe that this is sufficient capital to get us through to breakeven. That includes our commercial expansion as well as the pipeline activities we discussed in the call earlier.

Our next question will be coming from Andrew Brackmann of William Blair.

Maybe just to follow up on Dan's question on sort of the changes to the sales force here. Can you maybe just give us a little bit more color on the specific changes for reps just in terms of who they call on, the resources that they have and just the broader incentives at play? Basically what I'm trying to get at is, how does this sort of change their day-to-day?

Thank you, Andrew. The role of the pulmonology sales consultant remains unchanged in their daily activities. They will continue engaging with pulmonologists who are both current customers and potential targets. The significant change is the introduction of an associate sales consultant within their territory, who will focus more on accounts that are already placing orders. This creates a dynamic where we have a hunter and farmer approach. It also allows us to develop our associate sales consultants, who are promising individuals earlier in their careers, into fully-fledged pulmonology sales consultants. Additionally, primary care-focused sales representatives will be present within the pod, which marks a shift this year as we work more closely with primary care physicians in their referral networks. The associate sales consultant will primarily support the pulmonology sales consultant, while regional sales directors and area vice presidents oversee all activities. Importantly, we do not intend for pulmonology sales consultants to change their focus, as they have already established a network. There's still significant opportunity for growth in pulmonology, particularly as we recognize that nearly 50% of patients with a lung nodule are not being referred to pulmonology. Our goal is to expand the addressable market size and improve our access to it. I hope this provides clarity, Andrew.

It's very helpful color. Thanks for that, Scott. And then just as I sort of think about this reconfiguration, it would seem like there's a great opportunity for you within IDN. Can you maybe just talk about in the pilot, were there any IDNs included in that and how would this configuration sort of help in that effort?

Yes. There wasn't specifically. What we really attempted to do was look at as many different scenarios as possible. So we didn't take kind of a top-down approach. We looked at it and said, let's call on general practitioners that have an integrated practice that's part of an academic institution in an urban area, and then the opposite extreme, let's call on a community-based, more rural scenario. So as part of the pilot, we tried to vet all of those different scenarios to see how not only is our sales consultant received, but do they know? Are they aware that they have nodules that they're sitting there? Are they spending time with those patients? Do they know who to refer on to? Ultimately trying to ensure that we could be a success. What we learned is that we can. We think there's a greater opportunity with IDNs, but that was not really something we started with. We started more from a bottoms-up, trying to ensure that primary care physicians had the ability to order diagnostic tests and had access to phlebotomy services on-site. What we found was they do more so than the pulmonologists. They have an awareness and access and capabilities within sites. So logically, we think that they can be just as, if not more efficient and effective.

That's helpful. And then just last one for me. I think you said ending the year right around 95 reps. Is that the number that we should peg as we look forward over the next few years, or does that expand beyond 95?

Yes. We want to end this year at 95 and we plan on returning back to hiring approximately six on a quarterly basis in 2026. That'll get us right around 120 sales professionals by the end of 2026. We still feel that there's additional room to grow. We'll continue to assess our progress. The big question we have and we still have to learn here is how rapidly can we grow within that primary care space, and do we need to continue to add there disproportionately? We'll keep you updated on those learnings.

And our next question will be coming from Sung Ji Nam of Scotiabank.

Hi. Thanks for taking the questions. Just to follow up on Dan and Andrew's question around your sales force filled out for the rest of the year. It sounds like based on what's going on that the majority of the hire will be coming from the primary care market. It also sounds like it might take longer for the primary reps to be trained or to ramp up than your pulmonary focused reps. So is that the right way to think about it? And then just kind of what gives you confidence that you could be more efficient going forward for the rest of the year? Is this something that could take a quarter or two for you to really get to where you need to be?

Hi, Sung Ji. Great questions. What gave us confidence was really vetting all of those scenarios. Some of the first questions we had to address and answer were, are primary care physicians even aware that this patient population resides in their care? They were. It was a known problem and a known challenge. Secondly, if we're going to introduce blood-based testing, do they have access and comfort around phlebotomy services? They do. They either offer the services within the clinic or they offer them on-site. What we've seen is that you increase the likelihood of a patient being compliant if you can conduct that blood draw on-site the day that they have the visit. Also, we are helping them understand the referral needs and the patterns within their community. From a primary care physician perspective, they want to refer on those patients with the highest likelihood of a malignancy, trying to get to early detection and diagnosis, which hopefully leads to a positive outcome. What they don't want to do is refer on patients with benign nodules. Those are the patients that they can continue to monitor through CT surveillance annually. The real question for us was, do they see the value of the clinical offering? They did. We have had no issues or pushback there. When it comes to ramp, what we saw during the pilot was very consistent with what we had seen thus far with our pulmonology focus. Right now, we believe that they can be equally as efficient. The sales training program is slightly different. We've modified some materials to be more appropriate to a primary care physician's focus and awareness, but the training program is not longer or any more detailed. We look at this and think that their effectiveness and efficiencies should be realized very similarly to how we've modeled pulmonology sales consultants, but we'll continue to vet that and provide updates. As we've modeled it, it is very consistent.

Okay. Got you. Thank you so much for that. And then just my follow-up is on, it's great to see continued strength for your Development Services business and the pipeline there. Just curious, given everything going on with pharma around potential sectoral tariffs to the most favored nation pricing and whatnot, just wondering if you're seeing any impact. I know it's still a small part of your business currently, if you're seeing any impact. In that kind of new dynamic environment, how are you positioned in terms of that business? And Robin, also could you give us a sense of what percent of your guidance would be coming from Development Services?

It's a great question. We continue to monitor things just as everybody else, and we've all seen things are changing quite rapidly. I'm happy to report and share that, thus far, we don't see any impacts directly from a tariff perspective or favored nations perspective. Our biopharmaceutical partners have been very transparent with us, especially those that we already have contracts in place, but we're continuing to monitor it. Even more recently at AACR and then here as we head to ASCO in a couple of weeks, we'll continue to have that dialogue, making sure that we stay abreast of all of the challenges that they might be facing and how it could impact us. The good news is many of our studies are based on retrospective samples, so in those cases, it's really about access to those patient samples. I think the bigger question will be prospective trials, and if a pharmaceutical company continues to prioritize and invest in that trial, if they do, then we should be in a good position. If they don't, obviously, that could impact us. We’re proud of the $10.9 million in dollars under contract but not yet recognized. Our request for proposals and outreach has continued to increase and is at an all-time high. The offering we provide, a rapid turnaround time, and those insights are resonating with our biopharmaceutical partners. Going forward, we've consistently seen our total revenue from a biopharma services perspective being about 10% of total revenue, and we expect it to remain consistent.

And our next question will be coming from Kyle Mikson of Canaccord Genuity.

Thanks, guys, for the questions. Scott, at what point during the quarter, I guess, or maybe recently did you understand or figure out that the sales force expansion situation was going to cause a reduction to the revenue potential for the year? I'm curious when you do this going forward, how you can work on visibility and communicate things like that. Just any color on that would be interesting.

Yes. Thanks, Kyle. As we've reminded others, as a first mover in lung management and lung cancer, having the only diagnostic-focused team, we're learning constantly. We don't have any predecessors out there, so we try to apply those learnings as quickly as possible, updating our plans and forecasts as soon as we're able to do so. As we entered this year, early in the first quarter, we made the decision to continue to explore more about the primary care physicians. As we progressed and saw the successes and committed to it, we really started our hiring efforts. Some of those initial learnings that I talked about, whether it's a slightly different background or a different skill set, and also familiarizing them with us, the Biodesix team; that took a little longer than we had thought. It was quite fluid. It wasn't like overnight. It was a continued process over a three to four to five-week period where we were revisiting it daily, continuing to focus. Additionally, when we stated that we made the shift to territories and the POD structure, we did shift some territories and it caused some difficult conversations with sales team members regarding changing territories and whether some were going to move. So we did have some opt out. When we state that it was quite fluid, as much as we were trying to add, we did have some turnover that was slightly more than we had anticipated or liked. We never liked to lose any team members. But, we feel that as a learning organization, the goal really is about making progress. If you're going to fail, fail fast, apply those learnings. We still feel very confident that we've got a great strategic plan. We continue to execute and we continue to grow all the while. Most importantly, we're going to get to profitability. There are very few diagnostic companies that have ever done it. Those that have haven't stayed. We think that what we're doing is durable and we're excited to continue to build that out.

That was great. And then when you think about the target to achieve adjusted EBITDA breakeven by the fourth quarter and you reiterated that, which is great, just given this top-line decrease here, I mean, what levers do you have to pull that will help you get to that target just in case the top line remains soft as the primary care team continues to ramp?

Yes. Obviously, revenue plays an important factor in reaching adjusted EBITDA breakeven, but we do have some levers on cost. We get asked a lot if we could grow faster, and the answer is yes, we could, but our focus is really on getting to breakeven. So, it's a balance of adding these sales reps quickly to catch up, so we can get our revenue in the fourth quarter where we need it to hit adjusted EBITDA, but also balancing that spend on the commercial expansion. So, it's getting these reps in, trained, and out in the field as quickly as we can to catch up and then also being very closely monitoring and managing our expenses.

Yes. To remind others on the call, our IQ lung franchise is really our treatment guidance portion of the product portfolio where we have three tests. We have two genomic tests, GeneStrat, which is a ddPCR-based test, and we have a broader panel, GeneStrat NGS test, which is a 52-gene NGS panel. Our proprietary test, VeriStrat, measures and monitors a patient's immune status. VeriStrat really is the key driver in that portfolio where there's no competition to date. You heard us over the last few earnings calls start to talk about the development efforts that we continue to pursue and invest in on the VeriStrat front. It is the most valuable as we think of the future, and uniquely being positioned as a proteomic test. One of the things that differentiates us is having three on-market proteomic tests, unlike anybody else out there. On the second part of your question, NGS is an exceptionally crowded space. We're not out, with our sales professionals selling to medical oncologists for all cancers, so it puts us at a disadvantage in capturing the broader NGS market. As a reminder, we're really focused on helping pulmonologists detect and diagnose cancer early and then help order and facilitate ordering of that NGS test so that when a patient is referred on to a medical oncologist, he or she has those test results in hand. So, they're modest contributors, but we still feel that they're extremely strategic and valuable to the overall offering. As we continue to invest in the pipeline, you may have noticed that many of those tests fit more into that treatment guidance side of the business. As we progress through the year and head into 2026, we'll provide greater clarity as to what that means for the continued evolution of the sales force. Yes. It's a great question. And really to reiterate, first and foremost, our top priority when it comes to the commercial team is Notify. With a first-mover advantage in lung nodule management, we've got to continue to focus all of our time and attention there. As Robin said, it's where we get the greatest return, and it's what will drive us and fuel us to breakeven. As we continue to make progress, we've had tons of experience and learnings over the years, starting back when VeriStrat was the first test and we called directly on medical oncologists. We know what that takes. We know how to position and present those products, but we're going to do that in kind of a phased approach and be very mindful and intentional about not distracting from Notify. You won't see or hear anything in 2025 on the commercial front. The goal that we've stated earlier on the call was to have an MRD offering for biopharmaceutical research interest by the end of this year. The longer-term play is going to be more in the latter half of '26 going into 2027. We want to be mindful that anything we introduce, we've got to have a reimbursement plan. We've got to make sure that we've got payers on board, because once we get to profitability, we plan on staying there.

Yes. Thanks for taking the questions. Scott, just doing some back and down math. If you get to about 100 at the end of this year, there won't be a one-for-one pulmonologist with a junior PCP rep. You're obviously making a decision that certain territories should have a PCP rep versus others. Can you just walk us one, is that correct? And then if so, could you walk us through the thinking behind that?

Yes. Just to clarify, it will be a one-to-one for the pulmonology sales consultant. So all 50 territories will have a pulmonology sales consultant. They won't all have an associate sales consultant or support. So as they start, you really think about it. They go out and start to build the business. They gain momentum. Then, as they get a customer up and ordering, we really want the associate sales consultant to come in to support that business, to help those ordering accounts increase effectiveness and efficiency, freeing the pulmonology sales consultants to continue to go out there and target and bring on new ordering accounts. We really do assess those decisions on a one-by-one basis, and it's a factor of test volumes, the number of accounts, and geographic size. We try to ensure that we can increase access while being as present as needed. Same thing with the primary care sales professionals. As we bring them on board, you're not going to have 50 of them. We know through the claims data that we have pulled and from conversations with our pulmonology ordering physicians and mapping back those referral networks, we know which primary care physicians, as we stated, out of those broader 250,000 primary care physicians, narrow it down to the 15,000 that account for 80% of the lung nodules. So we know who they are, and it's very targeted. We'll continue to invest in the primary care sales professionals first and foremost in the territories where we have established relationships and can support that transition and pull into the referral network.

Yes. That's great. Thank you for that color. And then, I'm just trying to understand the sequential downdraft in testing volume and the promotional sensitivity of these docs to having reps around. So you didn't expand; you contracted a little bit the number of reps sequentially, and volumes were down. Is that just because there wasn't a rep there reminding them all like on an ongoing basis to order the test? I'm trying to understand why a few weeks of a missing rep would have a significant impact on volumes sequentially.

Yes, it's a great question. Over the last five years, we have seen a sequential decline Q1 compared to Q4, so that wasn't a surprise. There are several contributing factors that come into play there. We anticipated that, whether it's weather, some seasonality, respiratory, those things have been consistent over a four to five-year period. It's in flux how significant the impact may be. But we definitely saw, as we were moving around the territories and decreased the size, stretching the organization to ensure that we could call on and support all those ordering positions. But, where you really see it is in the absence of a sales professional, you can't continue to grow and bring on new accounts. That's the biggest challenge you face. As we track, once we bring an account on and that physician begins ordering, we want to see them continue to increase orders and see their partners within a practice start ordering to expand within practice. That takes time. You can't onboard a new ordering account without someone present. That impact was seen. It's what gives us confidence, because we've seen a continued, consistent sales rep productivity quarter-over-quarter. We know that when we have sales professionals in the territory aligned working within that POD structure, it sets us up for success.

Thanks a lot. So a few things, I guess just starting with the number of reps declined from 70 to 65. Obviously, you said in answering Kyle's question, you had some attrition, maybe some attrition you didn't want to have. But, I mean, how do we think about that if you reduce the number of territories to 50 territories? I don't know if you had more than 50 pulmonology reps in that group of 70 if it was sort of inevitable that some were going to have to go. And if you can give us any sense of maybe the attrition, whether we think of it as maybe you lost five or so, or did you hire some too and lose more productive reps than that?

Yes, that's a great question. When we concluded last year, our focus was solely on the pulmonology sales consultants, which led to some attrition. As we mentioned, we reduced the team to 50 pulmonology-focused sales consultants, and this had a ripple effect on the associate sales consultants since they collaborated closely in supporting the pulmonologists. On the pulmonology side, as we narrowed down to 50 territories, there were certainly some consultants that were not suitable for the new structure. The situation with the associate sales consultants is different, as they are typically earlier in their careers. We believe they have great potential, and when a territory becomes available, we prioritize them for promotion. However, due to the narrowing and changes, some associates felt that their promotion timeline didn’t align with their expectations and chose to leave. Overall, we see it as a good mix between both areas. While it’s never ideal to experience these changes or lose teammates, we continue to find success with our primary care sales consultants. Although the timing wasn't optimal, it was necessary, and we aimed to execute it swiftly to lessen impacts and shift our focus to the significant number of patients still in primary care. Expanding our reach to those patients is crucial for us. Yes. It's a great question, and we spent a lot of time considering that. As we walked through it, early on, it was don't make any assumptions. Let's do the pilot and learn. The pilot demonstrated there's a great opportunity within primary care. Should we do it ourselves or partner? Because we are starting small; because of the progress we've made, we chose to go at it ourselves. We have considered and discussed what it might look like to partner with others, and we're open to that. We'll continue to assess it moving forward. When you think about the size of that market, 15,000 primary care physicians account for 80% of those lung nodules. There are about 14,000 pulmonologists. We looked at it and said we know that's manageable. We know who they are; we've got them mapped. We can target to them. I think as we continue to make progress, you know, we’ll welcome those conversations. But we didn't see an ideal partner out there that would give the time and attention that we're going to, and we owe that to our pulmonology customers and the patients fighting lung cancer.

And I'm showing no further questions. I would now like to hand the call back to Scott Hutton for closing remarks.

Thank you. In closing, I want to express my gratitude to all the remarkable members of the Biodesix team who have 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 in the lives of patients through our healthcare provider customers and industry partners. I am truly thankful for your efforts. I also want to take a moment and say thank you to Dr. Chuck Watts and Jack Schuler, both of whom have been longstanding Board members at Biodesix, providing invaluable insights and guidance to the company for many years. While Chuck is retiring with our sincere appreciation, Jack will be moving into a Board Emeritus role and will still be participating and contributing to Board activities for the foreseeable future. Thank you.

And thank you for your participation in today's conference. This does conclude the program. You may all disconnect. Thank you.