Conference Transcript - BDSX 2026-08-12

Alex Fucasin, Moderator

Hello and welcome to the 46th Annual KenoCore Genuity Growth Conference. I'm Alex Fucasin, and I'm a member of the Life Science Tools and Diagnostics team here at KenoCore Genuity. We're pleased to have Biodesics here with us today. The company leverages multi-omics and artificial intelligence to provide diagnostic solutions with a focus on lung disease. Biodesics is the first company to offer five blood-based Medicare-covered tests for the same patient population with best-in-class turnaround times. Representing the company, we have Scott Hutton, CEO, and Robin Cowie, CFO. Thanks for joining us today. So to start, could you just provide a brief overview of biodesics for everyone here and as well as some of the highlights of recent business performance and some key drivers of 2Q revenue?

Scott Hutton, CEO

Yeah, you know, to build off your wonderful description and introduction, as Alex said, we have five on-market tests for lung cancer positively impacting that continuum of care. The first two are pre-cancer diagnosis where we help physicians identify those lung nodules that are likely malignant or likely benign, and then post-cancer diagnosis, three tests that help with treatment or therapy guidance and selection. We also have a development services portion of the business where we partner and collaborate with biopharmaceutical companies, other diagnostic companies, and partners. There we're doing test discovery development. We're supporting clinical trial research and providing molecular insights at different time points. It's really critical that portion of the business accounts for just under 10% of our annual revenue. As Alex highlighted, exceptionally strong growth. We've taken great pride in building out the commercial channel that we have. We now have over 100 sales reps in the United States focused on this call point, and the main call point being pulmonology, but now supported with a concerted intentional effort in primary care. Growth recently has been fueled by Salesforce expansion. We're very excited to continue to grow and invest in that sales channel. We have disclosed that we'll end this year at approximately 120 contributing sales reps. We also expanded last year into primary care in a very intentional way, where we're focusing on the pulmonology referral pathway, supporting those primary care physicians that are referring patients in to pulmonologists. And then lastly, we came out with an exceptionally large clinical trial result earlier this year, or study result, where we were able to expand utilization of the Notify CDT test in those nodules that are 4 millimeter to just under 8 millimeters. And that expansion was received exceptionally well.

Alex Fucasin, Moderator

So you reaffirmed full-year guidance of 108 to 114 million, so midpoint around 25% year-over-year growth. And you maintain your expectations of achieving positive adjusted EBITDA on a run rate basis in the near term. Given the strength in the first half, how should we think about the assumptions embedded in the second half outlook? And what are some of the key swing factors that could drive performance towards the higher low point of that guidance?

Scott Hutton, CEO

Yeah, I just referenced those smaller nodules. We just introduced that a couple of months ago. So we're still seeing broad adoption across both primary care and pulmonology, and with new ordering physicians and those that have ordered for some time. So we feel very strong that that can continue to drive excellent growth and expansion in the second half of the year. We had a strong year-over-year comp from last year, so we think that we've set ourselves up for continued sustainable growth for a period of time. And you highlighted it. We are very focused on this march towards profitability. There are not many diagnostic companies that have achieved it and maintained it, and we think it's critically important to do so.

Alex Fucasin, Moderator

So just building off of that March Choice profitability, so beyond the near-term drivers of your profitability ramp, how should we think about your path to free cash flow break-in?

Scott Hutton, CEO

Yeah, Robin, do you want to take that?

Robin Cowie, CFO

Yeah, it's heavily dependent on the growth of the top line, but in addition to that, we have a very cost-discipline approach to our operations, as we've seen over the last several quarters, strong and growing operational leverage, and it's continuing that cost-discipline approach and combining with improved rep productivity and new sales reps to reach and maintain profitability.

Alex Fucasin, Moderator

Great. And so moving back to the commercial organization a bit, so you just spoke to it a bit. You averaged around 104 sales representatives in the field in 2Q, continuing to ramp towards 120 towards year-end. How should we think about the upper bound in terms of what you're targeting over time for your sales force? And how do you balance the opportunity to accelerate hiring against the objective of maintaining operating leverage and progressing towards profitability as well?

Scott Hutton, CEO

Yeah, I think the key word there was balance. There really is a balance. Could we grow faster? Certainly, but we want to be mindful of bringing on the right sales professional, putting them in the right position to be a success, and then giving them an opportunity to scale and contribute. For us, we have consistently hired about six to eight sales professionals a quarter. That's what this plan supported this year. And as we look towards next year, right now we're currently planning on doing the same next year. I think you bring up a good point, which is how much more do we have to grow and invest? I think by the end of next year, I think we'll have great representation and coverage. Then we can be opportunistic as we bring on an exceptionally large account, and we need support, invest in that. But we're getting there. And I think we've demonstrated we have a very efficient, effective model. In our industry-leading gross margins at north of 82%, we've continued to guide that those will stay exceptionally strong. So it really is about taking a cost-conscious, very concerted effort to make sure that this is a long-term investment that everybody can see providing a return.

Alex Fucasin, Moderator

Great. And so moving towards the primary care aspect of your sales force, so volumes on that end increased 133% year over year, and they still represent around 15% of total volume. So that's kind of consistent with last quarter. How are you thinking about this dynamic? Should we expect PCP volumes to stay around those levels, or do you believe that realistically this ratio could kind of fluctuate over time?

Scott Hutton, CEO

I think it's going to fluctuate. I think a year ago, we went from 8% to 11%. As you highlighted, last two quarters have been at 15%. And so for us, it really is about ensuring that we can get to those patients that are in primary care. The denominator is smaller, right? We've been doing it a significantly less time. And so as it continues to grow, we think there's going to be good balance across both primary care and pulmonology. You know, we referenced the Salesforce expansion this year. The majority of the sales reps we've hired this year have been in primary care. And so we've invested in that. And so we fully expect it to continue to grow. So the 15% that you referenced, for us, what really offset that was 31% growth in pulmonology. And so for us, we felt like that was exceptionally strong in a very mature effort, and we were proud to see that, and we fully expect both to grow equally strong.

Alex Fucasin, Moderator

So just sticking with the primary care sales force here, what have you learned about the adoption curve among the primary care physicians relative to the pulmonologists?

Scott Hutton, CEO

Yeah, you know, great question. It's one of the greatest insights. Primary care physicians are well-informed and knowledgeable about molecular testing and diagnostics. Pulmonologists historically haven't been. We were the first and we're the only company offering this. So we do a lot of education, a lot of training, a lot of discussions about how it fits into their workflow. When you walk into a primary care physician, they're constantly ordering diagnostics, right? Right. Secondarily, pulmonologists, when we started, did not have blood draw or phlebotomy capabilities. We built that network out to support that growth. When you go into primary care, they not only have that, oftentimes they have a blood draw facility adjacent, right, on site. So there are a lot of learnings that would demonstrate that primary care, it's an easier yes, you can get in, they understand the value. The difference being is that they see a broader base of patients, whereas a pulmonologist, we know that on any given day, you're going to see a lot of patients that have a higher likelihood of notified testing.

Alex Fucasin, Moderator

And so one theme from the quarter that we touched on really briefly already was recent small nodule clinical data, and that is a potential growth driver going forward. Could you just provide some additional color about this study and what the data showed, and how does evidence change the way physicians think about blood-based testing across the lung nodule?

Scott Hutton, CEO

Yeah, Robin, do you want to take that one?

Robin Cowie, CFO

Yeah, happily. Our test, and this was really focusing on Notify CDT, was validated in a broad population, but this was looking at over 1,000 different patients and various subgroups. Physicians have a lot of questions about where to order the tests, and normally when they start, they start with a narrow band of patients. This publication showed that we could identify patients that were likely malignant without significant increase in false positives, showing them that in these different subgroups that the test works really well and can help them. So that was published in late first quarter, and we had a lot of physician demand. So when that came out, we saw really nice growth from physicians, not just in the small nodules, but then because the test is more top of mind, they remember to order it in more of their broader patient population. So we saw a nice increase in tests per physician.

Alex Fucasin, Moderator

Great. And so are you seeing this pattern consistently across both primary care and pulmonology?

Robin Cowie, CFO

Yes, it's been very consistent. So not only the demand for ordering in the smaller nodules, but also the increased ordering by physician when they start and adopt a larger patient population.

Alex Fucasin, Moderator

So let's turn to ASP just for a quick second of reimbursement as well. So you noted average revenue per test improved year over year due to some expanded payer coverage and continued RCM improvements that you continue to do sequentially every quarter. So what are some of the primary levers available to drive additional ASP expansion from here, and could you just kind of talk about, perhaps a breakdown, if the expansion was more so driven by Notify CDT, that was a big focus of the quarter, or was it kind of broad-based across Notify testing and perhaps Veristrat as well?

Robin Cowie, CFO

We saw new coverage policies and contracts for Notify CDT, XL2, and Veristrat, so saw nice ASP growth across each of those three tests. Um, notify XL2 is a higher price point. So as a contributor, it's a larger contributor to our revenue, but the adoption from payers has been consistent with CDT and XL2. Um, big drivers of payer adoption are guidelines, um, and really demand. So as more physicians order, uh, and believe in the tests and see utility in the test that puts pressure on the payers. Um, and other payers want to follow somebody else making a policy. So as you get more and more coverage policies, you build momentum in the payer space as well.

Alex Fucasin, Moderator

Speaking about the payers, my next question, could you just provide an update on how those private payer contracting efforts are going? Any material updates that you can give us on that end?

Robin Cowie, CFO

Yeah, we've been really consistent. So we take a very consistent approach to our private payers. So wanting to ensure that patient access and And payment rates are consistent across our payer groups. And so that's a strategic focus for our market access team.

Alex Fucasin, Moderator

And so let's look at margin scalability for a second here. So you just spoke to your gross margins. So about 82% in this quarter. You're guiding towards around the 80% mark for the full year. Extremely strong for the category, just diagnostics in general. So gross margins at the 80% level. Is it sustainable long-term? What levers are there left to kind of move to, I don't know, for any more incremental expansion? I mean, they're already insanely high, but just...

Robin Cowie, CFO

Yeah, we're very proud of them. As I mentioned, we have a very cost-disciplined approach. We also spend a lot of time on our operational efforts to try and continue to make changes and improvements to increase efficacy and efficiency. we think that maintaining in that low 80 percent is absolutely viable although we're continuing additional projects to try and make improvements I'm always hesitant to promise additional improvements when we're already above 80 percent but it remains an important key focus for us operationally speaking about operations so as volumes continue to expand I mean sequentially just fantastic volume growth from the dynamics you just discussed.

Alex Fucasin, Moderator

How should we think about future laboratory investment relative to gross margin and capital efficiency?

Robin Cowie, CFO

We are part of the projects that we've been working on improving our laboratory processes means that we've made significant improvements in our capacity. So we've got years of capacity before we would need any material investment other than just refreshing equipment.

Alex Fucasin, Moderator

And so let's talk about your development services portfolio. Obviously, you spoke around 10% of revenue roughly, but still it's something important to discuss here. Looking at 1Q, you had a pull forward. Looking at 2Q, you know, sequentially down a bit, but, you know, biopharma biotech funding has, you know, been improving. You briefly touched on some of the dynamics at play there. You've spoken in the past about, you know, traditionally sequential improvements and kind of like the contracted revenue there. Can you just kind of elaborate on the health of that business and what do you see that kind of as a percentage of overall revenue and as a percentage of just your overall business offering over time?

Scott Hutton, CEO

Yeah, it's a great question. I highlighted earlier that it's critically important to us that business provides insights into what biopharmaceutical companies are exploring, where they're investing, and where they anticipate trying to positively impact patient care. It also gives us the opportunity to partner with other diagnostic companies, collaborating on other tests. And so those insights are invaluable. It has consistently ranged anywhere from 6 to 10-ish percent of our annual revenue. We fully anticipate that it will be there this year and next year. We think that's kind of a good trajectory for us. We've got five team members that focus on that. So their sales rep productivity is exceptionally high and large. We feel really good about that. We think it's an exceptional team. They've built really strong, trusted, collaborative relationships. And so for them, as they continue to engage with biopharmaceutical companies and diagnostic partners, we're really looking for continuation of ongoing studies and expansion. And so we've seen nice growth there. You highlighted what we call in term dollars under contract, but not yet recognized. We've seen significant improvement and growth in that over time. We fully expect that to be the case. That team is out there meeting with a number of biopharmaceutical companies on a weekly basis. And so we think we've put ourselves in a good position to offer our broad portfolio of tests, but to also offer our testing services and our capabilities. And so the ability to help discover and develop bespoke assays, those things are differentiators for us. And Robin highlighted the gross margins. We've demonstrated that we can offer a test that has a strong gross margin, has rapid turnaround times, and both of those things create value for those partners. So we fully expect to share more on that growth and expansion, and we're eager to disclose more because we think we've got some exciting things currently being discussed.

Alex Fucasin, Moderator

So you've had a lot of success with your five Medicare covered tests. I think something could be important to touch upon here would be your pipeline. So So especially given your planned R&D update around the November AMP meeting. So could you frame the broader pipeline opportunity and how you're prioritizing opportunities across risk of occurrence or ROR pipeline test, MRD, Veristrat and prostate cancer and other potential oncology applications?

Scott Hutton, CEO

Yeah, you know, we highlighted going back towards the middle to end of the pandemic, a partnership that we engaged in with Memorial Sloan Kettering Cancer Center. And, you know, in our partnership with them, that's what has fueled a number of these activities. It's extremely collaborative and engaging. You know, they provide the clinical data, the patient outcomes, and the samples. We provide the kind of the know-how, the equipment. And we're collaborating on not only developing or, you know, discovering and developing new tests, but looking at some of our existing tests and can we expand utilization. And I think that's the way to think about Veristrat. Verstrat was our first test discovered. It's a very unique test in the sense that it, in essence, measures a patient's immune status. And so as you think of a patient battling a cancer or a disease, what we really want to highlight is as the cancer subverted the immune system or compromised the immune system, and if so, whatever treatment they're on, pivot to another treatment because that one's not working. That has benefited us for years. that data is exceptionally robust. The clinical trial we had around Veristrat was Insight. It's over 5,000 patients with a number of different treatments. We've closed that study and are currently targeting ASCO of next year to begin publishing. We think that'll continue to fuel some of the discovery and development efforts that will enable our pipeline. Now that fits more into the latter half. That's post-cancer diagnosis, where we focus on treatment guidance and therapy selection. We feel that that's still a robust field. There's a lot of investment there, and that's also where we would put the risk of recurrence in MRD efforts. MRD right now is exceptionally hot and prominent. We all can understand and see the value from ongoing surveillance and monitoring. We feel like we're going to have a unique offering, and we're eager to start to disclose more about that here in November at the AMP meeting.

Alex Fucasin, Moderator

That's great. And so as these products close in on commercialization, to what extent can you leverage existing lung-focused commercial infrastructure, pay relationships, and clinical evidence platform as well?

Scott Hutton, CEO

Yeah, you know, I think when we started Biodessix, we really were focused on building the best diagnostic company possible. And so whether it's our quality management system, our clinical tools, we built them as if we were going to be a Fortune 500 company. So Robin highlighted infrastructure investment is minimal, internal team investment is minimal, capabilities, minimal investment needed. So is there opportunity to scale and leverage that? There certainly is. As we add additional products, and even as we expand our biopharmaceutical partnerships, we can leverage that team. And so we highlighted the cost-discipline approach, and we've run very lean, but we think we can continue to do so and be very opportunistic as we expand into potentially other disease states, but more importantly, continuing to ensure that our lung-focused sales team has more products in their bag.

Alex Fucasin, Moderator

So inclusion into the Fortune 500, great goal to have. Just thinking, I guess, perhaps more medium term, how should we think about the pipeline's potential contribution to your growth profile beyond Snodify, I guess?

Scott Hutton, CEO

Yeah, you know, obviously we have to get there. We have to develop the products. We have to have the clinical data and then we have to get the reimbursement. And so you'd never want to underappreciate all that goes into that. We have a strong team that's done it repeatedly. And so I feel very confident in our ability to do so. I highlighted the MRD space. It is a massive, massive addressable market. I think there's room for a number of competitors. And so I think that has the ability to be significant and material, but it won't be in the next six to 12 months. It's going to be further out than that. So our pipeline is still on the horizon. It's not something that's imminent. And again, as we talk through kind of what we're doing at AMP and give greater detail, I think you'll start to see the cadence and the timeline and how all that slots. But I will state we're very eager to continue to demonstrate what our development team not only can do, but what they have done and they continue to do. We think we've got one of the best development teams and laboratory service teams, and I think it'll be an exciting opportunity to demonstrate that.

Alex Fucasin, Moderator

So looking at some of your more important studies here, so let's try to clarify for a brief second. For those who may be less familiar with the study, could you discuss some of the key findings from the interim analysis and why they're important? and what metrics and milestones are you most focused on for the future readouts?

Scott Hutton, CEO

Yeah, so we kicked off Clarify almost two years ago now. It is a retrospective study. So what we did is we went into some of our larger orders of Notify. We pulled those patients that had received Notify testing and were able to immediately document what was the one-year outcome and the two-year outcome. We're able to look at comorbidities, other things, by doing that chart review. So it really becomes a database and a repository by which we can pull and mine data. And so we've got over 2,000 patients enrolled now, all of them with minimum one-year follow-up, many with two-year follow-up. And so we began, as you said, slicing and dicing that. We did an interim analysis. We have a number of studies that we have submitted for publication. Can't discuss many of those until they're accepted and out of embargo. but the best way to think about it is we're looking to not only reinforce clinical utility that we already have, but start to expand utilization, and so one of those that's out on the horizon that I'm eager to talk about is we have done an analysis of notified testing compared to PET scans, and so we feel confidently that we're going to be favorable in that comparison, and so putting that out there so that physicians don't just blindly order a PET scan for every single lung patient and then ignore it. Instead of spending money, let's actually do something like a blood-based test that gives us actionable results in a shorter period of time with a more positive outcome. That's how we're looking at that. It really is about being aggressive, being competitive, expanding and broadening utilization possibility. There's a number of other comparators like time to diagnosis. We're also looking at stage shift. Will the utilization of Notify allow physicians to identify cancer sooner? The one thing that we all know, regardless of the cancer type, if you can identify and detect that cancer sooner, you increase the likelihood of a positive outcome. So we're eager to present and publish more on that. Right now, it's quite a valuable resource towards us, and we'll continue to invest in it.

Alex Fucasin, Moderator

And so you kind of touched on it really briefly, but anything you can just elaborate on really briefly about any upcoming publications or presentations or potential data around Chester AMP? What should we think about the cadence of evidence generation over the next 12 to 18 months?

Scott Hutton, CEO

Yeah, we've always valued data. Robin highlighted kind of our reimbursement strategy, our strong pricing. That doesn't happen without good data development. And so we're constantly looking to mine data and publish and present. We aren't so much focused on holding it for CHEST or AMP or ASCO. We really want a regular cadence of publications out there. I highlighted the Insight study and referenced that we're really, timing is setting us up for ASCO. Hopefully there. Clarify is going to be an ongoing effort at all times. We also had our prospective randomized trial called Altitude. We've currently stopped enrolling. Now we're monitoring those patients to a minimum of one-year follow-up. And so that won't occur until later this year. And so that's something we'll be looking at for next year. But we're going to continue to ensure that anything that we push out as a product has good data to support its clinical use. And the Notify tests right now have the broadest base of both clinical evidence and clinical validity on the market for anything in lung nodule management. So we're proud of that, and we're going to continue to invest in it.

Alex Fucasin, Moderator

We have time for maybe like one or two more really briefly. Just on competition, you've previously noted there's basically no direct competitors that provide meaningful competition, and it could remain many years away, perhaps three to five years. What do you view as one of the largest barriers to entry in this market specifically?

Scott Hutton, CEO

Yeah, you know, before we get to barriers, it's why is there an opportunity? And I think many forget that lung cancer is still the deadliest of all cancers in the United States. We've made significant progress with smoking secession and awareness. But on an annual basis, we see more and more people diagnosed with lung cancer that are never smokers. And so it highlights that this disease is not going away. I also look at it and say there have been a lot of, whether it's drugs, treatments, diagnostics that have failed. It's hard. It's difficult, which, you know, hence is why it's one of the deadliest. You know, more people in the United States will die of lung cancer this year than colorectal, prostate, and breast combined. And so that's the opportunity. We need competition. We need more investment, and we welcome it. And I think it's in the diagnostic front that the test with the best data should win. I think for us, we've distanced ourselves from competition by building a really strong IP portfolio. We talked about investment in that data development. And we don't take that lightly. We want to take that as an advantage. But most importantly, we have the only direct sales force focused on pulmonology. And so with over 100 sales reps, we fully welcome the opportunity to collaborate with others, bring new tests into the bag like we're planning on doing. But for us, I think there needs to be more investment. We need to do a better job with awareness. Unfortunately, screening has not been a great success in the United States. The best you can see in the literature is that maybe 10 to 15 percent of the screen-eligible population currently participates in a screening program. So something has to change there. You know, we're big supporters and fans of the multi-cancer and single early cancer detection test that are focused in this arena, and those will positively impact this space and benefit us.

Alex Fucasin, Moderator

So you just led me into my last question. There's one last fun one to finish with. So obviously, you sit on the diagnostic end of this landscape. You know, there's more and more conversation about blood-based biomarker testing, and potentially specifically for lung cancer, usually the high-risk population. And the way these are formulated is preferably with really high sensitivity, and they can afford lower specificity because inevitably a false positive just leads to adherence to computer tomography or CT scans, which is 10% to 15% adherence rate, so that works as well. So you essentially could benefit from this tailwind, or perhaps the fun question is, would you ever be open to either developing internally or acquiring some type of screening technology?

Scott Hutton, CEO

Yeah, it's a great question. It's a massive opportunity. The short answer is yes, but what we know by looking at others is it's expensive, it's timely. There's four to five, maybe even six others that are significantly ahead of us. We're more interested in seeing what their data looks like. I think you highlighted it. A false positive isn't necessarily that bad unless 99 out of 100 are false positives. And then you've got to figure out how do we find that needle in the haystack. That's where we come in. And I think that there could be great synergies there. But regardless, rising tide will raise all ships. I think any single-cancer or multi-cancer early detection test focused on lung benefits us immensely because of what you said. They're going to bring more of the screen-eligible population into play. But after that CT scan, most physicians are going to start adopting Notify. So we're supporters of theirs. We're eager for them to have success. And if something was to come our way, especially now that we have the expanded call point into primary care and pulmonology, we'll be very opportunistic.

Alex Fucasin, Moderator

Thank you very much, everyone.

Scott Hutton, CEO

Yeah, thank you. Yeah, appreciate it.