Biodesix, Inc. (BDSX) on Q3 2024 Results - Earnings Call Transcript
Operator: 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. [Operator Instructions] Please be advised, todays' 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.
Chris Brinzey: 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?
Scott Hutton: 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. And I'm 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 3 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 quarter's growth 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 in 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. And 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 health care providers to return to normal service levels in the near future and the long-term impact to 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, health care 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 coverages 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 test play in the clinical assessment of lung nodules. Reception to this educational content was exceptional, leading to hundreds of positive interactions with health care 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 Broncology 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 health care 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 test 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 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 [ph] 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 third quarter of last year, reflecting the delay in 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?
Robin Harper Cowie: 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 as 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 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 as 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 long 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% as 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 onetime 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 second quarter 2024. We ended the quarter with $31.4 million in unrestricted cash and cash equivalents as 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.
Scott Hutton: 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 3 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.
Operator: [Operator Instructions] Our first question comes from Andrew Brackmann with William Blair.
Andrew Brackmann: 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?
Scott Hutton: Yes. Great question. Thank you, Andrew. As I stated, it was a record chest for us this year. When we showed in Boston, 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 3 CHEST, those 3 that were in person, 3 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 question's 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 poll which is wonderful when you really consider adoption in a commercial product. Our expectations coming out of CHEST, we look at it as those are always going to be hot leads. Somebody who comes in on their own accord, ask 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 kind of 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 do we 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. And from a health care 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 health care 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 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.
Andrew Brackmann: 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?
Scott Hutton: Yes, it's a great question. You're right. I believe it was 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. And 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. And ultimately, there's going to be a great return. But so really, it's 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.
Operator: Our next question comes from Kyle Mikson with Canaccord Genuity.
Kyle Mikson: Starting with biopharma, Scott, you said there's a large project that shifted from the end of the third quarter into 4Q and that was the driver of the sequential revenue decline. Are you expecting revenue in that segment in biopharma to kind of like increase sequentially in 4Q? Maybe just -- and also any budget flush dynamics you're thinking about? And is your forecast for the full year biopharma revenue unchanged relative to the 2Q update, albeit some shifting in like revenue and timing and stuff.
Scott Hutton: Yes. Kyle, great question. I'll go in reverse order. Yes, it remains unchanged. All of the contracts, as we get closer into the year, all of the contracts are kind of flooded. We've got them in queue in the laboratory. This was really -- at the end of the third quarter, it was really based upon receipt of samples. And so receipt of samples was delayed a few weeks. We did receive -- start receiving those samples with about 2 to 3 weeks left in the quarter. And as they came in, obviously, time just really ran out. The good news and I'm happy to report all of those samples from that pretty significant run have been run and have been repurposed and delivered back to the biopharma partner. So we looked at it as really just a push. As we look at the fourth quarter, we're always mindful of time. Right? We know what we have in queue. At this point in time, we'll be ready for any bluebirds that present. But again, as we progress through the quarter, the likelihood decreases. But we feel confident in our projections for the fourth quarter and as you've noted, this book of business continues to grow and we're really proud and excited to share that we've got $11.1 million under contract but not yet recognized as revenue. That really demonstrates that we're poised and set up for a strong start to 2025 and feel pretty confident that this can continue to grow and we can leverage that progress and momentum.
Robin Harper Cowie: 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.
Kyle Mikson: Okay. So that's great. So I bring it up because the guidance was reaffirmed and biopharma is a pretty small portion of the business. So like that declined also the core lung business, kind of like you missed our model as well. And you said that was -- it sounds like it really like a hurricane impact. So could you just like possibly quantify that hurricane impact? And does that -- similar to the last question, does that kind of get recapture over time as well?
Robin Harper Cowie: Yes. So the hurricane really impacted the last week and half or so of the quarter. And as you know, we're focused in lung. And the Southeast is the tobacco belt. It is the highest incidence and prevalence of lung cancer in the country. And so therefore, accounts for a very significant portion of our business. So disrupting those states for 2 weeks absolutely impacted our quarter. We do anticipate that the lung diagnostics -- so again, second half should be about the same. There's some push between third and fourth quarter but that's part of why we reaffirmed full year guidance at the $70 million to $72 million or keeping that full year guidance the same.
Kyle Mikson: Okay. Perfect. And then just one quick one for Scott. Jumping off the CHEST comments and the last one question. Anything about the findings and the insights that you presented at CHEST even like some of the what we're already hearing from some of the attendees and stuff at the conference. Does that change your view on the addressable more opportunity that you have in nodule management? And then how do you think about -- like penetration of that market given how lung cancer screening is -- like could evolve over time, I guess?
Scott Hutton: 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 [ph] 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 a positive, especially when you start to see the results of that data which is consistent across the board. Which 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 in specific questions that physicians may have. So 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 possibly can. And I think that's what we saw, the feedback and I'll share this in one of the one of the sessions, it was a pro versus concession where the physicians are 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. So 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. And 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 health care 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. So we're excited about that. The HEDIS [ph] measures that will start to roll out towards the end of this year and into 2025, those 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. And it's really about awareness. We know with lung cancer early detection and diagnosis leads to the most positive long-term outcomes possible. And so we're going to continue on that fight.
Kyle Mikson: Okay. That was perfect. But just maybe quickly, Scott, you just mentioned that. How does the introduction of blood-based screening test for lung cancer like over the medium term, I guess, effect, what you've kind of just said about detecting nodules and understanding what to do with those?
Scott Hutton: Yes. So we're a big fan of the research that's been conducted thus far. There's 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. And 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 screen detected nodules. So when we talk to physicians, they see this as additive. They think of it in terms of enrichment and so from a referral perspective, if you use a blood-based screener, a positive screening test would then get referred on 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. And the example we've used a positive notified CDT which is a rural in test would then lead to a bronchoscopy on the opposite in 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. So 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. And so 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 in greater detail but I hope that's helpful.
Kyle Mikson: Yes. No, that was great. That's perfect, Scott.
Operator: Our next question comes from Dan Brennan with TD Cowen.
Dan Brennan: 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 kind of contemplate that when you kind of set guidance?
Scott Hutton: 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 that it's right at about $1 million. And 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. And so 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 to 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. So 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. So 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. But 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.
Dan Brennan: Great. Revenue growth has been certainly very strong last couple of quarters. Penetration remains nascent, right, versus 5 million incremental lung modules. 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?
Scott Hutton: Yes. We work with some of the large integrated networks and large health care systems. And 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, they're introducing the product in 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. I think anything we can do to continue to educate, inform and empower physicians to not only order the test but also continue to expand utilization. And so 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. And 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. And we think there's a big differentiation there. So 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 and so for us, I think guideline inclusion at the point in time in which the CHEST guidelines are updated would also be a nice inflection point for us. Is that helpful, Dan?
Dan Brennan: Yes. Yes, that's great.
Operator: Your next question comes from Sung Ji Nam with Scotia Bank.
Sung Ji Nam: 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 onetime 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?
Robin Harper Cowie: Thanks for the question. I'm very happy to report that it's all current quarter. So no impact from unusual onetime 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.
Sung Ji Nam: 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?
Scott Hutton: Yes. It's a really good question. Thanks, Sung Ji. The way we look at it is through a couple of different lenses. And I think the answer is, in short, yes. So one that we're looking at as part of that chart review is really notify in conjunction with or alongside the utilization of PET scans. And so we know in this patient population, many pulmonologists are frustrated and disappointed with the results they get from a PET scan. And some of that is going to be because of false positives, it could be related to where they're located geographically, if they're in the [indiscernible] region, it can negatively impact those PET results. So as we pull those charts really looking at nodified performance against the PET result. And so that was one of the big topics at CHEST and a lot of the questions we received, we think that's going to be of great value. But then we look at other subgroups when you start to consider different race and ethnicity. We get a lot of questions about the performance of the test across different patient populations. And so our ability to dive deeper into that to demonstrate exactly how the test performed in those different populations or subgroups which we fully expect it will perform to the highest of standards and consistent with what we've seen to date. But this is really the tip of the iceberg. I think we've highlighted it a chart review analysis based upon the greater than 35,000 patients we've already enrolled clinically targeting 4,000 of them with 1- to 2-year outcomes is key. That's the other thing to add to this is we can go into those charts and we can quickly deduce what ended up happening with that patient long term at a 1-year time point at a 2-year time point. We'll do the same within ALTITUDE. But as we know, any patient that's enrolled in ALTITUDE today the clock starts and we have to wait 2 years. So that was part of it for us as we looked at it and said, there's a handful of questions that we think we can answer. We think those questions are meaningful and valuable. It's not really about expanding utilization. It's more about answering some of those clinical questions physicians have. Is that helpful, Sung Ji?
Sung Ji Nam: Yes. Very helpful. Thank you so much.
Operator: Our next question comes from Bill Bonello with Craig-Hallum.
Bill Bonello: Just a couple of things. Just to start up, Robin, can you clarify your answer on your expectations about loan volume in Q4, I just -- I wasn't sure I was understanding you right.
Robin Harper Cowie: 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 third quarter.
Bill Bonello: Okay. So I mean, are you thinking -- and maybe you just don't want to say but are you thinking that lung volume should be up sequentially in Q4?
Robin Harper Cowie: Yes. Yes, we are.
Bill Bonello: Okay. So 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?
Scott Hutton: Yes. Great to hear from you, Bill. And you referenced some of the impact 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 really been able to look at that sales rep productivity, those individual territories and we still see the same progression on their onboarding and then their return. So 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. And so it brings that sales rep number up. So 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.
Bill Bonello: That's really helpful. And then just on the timing of the hiring, I mean was there anything, it sounds like you'll catch up but you have moved maybe slightly more slowly than what you had expected. Is that just sort of the mix of people, candidates that you had and who you felt comfortable with? Or were there more reasons to move more slowly?
Scott Hutton: Yes, it's a really good question. And I would say that the short answer is yes, right? We will always there on the side of being slow if we don't feel like we have the right fit. I still -- I feel adamant that each and every teammate that we bring on board will impact the culture ever so slightly. And so we take a lot of time to ensure that they're a good fit that they can be a success here, they can thrive. And they can not only have great earning potential but have a long career. You may recall, we hinted that we were going to be off when we started the fund raise kind of in the May or April, May time frame. Traditionally, we try to hire sales professionals as early in the quarter so that we don't have a negative SG&A impact without seeing the return because the fund raise some of the net proceeds were for sales force expansion, we stated back then that we wouldn't begin hiring until we completed the fund raise so we were very intentional going back to Q2 about being slow and bringing them on because we didn't want to exit Q2 at that time with increased or added SG&A expense without the return. So that really set us off. And then we just made a decision that we didn't want to compromise in who we were hiring. We still want to go through our vetting process, our onboarding and training process. And so I think it was really just that once we started slow and delayed in Q2, there was a ripple effect we were pulling them forward and that's why we've disclosed that we had that large class now that gets us back on track. So I think the way to think about it is, we'll exit the year somewhere in the 70 to 75 range. If you split the difference and call it, 73 sales reps, that's where we'll start the year. And then we'll begin that cadence of hiring earlier in Q1 of 2025.
Bill Bonello: 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?
Scott Hutton: 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. And 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. So 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.
Bill Bonello: Okay. That's really helpful. So they are not projects that are contingent upon the pharma company hitting some kind of milestone which then will determine whether they move to the phase of working with you or not.
Scott Hutton: 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. So as they move to kind of Phase 2, they start a contract with us and our results that we deliver to them, we look at it and say, that's going to help inform and educate them as to whether they move on to the next phase. And then 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 yet not received payment for, you see nice blend [ph], new customers, existing customers and existing customers that have built on their development and progress.
Bill Bonello: Okay. That's really helpful.
Operator: Our next question comes from Thomas Flaten with Lake Street Capital Markets.
Thomas Flaten: 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 2 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 and generating samples? How long did that go on?
Scott Hutton: Yes, Thomas, great question. There definitely was. And I think we all saw it. What was interesting about that was it also coincided with CHEST. So 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 need to 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 that live in Florida. I'm happy to report that they're all safe. But 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 impact not just for Helene and kind of the hurricanes this year but we've seen it over time. It doesn't happen immediate. There is a lag. I would state this and 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, that the inland flooding was pretty significant. We do note that even to date, that access there is limited. So for us, 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. So 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. So 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. And we'll continue to support those practices and most importantly, we'll be there as they start treating those patients again. But 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.
Thomas Flaten: 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 certain 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?
Scott Hutton: Yes. The goal is that it's net. So it will be 6 to 8 additions. So we're very proactive. One of the best things about being a growth company within the Biodesix culture 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. And so, 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 so we were a little more proactive. And 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. So that's a little bit of what you saw in Q3. Very excited about where we stand with the team. So that's why that number was a little bit off as you stated, is we backfilled a few of those territories with those new hires. And so, the net in -- from Q2 to Q3 was really an addition of 2 where -- 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.
Thomas Flaten: Got it. And just one final one, if I may. Robin, any update on the Medicare Advantage issues?
Robin Harper Cowie: 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, it's 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.
Operator: 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.
Scott Hutton: 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 and 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 center around making a positive impact on patients' lives and I'm truly thankful for the entire team's efforts. Thank you.
Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
