Business context and reporting period
Biodesix, Inc. (Nasdaq: BDSX) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The company develops and sells diagnostic tests, primarily for lung disease, and provides testing and development services to biopharmaceutical companies. Its portfolio also includes COVID-19 testing.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $11.0 million | $11.9 million | $17.5 million | $40.8 million |
| Gross profit / margin | $7.0 million / 64% | 40% margin | Not clearly stated | Not clearly stated |
| Operating loss | $11.6 million | $10.6 million | $26.1 million | $16.2 million |
| Net loss | $15.8 million | $11.4 million | $31.4 million | $18.4 million |
| Net loss per share | $0.40 | $0.41 | $0.89 | $0.68 |
- Q2 diagnostic revenue was $10.2 million and services revenue was $0.7 million. Core lung diagnostic revenue was $7.3 million; COVID-19 testing revenue was $3.0 million.
- Six-month operating cash use was $22.7 million, versus $10.2 million a year earlier. Investing cash use was $0.7 million; financing provided $19.3 million. Cash, cash equivalents and restricted cash totaled $28.7 million at June 30, including $5.1 million restricted.
- At June 30, current assets were $35.1 million and current liabilities $33.1 million. Total liabilities were $67.6 million and stockholders’ equity $7.7 million.
- Debt carrying value was $20.4 million, net of discounts and issuance costs; disclosed aggregate principal outstanding on the 2021 Term Loan and Promissory Note One was $23.2 million. The company also reported $31.1 million of contingent consideration liabilities.
- Q2 operating expenses were $22.6 million. Sales, marketing, general and administrative expenses rose 33% year over year to $15.2 million.
Material changes versus prior periods
- Q2 revenue fell 8% year over year, while first-half revenue fell 57%, principally because COVID-19 testing revenue declined $3.1 million in Q2 and $25.4 million in the first half. The company said lower COVID testing reflected expired contracts, vaccination, and at-home test availability.
- Core lung diagnostic revenue grew $2.5 million in Q2 and $3.2 million in the first half year over year, supported by increased Nodify and GeneStrat NGS testing. Management reported a 52% year-over-year increase in core lung diagnostics for Q2.
- Q2 gross margin improved to 64% from 40%, attributed mainly to a shift toward higher-margin lung diagnostics and away from lower-margin COVID testing. Direct costs fell 44% in Q2.
- Services revenue declined 29% in Q2 and 39% in the first half, with management citing delayed sample receipt and continued recovery in clinical-trial enrollment and logistics.
- Q2 net loss increased 39%, including a $3.0 million loss on extinguishment related to restructuring Indi contingent consideration. First-half net loss increased to $31.4 million from $18.4 million.
- Shares outstanding increased to approximately 40.0 million at June 30, from 30.8 million at December 31, 2021, reflecting equity financing and other issuances.
Outlook, risks and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. Although it was in compliance with debt covenants at June 30, it expects it may be unable to maintain them during the next 12 months without additional capital or covenant relief. Further financing is not assured; failure to obtain it could require significant operating reductions.
- Financing and debt: In May 2022, the company issued a secured note with $16.0 million principal for $15.0 million gross proceeds and approximately $12.8 million net proceeds. A second tranche of up to $10.3 million principal is conditional on specified financing, revenue, market-value, repayment and other requirements. The notes permit cash or share settlement; share redemptions use a conversion price based on 85% of the lowest VWAP over a specified 10-trading-day period, creating potential dilution. The company also has ATM and Lincoln Park equity facilities.
- Indi payments: Amended contingent consideration includes scheduled installments through 2024 and an approximately $6.1 million exit fee in October 2024, with 10% interest on the deferred difference. Future payments are subject to lender consent; consent had been obtained through the July 2022 payment described in the filing.
- Leases: The company entered a 12-year lease for a new Colorado headquarters and laboratory, with base rent beginning at approximately $227,000 per month after an abatement period. A $5.0 million cash-collateralized letter of credit is restricted for the landlord. Tenant improvement allowances are expected to offset some scheduled lease payments.
- Operating outlook: Management expects continued operating losses and significant expenses, and anticipates increased R&D and sales and marketing investment. It described recovery in lung testing during Q2 but noted ongoing COVID-related effects on testing, sales activity, studies and service timelines. No numerical revenue or earnings guidance was provided.
- All five blood-based lung tests in the Nodify Lung and IQLung strategies were reported covered by Medicare after Nodify CDT coverage was added in June. The State of Colorado COVID testing agreement was set to expire August 31, 2022. FDA emergency authorizations for COVID tests may be revoked.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. Disclosure controls were assessed as effective at a reasonable assurance level.
Important facts for investors to verify
- Whether the company obtains enough additional financing and lender waivers to meet liquidity needs and remain compliant with covenants over the next 12 months.
- The conditions and likelihood of access to the second Streeterville tranche, and the potential dilution and default consequences of the note’s redemption and covenant provisions.
- Cash burn, collection trends, and whether growth in core lung diagnostics can offset further declines in COVID-19 revenue and services.
- The timing, lender consents and cash burden of Indi installments, interest and exit fee, alongside the new headquarters lease obligations.
- Whether Medicare coverage translates into sustained test adoption and reimbursement, and how customer concentration and COVID-related contract expirations affect revenue.