Biodesix, Inc. — Q1 2023 Form 10-Q
Reporting period: Unaudited quarter ended March 31, 2023; comparisons are with the quarter ended March 31, 2022. Biodesix develops and provides diagnostic tests, primarily for lung disease, and testing and research services for biopharmaceutical companies.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $9.1 million | $6.5 million; up 38% |
| Gross profit and margin | $5.9 million; 65% | 51% margin |
| Operating expenses | $25.4 million | $21.0 million; up 21% |
| Operating loss | $16.4 million | $14.5 million |
| Net loss | $18.7 million | $15.6 million |
| Net loss per share, basic and diluted | $0.24 | $0.50 |
| Cash and cash equivalents at quarter-end | $25.3 million | $43.1 million at December 31, 2022 |
- Lung diagnostic revenue rose 86% to $8.6 million, with management reporting a record number of tests delivered. COVID-19 testing revenue fell 99% to $13,000; services revenue declined 55% to $411,000.
- Direct costs were $3.2 million. Research and development expense was $3.3 million, while sales, marketing, general and administrative expense increased 31% to $19.0 million. Management attributed much of the increase to sales-force expansion, marketing and higher share-based compensation.
- Net cash used in operating activities was $7.7 million, investing activities $7.7 million, and financing activities $2.4 million. Cash, cash equivalents and restricted cash decreased $17.8 million during the quarter. Operating cash use included $7.2 million of tenant-improvement allowance receipts, so the reported amount should not be viewed as a straightforward measure of recurring cash burn.
- Outstanding Perceptive term-loan principal was $30.0 million; its balance-sheet carrying amount, net of discounts and issuance costs, was $25.1 million. The loan’s stated rate was approximately 13.8% at March 31, 2023, is variable, and principal is generally due at maturity in November 2027. Total liabilities were $76.2 million and stockholders’ equity was $4.6 million.
- Current assets were $34.8 million and current liabilities $22.1 million. The company also reported $28.1 million of contingent consideration liabilities and total future operating lease payments of $48.3 million before specified deductions.
Material changes and developments
- Revenue growth came from core lung diagnostics, partly offset by sharp declines in COVID-19 testing and biopharmaceutical services. Management said services work continued to be affected by delayed clinical-trial enrollment.
- Gross margin improved from 51% to 65%, primarily because revenue shifted toward higher-margin lung diagnostics and away from lower-margin COVID-19 testing.
- Interest expense more than doubled to $2.4 million, mainly reflecting the Perceptive loan and interest accretion on Indi contingent consideration.
- Property and equipment, net, increased to $13.1 million from $5.8 million, primarily reflecting construction and leasehold improvements for the planned Louisville, Colorado headquarters and laboratory. The company received tenant-improvement reimbursements and expected approximately $11.1 million of remaining allowance during 2023.
- At March 31, 2023, the company had 77.98 million common shares outstanding. Subsequent to quarter-end, it agreed to issue Perceptive a warrant for up to 500,000 shares in connection with a loan amendment.
Outlook, risks and unusual items
- Going concern: Management concluded that substantial doubt exists about the company’s ability to continue as a going concern for more than one year after issuance of the financial statements. The company expects continued operating losses and said it would need additional external capital or covenant relief; funding was not secured as of the filing. If financing is unavailable, it may substantially limit operations.
- Debt covenants: Perceptive waived the minimum revenue covenant for Q1 on April 7, 2023. On May 10, 2023, after quarter-end, the parties amended the covenant thresholds through the quarter ending March 31, 2024. The company warned that without additional capital or further covenant relief it expected difficulty maintaining covenants during the next 12 months, potentially leading to default and accelerated repayment. The amendment also required the 500,000-share warrant.
- COVID-19 business: In connection with the expected May 11, 2023 expiration of the federal public health emergency, Biodesix said it would stop providing COVID-19 diagnostic testing services commercially. The filing notes that FDA emergency-use authorizations are distinct and may remain in effect beyond that date; the duration of those authorizations was uncertain.
- Operating and market risks: Results depend on adoption of tests, payer coverage and reimbursement, clinical-trial activity, and customer mix. The company also cites competition, reliance on some single-source suppliers, potential financing constraints, and sensitivity to floating interest rates. A hypothetical 100-basis-point rate increase was estimated to affect annual results by approximately $0.3 million.
- Other obligations: Indi contingent consideration includes scheduled payments and a later exit fee; future payments are subject to loan-agreement requirements and, beginning in 2024, Perceptive consent. The Louisville lease carries a 12-year initial term, with rent abatement and substantial future commitments.
- No quantified full-year revenue or earnings guidance is provided in the supplied filing text. Management expects near-term operating losses and describes continued investment in commercial growth, research and development, and new tests.
- The company reported no material legal proceedings and no material changes to internal control over financial reporting during the quarter. Disclosure controls and procedures were concluded to be effective at the reasonable-assurance level.
Important facts for investors to verify
- Available cash, financing access, and the company’s ability to meet Perceptive’s revenue and other covenants after the waiver and amendment.
- Whether lung-test volume growth translates into durable revenue, collections and improved cash generation, including the pace of payer coverage and reimbursement.
- The effect of ending commercial COVID-19 testing and continued weakness or timing delays in biopharmaceutical services revenue.
- Actual construction spending and tenant-improvement reimbursements, ongoing lease cash costs, and the timing and amount of Indi payments.
- Potential dilution from equity financing, outstanding options and warrants, and the new Perceptive warrant.