Biodesix, Inc. — Q3 2021 Form 10-Q
Reporting period: Unaudited quarter and nine months ended September 30, 2021. Unless stated otherwise, amounts are in U.S. dollars; financial statement amounts below are in millions.
Business context
Biodesix is a diagnostic-solutions company focused primarily on lung disease, with clinical testing, biopharmaceutical research and testing services, and COVID-19 testing. Its portfolio includes Nodify lung-nodule risk tests, GeneStrat and VeriStrat lung cancer tests, and the Biodesix WorkSafe COVID-19 testing program. The company reported that it launched its GeneStrat NGS test to a select physician group in November 2021, with a broader U.S. launch anticipated in Q1 2022.
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $6.5 | $9.2 | $47.3 | $18.5 |
| Operating loss | $(13.1) | $(6.2) | $(29.3) | $(20.3) |
| Net loss | $(11.5) | $(8.8) | $(29.9) | $(26.8) |
| Operating cash used | Not provided for quarter | Not provided for quarter | $(18.0) | $(12.6) |
- Q3 revenue fell 29% year over year; nine-month revenue rose 155%, largely reflecting COVID-19 testing introduced in 2020.
- Q3 diagnostic test revenue was $5.0 million, down 41%; services revenue was $1.5 million, up 133%. Within diagnostics, lung testing revenue was $4.5 million, up 51%, while COVID-19 testing revenue was $0.5 million, down 91%.
- Direct costs were $2.7 million in Q3 and $28.0 million for the nine-month period. Implied gross margins, calculated as revenue less direct costs divided by revenue, were approximately 58% and 41%, respectively; these are derived figures, not separately reported metrics.
- Q3 sales, marketing, general and administrative expense rose 73% to $13.6 million, and R&D rose 22% to $3.3 million. For nine months, those expenses increased 62% to $37.0 million and 29% to $9.9 million, respectively.
- Q3 net loss included a $3.1 million gain from forgiveness of the PPP loan. Nine-month results also included a $2.4 million net gain on debt extinguishment; the company separately reported a $0.7 million loss on extinguishing its 2018 notes in Q1.
- Basic and diluted loss per share was $(0.41) for Q3 and $(1.09) for nine months 2021. Prior-year per-share figures are not directly comparable because the company completed its IPO and converted preferred shares in October 2020.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $47.9 million at September 30, 2021, versus $62.1 million at December 31, 2020. Total assets were $90.0 million; total liabilities were $74.0 million; stockholders' equity was $16.0 million.
- Cash, cash equivalents and restricted cash declined by $14.3 million over the first nine months. Investing cash use was $1.9 million and financing activities provided $5.6 million.
- Debt carrying value was approximately $30.0 million, principally the fully drawn 2021 Term Loan. The loan bears floating interest at the greater of prime plus 2% or 5.25%, has an interest-only period through February 2024 after meeting a revenue milestone, and matures March 1, 2026.
- The loan has a minimum liquidity covenant and revenue requirements. A September amendment waived the revenue covenant for Q3 and modified the Q4 2021 threshold; it also requires a $15 million restricted-cash collateral account if cash and cash equivalents fall below $40 million. The company said it was compliant with covenants at September 30.
- The company met the gross-margin milestone under its Indi acquisition agreement. An August amendment replaced share issuance/repurchase provisions with payments totaling $37.0 million: six quarterly installments of about $4.6 million beginning January 2022 and a final payment of about $9.3 million in July 2023. Lender consent is required, and the company said discussions were ongoing. The balance sheet recorded $32.9 million of contingent consideration at fair value, of which $13.1 million was current.
Outlook, risks and unusual items
- Going concern: Management stated that its operating plan raises substantial doubt about the company's ability to continue as a going concern over the next twelve months. It expects it will be unable to maintain the minimum liquidity covenant without additional capital or a lender waiver. No additional funding had been secured as of the filing. A covenant default could accelerate repayment; management said substantial operating reductions may be considered if adequate capital is unavailable.
- Management expects ongoing operating losses and significant expenses in the near term. It expected lung diagnostic recovery to continue into 2022, but said growth was below expectations and affected by COVID-19, including Delta-variant disruptions to care and clinical studies. No specific financial guidance was provided.
- COVID-19 testing revenue fell sharply after peaking in Q1 2021 as demand declined and significant contracts expired. The company noted uncertainty about future demand and the duration of FDA Emergency Use Authorizations; it could not quantify incremental revenue from potential federal testing requirements.
- Other key risks include payer coverage and reimbursement, customer and revenue concentration, dependence on single-source suppliers, product performance and regulatory compliance, competition, data security, and the need to raise capital. The Big Ten Conference accounted for 46% of nine-month 2021 revenue, while Merck was 10% of Q3 revenue. The Big Ten contract expired June 30, 2021.
- The company accrued an estimated $230,000 settlement payment in a Telephone Consumer Protection Act dispute; the settlement received preliminary court approval in November 2021. The filing reported no other pending legal proceedings expected to have a material adverse effect.
- Management reported disclosure controls were effective at a reasonable assurance level; no material changes to internal control over financial reporting were reported during the quarter.
Important facts for investors to verify
- Whether Biodesix raises sufficient capital or obtains lender relief to meet liquidity covenants and avoid accelerated loan repayment.
- Whether the lender consents to the $37 million Indi contingent-consideration payment schedule, and how those payments affect liquidity.
- Whether lung diagnostic and biopharmaceutical services growth can offset continued contraction in COVID-19 testing revenue.
- Actual cash burn, covenant headroom, and the status and terms of any proposed financing after the filing date.
- Progress and commercial adoption of the GeneStrat NGS launch, and the continuing effects of payer reimbursement, COVID-19 disruptions, and revenue concentration.