Business context and reporting period
Biodesix, Inc. (Nasdaq: BDSX) is a data-driven diagnostics company focused primarily on lung disease. It sells blood-based lung diagnostic tests, COVID-19 testing, and diagnostic research and testing services to biopharmaceutical companies. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods. Amounts below are in U.S. dollars.
Financial and operating highlights
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $11.1 million | $6.5 million | $28.6 million | $47.3 million |
| Gross profit / margin | $7.5 million / 67% | $3.8 million / 58% | $17.8 million / 62% | $19.3 million / 41% |
| Operating loss | $10.6 million | $13.1 million | $36.7 million | $29.3 million |
| Net loss | $13.7 million | $11.5 million | $45.1 million | $29.9 million |
| Operating cash used | Not separately stated in the filing for the quarter | Not separately stated in the filing for the quarter | $33.0 million | $18.0 million |
- Q3 revenue rose 70%, led by lung diagnostics revenue of $9.2 million, up 102%. COVID-19 testing revenue was $1.3 million, up 154%, primarily from a State of Colorado contract that has since expired. Services revenue fell 55% to $0.7 million.
- Nine-month revenue fell 40%: lung diagnostics rose 59% to $21.1 million, but COVID-19 testing declined 82% to $5.2 million and services fell 45% to $2.3 million.
- Q3 operating expenses were $21.7 million, including $15.1 million in sales, marketing, general and administrative costs. These costs rose 11% year over year, reflecting higher sales headcount and commercial spending.
- Cash and cash equivalents were $15.2 million at September 30, 2022, down from $32.7 million at December 31, 2021. Current assets were $24.1 million against current liabilities of $37.4 million.
- Outstanding borrowings had a $19.2 million carrying value; the company separately reported $21.4 million in aggregate principal on its term loan and Promissory Note One. It also reported $30.2 million of contingent consideration liabilities. Total liabilities were $66.1 million, exceeding total assets of $63.2 million; stockholders’ deficit was $2.9 million.
- Nine-month financing cash inflows were $17.0 million, including proceeds from equity issuance and Promissory Note One, partly offset by debt repayment and $8.7 million of payments to Indi. Cash, cash equivalents and restricted cash declined $17.5 million.
Material changes versus the prior comparable period
- Q3 operating loss improved by $2.5 million, but net loss increased by $2.2 million. Higher interest expense and the absence of the prior-year $3.1 million gain from forgiveness of a Small Business Administration loan more than offset the operating improvement.
- For the first nine months, net loss increased $15.2 million and operating cash use increased $15.0 million. The company attributed cash-use deterioration to higher losses and unfavorable working-capital changes, including the $5.0 million lease deposit transfer and lower customer collections.
- The revenue mix shifted toward core lung diagnostics as pandemic-related COVID-19 testing demand and contracts declined. The nine-month gross margin rose despite lower revenue, reflecting the changed mix.
- During 2022, the company issued shares through a private placement and ongoing equity programs, and raised debt through Promissory Note One. Common shares issued and outstanding increased from 30.8 million at year-end 2021 to 41.2 million at September 30, 2022.
Outlook, risks, contingencies and unusual items
- Going concern: Management states that substantial doubt exists about the company’s ability to continue as a going concern for one year beyond issuance of the financial statements. It expects continued operating losses and says that, without additional capital or covenant relief, it expects it will be unable to maintain loan covenants during the next 12 months. Additional financing is not assured; absent adequate capital, the company may substantially limit operations.
- The company reported compliance with borrowing covenants as of September 30, 2022, but future compliance, covenant waivers, lender consents and access to funding remain key uncertainties. The SVB term loan required a $2.0 million principal repayment by November 30, 2022, subject to stated conditions, and the company expected to repay the remaining term loan within nine months of Promissory Note One’s issuance.
- Promissory Note One has $16.0 million principal, a 6% stated rate, and potential monthly redemptions beginning nine months after issuance. The company may settle redemptions in cash or, subject to limitations, shares. A second tranche is conditional on financing, revenue and other requirements; its availability is not assured.
- Indi milestone payments were restructured, with additional installments through 2024 and an approximately $6.1 million exit fee scheduled for October 2024; interest accrues at 10% on the rescheduled difference. Future payments require lender consent.
- The company’s new Louisville, Colorado lease involves approximately 79,980 square feet over an initial 12-year term. It reported $49.2 million of future minimum operating lease payments before specified deductions and tenant-improvement allowances; it expects approximately $20.8 million of allowances. The company also transferred a $5.0 million cash-collateralized letter of credit to the landlord as a refundable deposit.
- Management expects continued near-term losses while investing in growth. It expects R&D and sales and marketing spending to increase over time. No quantified revenue or earnings guidance is provided in the filing text.
- Key risks include reimbursement and payer coverage, adoption of lung tests, declining or uncertain COVID-19 testing demand, clinical-study and sample-shipping delays, reliance on single-source suppliers, debt covenants and refinancing needs, potential shareholder dilution, and the possibility that emergency use authorizations for COVID-19 tests may be revoked.
- The filing reports no legal proceedings expected to have a material adverse effect and no off-balance-sheet arrangements. Disclosure controls and procedures were concluded to be effective at the reasonable-assurance level.
Important facts for investors to verify
- Cash runway, forecast operating cash use, and management’s going-concern assumptions, including financing needs and available funding after September 30, 2022.
- Subsequent compliance with debt covenants, required SVB repayments, lender consents, and whether the conditional second Streeterville tranche became available.
- Current liquidity after the $5.0 million landlord deposit, upcoming Indi payments, and expected tenant-improvement reimbursements.
- Whether lung-test revenue growth and Medicare coverage translate into sustained test volume, collections and margins as COVID-19 testing declines.
- Potential dilution from equity facilities, debt redemption shares, and outstanding equity awards; also verify the share count after the period-end date.