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spk04: Joanne, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Biodesics second quarter 2022 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star 1. Chris Brinze, you may begin the conference.
spk01: Thank you, Operator, and good morning, everyone. Thank you for joining us today for a discussion of Biodesic's second quarter 2022 business highlights and financial results. Leading the call today will be Scott Hutton, Chief Executive Officer. He will be joined by Robin Harper-Cowie, Chief Financial Officer. After the prepared remarks, we will open the call for Q&A. An audio recording and webcast replay for today's conference call will also be available online as detailed in the press release announcement for this call. Today we issued a press release announcing our business highlights and financial results for the second quarter of 2022. A copy of the release can be found on the investor relations page of the company website. Actual events or results may differ materially from those projected as a result of changing market trends, reduced demand, and the competitive nature of biodesics industry. Such forward-looking statements and their implications involve known and unknown risks, uncertainties, and other factors that may cause actual results or performance to differ materially from those projected. The forward-looking statements discussed on this call are subject to other risks and uncertainties, including those discussed in the risk factors section and elsewhere in the company's annual report on Form 10-K for the year ending December 31st, 2021, filed with the Securities and Exchange Commission on March 14th, 2022, as well as subsequent quarterly reports on Form 10-Q filed during 2022 as applicable. Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company's press release issued today and in the company's filings with the SEC. With that, I would now like to turn the call over to Scott Hutton, Chief Executive Officer. Scott?
spk07: Thank you, Chris. As a reminder, Biodesics is a patient-centric, mission-driven lung disease diagnostic company. with a mission to unite biopharma, physicians, and patients to transform the standard of care and improve outcomes with personalized diagnostics. In our last call in May, we were excited to share that towards the end of the first quarter, we were experiencing strong sales growth in our core lung diagnostic testing, driven in part by sales access returning to pre-pandemic levels. I'm thrilled to say that that strength continued through the second quarter. We finished Q2 with total revenue of $11 million, which includes core lung diagnostic testing revenue of $7.3 million, reflecting a very strong 52% year-over-year growth and 56% growth over the first quarter of this year. This was a record quarter in terms of revenue and delivered test volumes. As we begin to put many of the challenges of adapting to a post-pandemic world behind us, we are confident that this momentum will carry through the end of the year and beyond. Stepping back for a moment, we believe we have one of the most comprehensive suites of diagnostic tests with five blood-based tests available to support clinical decision-making across the lung cancer continuum. From initial risk assessment of lung nodules with notified lung testing strategy, to post-cancer diagnosis treatment guidance and monitoring with the IQ Lung Testing Strategy. The Notify Lung Testing Strategy consists of two blood-based proteomic tests, Notify CDT and Notify XL2, which are used by physicians to assess the risks of malignancy of a lung nodule. This helps prioritize higher-risk nodules for invasive diagnostic procedures while also helping avoid unnecessary procedures on very low-risk nodules. In June, we announced that Medicare began covering the NotifyCDT lung nodule test at a price of $649. This is a significant milestone for biodesics and ensures access and availability to notify testing for patients with lung nodules. Last year at this time, we had four tests, three of which were covered by Medicare. Just one year later, we not only launched a new test, but we have Medicare coverage for all five diagnostic tests. Overall, as physicians gain more experience with our notified lung testing strategy, we continue to receive positive feedback reflected in increased adoption, which we believe demonstrates the clinical relevance and utility of these tests, and validates that we are only beginning to realize the full potential for notified lung to change the standard of care in lung nodule risk assessment. In addition, we also announced a collaboration with Philips to incorporate the notified lung test into the Philips Lung Cancer Orchestrator patient management system. We've observed a growing demand for digital integration in hospitals as an important factor to streamline logistics and create diagnostic efficiency by incorporating proteomics, radiologic, and patient history data in one place to support treatment decisions. We believe integrating our notified test into the Philips Lung Cancer Orchestrator will help facilitate digital ordering of the test following detection of a lung nodule with the ultimate goal of improving patient care and outcomes. As the integration progresses and rolls out, we'll provide updates over the coming quarters. Moving to our IQ lung test, we started the year with a full commercial launch of the Genistrat NGS test, increasing our treatment guidance portfolio to three blood-based tests including the Genistrat Targeted DDPCR Genomic Test and the Veristrat Proteomic Test. Offered as options within IQ Lung Testing Strategy, these tests are used to inform treatment decisions and monitor for the rise of resistance mutations while patients are on therapy. The addition of NGS testing means we can now offer physicians the option to detect a broader range of less common genetic alterations. The Genistrat NGS test is still early in its product launch, but we're pleased with the feedback and interest, not only in the Genistrat NGS test, but also the full portfolio of IQ lung treatment guidance testing. We continue to support and invest in data generation to demonstrate and reinforce the clinical utility of our test, as well as looking to sign meaningful collaborations to further drive adoption and growth of our entire core lung diagnostic testing suite. For example, in May, we presented a poster assessing the impact of the Notify XL2 test in a real-world clinical setting at the American Thoracic Society International Conference. Data presented highlighted the impact of the Notify XL2 test on clinical management decisions, and investigators showed the Notify XL2 test was able to support a decrease in chest imaging, outpatient clinic visits, and additional invasive procedures, without misclassifying benign lung nodules. At the upcoming International Association for the Study of Lung Cancer 2022 World Lung Meeting this month, we will be presenting data demonstrating that the Veristrat test is predictive of progression-free survival and overall survival in patients testing low or negative for PD-L1 when treated with immune checkpoint inhibitors. We know there's a need for additional testing beyond PD-L1 alone. to better identify who is likely to respond to immunotherapy, and we believe this data shows that Veristrat has the potential to play a role in this decision-making. Beyond this, we have multiple other clinical studies being conducted, and we expect the upcoming full data readout and publication of our Oracle study of the Notify XL2 test to further support our sales and reimbursement efforts for the test. Additionally, we look forward to providing further updates on our ongoing insight study for the IQ lung testing strategy, the altitude study of our notified test, and the beacon study for primary immune response, our immunotherapy guidance test, and our further development efforts for our pipeline risk of recurrence test. Moving to our biopharmaceutical partnerships and services business, we reported revenue of $.7 million for the quarter, which continues to rebuild and rebound more slowly than we would like. While we're beginning to see enrollment pick up from the serious disruptions of the pandemic, we have seen numerous studies extended, we've continued to experience challenges and logistics delays in sample shipment, and therefore have not delivered on the timelines we originally anticipated. Yet, we continue to maintain a backlog of prospective and retrospective studies that we plan to work through over the rest of this year and into 2023. Adding to our confidence here is that we continue to receive positive feedback and interest in the Biodethics Diagnostic Cortex proprietary AI and machine learning platform and our broad multimodal and multi-omic service offerings. Our ongoing efforts and advancements in explainability and transparent AI will provide unique insights and clarity to healthcare professionals and research teams by providing the ability and potential to identify key biological mechanisms driving specific outcomes for patient subgroups that may require a different approach or different treatment. Overall, we remain confident that in the near future, we'll see growth in revenue from increasing demand for our service offerings. Lastly, we continue to look for ways to broaden our product offering, enabling us to capture a larger percent of the $29 billion total addressable market. In June, we announced a new research agreement with one of the top cancer centers in the U.S. Memorial Sloan Kettering Cancer Center, and our existing partner, Bio-Rad Laboratories, to help develop a new novel minimal residual disease test. Also, we plan to utilize our array of genomics, proteomics, artificial intelligence, and machine learning capabilities with the aim of developing additional biomarker assays in collaboration with MSK. We've said it before and cannot reiterate it enough. Lung cancer kills more people in the U.S. annually than the next three cancers combined. And time matters when treating these patients. We pride ourselves on BioDesk's ability to discover, develop, and commercialize a broad range of tests that can quickly provide critical results and insights back to healthcare professionals with best-in-class testing turnaround times for all of our tests to help improve patient care. With a comprehensive suite of tests, all with Medicare reimbursement, and the ability to offer diagnostic solutions across the continuum of care. We believe we've just begun to scratch the surface of this $29 billion market opportunity, and that we have both the team and the products to drive growth in 2022 and beyond. Now, let me turn it over to Robin to review the first quarter 2022 financial performance. Robin.
spk03: Thanks, Scott. We are pleased with our second quarter total revenue and core lung diagnostics revenue. which exceeded consensus estimates. Overall, total revenue was $11.0 million compared to $11.9 million for the second quarter of 2021 and represented an increase in revenue from our five core lung diagnostic tests and offset by an expected decrease in COVID testing as testing moved more towards at-home rapid antigen testing. Our second quarter core lung diagnostic testing revenue was $7.3 million from total volumes of approximately 5,600 tests versus 4.8 million from total volumes of approximately 4,000 tests for the second quarter of 2021. This represents 52% revenue and 40% volume growth over the second quarter of 2021 and 56% revenue and 30% volume growth over last quarter. The growth in test volume is primarily driven by our Notify CDT and Notify XL2 tests and the recent launch of the Genistrat NGS test. Biopharmaceutical services revenue was $0.7 million compared to $1.0 million in the second quarter of 2021, a decrease of 29%. As we've said before, this business can fluctuate due to several factors, including contract timing and project execution, but in this instance reflects the continued impact the pandemic has had on extension of prospective clinical trial timelines and shipping of samples needed to complete the projects and recognize revenue. We ended the quarter with up to $7.8 million contracted but not yet recognized, $2.2 million of which is currently on the balance sheet as deferred revenue as we have already collected the cash. COVID testing revenue was $3.0 million in the second quarter 2022 versus $6.1 million in the year-ago quarter, an anticipated decrease which we discussed in our May earnings call. The increase in the second quarter over the prior quarter was due to a contract with the state of Colorado to handle the surge in testing required due to the Omicron spike seen over the last couple of months. This contract expires by the end of August and should not be modeled to continue nor contribute significant revenue into the second half of the year. We have consistently projected that COVID testing as a percentage of revenue would drop off significantly as compared to the prior year, as testing shifted to readily available rapid at-home antigen testing. We expect this dynamic will continue through 2022 and therefore do not expect any significant COVID revenue for the latter half of 2022. Gross margin as a percentage in the second quarter of 2022 was 64% versus 40% in the second quarter of 2021 and 51% in the first quarter of 2022. The improvement in gross margin was primarily a result of growth in our core long diagnostic business and Medicare coverage for our Modify CDT test. We expect the overall gross margin as a percentage to remain approximately in the mid-60s, perhaps with a small increase over the course of the year as a result of several factors, including the decline in COVID testing revenue expectation, which has a lower margin than long diagnostics, plus the benefit of Medicare coverage for NotifyCVT tests and the expanding scale of our Genistrat NGS test. Overall operating expenses, excluding direct costs and expenses, were $18.6 million in the second quarter of 2022, compared to $15.4 million for the same period of 2021. The year-over-year increase seen in the quarter was primarily driven by increases in sales and marketing expense. As a cost-maintaining measure, we effectively kept the size of our sales organization from the first quarter of 2022, but the main difference in expense was that the team had access to physicians for in-person meetings requiring travel for the full quarter versus limited access in the first quarter. While the impact of physician access and inflation contributed to an increase in travel costs within our sales and marketing expense, the sales team delivered increased productivity over the first quarter. Operating expense for the second quarter 2022 includes $7.0 million in non-cash expenses including stock-based compensation as compared to $2.4 million during the second quarter 2021. The net loss for the second quarter 2022 was $15.8 million compared to a net loss of $11.4 million for the second quarter of 2021. The increase in net loss is attributable to the restructuring of our contingent consideration arrangement with integrated diagnostics, the decrease in revenue from COVID-19 testing in 2021, and the growth of the commercial organization in 2021. In turning to our overall liquidity, we ended the quarter with $28.7 million in cash and cash equivalents, inclusive of $5.1 million in restricted cash, an increase from prior quarter primarily due to the net proceeds of $14.5 million from our private placement and at-the-market offerings and net proceeds of $12.8 million from the securities purchase agreement entered into Straderville Capital LLC, partially offset by a partial repayment of our SBB 2021 term loan and Indy Milestone payment of $3.0 million and $2.0 million, respectively. In addition to the successful liquidity enhancements during the second quarter of 2022, we have taken a variety of steps to add access to additional funding and reduce our cash burn, all while focusing on continuing to grow revenue in 2022 and 2023. We will continue to focus on liquidity enhancements that will enable us to maintain focus on revenue growth and accelerate our time to profitability. As of June 30, 2022, the company had remaining available capacity for share issuances of approximately 29.9 million under our at-the-market facility and up to 49.2 million under the LPC facility. In 2022, we will invest in projects and hires that result in near-term revenue growth while implementing additional cost savings measures that will impact the second half of 2022 and 2023. Turning to our outlook for 2022, we are reaffirming our previous guidance and anticipate 2022 total revenue to be between $37.5 million and $39.5 million. Now let me turn it over to Scott. Scott?
spk07: Thank you, Robin. So as you've just heard, it's been a busy, productive, and rewarding quarter. I'm extremely proud of the biodethics team and excited for us to continue to grow as we progress through 2022. The biodethics team remains steadfast in our commitment to, one, improve the lives of patients impacted by lung disease. Two, integrate biodethics testing into physician practices, providing all the testing needed for a lung patient through the continuum of care. one patient, one trusted company, multiple tests, personalized results. Three, discover and develop new diagnostic tests like our risk of recurrence test, primary immune response test, and the newly announced molecular minimal residual disease test. Four, lead the way with AI explainability and transparency. Five, conduct numerous clinical studies to demonstrate and reinforce the real-world performance of our test. And six, grow and expand our biopharmaceutical partnerships to aid in their research, drug development, clinical trials, and development of companion diagnostics. In closing, I'd like to thank all Biodesics teammates for their dedication to the Biodesics mission, vision, and culture, which revolves around our collective commitment and daily contributions to positively impact patients' lives. With that, I'll turn the call over to the operator for questions.
spk04: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Brian Weinstein with William Blair. Your line is open.
spk09: Hey, guys. Good morning. Hi, Brian.
spk08: Hey. I thought we'd start just some questions on the guidance in particular. Can you help maybe break that down a little bit between the core lung, the COVID, and the biopharma? There's obviously a lot of moving pieces. Robin, I think you talked about COVID really trailing off. Not sure how to think about biopharma. And then on the core lung side, what that would look like. I mean, it would appear to us that given the momentum that you guys are seeing, Sounds like access is pretty open. You can talk about that if you want, certainly. And now the CDT reimbursement coming in at a higher level than I think that we would have anticipated. It would seem like that core long franchise should have some pretty good momentum behind it. So can you just talk about how you thought about all of that with the guidance and breaking that down for us?
spk03: Sure. Good morning, Brian. Yes. Well, obviously, we're very pleased with the growth momentum in the core lung diagnostics and with the price for NotifyCDT. We do expect to continue to have strong growth, but I think, as I mentioned earlier, we've been very cautious about adding new heads and growing the size of the organization this year, trying to maintain or reduce our expected spend and burn, which could potentially temper some of that higher level growth versus if we just continue to wholesale expand the sales team. From COVID and biopharma, yes, we expect COVID to drop off due to the expiration of the contract with our state of Colorado partner. And with the biopharma delays in shipping and extension of the timelines for those studies, we sort of look at COVID and biopharma as offsetting each other. So we think with our lung diagnostics, we're on track as we've talked about over the course of the year. And with COVID and biopharma somewhat offsetting each other, that's how we got and remain at our revenue guidance of 37 and a half to 39 and a half.
spk08: Yeah. It just feels as if there may be some conservatism that's built into that core language. I guess, I guess I understand, you know, just given, you know, prior uncertainty and whatnot, and you guys just kind of getting back on your feet a little bit. Is that an appropriate characterization that there's some conservatism that's sort of built in here and, Because again, just given the higher CDT reimbursement than what we would have thought in the momentum that you're seeing, it would seem that those numbers could actually be a bit higher. I just want to make sure that there's nothing that you're seeing in the end market that's concerning or anything like that that would kind of put a lid on that growth or it's just conservatism being just given what we've seen over the last couple of years.
spk03: You're absolutely right, Brian. It's conservatism. We're trying to plan... and anticipate that we could potentially have another COVID wave that sneaks up on us. I think what we've learned over the last couple of years is nobody really can predict COVID or how it impacts hospitals and physicians and the general population. So yes, there's absolutely conservatism built into the lung diagnostic forecast.
spk08: Okay, thank you. And then on the lung portfolio, Scott, maybe you can talk a little bit about the sales cycle there, what you're seeing in terms of physician willingness to engage with you guys and how long it takes to kind of close an account and what kind of utilization you're seeing. You're not providing physician metrics that you are providing test volume, which we appreciate, certainly. But can you just talk about sales cycle, how long it takes to close people, kind of just feedback that you're hearing in general?
spk07: Yeah, thanks, Brian. Great question. As a reminder, we launched Notify XL2 and Notify CDT both right into the pandemic headwind. So the way we look at this is we went into lockdown, we launched these two products, we were doing the best we could remotely. So now with our returning to a pre-pandemic state of access, we're out there really educating and informing physicians on these two new products. In many cases, we're introducing them to Biodesics and our full portfolio of products and test capabilities. We're being received and welcomed exceptionally well. And as you've seen, it results in the strong and significant growth we've experienced. It really depends from an individual sales rep perspective on the prior history experience with the biodiesel sales reps pre-pandemic. In some cases, as you'll recall, we're out introducing ourselves because we've expanded the sales force significantly pre-IPO. We stated that we would double the size of the sales force in 2021. We did that. We continue to focus on expanding the sales force. Given the current market and economic environment, we're more mindful of where we expand and when we expand. And we prioritize those areas that are under-penetrated with a high incidence and prevalence of lung cancer, where we think we can go in and make a significant positive impact in patient care. With the major society meetings for pulmonologists coming up in the fall, we think we've got a great opportunity to continue to increase those face-to-face interactions. And if you think about it, when I state that we launched Notify CDT and XL2 going into the pandemic headwind, we've not attended CHEST since the launch of those two meetings in person. So we're looking at this as a huge opportunity to continue to to build on the momentum that we've got already. Is that helpful, Brian?
spk08: Yeah, it is. I appreciate that. And then one last one for Robin. Robin, can you talk about operating cash flow expectations for the year? Obviously, you'll have access to different sources of capital, so on the financing side. But just in terms of the cash flow from operations, how should we think about the burn for the fall year there?
spk03: Yes. We anticipate as our revenue grows, obviously operating cash flow will improve and our burn will reduce across the year. We noted in the remarks today that this quarter included $7 million of non-cash expenses. I believe I noted last earnings call that due to the changes in our debt structure, the reorganization of the Indy milestone payments and all of the other movements we've made, we had more expense hitting the interest expense line, and so we saw that for sure in the second quarter, and we'll continue to see that as we move forward through the rest of this year and into 2023. We plan to utilize the liquidity options we have over the rest of the year and into 2023, and also we'll continue to look at other options and other facilities that could further enhance our cash position to get us to cash flow break even. Okay.
spk09: All right. I've got a bunch more, but we'll deal with those offline. So, thank you guys for taking the questions.
spk04: Your next question comes from the line of Max Masucci with Cohen. Your line is open.
spk06: Hi, thanks for taking the questions. Great to see the continued momentum in the lung cancer diagnostics business. So first one, just based on today's release and commentary from prior calls, it's safe to say that XL2 and the CDT volumes continue to ramp nicely. I'm curious, is there any detail you can provide around the amount of notified CDT volumes that that you were processing or taking in before the Medicare coverage hit but not getting paid on. And so with the CDT reimbursement starting to flow in during June going forward, I'm just trying to understand if there's potential for a near-term revenue boost if you do start getting paid on some CDT volumes that you've been taking in previously but not getting paid on prior to the coverage one.
spk03: Morning, Max. Yes, we're very pleased, obviously, with the Medicare coverage and the pricing that we received. We have received some payments on tests that we brought in prior to the coverage as we move through the appeals process. As with Medicare, you're never 100% certain how all of the claims volumes and the timing of those will flow. So we're not projecting any major backlog or large numbers here. We're just really looking to the future and projecting the full coverage of the test at the 649 moving forward. Okay, great.
spk06: And, you know, even before, you know, CDT earned Medicare coverage, my understanding is that it was, you know, frequently being ordered in tandem with XL2. But maybe can you just remind us, you know, what the frequency is of, you know, of both, you know, CDT and XL2 being ordered together, you know, versus on a standalone basis? And then just given the bundled approach of the risk assessment strategy, you know, how do you expect the notified CDT Medicare coverage to influence, you know, the frequency of XL2 ordering and just that bundled type approach?
spk07: Hey, Max, great question. Yeah, as we've stated in the past, what we've seen as physicians become comfortable and knowledgeable on the benefits of Notify testing is both tests being ordered together. Physicians really see both the benefit of a rule-in test and a rule-out test. And so with Notify CDT being run first, that really falls in line with physician thinking, right, as they're trying to find those patients with a likely malignant nodule so that they can intervene. We all know that since we're dealing with the deadliest of all cancers, early detection and diagnosis increases the likelihood of a positive outcome. So with a positive or a likely malignant result, those physicians then know to intervene. At that point in time, we do not run the XL2 test because there's no need. So we've seen them ordered predominantly together. And then it really just depends upon whether XL2 is run, and those percentages will vary based upon each individual physician practice and how they're targeting and selecting patient populations. We do anticipate and expect, coming out of the pandemic, because physicians told those at-risk patients to stay away and stay healthy, as they come back out, they're prioritizing the high-risk patients. And so when you reference the Medicare coverage for CDT, We think there's upside and a positive impact as we see more utilization or positive likely malignant test results for notified CDT.
spk06: Great. Appreciate that, caller. And maybe one final question for Robin just around biopharma. I mean, is there any update, you know, or detail around just the size of the biopharma backlog and where it stands or even maybe the growth of in the biopharma revenue backlog if some of the conversion has occurred a bit slower due to factors that are not specific to biodesics. We've seen it for many other companies. So detail around the size of the backlog, the growth in the backlog, and then maybe even the percentage of the backlog that's coming from perspective versus retrospective studies.
spk03: Sure, happy to. We currently have 7.8 million in backlog, the currently signed contracts that are not yet recognized revenue. We are pleased with that number and really pleased actually with the funnel for contracts, the number of contracts and the size of the contracts that are under negotiation and moving forward. really gives us confidence in our long-term biopharma business. You're exactly right that the conversion factor is really hard to calculate right now due to the outside factors. We really have sort of three timelines here. There's sort of pre-COVID, the two years of COVID, and now hopefully what is post-COVID. And they really all are very, very different. So it's hard to compare each other. The larger portion of the backlog is in prospective studies. The retrospective studies tend to be shorter timelines because the samples are already collected and the biggest factor for us in getting those done is sample shipments. So we've mentioned and I've seen others mention as well delays in getting samples in the door. So that does push off some of the retrospective projects from being completed But because the larger portion of the business right now is prospective, any delays or extensions of timelines really does impact the revenue in the current quarter.
spk06: Great. Super helpful as always. Thanks again.
spk04: Your next question comes from the line of Kyle Mixon with Canaccord. Your line is open.
spk05: Hey, thanks. Congrats on the quarter. So, Rob, I want to start with the CDT reimbursement, 649 solid rate. It's not on the CMS ADLT list, at least when I last checked. I guess is ADLT an option for CDT? Obviously, many of your tests have been granted ADLT status and enjoy those higher payment rates. Could CDT join that group? And if so, when could that happen?
spk03: Great question, Kyle, and good morning. There is potential for ADLT, but I would not expect an increase in the price. For ADLT Category A, which if CDT were to receive that status, that's the category, it would be under the price for the test For the first nine months, it's actually the list price on the first data test is offered, and that list price for us is $649. So we actually did receive our original list price from Medicare already, so we're already above where we had expected to be. So I would not expect any change to that price. And I also can't really comment about ADLT timelines if we were able to get that status sort of at the mercy of CMS.
spk05: Okay. All right. Thanks. So on gross margins, mid-60s through second half of the year, does that basically mean that the fourth quarter gross margin could be like flat at two Q levels? I'm just wondering like why that would be just given – You would assume volumes would increase. You have the reimbursement here in the back half. So maybe could you just walk through the puts and takes, Robin, the gross margins?
spk03: Sure. I would expect a couple-point uptick, but just not major increases. So in the mid-60s, perhaps up to the 67% by the end of the year, I think makes sense. The biggest drag right now on gross margins is the Genestrat NGS launch. As with every test, as you're ramping and scaling, getting to scale is really a critical factor for strong, positive gross margin contribution.
spk05: Okay, that was great. And then, Scott, it would be meaningful if Veristrat was found to be predictive of PFS and OS. Could you just walk through the path to develop like of airstrike and panic diagnostic, and I'm wondering if the biopharma partnerships are in place today that could enable that.
spk07: Yeah, good morning, Kyle. Great question. Yeah, we do offer all of our commercial tests as available options for biopharma partnership continued research, and so we have a significant amount of data that they could support, but we're not capable at this point in time of disclosing any of that. I think what I would focus on is kind of connecting the dots to what we said a few months ago related to kind of cracking or breaking the black box. We know that historically a number of diagnostics couldn't clearly communicate what they were measuring and in what quantities or abundance, and we've broken that black box. And so our efforts with transparent AI and explainability we feel strongly that we'll have the ability to highlight exactly what proteins and what abundance and combinations we're measuring with Veristrat. And we think that leads to renewed conversations that will allow us to build, hopefully, towards companion diagnostic opportunities. And then the same, that will build towards the introduction of primary immune response and risk of recurrence. We think it's critically important that as more and more clinical interest shifts towards proteomics, that we be the leader on the LDT and commercially available proteomic test front to highlight exactly what proteins are being measured, and most importantly, continue to invest in data development. And we've got our INSIGHT trial, which you may recall, we've got over 4,500 patients enrolled in that, where we have the ability to highlight patient response to different real-world treatments in combination with a Veristrat test result. So much more to come there, Kyle, but you're thinking about it exactly how we are and how the conversations with physicians and biopharma are going.
spk05: Okay, that sounds promising. Thanks, Scott. If I could just ask another one before I hop off. There's obviously a lot going on in biodesics right now, a lot of good things. Avail, MSK, Phil Webb, congrats on all those kind of updates. What are you doing, I guess, to ensure you can kind of thoughtfully contribute to all your projects, like all the current tests, the pipeline tests? while still executing business as usual and continuing to improve performance, as you have done, obviously, in the recent quarters. You know, we're all excited for you, and we're confident in biodesics. Just the company's not very large, obviously. Just kind of a question worth asking. Thanks.
spk07: Yeah, it's a great question, and thanks for the kind words, Kyle. We appreciate that. We take all of that to heart. We think we punch above our weight class. It's taken a little bit of time for people to start to see that. But what we don't want people to think is that we're not mindful and intentional with our time, energy, effort, and expenses. So for us, it really is about the greatest impact. We know that our notified testing strategy has the largest market opportunity. We also know that we can have the most significant impact there. Since those are the two tests that we've commercialized most recently and prior to the pandemic and then NGS to follow the pandemic, We're going to focus on notify on the sales front. We think that that's the introduction, kind of that warm handoff as a patient comes in with some concern to assess whether they have a malignant nodule or not. So for us, that's top priority. We mentioned it on the call. We're very mindful of Salesforce expansion. We're going to continue to expand opportunistically, but we're going to pull back if we don't think we can get a near-term return. I think the same applies to our product pipeline and R&D efforts. We really want to be focused on near-term return. We're proud to share that we believe we're the only company focused in Lung with five on-market tests that all have reimbursement. That benefits us, as Robin said, as we strive to get closer to profitability. And so we may pull a few levers here and shift some things in our product pipeline cadence as we progress. But the nice thing about that is, you know, we've got many shots on goal. Again, we continue to punch above our weight class, if you will. And we think that this opportunity will continue to fuel us. But more to come in the future quarters as we continue to make progress. And as Robin said, we'll start to highlight and tease out when we think we can get to profitability. But we feel really good about where we're at today. Great. Okay, that was well said.
spk05: Thanks, Scott. Thanks, Robin.
spk04: Again, if you would like to ask a question, press star, then the number one on your telephone keypad. And the next question comes from the line of Tiha Savant with Morgan Stanley. Your line is open.
spk02: Hello, this is Yuko on for Tejas. Thank you for taking our questions. Could you elaborate on the scope of the research partnership with MSK on developing novel MRD tests? And what are the financial implications from the agreement?
spk07: Yeah, great question and good morning. You know, we didn't disclose the specific details, but what we can tell you is really it's a broad research discovery and development agreement. And so, we highlighted MRD because that's the first and the highest priority. We'll look forward in future earnings calls and quarters to highlight progress being made and give greater detail as we progress through that. But we think this is critically important. To Kyle's question, when you think about our shots on goal and opportunities, we think it says a lot about not only who we are, our culture, and our capabilities, to have someone like Memorial Sloan Kettering partner with us. And so those type of relationships and partnerships give you great access to physicians that are treating patients. And in an integrated system, you've got the ability to align and focus on a common goal. And so we think that product development efforts in partnership with them, there's potential to accelerate timelines when compared to a diagnostics company going at it alone. So we're very, very excited about that. It's very promising. And again, we think it says and speaks volumes about who we are And we expect to have more partnerships and collaborations like this in the future.
spk02: Great. Thank you for that color. And then some of the companies notice staffing shortages in hospitals and physician offices. Are you seeing the same? And if so, does that represent a headwind for the lung diagnostic products?
spk07: Yeah, you know, it's a great question. And I think all of us experience that in our day-to-day lives. We're all consumers of something and we've seen delays. I don't think that healthcare is insulated from that. I think we all have read the press clippings. We're starting to understand that there is potential for increased nursing and physician shortages. For us, I wouldn't state that we're insulated from it, but at this point in time, we're not seeing a significant impact. We continue to monitor it. Obviously, we're focused on building strong relationships with those healthcare professionals, their practices, and their teams. But the way we look at it is if they're scheduling patient visits, we know that they've got the staffing to support that. And because we're offering blood-based testing, we really don't see any constraints at this point in time. But again, we're watching it closely. We want to be mindful of the different challenges that healthcare professionals have gone through, not just in the last few weeks and months, but over the last few years. They're tired, they're overworked, they're frustrated. Most importantly, they're excited to get back to a pre-pandemic state, to treat those patients that they've dedicated themselves to treating and positively impacting. So, We'll keep you posted as we progress through future quarters if and when that becomes an issue. But at this point in time, we don't see that being a rate limiter.
spk02: Got it. That's great to hear. And then a quick one for Robin. With the interest rates going up, should we anticipate any changes in that interest expense line? And then could you also provide color on how we should think about OPEX trends for the remainder of the year with ongoing inflationary pressures?
spk03: Yes, I would say that our interest expense should remain fairly similar to what we had in the second quarter for the remainder of the year, less because of increasing interest expense because our current debt and what we have, those contracts are already in place, but more from the restructuring and the facilities we put in place in the second quarter. As for OPEX, I would anticipate the slight increases in OPEX across the rest of the year, anticipating further costs and pressures from inflation and on travel. And as Scott mentioned, we're very excited for the second half of this year to have actual in-person conferences again. This will be the first time since 2019 that Our conferences are all in person, and our teams will be there for the first time in two years or three years. So I would anticipate some slight increases in the op-ex as we move forward.
spk02: Great.
spk09: Thank you so much.
spk04: There are no further questions at this time. This concludes today's conference call. You may now disconnect.
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