Biodesix, Inc.

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Good day, and thank you for standing by. Welcome to the Biodesic's third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Chris Brenzi.

Thank you, operator, and good morning, everyone. Thank you for joining us today for a discussion of Biodesic's third 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 third quarter 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 31, 2021, filed with the Securities and Exchange Commission on March 14, 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. I would now like to turn the call over to Scott Hutton, Chief Executive Officer. Scott? Thank you, Chris.

As a reminder, Bioethics is a patient-centric, mission-driven, lung disease diagnostic company with a mission to unite physicians, patients, and biopharma to transform the standard of care and improve outcomes with personalized diagnostics. At Biodethics, we have worked hard to build one of the most comprehensive suites of precision diagnostic tests to support clinical decision-making across the lung cancer continuum of care. Our core lung diagnostic testing portfolio ranges from initial risk assessment of lung nodules with the notified lung testing strategy to post-cancer diagnosis treatment guidance and monitoring with the IQ lung testing strategy. Notify Lung consists of two blood-based proteomic tests, Notify CDT and Notify XL2, which are used by physicians to assess the risk of malignancy of a lung nodule. Our IQ lung testing strategy includes our portfolio of three blood-based tests, the Genistrat NGS genomic test, the Genistrat DDPCR targeted genomic test, and the Veristrat proteomic test. Offered as options within the IQ lung testing strategy, these three tests are used to inform treatment decisions and monitor for the rise of resistance mutations while patients are on therapy. All five of the tests in our core lung diagnostic testing portfolio are covered by Medicare, and we believe we are the only diagnostic company with five on-market tests focused on lung cancer that all have Medicare coverage. Turning to Q3 results, I'm excited to announce that we had another strong quarter that built upon recent momentum and, again, was highlighted by record revenue and volume growth from our core lung diagnostic test. These positive trends, which really began at the end of the first quarter, 2022, represents the true potential for growth in our core lung diagnostic business in a period that was largely free of COVID impact. This growth has been driven in part by sales access returning to pre-pandemic levels, as well as physicians and care teams focusing on those patients that were a priority pre-COVID. Overall, we finished the third quarter 2022 with total revenue of $11.1 million, which includes core lung diagnostic testing revenue of $9.2 million, reflecting very strong lung diagnostic revenue growth of 102% year-over-year and 26% growth over second quarter of this year. In terms of testing volumes, this represents 72% growth over the third quarter of 2021 and 16% growth over last quarter. We're confident and believe that this momentum will carry through to the end of the year and beyond. In addition to the tailwind from sales activity returning to pre-pandemic levels, we're also continuing to see positive impact from our efforts to expand reimbursement across all of our tests. Last quarter, we announced that Medicare began covering our NotifyCDT lung nodule test, which had an immediate positive impact on NotifyCDT revenue. We continue to expand reimbursement efforts beyond Medicare, and in October of 2022, we announced another significant milestone with the signing of a federal supply schedule contract. that expands coverage to the U.S. Department of Veteran Affairs and military health system medical centers. This contract covers the use of all five of our core lung diagnostic tests in the country's largest health system, consisting of 1,298 healthcare facilities covering over 9 million veterans, 900,000 of which face an elevated risk and a 25% higher likelihood of developing lung cancer compared to the general population. We're pleased to be aligning with the VA in this effort to improve care for our veterans and our commercial and medical affairs teams will be coordinating on a strategy to drive test adoption in this important segment through the fourth quarter and well into 2023. We continue to dedicate resources to further penetrate all target markets with a primary focus on high value strategic initiatives similar to the VA contract, large healthcare system integrations, while securing reimbursement through additional third-party payer agreements. We can confidently say that we're making progress on this front and expect to have updates in the coming months and quarters. We also continue to support and invest in data generation to demonstrate and reinforce the clinical utility of our test, as well as looking to find meaningful collaborations to further drive adoption and growth of our entire core lung diagnostic testing suite. At the recent American College of Chest Physicians 2022 Annual Meeting, we presented a new subgroup analysis of data from the Oracle Study that evaluated the performance of our Notify Testing Strategy in a real-world environment. This data, along with two other presentations, reinforced that use of the Notify Testing Strategy enables physicians and care teams to better risk stratify patients with lung nodules and avoid unnecessary invasive procedures without misclassifying benign lung nodules. We expect the upcoming full data readout and publication of the Oracle study to further support our sales and reimbursement efforts. We also recently presented data evaluating our proprietary blood-based Veristrat proteomic immune profiling test. at the International Association for the Study of Lung Cancer 2022 World Lung Meeting in July. This retrospective analysis was conducted by Northwestern University, and the study demonstrated 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 is a need for additional testing beyond PD-L1 alone to better identify those who will likely respond to immunotherapy. And we believe this data shows that Veristrat has the potential to play a role in this decision-making process. Beyond this, we have multiple other clinical studies being conducted, and we look forward to providing further updates on our ongoing studies, such as our INSIGHT study of the IQ lung testing strategy, the altitude study of our notified lung testing strategy, and further development efforts for our risk of recurrence, minimal residual disease, and primary immune response test. Moving to our biopharmaceutical partnership and service business, we reported revenue of $700,000 for the quarter, which was flat compared to the second quarter of 2022, and continues to reflect a slower rebound driven by challenges and logistics delays and sample shipments that have caused us to push out our originally expected timelines. Yet, we continue to maintain a robust backlog of prospective and retrospective studies. Our ongoing efforts and advancements in explainability and transparent AI provides what we believe are unique insights and clarity to healthcare professionals and biopharmaceutical and academic research teams, by providing the ability to identify key biological mechanisms driving specific outcomes for patient subgroups that may require a different approach or different treatment. We remain confident and expect to see growth in revenue in this business as we recover from the aforementioned logistical delays and sample shipment challenges. We've said it before and cannot reiterate it enough. Lung cancer kills more people in the U.S. annually than the next three deadliest cancers combined, breast, prostate, and colon cancer. Time matters when treating these patients. We pride ourselves on Biodesic's ability to discover, develop, and commercialize a broad range of tests that can quickly provide critical results and insights back to healthcare professionals and care teams with best-in-class testing turnaround times for all of our tests. to help improve patient outcomes. With a comprehensive suite of tests, all with Medicare coverage, 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 we have both the team and the products to drive continued test volume and revenue growth for the remainder of 2022 and beyond. Now let me turn it over to Robin to review the third quarter 2022 financial performance. Robin?

Thanks, Scott. We were very pleased with the growth of our total and core lung diagnostic revenue in the third quarter, with total revenue of $11.1 million compared to $6.5 million for the third quarter of 2021, an increase of 70%. Most importantly, this was driven by growth from our five core lung diagnostic tests with revenue of 9.2 million from record lung diagnostic test volumes of approximately 6,500 versus 4.5 million from total volumes of approximately 3,800 tests for the third quarter of 2021. This represents 102% revenue and 72% volume growth over third quarter of 2021 and 26% revenue and 16% volume growth over last quarter. The growth in test volume was primarily driven by our notify lung testing, as well as the recent launch of the Genistrat MGS test. Biopharmaceutical services revenue was $0.7 million compared to $1.5 million in the third quarter of 2021, a decrease of 55%. As a reminder, 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 7.2M dollars contracted, but not yet recognized its revenue, including approximately 600,000 of which is currently on the balance sheet as deferred revenue as we have already collected the cash. COVID testing revenue was $1.3 million in the third quarter 2022 versus $0.5 million in the third quarter of 2021, an increase that is due to testing for the state of Colorado. Consistent with our disclosure from last quarter, this contract expired in August with no additional testing in September or beyond. COVID testing should not be modeled to continue nor contribute significant revenue in the fourth quarter or into 2023. We have consistently projected that COVID testing as a percentage of revenue would decline significantly. This trend has continued and we are no longer performing meaningful test volumes. Gross margin percentage in the third quarter 2022 was 67% versus 58% in the third quarter of 2021 and 64% in the second quarter of 2022. The improvement in gross margin was primarily a result of growth in our core lung diagnostic testing business and receiving Medicare coverage for our notified CDT test. The quarterly margin was negatively impacted by an inventory reserve, the majority of which pertains to the wind down of the COVID testing operation, and accounted for a margin reduction of approximately 270 basis points. We expect the overall gross margin percentage to continue to increase as a result of several factors, including the benefit of Medicare coverage for notified CDT tests, improvements in reimbursement over time, the growth and ramp of our Genistrat NGS test, and the decrease in COVID testing. Overall operating expenses, excluding direct cost of expenses, were $18.1 million in the third quarter 2022 as compared to $16.9 million for the same period of 2021. The year-over-year increase seen in the quarter was primarily driven by strategic increases in sales and marketing expense dedicated to sales growth partially offset by reductions in expenses in research and development and general administrative expense. We continue to deploy a disciplined cost approach, and while we grew the average number of sales representatives and their sales efficiency over the previous quarter, we reduced operating expenses in sales and marketing, research and development, and general administrative for an overall reduction in total operating expenses of 3%, or approximately $500,000, as compared to the second quarter of 2022. Operating expense for the third quarter of 2022 includes $1.2 million in non-cash stock compensation expense as compared to $1.4 million during the third quarter of 2021. The net loss for the third quarter of 2022 was $13.7 million compared to a net loss of $11.5 million for the third quarter of 2021. The increase in net loss is primarily attributable to the gain on extinguishment that was recorded in the third quarter of 2021 of $3.1 million related to the loan forgiveness under the Small Business Administration Loan Forgiveness Program and increased interest expense partially offset by a $2.5 million reduction in operating loss versus the third quarter of 2021. We ended the quarter with $15.2 million in unrestricted cash and cash equivalents. as compared to $23.6 million in unrestricted cash and cash equivalents at the end of the second quarter of 2022, a reduction of $8.4 million, which includes the following key components. $1.7 million in net proceeds from equity issuances from our equity facilities, $4.1 million in payments for principal repayment and contingent consideration, and $700,000 in capital expenditures for leasehold improvements related to our new facility which are tenant improvements subject to reimbursement during the fourth quarter 2022. After taking into consideration the items above, our cash burn for the quarter for all non-financing activities was approximately $5.3 million, a substantial decrease to previous quarters and a reinforcement of our focus on cost discipline and maintaining our liquidity. Our liquidity and raising additional capital is a top priority, and we continue to work diligently to strengthen our balance sheet as well as tightly control expenses along with strong cash management. We will continue to focus on investing in projects and new hires that result in near-term revenue growth while continuing to drive additional cost savings measures that will impact 2023. As of September 30, 2022, the company had remaining available capacity for share issuances of approximately $29.5 million at the market facility. and up to $47.9 million under the Lincoln Park Capital Facility, each subject to the applicable limitations of the underlying contract. Turning to our outlook for 2022, the company expects to be at the high end of its previously disclosed total revenue guidance for 2022 of $37.5 million to $39.5 million. Our guidance contemplates minimal COVID-19 and biopharma services revenue in the fourth quarter and continued growth within our core lung diagnostic testing. Now let me turn it over to Scott. Scott?

Thank you, Robin. In closing, I would like to thank all Biodethics teammates for their belief in and dedication to the Biodethics mission, vision, and culture, which revolves around our collective commitment and daily contributions to positively impact patients' lives. In so doing, Number one, we have established a double-digit growth trajectory post-pandemic, driven by continued investment in our long-focused sales team, which are now paying for themselves in two to three months versus the previously disclosed four to six months at the end of the pandemic. Number two, we're expanding reimbursement for all of our on-market tests with a growing body of supportive clinical data. Number three, We have strong gross margins, which continue to improve with the scaling of our core lung diagnostic testing and reimbursement. And four, we continue our focus on near-term revenue drivers with a cost-disciplined approach. With that, I'll turn the call over to the operator for questions.

Thank you. And as a reminder, to ask a question, please press star 11. Again, to ask a question, please press star 11. Please stand by while we compile the Q&A roster. Our first question will come from Andrew Brackman from William Blair. Your line is open.

Hi, Scott. Hi, Robin. Good morning. Thanks for taking the questions. Maybe to start here and just sort of recognizing where we are on the calendar and also sort of the underlying momentum that you're seeing in the lung portfolio, any thoughts that you can maybe share around 23 and maybe some of the building blocks we should be considering for revenue modeling next year? Thanks.

Yeah, great question. Thanks, Andrew. And good morning, everyone. As we come out of CHEST, again, which is the American College of CHEST Physicians annual meeting, I've said it to those that I've spoken with, that was the single strongest showing at a physician conference for bioethics in our history. We showed with three podium presentations, multiple peer-to-peer training events, and we leave that with a lot of interest. And the reason that was so critical was we had not been back in person since October of 2019. So when you think of really connecting with physicians, informing, educating, and empowering them to order and utilize our tests, we've done so remote up until this point or virtually. So that's really kind of a near-term growth driver. Longer term, as we progress through Q4 and prepare for 2023, we really start to look at some of the announcements we've shared recently. The VA, as we've disclosed, is a really significant opportunity. And unfortunately for our veterans community, that is an enriched population where they have a higher likelihood of developing cancer. We think we can make a positive impact there, and we know those numbers are significant. Additionally, we've disclosed the partnership and collaboration with Philips. And so integrating Notify Testing into their lung orchestrator software is another big opportunity, where if you think about it, you've got another company and that software that's guiding and directing people to the appropriate population to order Notify Testing. Those two are significant. We have a few others in the works, Andrew, that we haven't disclosed and we'll look forward to providing updates when appropriate and when we can here in the coming weeks and months. But we're really shifting focus to continue publishing really strong data, demonstrating that these tests perform exceptionally well in a real world environment and population, empowering physicians to go out and positively impact those patients early. And so you'll start to see more information from us with private payers as we also progress into 2023.

Okay, that's great. And then maybe if I could just follow up on the federal supply contract and what you're doing with the VA. Anything specific you can tell us around sort of efforts to drive utilization there? Anything just in – or anything in particular as it relates to sort of the mechanics of that contract? Thanks, guys.

Yeah, you know, so – We shared that and announced that the Monday of CHEST. We went live into the fee schedule on the 15th, that prior Saturday. So the good news is we waited to make certain that everything was live. So when we rolled that out and communicated that at CHEST, it enabled us to meet with physicians that could be practicing in a VA and have those onboarding conversations while we were in Nashville at that meeting. So it really is, we've got a green light. It's not that we're starting from scratch or zero. We did conduct a pilot program within the VA. And so we had 11 VA sites that were part of that pilot program. And that's really what enabled us to get on the schedule, was we gave the VA the opportunity to gain as much experience with our testing so that they could make an informed decision. So after that evaluation, that accelerated getting us into the fee schedule. So for us, it's really about our sales professionals that are back into those practices, calling on those physicians, making certain that we can meet their needs and interests. As you know and others know, many physicians practice outside of VAs also. So some of those that are in VAs have experience ordering Notify in other facilities and institutions. So we're going to prioritize those accounts because they've got use. We know that they see the value in the test and have already incorporated that into their practice. So it really is all about execution now and enabling the sales team to go out there and onboard and empower those sites to begin ordering. Is that helpful, Andrew? Very helpful.

Thanks. If I could just sneak one more in here, Rob, and one for you. I think you noted cash burns on sort of on the operational basis was just over $5 million in the quarter. So we've been thinking about this as sort of the new baseline going forward or any other sort of considerations that we should be thinking about there moving forward might be helpful. Thanks.

Yes. Good morning, Andrew. Excuse me. Yes, we're focusing very hard on both driving that revenue growth and maintaining a very cost-discipline focus. So, yes, our goal is to continue to decrease the operational cash burn going forward as we continue to scale.

Great. Thank you. Thank you, Andrew.

Thank you. One moment for our next question, please. And we'll take our next question from Max Masucci from Cowan & Company. Your line is open.

Hey, everybody. Congrats on a nice quarter and a great year of execution despite a challenging market backdrop. So first question I would just love to hear, you know, how we should think about CDT, Notify CDT's contributions to the solid Q3 gross margins. if that was a real needle mover in Q3 for gross margins. And then if there are any other non-CDT gross margin trends that are worth calling out for the other four Medicare covered tests in the quarter, that'd be great.

Yes. Good morning, Max, and thanks for the questions. Third quarter was the first full quarter of having CDT Medicare coverage. So yes, it was a meaningful contributor in the quarter. In addition, the COVID testing revenue from the state of Colorado was a higher margin COVID testing than some of our other contracts, so that was a positive contributor as well. But we did see good contribution from all of our other tests, and our ASPs across the board really have maintained and continue to improve. We did note in the discussion that there was a 270 basis point negative impact to margin this quarter due to a write-off of inventory as we wrapped up COVID testing. So we're very pleased with where gross margin is and continue to expect our margins to end up in that 70 to 75% range like we saw pre-pandemic and pre-launch of all of our new tests.

Okay, great. And then I know, yeah, I'm not getting into granularity in terms of breaking a volume growth by test, but if there's anything you can provide that can help us frame just, you know, how the blended volume growth in the notify portfolio is comparing to the blended growth for the test and the IQ lung portfolio. That would be great. I think what we're trying to get out is just if there's a material delta or difference in sort of the volume growth rate you're seeing in the two different portfolios.

Yes, there is. As you would expect, and not surprisingly, the Notify portfolio is growing at a higher rate than the IQ1 portfolio. Larger market, bigger opportunity, really untapped market, first mover advantage. So the notified portfolio is definitely driving the lion's share of the growth.

Okay, great. And then final question. The Salesforce productivity ramp has been fantastic. You know, I would... It would be great to hear, you know, why you think you're outperforming some of your peers in terms of getting the reps up to speed. And then just as we think about Q4 and sales access by region, just, you know, we did have a hurricane and a Medicare heavy Florida region. And so just curious if we should be contemplating for that in the model and then just more generally, you know, what sort of sales access improvements you've seen in particular key regions and if that's been a key driver.

Yeah, great question and good morning, Max. You know, for us, this really goes back to our strategy. We've stated it before that having a direct dedicated consultative sales team that is focused on one disease state, allowing them to own each and every critical discussion and clinical question that needs to be answered. And so it really starts there. We've been very intentional and mindful about how we recruit and onboard this team. I know I'm biased, but I'll state it here. We have the strongest sales team focused on lung disease today. And I can state that because the team's putting up numbers that stand behind it and deliver it And because I've met every one of them, and I trust them and respect them, and I know that they're committed to our mission and vision. Secondarily, our training and onboarding. We all were negatively impacted by the pandemic, but we brought every person that we recruited and brought onboard in-house for training. We thought it was critically important that they spend time with the team, really getting to be a positive contributing member of our culture. But I think that most importantly, the big change that we've seen is what you said, is we've put the pandemic behind us. Physicians are back focused on those patients that were a priority pre-pandemic. We all know that we sent at-risk patients home. We probably most likely delayed the diagnosis of cancers in some instance. And so we really want to play catch-up. We want to get back to those high-priority patients. And so our physician customers are allowing us in. There really are no restrictions at this point in time. But I think it comes back to having five tests for the same disease state, a similar call point, all with Medicare coverage. We are the only company in Lung with five Medicare-covered tests for the same disease state. What we've said is we're going to enable and empower our sales professionals to show up and help provide guidance, for each and every critical clinical question that that physician has for that patient that they're treating that moment. We think that's meaningful. We also think it's a little unique in this space. We don't see a lot of other companies do so. But I think that's where the real value add is. But I would also state the VA announcement. We all know that the VA is not always an early adopter. So when they make a decision to include in the fee schedule all five of our tests, We think it sends a pretty strong message, but it also allows physicians outside of the VA to have a conversation as to, you know, what did the VA learn? Why did they do this? And it's a wonderful place for us to start a conversation and dialogue. Is that helpful, Max?

Yeah, that's great. I appreciate the detail, as always, and thanks for taking the questions.

And actually, Max, I'll jump in on the October and the hurricane question. You're absolutely right. Florida is a very heavy Medicare population, retiree population, and actually very high incidence of lung cancer in Florida. Not surprisingly, those territories were impacted by the hurricane, and unfortunately, some of them still are. Most of the areas in Florida are back up and running, but saw a week to two weeks of disruption The Fort Myers area is still struggling, and our thoughts are with both our employees and other people still dealing with that. We also note that CHESS pulled about 5,000 pulmonologists out of the field for a week, which was great for us. Got great face time, but they were out of clinics. But even with both of those challenges, October continued that momentum and coming out of CHESS We're just so excited about what the next weeks and months have in store for us.

Super helpful. Thank you, Robin.

Thank you. One moment for our next question, please. Our next question will come from Kyle Mixon from Canaccord Genuity. Your line is open.

Hey, thanks. Congrats on the quarter, guys. Scott, I want to touch on something in your closing prepared remarks. That was the double-digit growth post-pandemic. I just had a few questions about that. I know it's hard to project and forecast something like that, but are you thinking low, mid, high teens, 20% range, maybe above that? I'm just curious what you think the core growth could be in the business, and maybe does that assume that pipeline test, so peer, ROR? MRD, and then how could, like, your recently announced partnerships, you know, you called out Phillips earlier, like, how could those contribute to the growth as well long-term?

Thanks. Yeah, good morning, Kyle. Great question. Thank you. Yeah, you know, it's one of the biggest questions we've really grappled with is coming out of the pandemic, what's access look like, and how do you forecast kind of that return to growth? Putting up, you know, two really strong consecutive quarters gives us greater insight into We are definitely thinking about it in similar terms to what you described. So I'd say directionally, you're correct. We do look at these partnerships as rate accelerators. And as much as we want to forecast them in, we do know that whenever you deal with third parties, there can be delays, there can be slowdowns. So we think that most of these provide additional upside for us to continue to not only meet but exceed expectations.

Okay, that was great. And then, you know, Scott or Robin, in the 10Q, the Janus, Rite, and GS test was called up multiple times as like a revenue growth driver, not just volume. I was interested if you could just kind of talk about your progress so far, kind of collecting payments on that test, like how are claims from Medicare and commercial payers kind of faring after you submit the claim? And are most payers kind of honoring the rate that you are billing them as well?

Yes, great question. With any new product launch, there's always a ramp and an education timeline with payers for you to educate them about what your new offering is, how you're billing and coding. We worked hard prior to launch to have Medicare coverage in place, so the Medicare payments have been very consistent. And as we continue to work with private payers, adding it to our contract, things like that. We're starting to see improvements in the collections from private payers as well.

Okay, perfect. And then with BioPharma, you know, it's been a bit, I guess, kind of soft the past few quarters. And like you guys were saying, there's some catch-up probably, or there's at least some deferred revenue and balance sheets. Like, could you just kind of walk through the timeline of that catch-up and if we could see like a bolus of that kind of biopharma revenue early in 23?

Yeah, it's a good question, Kyle. You know, each quarter we look at that and really kind of assess what's the pandemic impact and other economic factors. We definitely think that there is a potential for a catch-up. It's one of the reasons why we began disclosing dollars under contract is knowing that these delays logistically and in shipping were somewhat out of our control. We wanted to demonstrate what was in our control. And so interest remains high. We've got a large volume of contracts already in place and a number of really promising discussions that are occurring today. So we do think that you can see a rebound and expect to see a rebound in 2023. Obviously, here we are with two months left in 2022. We still think that there's some positive news to be shared later this year, but the real revenue impact in getting those samples back in-house, the meat of that will occur in 2023.

Scott, just to follow up on that quickly, is any of that concentrated among a couple of BioPharma partners? Maybe that's the reason for this lumpy performance.

Yeah, no, really good question. You know, each quarter we focus on obviously bringing in new customers. There's going to be kind of a heavy weight and concentration to those that you've worked with the most over a longer period of time, hopefully progressing through kind of a phase one to phase two trial and patient population. But no, we're really excited about some of the ongoing conversations with new partners that we're bringing to the table. So we think there's a fair mix When it's an existing partner and it's more mature, it's really going to be related to where is that study being conducted, where are those samples being housed, how easily accessible is it for the biopharmaceutical. partner. And when it's a new partner, you've got to assume that there's probably going to be some scale-up challenges and delays. So we really see both being positive contributors, but at the same time, we look at it and say there's near-term obstacles in both of those scenarios. But we're really bullish. Our team is outselling our portfolio. And I think most importantly, interest and engagement remains exceptionally high. We're really pleased with the reception from biopharmaceutical partners on our transparent AI efforts. And as we've disclosed earlier in the year, we're looking forward to continuing to publish on our capabilities there. And we think that that will start to influence and inform decisions that are made in 2023 and beyond. Perfect. Thanks, Scott.

Thanks, Robin. Yeah, thanks, Kyle.

Thank you. And as a reminder, to ask a question, please press star 1-1. And our next question will come from Tejas Devant from Morgan Stanley. Your line is open.

Hi, this is Neil Longford-Dagis. I just wanted to follow up on the biopharma services piece. So some of your peers are beginning to note budgetary concerns among their pharma and biotech customer base. Is this something that you've seen at all when pursuing new commitments within biopharma services? I guess, you know, are there any indications that the challenges you're facing are more structural beyond some of the more transient challenges right now?

Yeah, hi, Neil. Good to hear from you. Good question. Yeah, you know, we've received this question and inquiry over the last few weeks, and we've also noted that a number of our peers have started to highlight that. That doesn't impact us nearly as much as them. We traditionally did not do kind of the rapid fee-for-service testing that you saw kind of towards an end-of-year push, those end-of-year budget dollars where biopharmaceutical companies would spend. It's great to receive the revenue, but for us, we remain committed to partnering with biopharmaceutical partners to provide those key critical insights throughout the year and building strong partnerships. It's not just about running as many samples as possible, because we gain a lot of insights there also. Because we don't have that rich history of a Q4 push, we're not seeing the budget concerns and constraints impact us as much. We did note earlier in the year, Neil, that meetings like ASCO, we saw biopharmaceutical attendance numbers were down significantly. But for us, because we're not a brand-new company, we've got strong relationships, and we've got a broad audience that's aware of our capabilities, we have not seen any biopharmaceutical cutbacks or scaling back really negatively impact us to date. We're going to continue to watch it, and it is part of our dialogue with our partners. We want to make certain that we can support them as best we can and that we're mindful and aware of the challenges they're facing. Is that helpful, Neil?

That was very helpful. And then just wanted to follow up with a quick question on the VA contract. What is the duration of the agreement and how should we be thinking about any implications for average ASPs?

The VA contract is a 10-year contract split into two five-year pieces. And the dollars themselves are closer right around our Medicare pricing. It varies some by test, but it's on average very close to Medicare.

Got it. Thanks. And then one last from me. So, acknowledging that you plan to be more opportunistic in expanding the sales force, could you provide some color on the internal criteria or determinations that you use to make these hiring decisions or increase concentration in certain regions?

Yeah, really good question, Neil. If you think back to pre-IPO, we had about 24 sales reps. really concentrated for the majority of their efforts east of the Mississippi, more heavily weighted towards the eastern seaboard and southeastern portion of the United States. So that expansion over the last two years, which it has been two years, we celebrated our IPO anniversary on Friday. So over the last two years, we've really focused kind of on a westward expansion. So it's really not directional. We look at each and every territory. We start with the opportunity, the known prevalence and incidence of lung cancer, the major academic institutions in that territory, and their interests. We know there's going to be some that are early adopters, some that may be laggards. And so as we move westward, the whole goal is to increase efficiency and effectiveness. And we do that by starting with a concerted effort to decrease territory size. The least effective sales reps are going to be the ones that are behind the steering wheel or in the air on a plane. And so we want to minimize that windshield time, travel time, and overnights, which also will decrease sales expense. And so for us, it's really about focusing on narrowing territory size while still keeping the abundance of patients high, keeping earning potential for those sales professionals on the higher range. Right now, we're at about 55 sales professionals. We highlighted earlier in the year, we did slow hiring and recruiting efforts in the first quarter as we saw Omicron still impacting us. We're not trying to play catch up here on this. We really want to be intentional with each and every sales professional That's why we thought it was critically important to start to share that we've seen our sales professionals get to a level of productivity and paying for themselves in two to three months. We think we can improve upon that, and we're going to go out and demonstrate that. So it really is about intentionality. We are not focused on building the largest sales team possible. We just want to build the best and most effective sales team possible. Understood.

Thanks for the time, and congrats on the strong quarter.

Yeah, thank you, Neil. Appreciate it.

Thanks, Neil. Thank you. And I am showing no further questions from our phone lines, and I'd like to turn the conference back over to Scott Hutton for any closing remarks.

Thank you. We appreciate the questions, interest, and engagement. We're extremely passionate about our team, the business, and our opportunity, and we're always excited to provide updates. We're pleased with our growth and momentum, and obviously we've generated significant momentum over the last two quarters, and we're confident that this is just the beginning and is a representative of future growth for the business. We're grateful and thankful to the dedicated Bioethics personnel and team members that are continuously focusing on collaborating and partnering with healthcare providers to positively impact patient outcomes. Operator, you may now close all the lines, and thank you all for your time and interest today.

Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.