BDSX - A Second Look At Biodesix

Summary

• Today, we circle back on small diagnostic firm Biodesix, Inc. for the first time since summer of last year.
• This stock is down some 80% over the past year, but management recently provided preliminary third quarter guidance that exceeded expectations.
• An investment analysis follows in the paragraphs below.

Our first look at Biodesix, Inc. ( BDSX ) ,a small diagnostics firm, was posted just over a year ago last September. We weren't buyers, and came to the following conclusion:

Biodesix is an interesting company in a growing niche of the market. While quarterly results missed estimates, revenues are on an upward track. That said, the company is likely to raise additional capital given its quarterly burn rate in the foreseeable future. Recent insider buying is a nice positive, and while analyst commentary is sparse, it is positive. BDSX might merit a small "watch item" position for aggressive and patient long term investors given its potential growth trajectory. This is a name we will probably circle back on in the future to see how the company is progressing ."

Last week, I receive a request from a Seeking Alpha follower to revisit Biodesix. The company also reported preliminary quarterly results this week that were above the consensus. An updated analysis follows below.

Company Overview:

Biodesix, Inc. develops diagnostic tests addressing important clinical questions by combining multi-omics and leveraging artificial intelligence. The company is headquartered in Colorado and its stock currently trades just above a buck a share, equating to an approximate market capitalization of $50 million.

Preliminary Third Quarter Results:

On October 11th, management disclosed third quarter preliminary guidance. It now expects overall revenue to be in the range of $10.6 million to $11.2 million, representing growth of 62% to 71% Y/Y versus the consensus of just over $10 million. Lung diagnostic testing fees will make up the bulk of these sales as revenues as they are expected to roughly double from the same period a year ago to a range of $8.9 million to $9.2 million. In the second quarter, these core revenues rose to $7.3 million. This was up 52% from the same period a year ago, and an impressive 56% sequentially from the first quarter.

The company seems to benefiting from the launch of its new IQLung Treatment Guidance Testing Strategy earlier this year, which includes its new GeneStrat NGS test and provides for both early and advanced stage lung cancer testing results.

The company seems to be gaining acceptance within the initial risk assessment of lung nodules with its Nodify lung testing strategy to post-cancer diagnosis treatment guidance and monitoring with the IQ lung testing strategy. The company's Nodify lung testing strategy consists of two blood-based proteomic tests. These are Nodify CDT and Nodify XL2. These are both used by physicians to assess the risk of malignancy of a lung nodule. This process helps prioritize higher-risk nodules for invasive diagnostic procedures while also helping avoid unnecessary procedures on very low-risk nodules. Biodesix got a nice boost in June when it was announced that its Nodify CDT lung nodule test would be covered by Medicare at $649 a pop. Since the second quarter of 2021, the company has gone from three of its blood-based tests being covered by Medicare, to all five. This should continue to help core diagnostic revenue growth in the quarters ahead.

The company also recently announced a collaboration with Philips to incorporate the Nodify lung test into the Philips Lung Cancer Orchestrator Patient Management System.

Turning to Biodesix's IQLung testing strategy, which now encompasses three blood-base tests with the launch of the company's GeneStrat NGS test earlier this year.

This set of tests are used to inform treatment decisions and monitor for the rise of resistance mutations while patients are on therapy.

Covid diagnostic sales are expected to be in the range of $1.1 million to $1.3 million from just $500,000 in 3Q2021. Biopharma services revenue will provide only $600,000 to $700,000 down from $1.5 million in the same period a year ago.

Analyst Commentary & Balance Sheet:

Only four analyst firms have chimed in on Biodesix, Inc. so far in 2022. In mid-April, BTIG maintained its Buy rating but lowered its price target on BDSX from $17 to $10 a share. Two days later, Cowen & Co. initiated the shares with an Outperform rating. In May, Morgan Stanley reissued its Equal Weight rating on BDSX but knocked down its price target two bucks a share to $5. Finally, in June, Canaccord Genuity reiterated its Buy rating with a $7 price target after Biodesix's Nodify CDT lung nodule test was included in Medicare coverage.

Just under three percent of the outstanding float is currently held short. Insiders bought approximately $7.5 million of a $11.7 million secondary offering in early April of this year. There have several very small insider sales since. In addition, Biodesix announced in June that insiders were selling nearly three million shares directly to the public. The company had just over $15 million of cash and marketable securities on its balance sheet as of the end of the third quarter against under $10 million of long-term debt.

Verdict:

The current analyst firm consensus has the company losing roughly $1.50 a share this fiscal year as sales fall nearly 30% to $39 million. They see a loss of a bit under a buck a share as sales rebound by a third to $52 million in FY2023.

It is nice to see sales in the company's core lung diagnostic business gain significant traction. Biodesix has had to endure some tough times in recent years. The pandemic lockdowns crushed its business for several quarters. Now that the pandemic is finally ebbing, Biodesix's Covid testing revenues are a far cry from the $20 million to $25 million annual run rate that they once achieved during the heights of the outbreak.

Hopefully, the business is now stabilized and revenue growth will be more steady and driven by its lung cancer diagnostic core business. The company also seems to be benefiting from changes to its core testing business thanks to new Medicare coverage and evolving testing strategies. That said, Biodesix, Inc. seems years away from profitability. Given the company's consistent quarterly net losses, it hard to see how it achieves that without more dilutive capital raises and/or increasing the debt on its balance sheet.

Given that, we are passing on any investment recommendation on BDSX until a clear path to profitability is established. This is a name we will probably revisit again to check in on the progress in its core business.

To be better equipped for the tests that the year will bring — read a textbook. To prepare for the tests that life will bring — read a book .”? Mokokoma Mokhonoana

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