BDSX - Biodesix Appears Poised For 2023 Growth

Summary

• Biodesix, Inc. published its Q3 financial results on November 3, 2022.
• The firm provides an array of lung cancer diagnostic tests in the U.S.
• Biodesix has obtained significant growth capital and signed an access contract with the V.A. and U.S. military medical centers.
• The company appears positioned for potentially strong revenue growth and gross margin improvement in 2023.
• My outlook for Biodesix is a Buy at around $1.85 per share.

A Quick Take On Biodesix

Biodesix, Inc. ( BDSX ) reported its Q3 2022 financial results on November 3, 2022, beating revenue and missing EPS estimates.

The firm provides various diagnostic solutions for lung cancer patients and their healthcare professionals.

For life science investors with a significant risk appetite, Biodesix may be a tiny company but one that is poised to produce some strong top line growth figures along with improved gross profit margins.

My outlook for BDSX is a Buy at around $1.85 per share.

Biodesix Overview

Boulder, Colorado-based Biodesix was founded to develop and commercialize diagnostic tests for lung cancer and more recently for the SARS-CoV-2 virus.

Management is headed by president and CEO Scott Hutton, who has been with the firm since March 2018 and was previously SVP and General Manager of the Vascular Intervention division at Spectranetics.

Notably, the company says it has "significant payer concentration," with Medicare reimbursements accounting for 60% of its diagnostic test revenue.

The company’s primary offerings include:

• Nodify XL2 and Nodify CDT tests

• GeneStrat and VeriStrat tests

• Worksafe Covid-19 testing program.

The firm runs various tests through its Diagnostic Cortex, a proprietary AI/machine learning system that seeks to provide a "holistic view of each patient's dynamic disease state."

The firm pursues client relationships with biopharmaceutical companies and research institutions via a direct sales force.

Market & Competition

According to a 2017 market research report by Grand View Research, the global market for the treatment of non-small cell lung cancer [NSCLC] is expected to reach $12 billion by 2025.

This represents a forecast CAGR of 7.5% from 2016 to 2025.

Since Biodesix's primary set of offerings is to detect, quantify and monitor the treatment of NSCLC, the rise in the prevalence, as the chart shows below, is likely to result in increasing demand for its testing and monitoring services:

Also, management estimates that there are currently over 700,000 testing opportunities in the U.S. each year for early-stage lung cancer and over 3 million opportunities annually to monitor and guide decision-making for advanced lung cancer conditions.

Major competitive or other industry participants include:

• Guardant Health ( GH )

• Foundation Medicine

• Lab Corporation ( LH )

• Quest Diagnostics ( DGX )

• Adaptive Biotechnologies ( ADPT )

• Personalis ( PSNL )

• Veracyte ( VCYT ).

Biodesix’s Recent Financial Performance

• Total revenue by quarter has risen a bit after dropping sharply as the pandemic waned:

• Gross profit margin by quarter has trended higher in recent quarters:

• Selling, G&A expenses as a percentage of total revenue by quarter have risen sharply in the past five quarters:

• Operating income by quarter has worsened further into negative territory in recent quarters:

• Earnings per share (Diluted) have remained substantially negative:

(All data in the above charts is GAAP.)

In the past 12 months, Biodesix’s stock price has fallen 46.5% vs. that of the Nasdaq 100’s drop of 12.5%, as the chart below indicates:

Valuation And Other Metrics For Biodesix

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha.)

Commentary On Biodesix

In its last earnings call ( Source - Seeking Alpha ), covering Q3 2022’s results, management highlighted that "sales access" has returned to pre-pandemic levels.

The company has also been successful in expanding reimbursement coverage "across all of our tests."

Of special note is the contract with the U.S. V.A. and Military Health System Medical Centers, which relates to all five of the company's tests and covers more than "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."

As to its financial results, total revenue rose 70% year-over-year from a record number of lung disease test volumes growth.

The company ended the quarter with $7.2 million in contracted but unrecognized revenue.

Gross profit margin rose substantially year-over-year, from 58% to 67% and management expects further growth in this metric.

SG&A expenses rose year-over-year due to increases in sales efforts but a reduction in G&A expenses. R&D expenses also dropped year-over-year.

Net loss rose primarily due to "a gain on extinguishment that was recorded in the third quarter of 2021 related to the loan forgiveness under the PPP program partially offset by a reduction in operating loss this quarter."

For the balance sheet , the firm finished the quarter with $15.2 million in cash and equivalents and $4.9 million in total debt.

Over the trailing twelve months, free cash used was $45.1 million, of which capital expenditures accounted for $1.9 million. The company paid $5.2 million in stock-based compensation ("SBC") in the last four quarters.

Subsequent to quarter end, the firm sold $35.1 million in common stock at a price of $1.15 per share and secured a term loan facility for up to $50 million from healthcare investment firm Perceptive Advisors.

Looking ahead, management expected to finish out 2022 ‘at the high end of its previously disclosed total revenue guidance for 2022’ of $38.5 million at the midpoint of the range.

Regarding valuation, the market is valuing BDSX at an Enterprise Value / Revenue multiple of around 4.1x.

With the new equity investment and debt facility, it appears management has been successful in obtaining the necessary resources to pursue stronger growth efforts now that the pandemic has largely waned in the U.S.

Its large access contract to the U.S. V.A. and military health system also positions the company for substantial growth potential.

For life science investors with a significant risk appetite, Biodesix may be a tiny company but one that is poised to produce some strong top line growth figures along with improved gross profit margins.

My outlook for Biodesix, Inc. is a Buy at around $1.85 per share.

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