UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
As of August 1, 2022, the registrant had
Table of Contents
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PART I. |
1 |
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Item 1. |
1 |
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Condensed Balance Sheets as of June 30, 2022 and December 31, 2021 |
1 |
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Condensed Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 |
2 |
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Condensed Statements Stockholders' Equity for the Three and Six Months Ended June 30, 2022 and 2021 |
3 |
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Condensed Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 |
4 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
Item 3. |
37 |
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Item 4. |
37 |
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PART II. |
38 |
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Item 1. |
38 |
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Item 1A. |
38 |
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Item 2. |
38 |
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Item 3. |
39 |
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Item 4. |
39 |
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Item 5. |
39 |
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Item 6. |
40 |
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41 |
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties, including but not limited to those set forth under the caption “Special Note Regarding Forward-Looking Statements” and Item 1A “Risk Factors” of Part II in this Quarterly Report on Form 10-Q and those discussed in our other filings with the Securities and Exchange Commission (SEC), including the risks described in Item 1A “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed on March 14, 2022. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future financial condition, results of operations, business strategy and plans, and objectives of management for future operations, as well as statements regarding industry trends, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “should,” “will” or the negative of these terms or other similar expressions.
We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, factors, and assumptions described under the section titled “Risk Factors” in this Report and in the section entitled “Risk Factors” and elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2021, regarding, among other things:
ii
These risks are not exhaustive. Other sections of this Quarterly Report on Form 10-Q may include additional factors that could harm our business and financial performance. New risk factors may emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.
You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report on Form 10-Q or to conform these statements to actual results or to changes in our expectations.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q and the documents that we reference and have filed as exhibits with the understanding that our actual future results, levels of activity, performance and achievements may be different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
iii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
BIODESIX, INC.
Condensed Balance Sheets
(in thousands, except share data)
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June 30, 2022 |
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December 31, 2021 |
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Assets |
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Current assets |
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Cash and cash equivalents |
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$ |
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$ |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Other current assets |
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Total current assets |
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Non‑current assets |
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Restricted cash |
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— |
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Property and equipment, net |
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Intangible assets, net |
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Operating lease right-of-use assets |
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— |
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Goodwill |
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Other long-term assets |
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Total non‑current assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Deferred revenue |
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Current portion of operating lease liabilities |
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— |
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Current portion of contingent consideration |
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Current portion of notes payable |
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Other current liabilities |
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— |
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Total current liabilities |
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Non‑current liabilities |
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Long‑term notes payable, net of current portion |
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Long-term operating lease liabilities |
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— |
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Contingent consideration |
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Other long-term liabilities |
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Total non‑current liabilities |
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Total liabilities |
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Stockholders' equity |
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Preferred stock, $ |
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— |
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Common stock, $ |
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Additional paid‑in capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying Notes are an integral part of these unaudited condensed financial statements.
1
BIODESIX, INC.
Condensed Statements of Operations
(in thousands, except per share data)
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Three Months Ended June 30, |
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Six Months Ended June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenues |
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$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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Direct costs and expenses |
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Research and development |
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Sales, marketing, general and administrative |
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Change in fair value of contingent consideration |
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— |
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— |
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Impairment loss on intangible assets |
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— |
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— |
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— |
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Total operating expenses |
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Loss from operations |
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( |
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( |
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( |
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( |
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Other (expense) income: |
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Interest expense |
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( |
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( |
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( |
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( |
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Loss on extinguishment of liabilities |
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( |
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— |
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( |
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( |
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Other income, net |
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— |
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Total other expense |
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( |
) |
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( |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss per share, basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted-average shares outstanding, basic and diluted |
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The accompanying Notes are an integral part of these unaudited condensed financial statements.
2
BIODESIX, INC.
Condensed Statements of Stockholders' Equity
(in thousands)
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Common Stock |
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Additional Paid‑In |
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Accumulated |
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Total Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance ‑ December 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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Issuance of common stock under employee stock purchase plan |
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— |
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— |
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Issuance of common stock for deferred offering costs |
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— |
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— |
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Issuance of common stock, net |
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— |
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Exercise of stock options |
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— |
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Stock‑based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balance ‑ March 31, 2022 |
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( |
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Issuance of common stock, net |
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— |
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Exercise of stock options |
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— |
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— |
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Release of restricted stock units |
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— |
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— |
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— |
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— |
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Stock‑based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balance ‑ June 30, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Common Stock |
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Additional Paid‑In |
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Accumulated |
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Total Stockholders' |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance ‑ December 31, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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Exercise of stock options |
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— |
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— |
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Stock‑based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balance ‑ March 31, 2021 |
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( |
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Exercise of stock options |
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— |
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— |
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Stock‑based compensation |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Balance ‑ June 30, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying Notes are an integral part of these unaudited condensed financial statements.
3
BIODESIX, INC.
Condensed Statements of Cash Flows
(in thousands)
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Six Months Ended June 30, |
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2022 |
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2021 |
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Cash flows from operating activities |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash, cash equivalents, and restricted |
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Depreciation and amortization |
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Amortization of lease right-of-use assets |
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— |
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Loss on extinguishment of liabilities |
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Stock‑based compensation expense |
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Change in contingent consideration |
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— |
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Provision for doubtful accounts |
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( |
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Accrued interest, amortization of debt issuance costs and other |
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Inventory excess and obsolescence |
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— |
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Impairment loss on intangible assets |
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— |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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( |
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Other current assets |
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Other long-term assets |
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Accounts payable and other accrued liabilities |
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( |
) |
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( |
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Deferred revenue |
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( |
) |
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( |
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Current and long-term operating lease liabilities |
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( |
) |
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— |
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Net cash, cash equivalents, and restricted cash used in operating activities |
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( |
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( |
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Cash flows from investing activities |
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Purchases of property and equipment |
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( |
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( |
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Patent costs and intangible asset acquisition, net |
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( |
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( |
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Net cash, cash equivalents, and restricted cash used in investing activities |
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( |
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( |
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Cash flows from financing activities |
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Proceeds from the issuance of common stock |
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— |
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Proceeds from issuance of common stock under employee stock purchase plan |
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— |
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Proceeds from exercise of stock options |
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Payment of contingent consideration |
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( |
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— |
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Proceeds from term loan and notes payable |
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Repayment of term loan and notes payable |
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( |
) |
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( |
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Payment of debt issuance costs |
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( |
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( |
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Deferred offering costs |
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( |
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— |
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Equity financing costs |
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( |
) |
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— |
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Other |
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( |
) |
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— |
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Net cash, cash equivalents, and restricted cash provided by financing activities |
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Net decrease in cash, cash equivalents, and restricted cash |
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( |
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( |
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Cash, cash equivalents, and restricted cash ‑ beginning of period |
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Cash, cash equivalents, and restricted cash ‑ end of period |
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$ |
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$ |
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The accompanying Notes are an integral part of these unaudited condensed financial statements.
4
BIODESIX, INC.
Statements of Cash Flows
(in thousands)
(Continued from the previous page)
Supplemental cash flow information:
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Six Months Ended June 30, |
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2022 |
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2021 |
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Common stock issued for deferred offering costs |
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$ |
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$ |
— |
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Deferred offering costs amortized against Additional paid-in capital |
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— |
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Original issue discount associated with Promissory Note One |
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Debt issuance costs included in Accrued liabilities |
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— |
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Equity financing costs included in Accrued liabilities |
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— |
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Operating lease right-of-use assets obtained in exchange for lease liabilities |
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— |
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Finance lease right-of-use assets obtained in exchange for lease liabilities |
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— |
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Cash paid for interest |
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Cash paid for income taxes |
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— |
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— |
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The accompanying Notes are an integral part of these unaudited condensed financial statements.
5
BIODESIX, INC.
Notes to Unaudited Condensed Financial Statements
Note 1 – Organization and Description of Business
Biodesix, Inc. (the “Company”, “Biodesix”, “we” “us” and “our”), formerly Elston Technologies, Inc., was incorporated in Delaware in 2005. The Company’s headquarters are in Colorado, with laboratories in Colorado and Kansas. The Company conducts all of its operations within a single legal entity. Biodesix is a data-driven diagnostic solutions company leveraging state of the art technologies with its proprietary artificial intelligence platform to discover, develop, and commercialize solutions for clinical unmet needs, with a primary focus in lung disease. In addition to diagnostic tests, the Company provides biopharmaceutical companies with services that include diagnostic research, clinical trial testing, and the discovery, development, and commercialization of companion diagnostics.
The Company performs its blood-based diagnostic tests in its laboratory facilities, which are located in Boulder, Colorado and De Soto, Kansas. In May 2020, the Federal Drug Administration (FDA) granted Emergency Use Authorization (EUA) of the Bio-Rad SARS-CoV-2 Droplet Digital polymerase chain reaction (ddPCR) test to detect Coronavirus Disease 2019 (COVID-19) infection. In April 2020, the FDA authorized the Platelia SARS-CoV-2 Total Ab test to detect COVID-19 antibodies. Medical products that are granted an EUA are only permitted to commercialize their products under the terms and conditions provided in the authorization. The FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization, if the conditions for the issuance of the EUA are no longer met, or if other circumstances make revocation appropriate to protect the public health or safety.
Blood-Based Lung Tests
The Company offers
Diagnosis
Treatment & Monitoring
COVID-19 Tests
We operate and have commercialized the Biodesix WorkSafe testing program, under which the Company offers
6
BIODESIX, INC.
Notes to Condensed Financial Statements
These tests under the Biodesix WorkSafe testing program are utilized by healthcare providers, including hospitals and nursing homes, and are also offered to businesses and educational systems to assist in their back-to-work or back-to-school strategies, a crucial element of restarting economic activity.
In developing the Company's products, the Company has built or gained access to unique biorepositories, proprietary technology, and bioinformatics methods that it believes are important to the development of new targeted therapies, determining clinical trial eligibility and guiding treatment selection. The Company’s testing services are made available through its clinical laboratories.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information and reflect all adjustments necessary to state fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments are of a normal recurring nature. Results for interim periods are not indicative of the results for the entire fiscal year. The accompanying Condensed Financial Statements should be read in conjunction with the audited Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Certain information and footnote disclosures, including significant accounting policies, normally included in fiscal year financial statements prepared in accordance with accounting principles generally accepted in the U.S. (GAAP) have been condensed or omitted. The Condensed Balance Sheet as of December 31, 2021 was derived from the audited financial statements.
As of June 30, 2022, we maintained cash and cash equivalents of $
Our ability to meet our obligations as they come due may be impacted by our ability to remain compliant with financial covenants in our loan agreements (see Note 6 – Debt) or to obtain waivers or amendments that impact the related covenants. Due to the continued uncertainty caused by the COVID-19 pandemic, significant risks remain with respect to our ability to meet these thresholds and any material adverse effect on our revenues, income and expenses could impact our ability to maintain compliance with these covenants.
Based on our current operating plan, unless we continue to raise additional capital (debt or equity) or obtain a waiver from complying with such financial covenants, we expect that we will be unable to maintain our financial covenants under our existing loan agreements during the next twelve months, which could result in an Event of Default, as defined, causing an acceleration and repayment of the outstanding balances. We have taken steps to improve our liquidity through raising debt and equity capital during 2022, amendments to our 2021 Term Loan, and have also undertaken several proactive measures to mitigate the financial and operational impacts of the COVID-19 pandemic through the reduction of planned capital expenditures and certain operating expenses but we do not expect that these actions alone will be sufficient to maintain our financial covenants. During the three months ended June 30, 2022, we entered into a $
7
BIODESIX, INC.
Notes to Condensed Financial Statements
operations could include a hiring freeze, reductions in our workforce, reduction in cash compensation, deferring capital expenditures, and reducing other operating costs.
The Company’s revenues, results of operations and cash flows have been materially adversely impacted by the items noted above. Our current operating plan, which is in part determined based on our most recent historical actual results and trends, along with the items noted above, raises substantial doubt about the Company’s ability to continue as a going concern. Our unaudited financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments that might be necessary should we be unable to continue as a going concern.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the balance sheet date and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Restricted Cash
Restricted cash consists of the $
Concentration of Credit Risk and Other Uncertainties
Substantially all of the Company’s cash and cash equivalents are deposited with two major financial institutions in the United States. The Company continually monitors its positions with, and the credit quality of, the financial institution with which it holds cash. Periodically throughout the year, the Company has maintained balances in various operating accounts in excess of federally insured limits. The Company has not experienced any losses on its deposits of cash and cash equivalents.
Several of the components for certain of the Company's sample collection kits, test reagents, and test systems are obtained from single-source suppliers. If these single-source suppliers fail to satisfy the Company's requirements on a timely basis, it could suffer delays in being able to deliver its diagnostic solutions, a possible loss of revenue, or incur higher costs, any of which could adversely affect its operating results.
For a discussion of credit risk concentration of accounts receivable as of June 30, 2022 and December 31, 2021, see Note 9 – Revenue and Accounts Receivable Credit Concentration.
Inventory
Inventory consists primarily of material supplies, which are consumed in the performance of testing services and charged to ‘Direct costs and expenses’. Inventory is stated at cost and reported within ‘Other current assets’ in the balance sheet and was $
Fair Value of Financial Instruments
U.S. GAAP for fair value establishes a hierarchy that prioritizes fair value measurements based on the types of inputs used for the various valuation techniques (market approach, income approach, and cost approach). We utilize a combination of market and income approaches to value our financial instruments. Our financial assets and liabilities are measured using inputs from the three levels of the fair value hierarchy. Fair value measurements are categorized within the fair value hierarchy based upon the lowest level of the most significant inputs used to determine fair value.
The three levels of the hierarchy and the related inputs are as follows:
Level |
|
Inputs |
1 |
|
Unadjusted quoted prices in active markets for identical assets and liabilities. |
2 |
|
Unadjusted quoted prices in active markets for similar assets and liabilities; |
|
|
Unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or |
|
|
Inputs other than quoted prices that are observable for the asset or liability. |
3 |
|
Unobservable inputs for the asset or liability. |
The carrying amounts of certain financial instruments including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities approximate fair value due to their relatively short maturities.
See Note 4 — Fair Value for further discussion related to estimated fair value measurements.
8
BIODESIX, INC.
Notes to Condensed Financial Statements
Note 3 - Recently Issued Accounting Standards
Recently adopted accounting standards
In February 2016, the FASB issued Account Standard Update (ASU) No. 2016-2, Leases (ASC 842). This ASU intends to make accounting for leasing activities more transparent and comparable, and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases accounted for as operating leases. In addition to other related amendments, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which offers an additional transition method whereby entities may apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings rather than application of the new leases standard at the beginning of the earliest period presented in the financial statements. The Company elected this transition method and adopted ASC 842 on January 1, 2022 and as a result, recorded operating lease (ROU) assets of $
In addition, the Company elected the following practical expedients permitted under the transition guidance within the new standard:
Management determines if an arrangement is a lease at inception or upon modification of a contract. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition in the statements of operations. When determining whether a lease is a finance lease or an operating lease, ASC 842 does not specifically define criteria to determine the “major part of remaining economic life of the underlying asset” and “substantially all of the fair value of the underlying asset.”
ROU assets represent the Company's right to use an underlying asset for the lease term. Lease liabilities represent the Company's obligation to make lease payments under the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses either the rate implicit in the lease or its incremental borrowing rate, as applicable, based on the information available at lease commencement date. The Company applies the estimated incremental borrowing rates on a lease-by-lease level based on the economic environment associated with the lease. The operating lease ROU asset also includes any lease prepayments, net of lease incentives. Certain of the Company's leases include options to extend or terminate the lease. As leases approach maturity, the Company considers various factors such as market conditions and the terms of any renewal and termination options that may exist to determine whether we will renew or terminate the lease, as such, we generally do not include renewal or termination options in our lease terms for calculating our lease liability, as the options allow us to maintain operational flexibility and we are not reasonably certain we will exercise these options at the time of the lease commencement. The Company's lease agreements do not contain any material residual value guarantees or restrictive covenants. Lease expense for lease payments of operating leases is recognized on a straight-line basis over the term of the lease. The Company uses the long-lived assets impairment guidance to determine recognition and measurement of an ROU asset impairment, if any. The Company monitors for events or changes in circumstances that require a reassessment.
Additional information and disclosures required by this new standard are contained in Note 7 — Leases.
Standards Being Evaluated
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (ASC Topic 326). This ASU requires measurement and recognition of expected credit losses for financial assets. This guidance will become effective for the Company beginning January 1, 2023 with early adoption permitted. The Company is currently evaluating this guidance and assessing the overall impact on its financial statements.
9
BIODESIX, INC.
Notes to Condensed Financial Statements
Note 4 - Fair Value
Recurring Fair Value Measurements
Our borrowing instruments are recorded at their carrying values in the balance sheets, which may differ from their respective fair values. The difference between the carrying value and fair value of outstanding borrowings as of June 30, 2022 is due to the debt issuance costs and OID netted against Promissory Note One entered into with Streeterville Capital, LLC, in May 2022. The carrying value of outstanding borrowings as of December 31, 2021, approximates fair value based on interest rates available at that time for similar borrowings. The table below presents the carrying and fair values of outstanding borrowings, which are classified as Level 2, as of the dates indicated (in thousands):
|
|
As of |
|
|||||||||||||
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|||||||||||
|
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
||||
Borrowings |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The financial liabilities that are measured and recorded at estimated fair value on a recurring basis consist of our contingent consideration associated with our previous acquisition of Indi which is accounted for as a liability and remeasured through our statements of operations.
The table below presents the reported fair values of contingent consideration, which is classified as Level 3 in the fair value hierarchy, as of the dates indicated (in thousands):
Description |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Current portion of contingent consideration |
|
$ |
|
|
$ |
|
||
Contingent consideration |
|
|
|
|
|
|
||
Total contingent consideration |
|
$ |
|
|
$ |
|
The following table presents the changes in contingent consideration for the six months ended June 30, 2022 and 2021 (in thousands):
|
|
For the six months |
|
|||||
Level 3 Rollforward |
|
2022 |
|
|
2021 |
|
||
Beginning balances - January 1 |
|
$ |
|
|
$ |
|
||
Changes in fair value |
|
|
— |
|
|
|
|
|
Interest expense |
|
|
|
|
|
|
||
Loss on extinguishment of liabilities |
|
|
|
|
|
— |
|
|
Payments of contingent consideration |
|
|
( |
) |
|
|
— |
|
Ending balances - June 30 |
|
$ |
|
|
$ |
|
Contingent Consideration
In connection with the acquisition of Indi in 2018, the Company recorded contingent consideration for amounts contingently payable to Indi's selling shareholders pursuant to the terms of the asset purchase agreement (the Indi APA). The contingent consideration arrangement
The Company met the gross margin target of $
On April 7, 2022, the Company entered into Amendment No. 3 to the Indi APA in which the parties agreed to restructure the milestone payments whereby the Company will make
10
BIODESIX, INC.
Notes to Condensed Financial Statements
installments of $
The contingent consideration liability is accounted for at fair value and subject to certain unobservable inputs. The significant unobservable inputs used in the measurement of the fair value include the probability of successful achievement of the specified product gross margin targets, the period in which the targets were expected to be achieved, and discount rates which ranged from
The Company evaluated Amendment No. 3 to the Indi APA in accordance with applicable accounting standards under U.S. GAAP which resulted in the extinguishment of the original instrument due to the substantially different terms. As a result, during the three months ended June 30, 2022, we recorded a loss on extinguishment of $
Contingent consideration expected to be paid in the next twelve months is recorded in the balance sheets as ‘Current portion of contingent consideration’ while the remaining amount to be paid is recorded as ‘Contingent consideration’ within non-current liabilities. The net change to contingent consideration through the date the gross margin target was met is recorded as operating expenses in the statements of operations. Subsequent changes to the contingent consideration following the achievement of the gross margin target are recorded as ‘Interest expense’ in the statements of operations resulting from the passage of time and fixed payment schedule.
Non-Financial Assets and Liabilities
Our non-financial assets, which primarily consist of property and equipment, goodwill, and other intangible assets, are not required to be carried at fair value on a recurring basis and are reported at carrying value. There were no changes to the valuation methods during the periods presented.
Note 5 – Supplementary Balance Sheet Information
Property and equipment consist of the following (in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Lab equipment |
|
$ |
|
|
$ |
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Computer equipment |
|
|
|
|
|
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Software |
|
|
|
|
|
|
||
Vehicles |
|
|
|
|
|
|
||
Construction in process |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
$ |
|
|
$ |
|
Depreciation expense for the three and six months ended June 30, 2022 was $
11
BIODESIX, INC.
Notes to Condensed Financial Statements
Intangible assets, excluding goodwill, consist of the following (in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||||||||||||||||||
|
|
Cost |
|
|
Accumulated |
|
|
Net Carrying Value |
|
|
Cost |
|
|
Accumulated |
|
|
Net Carrying Value |
|
||||||
Intangible assets subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Patents |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Purchased technology |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Intangible assets not subject to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Trademarks |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
Amortization expense related to definite-lived intangible assets was $
Future estimated amortization expense of intangible assets is (in thousands):
|
|
As of June 30, 2022 |
|
|
Remainder of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 and thereafter |
|
|
|
|
Total |
|
$ |
|
Accrued liabilities consist of the following (in thousands):
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Compensation related accruals |
|
$ |
|
|
$ |
|
||
Accrued clinical trial expense |
|
|
|
|
|
|
||
Other expenses |
|
|
|
|
|
|
||
Total accrued liabilities |
|
$ |
|
|
$ |
|
Note 6 – Debt
Our long-term debt primarily consists of notes payable associated with Promissory Note One and our 2021 Term Loan which is described in further detail below.
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
Promissory Note One |
|
$ |
|
|
$ |
— |
|
|
2021 Term Loan |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Unamortized debt discount and issuance costs |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Less: current maturities |
|
|
|
|
|
|
||
Long-term notes payable |
|
$ |
|
|
$ |
|
Securities Purchase Agreement
On May 9, 2022 (the First Closing Date), the Company entered into a securities purchase agreement (the SPA) with Streeterville Capital, LLC (Lender), pursuant to which, among other things, the Lender:
12
BIODESIX, INC.
Notes to Condensed Financial Statements
The Promissory Notes have a stated interest rate of
The Company’s ability to draw Promissory Note Two is subject to the satisfaction, among other things, of the following conditions:
Under the SPA, the parties provided customary representations and warranties to each other. Also, until all amounts due under the Promissory Notes are paid in full, the Company agreed, among other things, to: (i) timely make all filings under the Securities Exchange Act of 1934, (ii) ensure that its Common Stock continues to be listed on the NASDAQ or the New York Stock Exchange, (iii) not enter into any agreement or otherwise agree to any covenant, condition, or obligation that locks up, restricts in any way or otherwise prohibits Company: (a) from entering into a variable rate transaction with Lender or any affiliate of Lender, or (b) from issuing Common Stock, preferred stock, warrants, convertible notes, other debt securities, or any other Company securities to Lender or any affiliate of Lender, (iv) will not make any Restricted Issuances (as defined in the Promissory Notes) without Lender’s prior written consent, which consent may be granted or withheld in Lender’s sole and absolute discretion (v) within 9 months following the First Closing Date, the Company will repay in full all outstanding obligations under the 2021 Term Loan, (vi) beginning on April 1, 2023, Company shall maintain a minimum liquidity balance of at least $
Beginning on the date that is nine months after the issuance date of the applicable Promissory Note, the Lender has the right to redeem up to $
The Promissory Notes contain certain Trigger Events that generally, if uncured within five trading days, may result in an event of default in accordance with the terms of the Promissory Notes (such event, an Event of Default). Upon an Event of Default, the interest rate may also be increased to the lesser of
The Company evaluated Promissory Note One in accordance with applicable accounting standards under U.S. GAAP and determined the classification of the instrument as a debt obligation. In addition, the Company evaluated the instrument for embedded derivatives
13
BIODESIX, INC.
Notes to Condensed Financial Statements
and concluded there were no embedded features that require bifurcation and separate accounting. The Company will record interest expense over the term of Promissory Note One, using the interest method, to amortize the debt issuance costs and OID.
On May 9, 2022, the Company recorded OID and debt issuance costs of $
For the period from May 9, 2022 to June 30, 2022, the Company recorded interest expense of $
2021 Term Loan
On March 19, 2021 (Effective Date), the Company entered into a Loan and Security Agreement (the 2021 Term Loan) by and between Silicon Valley Bank, a California corporation (SVB or Lender) and the Company, as borrower, whereby subject to the terms and conditions of the 2021 Term Loan, SVB advanced to the Company an original principal amount of $
The Company has the option to prepay, prior to maturity, the total outstanding principal amount plus accrued and unpaid interest, subject to a prepayment penalty of
The Company granted the Lender a security interest in substantially all of the Company’s assets.
On April 7, 2022, the Company entered into the Consent and Third Amendment to Loan and Security Agreement (the 2021 Term Loan Third Amendment). Under the terms of the 2021 Term Loan Third Amendment, the Company agreed to the repayment of $
In association with entering into the SPA with the Lender on May 9, 2022 (as described above), the Company has the election to issue Promissory Note Two subject to the Company satisfying, among other things, repaying in full all outstanding obligations under the 2021
14
BIODESIX, INC.
Notes to Condensed Financial Statements
Term Loan within nine months following the First Closing Date. As of June 30, 2022, the Company intends to repay all outstanding obligations under the 2021 Term Loan within nine months of the inception of Promissory Note One. The Company’s final payment to SVB shall include all outstanding principal and accrued and unpaid interest, lender fees and expenses, which will include a final payment of $
The 2021 Term Loan contains certain covenants limiting the ability of the Company to, among other things, incur future debt, transfer assets except for the ordinary course of business, make acquisitions, pay dividends or make other certain restricted payments, or sell assets, subject to certain exceptions, without the prior written consent of the Lender. Failure to comply with the covenants and loan requirements may result in an event of default. As of June 30, 2022, the Company was in compliance with all restrictive and financial covenants associated with its borrowings. In the event of a default, including, among other things, our failure to make any payment when due or our failure to comply with any covenant under the 2021 Term Loan, the Lender may elect to declare all amounts outstanding to be immediately due and payable, and may proceed against the collateral granted to them to secure such indebtedness, including a royalty-free license or other right to use all of our intellectual property without charge.
Scheduled principal repayments (maturities) of long-term obligations were as follows (in thousands):
|
|
As of June 30, 2022 |
|
|
Remainder of 2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 and thereafter |
|
|
— |
|
Total |
|
$ |
|
Note 7 - Leases
Operating Leases
The Company acts as a lessee under all its lease agreements. The Company leases its headquarters and laboratory facilities in Boulder, Colorado, under a non-cancelable lease agreement for approximately
Centennial Valley Properties I, LLC Lease Agreement
On March 11, 2022, the Company entered into a Lease Agreement (the Lease) with Centennial Valley Properties I, LLC, a Colorado limited liability company (the Landlord) for office and laboratory space located at 919 West Dillion Road; Louisville, Colorado (the Leased Premises). The purpose of the Lease is to replace the Company’s current leased premises at 2970 Wilderness Place, Suite 100 in Boulder, Colorado and the Company intends to move its corporate headquarters to the Leased Premises by mid-2023.
Under the Lease, the Company will lease approximately
15
BIODESIX, INC.
Notes to Condensed Financial Statements
improvement allowance of $
The Lease includes various covenants, indemnities, defaults, termination rights, and other provisions customary for lease transactions of this nature, including maintaining a $
Operating lease expense was $
Future minimum lease payments associated with our operating leases were as follows (in thousands):
|
|
As of June 30, 2022 |
|
|
Remainder of 2022(1) |
|
$ |
( |
) |
2023(1) |
|
|
( |
) |
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 and thereafter |
|
|
|
|
Total future minimum lease payments |
|
|
|
|
Less amount representing interest |
|
|
( |
) |
Total lease liabilities |
|
$ |
|
(1) Includes $
Future minimum lease payments, which do not include amounts for common area maintenance, insurance, or taxes, for operating lease obligations in accordance with ASC 840 - Leases were as follows (in thousands):
|
|
As of |
|
|
|
|
December 31, 2021 |
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 and thereafter |
|
|
|
|
Total |
|
$ |
|
Note 8 – Equity
Equity Financing Programs
The Company maintains
16
BIODESIX, INC.
Notes to Condensed Financial Statements
On March 7, 2022 (the Effective Date), the Company entered into a purchase agreement with Lincoln Park Capital Fund, LLC (Lincoln Park), pursuant to which Lincoln Park has committed to purchase up to $
Lincoln Park has no right to require the Company to sell any shares of common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to certain conditions. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the Purchase Agreement if doing so would result in Lincoln Park beneficially owning more than
Actual sales of shares of common stock to Lincoln Park under the Purchase Agreement will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the common stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. The net proceeds, if any, under the Purchase Agreement will depend on the frequency and prices at which the Company sells shares of its common stock to Lincoln Park. The Company intends to use any net proceeds from the sale of its common stock to Lincoln Park to advance its growth strategy and for general corporate purposes. On the Effective Date, the Company issued
The Purchase Agreement may be terminated by the Company at any time, at its sole discretion, without any cost or penalty, by giving one business day notice to Lincoln Park to terminate the Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the common stock. Although the Company has agreed to reimburse Lincoln Park for a limited portion of the fees it incurred in connection with the Purchase Agreement, the Company did not pay any additional amounts to reimburse or otherwise compensate Lincoln Park in connection with the transaction, other than the issuance of the Commitment Shares.
During the three and six months ended June 30, 2022, the Company raised approximately $
Subscription Agreements
17
BIODESIX, INC.
Notes to Condensed Financial Statements
Agreement whereby the Company agreed to file, subject to certain exceptions, a shelf registration statement with respect to resales of such shares with the Securities and Exchange Commission no later than 60 days from April 7, 2022, which the Company filed on June 6, 2022.
Pursuant to the Subscription Agreements, the Investors purchased shares at a purchase price (determined in accordance with Nasdaq rules relating to the “Minimum Value” of the Company’s common stock) of $
Warrants
During 2018, the Company issued warrants to purchase shares of convertible preferred stock in conjunction with the sale of certain convertible preferred shares and issuance of debt. The Company issued to the lender a warrant to purchase
Note 9 – Revenue and Accounts Receivable Credit Concentration
Diagnostic test revenues consist of blood-based lung tests and COVID-19 tests, which are recognized in the amount expected to be received in exchange for diagnostic tests when the diagnostic tests are delivered. The Company conducts diagnostic tests and delivers the completed test results to the prescribing physician or patient, as applicable. The fees for diagnostic tests are billed either to a third party such as Medicare, medical facilities, commercial insurance payers, or to the patient. The Company determines the transaction price related to its diagnostic test contracts by considering the nature of the payer and historical price concessions granted to groups of customers. For diagnostic test revenue, the Company estimates the transaction price, which is the amount of consideration it expects to be entitled to receive in exchange for providing services based on its historical collection experience, using a portfolio approach. The Company recognizes revenues for diagnostic tests upon delivery of the tests to the physicians requesting the tests or patient, as applicable.
Services revenue consists of on-market tests, pipeline tests, custom diagnostic testing, and other scientific services for a purpose as defined by any individual customer, which is often with biopharmaceutical companies. The performance obligations and related revenue for these sales is defined by a written agreement between the Company and the customer. These services are generally completed upon the delivery of testing results, or other contractually defined milestone(s), to the customer. Revenue for these services is recognized upon delivery of the completed test results, or upon completion of the contractual milestone(s).
Revenues consisted of the following (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Diagnostic tests |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Services |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
Deferred Revenue
Deferred revenue consists of cash payments from customers received in advance of delivery. As test results are delivered, the Company recognizes the deferred revenue in ‘Revenues’ in the statements of operations. Of the $
18
BIODESIX, INC.
Notes to Condensed Financial Statements
respectively, recorded within ‘Other long-term liabilities’ in the balance sheets which represent amounts to be recognized in excess of twelve months from the respective balance sheet date.
The Company’s customers in excess of 10% of total revenue both pertain to our COVID-19 diagnostic testing services, and their related revenue as a percentage of total revenue were as follows:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
The State of Colorado |
|
|
% |
|
|
— |
|
|
|
% |
|
|
— |
|
||
The Big Ten Conference |
|
|
— |
|
|
|
% |
|
|
— |
|
|
|
% |
In addition to the above table, we collect reimbursement on behalf of customers covered by Medicare, which accounted for
The Company’s third-party payors and other customers in excess of 10% of accounts receivable, and their related accounts receivable as a percentage of total accounts receivable were as follows:
|
|
As of |
|
|||||
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
The State of Colorado |
|
|
% |
|
|
— |
|
|
Medicare |
|
|
% |
|
|
% |
||
Janssen Research and Development, LLC |
|
|
% |
|
|
% |
||
LabCorp DD (formerly Covance) |
|
|
% |
|
|
% |
Note 10 – Share-Based Compensation
The Company’s share-based compensation awards are issued under the 2020 Equity Incentive Plan (2020 Plan), the predecessor 2016 Equity Incentive Plan (2016 Plan) and 2006 Equity Incentive Plan (2006 Plan). Any awards that expire or are forfeited under the 2016 Plan or 2006 Plan become available for issuance under the 2020 Plan. As of June 30, 2022,
Share-Based Compensation Expense
Pre-tax share-based compensation expense reported in the Company’s statements of operations was (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Direct costs and expenses |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sales, marketing, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
The remaining unrecognized stock‑based compensation expense for options and restricted stock units was approximately $
19
BIODESIX, INC.
Notes to Condensed Financial Statements
Stock Option Activity
Stock option activity during the six months ended June 30, 2022, excluding the Bonus Option Program described below, was (in thousands, except weighted average exercise price and weighted average contractual life):
|
|
Number of Options |
|
|
Weighted Average |
|
|
Weighted Average |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding ‑ January 1, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Forfeited/canceled |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Exercised |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Outstanding ‑ June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable - June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
Restricted Stock Unit Activity
Restricted stock unit activity during the six months ended June 30, 2022 was (in thousands, except weighted average grant date fair value per share):
|
|
Number of Shares |
|
|
Weighted Average |
|
||
Outstanding ‑ January 1, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Forfeited/canceled |
|
|
( |
) |
|
|
|
|
Released |
|
|
( |
) |
|
|
|
|
Outstanding ‑ June 30, 2022 |
|
|
|
|
$ |
|
Bonus-to-Options Program
As part of the Bonus-to-Options Program (Bonus Option Program), the Company recorded the following activity during the six months ended June 30, 2022 (in thousands, excepted weighted average exercise price and weighted average contractual life):
|
|
Number of Options |
|
|
Weighted Average |
|
|
Weighted Average |
|
|
Aggregate Intrinsic Value |
|
||||
Outstanding ‑ January 1, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
||
Forfeited/canceled |
|
|
( |
) |
|
|
|
|
|
— |
|
|
|
— |
|
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Outstanding ‑June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Exercisable - June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
|
|
The Company accrued $
Employee Stock Purchase Plan
A total of
20
BIODESIX, INC.
Notes to Condensed Financial Statements
Note 11 – Net Loss per Common Share
Basic earnings per share (EPS) excludes dilution and is computed by dividing net loss attributable to the common stockholders by the weighted-average shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised, resulting in the issuance of shares of common stock that would then share in the earnings or losses of the Company.
In connection with the acquisition of Indi in 2018, the Company recorded contingent consideration (See Note 4 – Fair Value) for amounts contingently payable to Indi's selling shareholders pursuant to the terms of the asset purchase agreement. The contingent consideration arrangement requires additional consideration to be paid by the Company to Indi upon attainment of a three-consecutive month gross margin target of $
Basic and diluted loss per share for the three and six months ended June 30, 2022 and 2021 were (in thousands, except per share amounts):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss attributable to common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares outstanding used |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share, basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
( |
) |
|
|
( |
) |
The following outstanding common stock equivalents were excluded from diluted net loss attributable to common stockholders for the periods presented because inclusion would be anti-dilutive (in thousands):
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Options to purchase common stock |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Shares committed under ESPP |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
|
Note 12 - Income Taxes
Since inception, the Company has incurred net taxable losses, and accordingly,
Note 13 – Commitments and Contingencies
Co‑Development Agreement
In April 2014 and amended in October 2016, the Company entered into a worldwide agreement with AVEO to develop and commercialize AVEO's hepatocyte growth factor inhibitory antibody ficlatuzumab with the Company's proprietary companion diagnostic test, BDX004, a version of the Company’s serum protein test that is commercially available to help physicians guide treatment decisions for patients with advanced non-small cell lung cancer (NSCLC). Under the terms of the agreement, AVEO will conduct a proof of concept (POC) clinical study of ficlatuzumab for NSCLC in which BDX004 will be used to select clinical trial subjects (the NSCLC POC Trial). Under the agreement, the Company and AVEO would share equally in the costs of the NSCLC POC Trial, and
21
BIODESIX, INC.
Notes to Condensed Financial Statements
each would be responsible for
In September 2020, the Company exercised its opt-out right with AVEO for the payment of
License Agreements
In August 2019, we entered into a non-exclusive license agreement with Bio-Rad Laboratories, Inc. (Bio-Rad) (the Bio-Rad License). Under the terms of the Bio-Rad License, the Company received a non-exclusive license, without the right to grant sublicenses, to utilize certain of Bio-Rad’s intellectual property, machinery, materials, reagents, supplies and know-how necessary for the performance of Droplet Digital PCR (ddPCR) in cancer detection testing for third parties in the United States. The Company also agreed to purchase all of the necessary supplies and reagents for such testing exclusively from Bio-Rad, pursuant to a separately executed supply agreement (the Supply Agreement) with Bio-Rad. As further consideration for the non-exclusive license, the Company agreed to pay a royalty of
On May 13, 2021 (Effective Date), we reached agreement with CellCarta Biosciences Inc. (formerly “Caprion Biosciences, Inc.”) (the CellCarta License) on a new royalty bearing license agreement for the Nodify XL2 test. The parties agreed to terminate all prior agreements and replace with this new arrangement, which has a
As part of the acquisition of the assets of Oncimmune USA, the Company entered into several agreements to govern the relationship between the parties. The Company agreed to a license agreement and royalty payment related to an acquired diagnostic test of
Litigation, Claims and Assessments
From time to time, we may become involved in legal proceedings or investigations which could have an adverse impact on our reputation, business and financial condition and divert the attention of our management from the operation of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition, or cash flows.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Biodesix, Inc. is referred to throughout this Quarterly Report on Form 10-Q for the period ended June 30, 2022 (Form 10-Q) as “we”, “us”, “our” or the “Company”.
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2021 (Form 10-K) and the Condensed Financial Statements as of June 30, 2022 and for the three and six months ended June 30, 2022 and 2021, included in Part I, Item 1 of this Form 10-Q, which provide additional information regarding our financial position, results of operations and cash flows. To the extent that the following MD&A contains statements which are not of a historical nature, such statements are forward-looking statements, which involve risks and uncertainties, including but not limited to those set forth under the caption “Special Note Regarding Forward-Looking Statements” and Item 1A “Risk Factors” of Part II in this Quarterly Report on Form 10-Q and those discussed in our other filings with the Securities and Exchange Commission (SEC), including the risks described in Item 1A “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed on March 14, 2022.
The following MD&A discussion is provided to supplement the Condensed Financial Statements as of June 30, 2022 and 2021 and for the three and six months then ended included in Part I, Item 1 of this Quarterly Report on Form 10-Q. We intend for this discussion to provide you with information that will assist you in understanding our financial statements, the changes in key items in those financial statements from period to period, and the primary factors that accounted for those changes.
Data for the three and six months ended June 30, 2022 and 2021 has been derived from our unaudited condensed financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Overview
We are a leading data-driven diagnostic solutions company leveraging state of the art technologies with our proprietary AI platform to discover, develop, and commercialize solutions for clinical unmet needs, with a primary focus in lung disease. By combining a technology multi-omic approach with a holistic view of the patient’s disease state, we believe our solutions provide physicians with greater insights to help personalize their patient’s care and meaningfully improve disease detection, evaluation, and treatment. Our unique approach to precision medicine provides timely and actionable clinical information, which we believe helps improve overall patient outcomes and lowers the overall healthcare cost by reducing the use of ineffective and unnecessary treatments and procedures. In addition to our diagnostic tests, we provide biopharmaceutical companies with services that include diagnostic research, clinical trial testing, and the discovery, development, and commercialization of companion diagnostics.
Our core belief is that no single technology will answer all clinical questions that we encounter. Therefore, we employ multiple technologies, including genomics, transcriptomics, proteomics, and radiomics, and leverage our proprietary AI-based Diagnostic Cortex® platform to discover innovative diagnostic tests for clinical use. The Diagnostic Cortex is an extensively validated deep learning platform optimized for the discovery of diagnostic tests, which we believe overcomes standard machine learning challenges faced in life sciences research. Our data-driven and multi-omic approach is designed to enable us to discover diagnostic tests that answer critical clinical questions faced by physicians, researchers, and biopharmaceutical companies.
We continuously incorporate new market insights and patient data to enhance our platform through a data-driven learning loop. We regularly engage with our customers, key opinion leaders, and scientific experts to stay ahead of the rapidly evolving diagnostic treatment landscape to identify additional clinical unmet needs where a diagnostic test could help improve patient care. Additionally, we incorporate clinical and molecular profiling data from our commercial clinical testing, research studies, clinical trials, and biopharmaceutical customers or academic partnerships, to continue to advance our platform. We have a variety of samples with associated data in our biobank, including tumor profiles and immune profiles, which are used for both internal and external research and development initiatives.
We have commercialized eight diagnostic tests which are currently available for use by physicians. Our Nodify XL2 and Nodify CDT tests, marketed as part of the Nodify Lung Nodule Risk Assessment testing strategy, assess the risk of lung cancer to help identify the most appropriate treatment pathway. We believe we are the only company to offer two commercial blood-based tests to help physicians reclassify risk of malignancy in patients with suspicious lung nodules. Our GeneStrat ddPCR, GeneStrat NGS, and VeriStrat tests, marketed as the IQLung testing strategy, are used following diagnosis of lung cancer to measure the presence of mutations in the tumor and the state of the patient’s immune system to establish the patient’s prognosis and help guide treatment decisions. The GeneStrat targeted tumor profiling test and the VeriStrat immune profiling test now have a 36-hour average turnaround time, down from the previous 72-hour average turnaround time, providing physicians with timely results to facilitate treatment decisions. The GeneStrat NGS test is our 72-hour average turnaround time blood-based NGS test, which was launched in November 2021 to a select group of physicians, with national launch in January 2022. The 52-gene panel includes guideline recommended mutations to help physicians treating advanced-stage lung cancer patients identify all four major mutation classes and genes, such as EGFR, ALK, KRAS, MET, NTRK, ERBB2, and others, and delivers them in an expedited timeframe so patient treatment can begin sooner.
23
In response to the COVID-19 pandemic, through our partnership with Bio-Rad, we commercialized the Biodesix WorkSafe testing program. Our scientific diagnostic expertise, technologies, and existing commercial infrastructure enabled us to rapidly commercialize two FDA EUA authorized tests, a part of our customizable program. Both diagnostic tests are owned and were developed by Bio-Rad and Bio-Rad has granted us permission to utilize both tests for commercial diagnostic services. Then U.S. Health and Human Services Secretary Azar declared a public health emergency for COVID-19 in February 2020 which justified the authorization of emergency use of diagnostic tests for the detection and/or diagnosis of COVID-19. The Bio-Rad SARS-CoV-2 ddPCR test and the Platelia SARS-CoV-2 Total Ab test have been granted FDA EUA pursuant to the current emergency declaration. The Bio-Rad SARS-CoV-2 ddPCR test was FDA EUA authorized on May 1, 2020, authorizing performance of the test in laboratories certified under CLIA to perform high complexity tests. The second test is the Platelia SARS-CoV-2 Total Ab test, which is an antibody test intended for detecting a B-cell immune response to SARS-CoV-2, indicating recent or prior infection. The Platelia SARS-CoV-2 Total Ab test was FDA EUA authorized on April 29, 2020. Prior to using the Bio-Rad SARS-CoV-2 tests as part of our testing program, we performed feasibility, verification, and validation studies, including developing software for process automation, sample accessioning, data management and reporting, all required to demonstrate the test operated as claimed by the manufacturer and as required by our certifying regulatory agencies for high complexity laboratory testing. We secured independent reference specimens run with EUA tests to validate these tests as fit for diagnostic use in our laboratories. Post-launch development support for these tests have included improvements in on-boarding new personnel, logistics of sample collection, sample receipt and data reporting, all required to support our testing program. Additional releases of the laboratory data management software are ongoing and planned for the foreseeable future. Beginning in the quarter ended June 30, 2021, we began partnering with GenScript Biotech Corporation to commercialize the blood-based cPass SARS-CoV-2 Neutralizing Antibody testing as a service. The test is the first surrogate neutralizing antibody test with FDA EUA and uses ELISA technology to qualitatively detect circulating neutralizing antibodies to the RBD in the spike protein of SARS-CoV-2 that are produced in response to a previous SARS-CoV-2 infection.
Medical products that are granted an EUA are only permitted to commercialize their products under the terms and conditions provided in the authorization. The FDA may revoke an EUA where it is determined that the underlying health emergency no longer exists or warrants such authorization, if the conditions for the issuance of the EUA are no longer met, or if other circumstances make revocation appropriate to protect the public health or safety, and we cannot predict how long the EUAs for the SARS-CoV-2 tests will remain in place.
These tests under the Biodesix WorkSafe testing program are utilized by healthcare providers, including hospitals and nursing homes, and are also offered to businesses and educational systems. We have announced multiple partnerships for COVID-19 testing, and maintain an agreement with the State of Colorado to be one of the diagnostic companies to support widespread COVID-19 testing for the State which will expire on August 31, 2022. Additionally, we have overseen and managed onsite testing and validating testing for the Big Ten Conference athletic competitions through the term of our contract which expired on June 30, 2021.
In addition to the eight diagnostic tests currently on the market, we perform over 30 assays for research use as part of our laboratory services that have been used by over 60 biopharmaceutical companies and academic partners. All of our diagnostic testing is performed at one of our two accredited, high-complexity clinical laboratories in Boulder, Colorado and De Soto, Kansas.
Since our inception, we have performed over 550,000 clinical diagnostic tests, and continue to generate a large and growing body of clinical evidence consisting of over 300 clinical and scientific peer-reviewed publications, presentations, and abstracts. Through ongoing study of each of our tests, we continue to grow our depth of understanding of disease biology and the broad utility of each of our tests. We believe we are poised for rapid growth by leveraging our scientific development and laboratory operations expertise along with our commercial infrastructure which includes sales, marketing, reimbursement, and regulatory affairs.
In the United States, we market our tests to clinical customers through our targeted sales organization, which includes sales representatives that are engaged in sales efforts and promotional activities primarily to pulmonologists, oncologists, cancer centers and nodule clinics. We market our tests and services to biopharmaceutical companies globally through our targeted business development team, which promotes the broad utility of our tests and testing capabilities throughout drug development and commercialization which is of value to pharmaceutical companies and their drug-development process.
The Company continues to address our liquidity needs through improvements to our capital structure. During the three months ended June 30, 2022, the Company entered into: (i) a private placement that raised approximately $11.7 million in net equity proceeds, (ii) an amendment and partial repayment of our 2021 Term Loan, (iii) modifications to extend payment terms under the Integrated Diagnostics asset purchase agreement (the Indi APA), (iv) common stock sales raising additional funds through our at-the-market facility, and (v) the closing of a $25.0 million debt facility with funding for up to $25.0 million occurring in two tranches. On May 9, 2022, we closed on the first tranche for gross proceeds of $15.0 million (approximately $12.8 million, net, after deducting debt issuance costs and OID) (Promissory Note One). Each of these strategic initiatives is described in further detail within the Notes to our condensed financial statements in Part 1 of this Quarterly Report on Form 10-Q as well as our Liquidity and Capital Resources section below.
We have funded our operations to date principally from net proceeds from the issuances of our common stock, the sale of convertible preferred stock, revenue from diagnostic testing and services, and the incurrence of indebtedness. We had cash and cash equivalents of $28.7 million, inclusive of $5.1 million in restricted cash, and $32.7 million as of June 30, 2022 and December 31, 2021, respectively.
24
Factors Affecting Our Performance
We believe there are several important factors that impact our operating performance and results of operations, including:
Historically, we have experienced situations where commercial payers proactively reduced the amounts they were willing to reimburse for our tests, and in other situations, commercial payers have determined that the amounts they previously paid were too high and have sought to recover those perceived excess payments by deducting such amounts from payments otherwise being made. When we contract to serve as a participating provider, reimbursements are made pursuant to a negotiated fee schedule and are limited to only covered indications. Becoming a participating provider generally results in higher reimbursement for covered indications and lack of reimbursement for non-covered indications. As a result, the impact of becoming a participating provider with a specific payer will vary. If we are not able to obtain or maintain coverage and adequate reimbursement from third-party payers, we may not be able to effectively increase our testing volume and revenue as expected. Additionally, retrospective reimbursement adjustments can negatively impact our revenue and cause our financial results to fluctuate.
Our clinical research has resulted in approximately 90 peer-reviewed publications for our tests. In addition to clinical studies, we are collaborating with investigators from multiple academic cancer centers. For example, on June 3, 2022, we announced the intent to develop a new novel molecular minimal residual disease (MRD) test as a part of a master sponsored research agreement (MSRA) with Memorial Sloan Kettering Cancer Center (MSK). In addition, the MSRA between MSK and the Company also includes the potential future development of other diagnostic tests aimed at improving the treatment of cancer. We believe these studies are critical to gaining physician adoption and driving favorable coverage decisions by payers and expect our investments in research and development to increase. Further we also expect to increase our research and development expenses to fund further innovation and develop new clinically relevant tests.
25
On June 30, 2022, the Company announced an arrangement with Royal Philips, a global leader in health care technology, in which our Nodify Lung blood-based lung nodule risk assessment testing will be incorporated into Philips Lung Cancer Orchestrator lung cancer patient management system. The incorporation of proteomics data – along with the radiologic and patient history data currently used to determine treatment decisions – can help create diagnostic efficiency for cancer care centers in the management of a growing number of lung nodule cases, via the contextual launch of Biodesix Nodify Lung application within Lung Cancer Orchestrator. Philips Lung Cancer Orchestrator solution is designed to enable health systems to operationalize lung cancer screening and lung nodule management programs at scale.
While each of these areas present significant opportunities for us, they also pose significant risks and challenges that we must address. See Part II, Item 1A “Risk Factors” within this Form 10-Q and Item 1A “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021 for more information.
COVID-19 Pandemic
The COVID-19 pandemic has disrupted, and may continue to disrupt, our lung diagnostic testing operations. To protect the health and well-being of our workforce, partners, vendors and customers, we provide voluntary COVID-19 testing for employees working on-site, implemented social distance and building entry policies at work, restricted travel and facility visits, and followed the States of Colorado and Kansas’ public health orders and the guidance from the Centers for Disease Control and Prevention (CDC). Employees who can perform their duties remotely have the option to work from home. Our sales, marketing and business development efforts have also been constrained by our operational response to the COVID-19 pandemic. We will continue to adjust our operational norms, as needed, to help slow the spread of COVID-19, including complying with government directives and guidelines as they are modified and supplemented.
The COVID-19 pandemic and the surge associated with the Delta and Omicron variants have negatively affected our lung diagnostic testing-related revenue and our clinical studies. For example, cancer patients had more limited access to hospitals, healthcare providers and medical resources as steps were taken to control the spread of COVID-19. Beginning in the third quarter 2020, the Company’s COVID-19 testing services began to experience rapid growth with a peak in the first quarter 2021; however, subsequent to this peak, we experienced a rapid decline in COVID-19 testing revenue primarily as a result of a few significant contracts that expired as well as the ongoing increase in COVID-19 vaccination rates across the U.S. and the adoption and availability of at-home testing. We do not anticipate the need for COVID testing to be commensurate with the peak demand experienced during the first quarter 2021 and instead expect the demand to moderate as new variants and infections occur. The reduction in demand for COVID-19 diagnostic testing will be a key indicator of continued recovery and is taken as a positive sign for both our Lung Diagnostic and Biopharmaceutical Services during 2022. There is no assurance that our COVID-19 testing program will continue to be accepted by the market or that other diagnostic tests will become more accepted, produce quicker results or are more accurate. Further, the longevity and extent of the COVID-19 pandemic is uncertain and the need for COVID-19 testing could vary which could have a significant effect on our results of operations and profitability. As a result, increases in revenue due to any increase in demand for these diagnostic tests may not be indicative of our future revenue. For example, we began to see recovery during the fourth quarter 2020 in our core lung diagnostic testing as our delivered tests exceeded first quarter 2020 delivered tests. The Company’s sales efforts continued to be impacted by the COVID-19 pandemic during the first half of the first quarter 2022 due to surges associated with variants, which negatively affected the growth rate of our core lung diagnostic testing-related revenue and our clinical studies. However, we began to see further recovery during the latter half of the first quarter and throughout the second quarter 2022 in lung diagnostic testing as health care practitioners, including pulmonologists, increasingly returned to pre-pandemic related care. While the full outcome of the COVID-19 pandemic is unknown, it continues to negatively impact our ability to grow and scale our business in line with our expectations and disclosures at the time of our initial public offering (IPO).
See Item 1A “Risk Factors” of Part II in this Quarterly Report on Form 10-Q and those discussed in our other filings with the SEC, including the risks described in Item 1A “Risk Factors” of Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed on March 14, 2022, for a description of how the COVID-19 pandemic may adversely affect our business, financial condition and results of operations.
26
Second Quarter 2022 Financial and Operational Highlights
The following were significant developments affecting our business, capital structure and liquidity during the three months ended June 30, 2022 as compared to the same period in 2021 unless otherwise noted:
Components of Operating Results
Revenues
We derive our revenue from two primary sources: (i) providing diagnostic testing in the clinical setting (Diagnostic Tests); and (ii) providing biopharmaceutical companies with services that include diagnostic research, clinical research, clinical trial testing, development and testing services generally provided outside the clinical setting and governed by individual contracts with third parties as well as development and commercialization of companion diagnostics (Services).
Diagnostic Tests
Diagnostic test revenue is generated from delivery of results from our diagnostic tests. In the United States, we performed tests as both an in-network and out-of-network service provider depending on the test performed and the contracted status of the insurer. We provide diagnostic tests in two primary categories: (i) core lung diagnostics testing and (ii) COVID-19 testing.
We consider diagnostic testing to be completed upon the delivery of test results to our customer, either the prescribing physician or third-party to which we contracted for services to be performed, which is considered the performance obligation. The fees for such services are billed either to a third party such as Medicare, medical facilities, commercial insurance payers, or to the patient. We determine the transaction price related to our contracts by considering the nature of the payer, the historical amount of time until payment by a payer and historical price concessions granted to groups of customers.
Services
Services revenue is generated from the delivery of our on-market tests, pipeline tests, custom diagnostic testing, and other scientific services for a purpose as defined by any individual customer. At times we collaborate with large biopharmaceutical companies in an attempt to discover biomarkers that would be helpful in their drug development or marketing. The performance obligations and related revenue for these sales is defined by a written agreement between us and our customer. These services are generally completed upon the delivery of testing results, or other contractually defined milestone(s), to the customer, which is considered the performance obligation. Customers for these services are typically large pharmaceutical companies where collectability is reasonably assured and therefore revenue is accrued upon completion of the performance obligations. Revenue derived from services is often unpredictable and can cause dramatic swings in our overall net revenue line from quarter to quarter.
27
Operating Expenses
Direct costs and expenses
Cost of diagnostic testing generally consists of cost of materials, direct labor, including bonus, employee benefits, equipment and infrastructure expenses associated with acquiring and processing test samples, including sample accessioning, test performance, quality control analyses, charges to collect and transport samples; curation of test results for physicians; and in some cases, license or royalty fees due to third parties. Costs associated with performing our tests are recorded as the tests are processed regardless of whether revenue was recognized with respect to the tests. Infrastructure expenses include depreciation of laboratory equipment, rent costs, amortization of leasehold improvements and information technology costs. Royalties for licensed technology are calculated as a percentage of revenues generated using the associated technology and recorded as expense at the time the related revenue is recognized. One-time royalty payments related to signing of license agreements or other milestones, such as issuance of new patents, are amortized to expense over the expected useful life of the patents. While we do not believe the technologies underlying these licenses are necessary to permit us to provide our tests, we do believe these technologies are potentially valuable and of possible strategic importance to us or our competitors. Under these license agreements, we are obligated to pay aggregate royalties ranging from 1% to 8% of sales in which the patents or know-how are used in the product or service sold, sometimes subject to minimum annual royalties or fees in certain agreements.
We expect the aggregate cost of diagnostic testing to increase in line with the increase in the number of tests we perform, but the cost per test to decrease modestly over time due to the efficiencies we may gain as test volume increases, and from automation and other cost reductions. Cost of services includes costs incurred for the performance of development services requested by our customers. Costs of development services will vary depending on the nature, timing and scope of customer projects.
Research and development
Research and development expenses consist of costs incurred to develop technology and include salaries and benefits, reagents and supplies used in research and development laboratory work, infrastructure expenses, including allocated facility occupancy and information technology costs, contract services, clinical studies, other outside costs and costs to develop our technology capabilities. Research and development expenses account for a significant portion of our operating expenses and consist primarily of external and internal costs incurred in connection with the discovery and development of our product candidates.
External expenses include: (i) payments to third parties in connection with the clinical development of our product candidates, including contract research organizations and consultants; (ii) the cost of manufacturing products for use in our preclinical studies and clinical trials, including payments to contract manufacturing organizations (CMOs) and consultants; (iii) scientific development services, consulting research fees and for sponsored research arrangements with third parties; (iv) laboratory supplies; and (v) allocated facilities, depreciation and other expenses, which include direct or allocated expenses for IT, rent and maintenance of facilities. External expenses are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers or our estimate of the level of service that has been performed at each reporting date. We track external costs by the stage of program, clinical or preclinical.
Internal expenses include employee-related costs, including salaries and related benefits for employees engaged in research and development functions. We do not track internal costs by product candidate because these costs are deployed across multiple programs and, as such, are not separately classified.
Research and development costs are expensed as incurred. Payments made prior to the receipt of goods or services to be used in research and development are deferred and recognized as expense in the period in which the related goods are received or services are rendered. Costs to develop our technology capabilities are recorded as research and development.
We expect our research and development expenses to increase as we continue to innovate and develop additional products and expand our data management resources. As our services revenue grows, an increasing portion of research and development dollars are expected to be allocated to cost of services for biopharmaceutical service contracts. This expense, though expected to increase in dollars, is expected to decrease as a percentage of revenue in the long term, though it may fluctuate as a percentage of our revenues from period to period due to the timing and extent of these expenses.
Sales, marketing, general and administrative
Our sales and marketing expenses are expensed as incurred and include costs associated with our sales organization, including our direct sales force and sales management, client services, marketing and reimbursement, as well as business development personnel who are focused on our biopharmaceutical customers. These expenses consist primarily of salaries, commissions, bonuses, employee benefits, and travel, as well as marketing and educational activities and allocated overhead expenses. We expect our sales and marketing expenses to increase in dollars as we expand our sales force, increase our presence within the United States, and increase our marketing activities to drive further awareness and adoption of our tests and our future products. These expenses, though expected to increase in dollars, are expected to decrease as a percentage of revenue in the long term, though they may fluctuate as a percentage of our revenues from period to period due to the timing and extent of these expenses.
28
Our general and administrative expenses include costs for our executive, accounting, finance, legal and human resources functions. These expenses consist principally of salaries, bonuses, employee benefits, and travel, as well as professional services fees such as consulting, audit, tax and legal fees, and general corporate costs and allocated overhead expenses. We expect that our general and administrative expenses will continue to increase in dollars, primarily due to increased headcount and costs associated with operating as a public company, including expenses related to legal, accounting, regulatory, maintaining compliance with exchange listing and requirements of the SEC, director and officer insurance premiums and investor relations. These expenses, though expected to increase in dollars, are expected to decrease as a percentage of revenue in the long term, though they may fluctuate as a percentage from period to period due to the timing and extent of these expenses.
Change in Fair Value of Contingent Consideration
In connection with the purchase transaction of Indi, we recorded contingent consideration pertaining to the amounts potentially payable to Indi shareholder pursuant to the terms of the asset purchase agreement. The fair value of contingent consideration was assessed at each balance sheet date and changes, if any, to the fair value were recognized as operating expenses within the statement of operations. The Company met the gross margin target of $2.0 million for three consecutive months during the three months ended June 30, 2021. Subsequent changes to the contingent consideration following the achievement of the gross margin target are recorded as ‘Interest expense’ in the statements of operations resulting from the passage of time and fixed payment schedule. The significant unobservable inputs used in the measurement of fair value included the probability of successful achievement of the specified product gross margin targets, the period in which the targets were expected to be achieved, and discount rates which ranged from 11% to 16%. As a result of the achievement of the gross margin target, the only significant unobservable input used in the measurement of fair value includes the discount rate since all other inputs became fixed and determinable. During the period ended June 30, 2022, the Company increased the discount rate to reflect current market and Company specific conditions.
On April 7, 2022, the Company entered into Amendment No. 3 to the Indi APA in which the parties agreed to restructure the milestone payments whereby the Company will make five quarterly installments of $2.0 million each beginning in April 2022, three quarterly installments of $3.0 million beginning in July 2023, one installment of $5.0 million in April 2024, and one installment of approximately $8.4 million in July 2024. In addition, the Company agreed to an exit fee of approximately $6.1 million in October 2024. Interest shall accrue on the difference between the payment schedule as agreed in the August 2021 amendment and the April 2022 amended payment schedule, at an aggregate per annum rate equal to 10%, with such interest to be payable quarterly on the following installment payment date.
Non-Operating Expenses
Interest Expense and Interest Income
For the three and six months ended June 30, 2022, interest expense consists of cash and non-cash interest from Promissory Note One, the 2021 Term Loan and changes in the value of our contingent consideration associated with the passage of time subsequent to the achievement of the gross margin target in the second quarter 2021. For the three and six months ended June 30, 2021, interest expense primarily consists of cash and non-cash interest from our 2021 Term Loan. Interest income, which is included in ‘Other income, net’ in the statements of operations consists of income earned on our cash and cash equivalents.
29
Results of Operations
The following table sets forth the significant components of our results of operations for the periods presented (in thousands, except percentages).
|
|
Three Months Ended June 30, |
|
|
Change |
|
|
Six Months Ended June 30, |
|
|
Change |
|
||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||||
Revenues |
|
$ |
10,950 |
|
|
$ |
11,885 |
|
|
$ |
(935 |
) |
|
|
(8 |
)% |
|
$ |
17,498 |
|
|
$ |
40,751 |
|
|
$ |
(23,253 |
) |
|
|
(57 |
)% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Direct costs and expenses |
|
|
3,980 |
|
|
|
7,085 |
|
|
|
(3,105 |
) |
|
|
(44 |
)% |
|
|
7,215 |
|
|
|
25,303 |
|
|
|
(18,088 |
) |
|
|
(71 |
)% |
Research and development |
|
|
3,361 |
|
|
|
3,323 |
|
|
|
38 |
|
|
|
1 |
% |
|
|
6,567 |
|
|
|
6,644 |
|
|
|
(77 |
) |
|
|
(1 |
)% |
Sales, marketing, general and administrative |
|
|
15,235 |
|
|
|
11,425 |
|
|
|
3,810 |
|
|
|
33 |
% |
|
|
29,722 |
|
|
|
23,352 |
|
|
|
6,370 |
|
|
|
27 |
% |
Change in fair value of contingent consideration |
|
|
— |
|
|
|
639 |
|
|
|
(639 |
) |
|
|
(100 |
)% |
|
|
— |
|
|
|
1,622 |
|
|
|
(1,622 |
) |
|
|
(100 |
)% |
Impairment loss on intangible assets |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
81 |
|
|
|
— |
|
|
|
81 |
|
|
|
100 |
% |
Total operating expenses |
|
|
22,576 |
|
|
|
22,472 |
|
|
|
104 |
|
|
|
0 |
% |
|
|
43,585 |
|
|
|
56,921 |
|
|
|
(13,336 |
) |
|
|
(23 |
)% |
Loss from operations |
|
|
(11,626 |
) |
|
|
(10,587 |
) |
|
|
(1,039 |
) |
|
|
(10 |
)% |
|
|
(26,087 |
) |
|
|
(16,170 |
) |
|
|
(9,917 |
) |
|
|
(61 |
)% |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Interest expense |
|
|
(1,346 |
) |
|
|
(815 |
) |
|
|
(531 |
) |
|
|
(65 |
)% |
|
|
(2,483 |
) |
|
|
(1,466 |
) |
|
|
(1,017 |
) |
|
|
(69 |
)% |
Loss on extinguishment of liabilities |
|
|
(2,952 |
) |
|
|
— |
|
|
|
(2,952 |
) |
|
|
(100 |
)% |
|
|
(2,952 |
) |
|
|
(728 |
) |
|
|
(2,224 |
) |
|
|
(305 |
)% |
Other income, net |
|
|
100 |
|
|
|
— |
|
|
|
100 |
|
|
|
100 |
% |
|
|
112 |
|
|
|
1 |
|
|
|
111 |
|
|
|
11100 |
% |
Total other expense |
|
|
(4,198 |
) |
|
|
(815 |
) |
|
|
(3,383 |
) |
|
|
(415 |
)% |
|
|
(5,323 |
) |
|
|
(2,193 |
) |
|
|
(3,130 |
) |
|
|
(143 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net loss |
|
$ |
(15,824 |
) |
|
$ |
(11,402 |
) |
|
$ |
(4,422 |
) |
|
|
(39 |
)% |
|
$ |
(31,410 |
) |
|
$ |
(18,363 |
) |
|
$ |
(13,047 |
) |
|
|
(71 |
)% |
Revenues
We generate revenue from our diagnostic tests and services that we provide. Our revenues for the periods indicated were as follows (in thousands, except percentages):
|
|
Three Months Ended June 30, |
|
|
Change |
|
|
Six Months Ended June 30, |
|
|
Change |
|
||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||||
Diagnostic revenue |
|
$ |
10,206 |
|
|
$ |
10,838 |
|
|
$ |
(632 |
) |
|
|
(6 |
)% |
|
$ |
15,839 |
|
|
$ |
38,033 |
|
|
$ |
(22,194 |
) |
|
|
(58 |
)% |
Services revenue |
|
|
744 |
|
|
|
1,047 |
|
|
|
(303 |
) |
|
|
(29 |
)% |
|
|
1,659 |
|
|
|
2,718 |
|
|
|
(1,059 |
) |
|
|
(39 |
)% |
Total revenue |
|
$ |
10,950 |
|
|
$ |
11,885 |
|
|
$ |
(935 |
) |
|
|
(8 |
)% |
|
$ |
17,498 |
|
|
$ |
40,751 |
|
|
$ |
(23,253 |
) |
|
|
(57 |
)% |
Total revenue decreased $0.9 million or 8%, and $23.3 million or 57% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021.
Diagnostic test revenue decreased $0.6 million or 6%, and $22.2 million or 58% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021. The decrease for the three and six months ended June 30, 2022 compared to the same periods in 2021 is due to a $3.1 million and $25.4 million reduction in COVID-19 revenue, respectively, as the Company focuses its sales effort on the core lung diagnostic product lines. The reduction in Diagnostic test revenue was partially offset by an increase in our core lung diagnostic revenue of $2.5 million and $3.2 million for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021 driven primarily from an increase in Nodify XL2 and CDT, and GeneStrat NGS tests delivered. The Company’s sales efforts continued to be impacted by the COVID-19 pandemic during the first half of the first quarter 2022 due to surges associated with variants, which negatively affected the growth rate of our core lung diagnostic testing-related revenue and our clinical studies. However, we began to see further recovery during the latter half of the first quarter and throughout the second quarter 2022 in lung diagnostic testing as health care practitioners, including pulmonologists, increasingly returned to pre-pandemic related care.
Services revenue decreased $0.3 million or 29%, and $1.1 million or 39% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021 due to lower testing volumes driven by delayed receipt of samples from partner organizations, with an expected increase in volume in the coming months as those samples are delivered. In addition to delayed receipts in samples, service revenue can fluctuate due to several factors including contract timing, which can be long under normal circumstances, and currently reflects the slower pace of overall prospective clinical trial enrollment recovering from disruptions put forth by the recent Omicron COVID-19 variant spike.
30
Operating expenses
Direct costs and expenses
Direct costs and expenses related to revenue decreased $3.1 million or 44%, and $18.1 million or 71% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021 driven primarily by the overall decline in COVID-19 testing, as vaccinations increase as well as broader adoption and availability of at-home testing, partially offset by an increase in direct costs and expenses associated with increased lung diagnostic revenue.
Research and development
Research and development expenses increased $38,000 or 1%, and decreased $77,000 or 1% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021. The increase in costs for the three months ended June 30, 2022 was due primarily to increased spending on clinical trials and employee compensation and benefit costs, partially offset by decreased other laboratory costs. The decrease in costs for the six months ended June 30, 2022 was due primarily to decreased spending on clinical trials and other laboratory costs, partially offset by employee compensation and benefit costs.
The following table summarizes our external and internal costs for the three and six months ended June 30, 2022 and 2021 (in thousands, except percentages).
|
|
Three Months Ended June 30, |
|
|
Change |
|
|
Six Months Ended June 30, |
|
|
Change |
|
||||||||||||||||||||
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
|
2022 |
|
|
2021 |
|
|
$ |
|
|
% |
|
||||||||
External expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Clinical trials and associated costs |
|
$ |
750 |
|
|
$ |
596 |
|
|
$ |
154 |
|
|
|
26 |
% |
|
$ |
1,208 |
|
|
$ |
1,307 |
|
|
$ |
(99 |
) |
|
|
(8 |
)% |
Other external costs |
|
|
803 |
|
|
|
1,027 |
|
|
|
(224 |
) |
|
|
(22 |
)% |
|
|
1,839 |
|
|
|
2,010 |
|
|
|
(171 |
) |
|
|
(9 |
)% |
Total external costs |
|
|
1,553 |
|
|
|
1,623 |
|
|
|
(70 |
) |
|
|
(4 |
)% |
|
|
3,047 |
|
|
|
3,317 |
|
|
|
(270 |
) |
|
|
(8 |
)% |
Internal expenses |
|
|
1,808 |
|
|
|
1,700 |
|
|
|
108 |
|
|
|
6 |
% |
|
|
3,520 |
|
|
|
3,327 |
|
|
|
193 |
|
|
|
6 |
% |
Total research and development expenses |
|
$ |
3,361 |
|
|
$ |
3,323 |
|
|
$ |
38 |
|
|
|
1 |
% |
|
$ |
6,567 |
|
|
$ |
6,644 |
|
|
$ |
(77 |
) |
|
|
(1 |
)% |
Sales, marketing, general and administrative
Sales, marketing, general and administrative expenses increased $3.8 million or 33%, and $6.4 million or 27% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021. This increase was driven primarily by increases in employee compensation and benefits for both the three and six months ended June 30, 2022. This is also the result of increases in non-employee costs for both the three and six months ended June 30, 2022 associated with increased spending on various sales meetings, training, and campaigns.
Change in fair value of contingent consideration
Change in fair value of contingent consideration decreased $0.6 million or 100%, and $1.6 million or 100% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021. The net change to contingent consideration through the date the gross margin target was met is recorded as operating expenses in the statements of operations. The decrease of $0.6 million and $1.6 million is a result of the gross margin target being met during the three months ended June 30, 2021 and subsequent changes to the contingent consideration following the achievement of the gross margin target are recorded as ‘Interest expense’ in the statements of operations resulting from the passage of time and fixed payment schedule.
Non-operating expenses
Interest expense
Interest expense increased $0.5 million or 65%, and $1.0 million or 69% for the three and six months ended June 30, 2022, respectively, compared to the same periods in 2021. This increase for the three months ended June 30, 2022 is primarily related to the securities purchase agreement with Streeterville Capital, LLC (the Lender), in which the Lender purchased Promissory Note One for which the Company recorded $0.5 million in interest expense. Additionally, the increase for the six months ended June 30, 2022 is primarily driven by interest related to Promissory Note One and the accelerated accretion of the $2.7 million SVB final payment as interest expense over the expected remaining term of the loan.
Loss on extinguishment of liabilities
On April 7, 2022, the Company entered into Amendment No. 3 to the Indi APA in which all parties agreed to restructure the milestone payments. During the three months ended June 30, 2022, the Company evaluated Amendment No. 3 to the Indi APA in accordance with applicable accounting standards under U.S. GAAP which resulted in the extinguishment of the original instrument due to the substantially different terms. As a result, during the three months ended June 30, 2022, we recorded a loss on the extinguishment of $2.9 million.
31
On March 19, 2021, the Company entered into a new Loan and Security Agreement (2021 Term Loan) for an original principal amount of $30 million with a maturity date of March 1, 2026. In connection with entering into the 2021 Term Loan, the Company repaid all outstanding principal and unpaid interest in the amount of $25.9 million due under the secured promissory note (2018 Notes) and contemporaneously terminated the Loan and Security Agreement, dated as of February 23, 2018, as amended. As a result of the extinguishment of the 2018 Notes, the Company recorded a loss on extinguishment of $0.7 million during the three months ended March 31, 2021.
Liquidity and Capital Resources
We are an emerging growth company and, as such, have yet to generate positive cash flows from operations. We have funded our operations to date principally from net proceeds from the sale of our common stock, the sale of convertible preferred stock, revenue from diagnostic testing and services, and the incurrence of indebtedness.
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). As a result of the pandemic, the Company diversified its diagnostic testing beyond lung diagnostic testing to include the critical service of COVID-19 diagnostic testing. Beginning in the third quarter 2020, the Company’s COVID-19 testing services began to experience rapid growth with a peak in the first quarter 2021; however, subsequent to this peak, we experienced a rapid decline in COVID-19 testing revenue primarily as a result of a few significant contracts that expired as well as the ongoing increase in COVID-19 vaccination rates across the U.S. and the adoption and availability of at-home testing. In addition, the COVID-19 pandemic negatively affected our lung diagnostic testing-related revenue and our clinical studies. We began to see recovery during the fourth quarter 2020 in our core lung diagnostic testing as our delivered tests exceeded first quarter 2020 delivered tests. The Company’s sales efforts continued to be impacted by the COVID-19 pandemic during the first half of the first quarter 2022 due to surges associated with variants, which negatively affected the growth rate of our core lung diagnostic testing-related revenue and our clinical studies. However, we began to see further recovery during the latter half of the first quarter and throughout the second quarter 2022 in lung diagnostic testing as health care practitioners, including pulmonologists, increasingly returned to pre-pandemic related care. While the full outcome of the COVID-19 pandemic is unknown, it continues to negatively impact our ability to grow and scale our business in line with our expectations and disclosures at the time of our IPO. As a result, the items identified above have had an adverse effect on our revenue, results of operations and cash flows.
In March 2021, we completed the closing of our 2021 Term Loan for a principal amount of $30 million and extinguished our prior 2018 term loan for $25.9 million. The 2021 Term Loan contains customary affirmative covenants, including covenants regarding compliance with applicable laws and regulation, payment of taxes, insurance coverage, notice of certain events, and reporting requirements. Further, the 2021 Term Loan contains customary negative covenants limiting the ability to, among other things, incur future debt, transfer assets except for the ordinary course of business, make acquisitions, make certain restricted payments, and sell assets, subject to certain exceptions. The 2021 Term Loan requires the Company to comply with a minimum liquidity ratio covenant (as defined in the 2021 Term Loan) of not less than 0.95 to 1.00, and had a trailing six-month rolling revenue requirement of not less than 70% of the Company’s projected revenue performed at the end each reporting period.
On September 30, 2021, we entered into the Consent and First Amendment to Loan and Security Agreement (the 2021 Term Loan Amendment) to, among other things, amend our 2021 Term Loan to eliminate the revenue covenant for the period ended September 30, 2021 and modify the revenue covenant threshold for the three month period ended December 31, 2021. In addition, we agreed to establish a restricted cash collateral account for $15 million for the benefit of our lender if the balance of our cash and cash equivalents declined below $40 million.
On December 30, 2021, the Company raised approximately $16.3 million in gross proceeds from the sale of 3,756,994 common shares at a public offering price of $4.35 per share in an at-the-market offering. The Company received net proceeds of $15.7 million after deducting underwriting discounts and commissions and offering expenses payable by the Company.
On December 31, 2021, we entered into the Consent and Second Amendment to Loan and Security Agreement (Second Amendment) to, among other things, amend our 2021 Term Loan and First Amendment to: (i) obtain consent for the $4.6 million January 2022 milestone payment due under the Indi APA, (ii) repay $20 million in outstanding principal on December 31, 2021, (iii) waive the $600,000 prepayment fee on the $20 million Term Loan repayment, (iv) waive the minimum revenue covenant as of December 31, 2021, and (v) modify the minimum revenue requirement to not less than 75% for the three months ended March 31, 2022 and not less than 75% on a trailing six month rolling basis for each quarter thereafter of the Company’s projected revenue performed at the end of each reporting period. The Lender agreed to apply the full amount of funds previously established within the restricted cash collateral account to partially repay the $20 million in outstanding principal, thereby eliminating the restricted cash collateral account.
On March 7, 2022 (the Effective Date), the Company entered into a purchase agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $50.0 million of the Company's common stock (the Purchase Agreement). Under the terms and subject to the conditions of the Purchase Agreement, the Company has the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase up to $50.0 million of the Company’s common stock. Such sales of common stock by the Company, if any, will be subject to certain limitations, and may occur from time to time, at the Company’s sole discretion, over the 36-month
32
period commencing on the Effective Date. As consideration for Lincoln Park's irrevocable commitment to purchase our common stock upon the terms of and subject to satisfaction of the conditions set forth in the purchase agreement, on the Effective Date, the Company issued 184,275 shares of common stock to Lincoln Park as a commitment fee valued at $600,000 for which no consideration was received.
On April 7, 2022, the Company entered into subscription agreements (the Subscription Agreements) with a consortium of investors (the Investors), including three members of our Board of Directors and other existing shareholders of the Company, for the issuance and sale by the Company of an aggregate of 6,508,376 shares of the Company’s common stock in an offering for an aggregate purchase price of approximately $11.7 million.
On April 7, 2022, the Company entered into the Consent and Third Amendment to Loan and Security Agreement (Third Amendment) whereby subject to the terms and conditions of the Third Amendment, certain waivers and consents were provided. Under the terms of the Third Amendment to our 2021 Term Loan, the Company agreed to the repayment of $3.0 million in outstanding principal in April 2022 with an additional $2.0 million to be paid no later than September 30, 2022, in exchange for the following:
The Company further amended the Indi APA agreement in April 2022 in which all parties agreed to restructure the milestone payments whereby the Company will make five quarterly installments of $2.0 million each beginning in April 2022, three quarterly installments of $3.0 million beginning in July 2023, one installment of $5.0 million in April 2024, and one installment of approximately $8.4 million in July 2024. In addition, the Company agreed to an exit fee of approximately $6.1 million in October 2024. Interest shall accrue on the difference between the payment schedule as agreed in the August 2021 amendment and the April 2022 amended payment schedule, at an aggregate per annum rate equal to 10%, with such interest to be payable quarterly on the following installment payment date. Our ability to make these payments are subject to consent from our lender under the 2021 Term Loan and related amendments. We have obtained lender consent for contractual payments through the third milestone and interest payment of $2.1 million paid in July 2022 and we are in discussions with our lender to obtain consents for future payments.
On May 9, 2022, the Company entered into a securities purchase agreement with Streeterville Capital, LLC (the Lender), pursuant to which, among other things, the Lender: (i) purchased a secured promissory note (Promissory Note One) in the aggregate principal amount totaling $16.0 million in exchange for $15.0 million less certain expenses and (ii) agreed to purchase another secured promissory note at the Company’s election (Promissory Note Two and, together with Promissory Note One, the Promissory Notes), subject to certain conditions precedent in aggregate principal amount totaling $10.3 million in exchange for $10.0 million in cash proceeds. Each of the Promissory Notes may, at the Company's option, be settled in cash or shares of common stock of the Company, upon the terms and subject to the limitations and conditions set forth in the Promissory Notes. On May 9, 2022, the Company closed on the first tranche for gross proceeds of $15.0 million (approximately $12.8 million, net, after deducting debt issuance costs and OID), and intends to use the proceeds from such issuance for general corporate purposes.
As mentioned above, the Company maintains two facilities that enable equity financing on an ongoing basis at the Company’s sole discretion, our at-the-market offering and our common stock purchase agreement with Lincoln Park Capital Fund, LLC (the LPC facility). During the three and six months ended June 30, 2022, the Company raised approximately $2.9 million and $4.5 million, respectively ($2.8 million and $4.0 million, respectively, after deducting underwriting discounts and commissions and offering expenses payable), in gross proceeds from the sale of 1,419,139 and 2,127,891 common shares at a weighted average price per share of $2.03 and $2.11, respectively, under these programs. As of June 30, 2022, the Company had remaining available capacity for share issuances of approximately $29.9 million under the at-the-market facility and up to $49.2 million under the LPC facility, each subject to the restrictions and limitations of the underlying facilities, as applicable.
As of June 30, 2022, we maintained cash and cash equivalents of $28.7 million, inclusive of restricted cash of $5.1 million, and we have $23.2 million in outstanding aggregate principal amount on our 2021 Term Loan and Promissory Note One. We have incurred significant losses since inception and, as a result, we have funded our operations to date primarily through the sale of common stock, the sale of convertible preferred stock, the issuance of notes payable, and from our two primary revenue sources: (i) diagnostic testing, which include lung diagnostic testing and COVID-19 testing, and (ii) providing biopharmaceutical companies with development and testing services. In accordance with Accounting Standards Update 2014-15 (ASC Topic 205-40), Presentation of Financial Statements - Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period, including interim periods. In evaluating the Company’s ability to continue as a going concern, management projected its cash flow sources, including the debt and equity funding and amendments to the 2021 Term Loan and Indi APA, and evaluated the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements
33
were issued. Management considered the Company’s current projections of future cash flows, current financial condition, sources of liquidity and debt obligations for at least one year from the date of issuance of this Form 10-Q in considering whether it has the ability to meet its obligations.
Our ability to meet our obligations as they come due may be impacted by our ability to remain compliant with financial covenants in our loan agreements or to obtain waivers or amendments that impact the related covenants. As of June 30, 2022, the Company was in compliance with all restrictive and financial covenants associated with its borrowings. However, due to the continued uncertainty caused by the COVID-19 pandemic, significant risks remain with respect to our ability to meet these thresholds and any material adverse effect on our revenues, income and expenses could impact our ability to maintain compliance with these covenants.
Based on our current operating plan, unless we continue to raise additional capital (debt or equity) or obtain waiver from complying with such financial covenants, we expect that we will be unable to maintain our financial covenants under our existing loan agreements during the next twelve months, which could result in an Event of Default, as defined, causing an acceleration of the outstanding balances. We have taken steps to improve our liquidity through the actions noted above and have also undertaken several proactive measures to mitigate the financial and operational impacts of COVID-19 through the reduction of planned capital expenditures and certain operating expenses but we do not expect that these actions alone will be sufficient to maintain our financial covenants. We plan to raise additional funding through the issuance of equity or debt securities and any such financing activities are subject to market conditions. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our existing stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. There can be no assurance that additional capital will be available to us or, if available, will be available in sufficient amounts or on terms acceptable to us or on a timely basis nor can there be any assurance that the Company will be a beneficiary of the COVID-19 Action Plan. If adequate capital resources are not available on a timely basis, we intend to consider limiting our operations substantially. This limitation of operations could include a hiring freeze, reductions in our workforce, reduction in cash compensation, deferring capital expenditures, and reducing other operating costs.
The Company’s revenues, results of operations and cash flows have been materially adversely impacted by the items noted above. We expect to continue to incur significant expenses for the foreseeable future and to incur operating losses in the near term while we make investments to support our anticipated growth. Our current operating plan, which is in part determined based on our most recent historical actual results and trends, along with the items noted above, raises substantial doubt about the Company’s ability to continue as a going concern. Our unaudited financial statements have been prepared assuming we will continue as a going concern and do not include any adjustments that might be necessary should we be unable to continue as a going concern.
Cash Flows
The following summarizes our cash flows for the periods indicated (in thousands):
|
|
Six Months Ended June 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Net cash flows (used in) provided by: |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(22,693 |
) |
|
$ |
(10,236 |
) |
Investing activities |
|
|
(732 |
) |
|
|
(864 |
) |
Financing activities |
|
|
19,299 |
|
|
|
5,229 |
|
Net decrease in cash and cash equivalents and restricted cash |
|
$ |
(4,126 |
) |
|
$ |
(5,871 |
) |
Our cash flows resulted in a net decrease in cash and cash equivalents of $4.1 million during the six months ended June 30, 2022 as compared to the net decrease in cash of $5.9 million for the six months ended June 30, 2021. For the six months ended June 30, 2022, net cash used in operating activities increased by approximately $12.5 million due to a year-over-year increase in net loss from operations of $13.0 million, primarily driven by an increase in non-cash expenses of approximately $4.0 million, and unfavorable changes in net working capital of $3.5 million primarily as a result of a decrease in cash collections from customers and payments to vendors.
Net cash used in investing activities during the six months ended June 30, 2022 totaled $0.7 million, a decrease of $0.1 million compared to the same period in 2021. The decrease in net cash used in investing activities was primarily due to decreases in purchases of property and equipment, partially offset by an increase in payments for patents and trademarks.
Net cash provided by financing activities during the six months ended June 30, 2022 totaled $19.3 million, an increase of $14.1 million compared to the same period in 2021. The net cash provided by financing activities for the six months ended June 30, 2022 primarily resulted from $16.1 million net proceeds from the issuance of common stock, $12.8 million net proceeds from the issuance of Promissory Note One, partially offset by the milestone payments to Indi of $6.6 million and partial repayment of the 2021 Term Loan of $3.0 million. The net cash provided by financing activities for the six months ended June 30, 2021 primarily resulted from the net proceeds
34
from our 2021 Term Loan of $29.9 million, and proceeds from the exercise of stock options of approximately $0.7 million, primarily offset by the repayment of $25.4 million from our 2018 Term Loan.
Contractual Obligations and Commitments
As a result of the entering into additional operating lease agreements, the secured promissory note, and Amendment No. 3 to the Indi APA, our non-cancelable contractual obligations and commitments for lease and debt obligations as presented in our Form 10-K have been modified. The following table provides an update as follows as of June 30, 2022 (in thousands):
|
|
Payments due by period |
|
|||||||||||||||||
|
|
Total |
|
|
Less than |
|
|
1 to 3 |
|
|
4 to 5 |
|
|
More than 5 years |
|
|||||
Borrowings and interest (1) |
|
$ |
27,416 |
|
|
$ |
17,126 |
|
|
$ |
10,274 |
|
|
$ |
16 |
|
|
$ |
— |
|
Contingent consideration (2) |
|
|
38,871 |
|
|
|
8,656 |
|
|
|
30,215 |
|
|
|
— |
|
|
|
— |
|
Operating lease obligations(3) |
|
|
28,783 |
|
|
|
(19,084 |
) |
|
|
5,603 |
|
|
|
3,938 |
|
|
|
38,326 |
|
Total |
|
$ |
95,070 |
|
|
$ |
6,698 |
|
|
$ |
46,092 |
|
|
$ |
3,954 |
|
|
$ |
38,326 |
|
There have been no other significant changes to our future contractual obligations as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Off-Balance Sheet Arrangements
As of June 30, 2022, we have not entered into any off-balance sheet arrangements.
Critical Accounting Policies and Significant Judgments and Estimates
In accordance with accounting principles generally accepted in the United States, we are required to make estimates and assumptions that affect the amounts reported in the condensed financial statements and accompanying notes. Certain of these estimates significantly influence the portrayal of our financial condition and results of operations and require us to make difficult, subjective or complex judgments. Our critical accounting policies are described in greater detail below and in Note 2 to our condensed financial statements in Part 1 of this Quarterly Report on Form 10-Q.
Revenue Recognition
We recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for our goods or services. To determine revenue recognition for our arrangements with our customers, we perform a five-step process, which includes: (i) identifying the contract(s) with a customer; (ii) identifying the performance obligations in the contract; (iii) determining the transaction price; (iv) allocating the transaction price to the performance obligations in the contract; and (v) recognizing revenue when (or as) we satisfy our performance obligations.
Diagnostic test revenues
Diagnostic test revenues are recognized upon completion of our performance obligation to the deliver test results to our customer, either the prescribing physician or third-party to which we contracted for services to be performed. We consider diagnostic testing to be
35
completed upon the delivery of test results to our customer which is considered the performance obligation. The fees for such services are billed either to a third party such as Medicare, medical facilities, commercial insurance payers, or to the patient. We determine the transaction price related to our contracts by considering the nature of the payer, the historical amount of time until payment by a payer and historical price concessions granted to groups of customers. These estimates require significant judgment by management.
Service revenues
Service revenues are recognized upon completion of our performance obligation to deliver testing results for assay development and testing services. The performance obligations and related revenue for these sales is defined by a written agreement between us and our customer. These services are generally completed upon the delivery of testing results, or other contractually defined milestone(s), to the customer, which is considered the performance obligation. Customers for these services are typically large pharmaceutical companies where collectability is reasonably assured and therefore revenue is accrued upon completion of the performance obligations. Revenue derived from services is often unpredictable and can cause dramatic swings in our overall net revenue line from quarter to quarter.
Share-based Compensation and Grant Date Fair Value
Share-based compensation related to stock options granted to our employees, directors and non-employees is measured at the grant date based on the fair value of the award. For our service-based awards, the fair value of each award is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. Compensation expense for share-based awards with performance conditions is recognized based upon the probability the performance conditions will be met as defined in the grant. Restricted stock units are measured at their grant date fair value using the closing price of our common stock on the date of grant and recognized to expense on a straight-line basis over the vesting period of each award. We estimate forfeitures and adjust these estimates to actual forfeitures as they occur.
We use the Black-Scholes option-pricing model to estimate the fair value of our share-based option awards, which requires assumptions to be made related to expected term of an award, expected volatility, the risk-free rate and expected dividend yield. The fair value of our common stock is based on our closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded. Changes in these subjective assumptions can materially affect the estimated value of equity grants and the share-based compensation that we record in our financial statements.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-2, Leases (Topic 842). This ASU intends to make accounting for leasing activities more transparent and comparable, and requires substantially all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. In addition to other related amendments, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which offers an additional transition method whereby entities may apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings rather than application of the new leases standard at the beginning of the earliest period presented in the financial statements. The Company elected this transition method and adopted ASC 842 on January 1, 2022 and as a result, recorded operating lease right-of-use (ROU) assets of $1.3 million, including offsetting deferred rent of $0.1 million, along with the associated operating lease liabilities of $1.3 million. On January 1, 2022, the Company did not have any finance leases. Additional information and disclosures required by this new standard are contained in Note 3 and Note 7 to our condensed financial statements in Part 1 of this Quarterly Report on Form 10-Q.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (ASC Topic 326). This ASU requires measurement and recognition of expected credit losses for financial assets. This guidance will become effective for the Company beginning January 1, 2023 with early adoption permitted. The Company is currently evaluating this guidance and assessing the overall impact on its financial statements.
Implications of Being an Emerging Growth Company and Smaller Reporting Company
We are an “emerging growth company” within the meaning of the Jumpstart Our Business Startups Act (JOBS Act). As an emerging growth company, we may take advantage of certain exemptions from various public company reporting requirements, including the requirement that our internal control over financial reporting be audited by our independent registered public accounting firm pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), certain requirements related to the disclosure of executive compensation in our periodic reports and proxy statements, the requirement that we hold a nonbinding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have elected to take advantage of the extended transition period to comply with new or revised accounting standards and to adopt certain of the reduced disclosure requirements available to emerging growth companies. As a result of the accounting standards election,
36
we will not be subject to the same implementation timing for new or revised accounting standards as other public companies that are not emerging growth companies, which may make comparison of our financials to those of other public companies more difficult.
We will remain an emerging growth company until the earliest to occur of (i) the last day of the fiscal year in which we have more than $1.07 billion in annual revenue; (ii) the date we qualify as a “large accelerated filer,” with at least $700 million of equity securities held by non-affiliates; (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities; and (iv) until December 31, 2025 (the year ended December 31st following the fifth anniversary of our initial public offering).
Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which: (i) the market value of our common shares held by non-affiliates exceeds $250 million as of the end of that year’s second fiscal quarter, or (ii) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our common shares held by non-affiliates exceeds $700 million as of the end of that year’s second fiscal quarter.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates.
Interest rate risk
We are exposed to market risk for changes in interest rates related primarily to our cash and cash equivalents and our indebtedness, including our outstanding 2021 Term Loan. As of June 30, 2022, we had $7 million outstanding on the 2021 Term Loan subject to a floating per annum rate equal to the greater of (i) 2.00% above the prime rate, or (ii) 5.25%. Historically, we have not entered into derivative agreements such as interest rate caps and swaps to manage our floating interest rate exposure.
Periodically throughout the year, we have maintained balances in various operating accounts in excess of federally insured limits. Our cash and cash equivalents are funds held in checking and bank savings accounts, primarily at two U.S. financial institutions. We consider all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. We continually monitor our positions with, and the credit quality of, the financial institutions with which we invest.
As of June 30, 2022, a hypothetical 100 basis point increase in interest rates would not have a material impact on our investment portfolio, financial position or results of operations.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, or Exchange Act, that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Our disclosure controls and procedures have been designed to meet reasonable assurance standards. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
There were no changes to our internal control over financial reporting during the three months ended June 30, 2022, that have materially affected, or are reasonable likely to materially effect, our internal controls over financial reporting.
37
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we may become involved in legal proceedings or investigations which could have an adverse impact on our reputation, business and financial condition and divert the attention of our management from the operation of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, results of operations, financial condition, or cash flows.
Item 1A. Risk Factors.
“Item 1A. Risk Factors” of our Annual Report on Form 10-K as of and for the year ended December 31, 2021, filed March 14, 2022, and subsequent quarterly reports on Form 10-Q, if applicable, include a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors and information we previously disclosed and, except as presented below, there have been no material changes from the risk factors described in our Annual Report on Form 10-K and subsequent quarterly reports on Form 10-Q. These risks could materially and adversely affect our business, financial condition and results of operations.
We are subject to certain contractual and regulatory limitations on our ability to consummate future financings.
Pursuant to that certain securities purchase agreement we entered into in May 2022 in connection with the issuance of a promissory note to Streeterville Capital, LLC (Lender), we agreed to be subject to certain restrictions on our ability to issue securities during the term of the notes issued under the agreement. Specifically, we agreed to obtain the Lender’s consent prior to issuing any debt securities or certain equity securities where the pricing of such equity securities is tied to the public trading price of our common stock. Furthermore, we also must offer the Lender the right to purchase up to 30% of future equity and debt securities offerings, subject to certain exceptions and limitations, in each case during the term of any note issued to the Lender.
Furthermore, if our public float falls below $75 million at the next measurement date, we will be subject to the restrictions set forth in General Instruction I.B.6 to Form S-3 that limits our ability to conduct primary offerings under a Form S- 3 registration statement, like issuances under our at-the-market program. Under such limitations, we may not sell, during any 12-month period, securities on Form S-3 having an aggregate market value of more than one-third of our public float. These restrictions may delay or prevent us from entering into funding arrangements or being able to access the capital markets, including under our at-the-market program, on favorable terms or at all.
If we fail to comply with the restrictions and covenants in our May 2022 securities purchase agreement, there could be an event of default under the promissory notes issued thereunder, which could result in an acceleration of payments due under those notes and other consequences.
Failure to meet the restrictions, obligations, and limitations under the May 2022 securities purchase agreement may result in an event of default in accordance with the terms of Promissory Note One issued thereunder and could result in acceleration of obligations under other loan agreements. An event of default would, among other things, provide the noteholder with the right to increase the outstanding balance by 10% for certain major events of default and 5% for others. Additionally, upon an event of default, the noteholder may consider the promissory note immediately due and payable. Furthermore, upon an event of default, the interest rate may also be increased to the lesser of 15% per annum or the maximum rate permitted under applicable law.
The redemption feature under Promissory Note One is dependent upon the market value of our common stock, which could result in significant dilution to our existing stockholders.
Beginning on the date that is nine months after the issuance date of Promissory Note One, the Lender has the right to redeem up to $1.4 million of the outstanding balance per month. While we have the option to make such payments in either (a) cash, (b) in the form of shares of Common Stock with the number of redemption shares being equal to the portion of the applicable redemption amount divided by the Redemption Conversion Price or (c) a combination of cash and shares of Common Stock. Since the redemption conversion price shall equal 85% multiplied by the lowest daily volume weighted average price of the Common Stock during the ten trading days immediately preceding the date the Lender delivers notice electing to redeem a portion of Promissory Note One, the number of shares to be issued by us in satisfaction of redemption will vary, perhaps considerably. A reduction in our trading value could cause us to issue a greater number of shares under a redemption notice and therefore increase the dilutive effect to other stockholders.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On April 7, 2022, the Company entered into subscription agreements (the Subscription Agreements) with a consortium of investors (the Investors), including three members of our Board of Directors and other existing shareholders of the Company, for the issuance and sale by the Company of an aggregate of 6,508,376 shares of the Company’s common stock (the Shares) in an offering (the Private Placement). The three members of our Board of Directors acquired an aggregate of 3,631,284 shares pursuant to the form of a Subscription Agreement that did not include any registration rights as they are exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the Securities Act), and Rule 506 promulgated thereunder. The remaining 2,877,092 shares were acquired by
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others pursuant to the form of a Subscription Agreement whereby we agreed to file, subject to certain exceptions, a shelf registration statement with respect to resales of such shares with the Securities and Exchange Commission no later than 60 days from April 7, 2022, which the Company filed on June 6, 2022.
Pursuant to the Subscription Agreements, the Investors purchased shares at a purchase price (determined in accordance with Nasdaq rules relating to the “Minimum Value” of the Company’s common stock) of $1.79 per share, which is equal to the closing price of the Company's common stock on April 7, 2022, for an aggregate purchase price of approximately $11.7 million, in order to, among other things, fund the partial repayment of the 2021 Term Loan and for general corporate purposes.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
Exhibit Number |
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Description |
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10.1+* |
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10.2+* |
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Amendment No. 1 to the Biodesix, Inc. 2021 Senior Management Bonus to Equity Plan |
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31.1* |
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31.2* |
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32.1* |
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32.2* |
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101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
Previously filed.
+ Management contract or compensatory plan.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Biodesix, Inc. |
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Date: August 4, 2022 |
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By: |
/s/ RYAN H. SIUREK |
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Ryan H. Siurek |
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Chief Accounting Officer |
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