Biodesix, Inc. (BDSX) Q2 2022 Earnings Call Transcript

Biodesix, Inc. (BDSX -0.78%)
Q2 2022 Earnings Call
Aug 04, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. My name is Joanne, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Biodesix's second quarter 2022 earnings conference call. [Operator instructions] Chris Brinzey, you may begin the conference.

Chris Brinzey -- Investor Relations

Thank you, operator. And good morning, everyone. Thank you for joining us today for a discussion of Biodesix's second quarter 2022 business highlights and financial results. Leading the call today will be Scott Hutton, chief executive officer.

He will be joined by Robin Harper-Cowie, chief financial officer. After the prepared remarks, we will open the call for Q&A. An audio recording and webcast replay for today's conference call will also be available online, as detailed in the press release announcement for this call. Today, we issued a press release announcing our business highlights and financial results for the second quarter of 2022.

A copy of the release can be found on the investor relations page of the company website. Actual events or results may differ materially from those projected as a result of changing market trends, reduce demand, and the competitive nature of Biodesix's industry. Such forward-looking statements and their implications involve known and unknown risks, uncertainties, and other factors that may cause actual results or performance to differ materially from those projected. The forward-looking statements discussed on this call or subject to other risks and uncertainties, including those discussed in the risk factors section and elsewhere in the company's annual report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 14, 2022, as well as subsequent quarterly reports on Form 10-Q filed during 2022 as applicable.

Additional information concerning factors that could cause results to differ materially from our forward-looking statements are described in greater detail in the company's press release issued today and in the company's filings with the SEC. With that, I would now like to turn the call over to Scott Hutton, chief executive officer. Scott?

Scott Hutton -- Chief Executive Officer

Thank you, Chris. As a reminder, Biodesix is a patient-centric, mission-driven lung disease diagnostic company with a mission to unite biopharma, physicians, and patients to transform the standard of care and improve outcomes with personalized diagnostics. In our last call in May, we were excited to share that toward the end of the first quarter, we were experiencing strong sales growth in our core lung diagnostic testing, driven in part by sales access returning to pre-pandemic levels. I'm thrilled to say that that strength continued through the second quarter.

We finished Q2 with total revenue of $11 million, which includes core lung diagnostic testing revenue of $7.3 million, reflecting a very strong 52% year-over-year growth and 56% growth over the first quarter of this year. This was a record quarter in terms of revenue and delivered test volumes. As we begin to put many of the challenges of adapting to a post-pandemic world behind us, we are confident that this momentum will carry through the end of the year and beyond. Stepping back for a moment, we believe we have one of the most comprehensive suites of diagnostic tests with five blood-based tests available to support clinical decision-making across the lung cancer continuum.

From initial risk assessment of lung nodules with Nodify Lung testing strategy to post-cancer diagnosis, treatment, guidance, and monitoring with the IQLung testing strategy. The Nodify Lung testing strategy consists of two blood-based proteomic test: Nodify CDT and Nodify XL2, which are used by physicians to assess the risks of malignancy of the lung nodule. This helps prioritize higher-risk nodules for invasive diagnostic procedures, while also helping avoid unnecessary procedures on very low-risk nodules. In June, we announced that Medicare began covering the Nodify CDT lung nodules test at a price of $649.

This is a significant milestone for Biodesix and ensures access and availability to Nodify testing for patients with lung nodules. Last year at this time, we had four test, three of which were covered by Medicare. Just one year later, we not only launched a new test, but we have Medicare coverage for all five diagnostic test. Overall, as physicians gain more experience with our Nodify lung testing strategy, we continue to receive positive feedback reflected in increased adoption, which we believe demonstrates the clinical relevance and utility of this tests, and validates that we are only beginning to realize the full potential for Nodify Lung to change the standard of care in lung nodule risk assessment.

In addition, we also announced a collaboration with Philips to incorporate the Nodify Lung test into the Philips Lung Cancer Orchestrator patient management system. We've observed a growing demand for digital integration in hospitals as an important factor to streamline logistics and create diagnostic efficiency by incorporating proteomics, radiologic, and patient history data in one place to support treatment decisions. We believe integrating our Nodify test into the Philips Lung Cancer Orchestrator will help facilitate digital ordering of the test following detection of a lung nodule, with the ultimate goal of improving patient care and outcomes. As the integration progresses and rolls out, we'll provide updates over the coming quarters.

Moving to our IQLung test, we started the year with a full commercial launch of the GeneStrat NGS test, increasing our treatment guidance portfolio to three blood-based test, including the GeneStrat-targeted ddPCR genomic test and the VeriStrat proteomic test. Offered as options within IQLung testing strategy, these tests are used to inform treatment decisions and monitor for the rise of resistance mutations while patients are on therapy. The addition of NGS testing means we can now offer physicians the option to detect a broader range of less common genetic alterations. The GeneStrat NGS test is still early in its product launch, but we're pleased with the feedback and interest, not only in the GeneStrat NGS test but also the full portfolio of IQLung treatment guidance testing.

We continue to support and invest in data generation to demonstrate and reinforce the clinical utility of our test, as well as looking to sign meaningful collaborations to further drive adoption and growth of our entire core lung diagnostic testing suite. For example, in May, we presented a poster assessing the impact of the Nodify XL2 test in a real-world clinical setting at the American Thoracic Society International Conference. Data presented highlighted the impact of the Nodify XL2 test on clinical management decisions, and investigators showed the Nodify XL2 test was able to support a decrease in chest imaging, outpatient clinic visits, and additional invasive procedures without misclassifying benign lung nodules. At the upcoming International Association for the Study of Lung Cancer 2022 World Lung Meeting this month, we will be presenting data demonstrating that the VeriStrat test is predictive of progression free survival and overall survival in patients testing low or negative for PD-L1 when treated with immune checkpoint inhibitors.

We know there is a need for additional testing beyond PD-L1 alone to better identify who is likely to respond to immunotherapy. And we believe this data shows that VeriStrat has the potential to play a role in this decision-making. Beyond this, we have multiple other clinical studies being conducted, and we expect the upcoming full data readout and publication of our ORACLE study of the Nodify XL2 test to further support our sales and reimbursement efforts for the test. Additionally, we look forward to providing further updates on our ongoing INSIGHTS study for the IQLung testing strategy, the ALTITUDE study of our Nodify test, and the BEACON Study for primary immune response, our immunotherapy guidance test, and our further development efforts for our pipeline risk of recurrence test.

Moving to our biopharmaceutical partnerships and services business. We reported revenue of $0.7 million for the quarter, which continues to rebuild and rebound more slowly than we would like. But we are beginning to see enrollment pick up from the serious disruptions of the pandemic. We have seen numerous studies extended.

We've continued to experience challenges and logistics delays in sample shipment and, therefore, have not delivered on the timelines we originally anticipated. Yet, we continue to maintain a backlog of prospective and retrospective studies that we plan to work through over the rest of this year and into 2023. Adding to our confidence here is that we continue to receive positive feedback and interest in the Biodesix Diagnostic Cortex, proprietary AI and machine-learning platform, and our broad multimodal and multi-omics service offerings. Our ongoing efforts and advancements in explainability and transparent AI will provide unique insights and clarity to healthcare professionals and research teams by providing the ability and potential to identify key biological mechanisms driving specific outcomes for patients subgroups that may require a different approach or different treatment.

Overall, we remain confident that in the near future, we'll see growth and revenue from increasing demand for our service offerings. Lastly, we continue to look for ways to broaden our product offering, enabling us to capture a larger percent of the $29 billion total addressable market. In June, we announced a new research agreement with one of the top cancer centers in the U.S., Memorial Sloan Kettering Cancer Center and our existing partner, Bio-Rad Laboratories, to help develop a new novel, minimal residual disease test. Also, we plan to utilize our array of genomics, proteomics, artificial intelligence, and machine-learning capabilities with the aim of developing additional biomarker assays in collaboration with MSK.

We've said it before and cannot reiterate it enough. Lung cancer kills more people in the U.S. annually than the next three cancers combined. And time matters when treating these patients.

We pride ourselves on Biodesix's ability to discover, develop, and commercialize a broad range of tests that can quickly provide critical results and insights back to health-care professionals with best-in-class testing turnaround times for all of our test to help improve patient care. With a comprehensive suite of tests, all with Medicare reimbursement, and the ability to offer diagnostic solutions across the continuum of care, we believe we've just begun to scratch the surface of this $29 billion market opportunity and that we have both the team and the products to drive growth in 2022 and beyond. Now, let me turn it over to Robin to review the first quarter 2022 financial performance. Robin?

Robin Harper-Cowie -- Chief Financial Officer

Thanks, Scott. We are pleased with our second quarter total revenue and core long diagnostics revenue, which exceeded consensus estimates. Overall, total revenue was 11.0 million compared to 11.9 million for the second quarter of 2021 and represented an increase in revenue from our five core lung diagnostic tests and offset by an expected decrease in COVID testing as testing moved more toward at-home rapid antigen testing. Our second quarter core lung diagnostic testing revenue was 7.3 million and total volumes of approximately 5,600 tests versus 4.8 million from total volumes and approximately 4,000 tests for the second quarter of 2021.

This represents 52% revenue and 40% volume growth over the second quarter of 2021, and 56% revenue and 30% volume growth over last quarter. The growth in test volume was primarily driven by our Nodify CVT and Nodify XL2 tests, and the recent launch of the GeneStrat NGS. Biopharmaceutical services revenue was 0.7 million compared to 1.0 million in the second quarter of 2021, a decrease of 29%. As we've said before, this business can fluctuate due to several factors, including contract timing and project execution but, in this instance, reflects the continued impact the pandemic has had on extension of prospective clinical trials, timelines, and shipping of samples needed to complete the project and recognize revenue.

We ended the quarter with up to $7.8 million contracted but not yet recognized, 2.2 million of which is currently on the balance sheet as deferred revenue as we have already collected the cash. COVID testing revenue was 3.0 million in the second quarter 2022 versus 6.1 million in the year-ago quarter, an anticipated decrease which we discussed in our May earnings call. The increase in the second quarter over the prior quarter was due to a contract with the state of Colorado to handle the surge in testing required due to the omicron spike seen over the last couple of months. This contract expires by the end of August and should not be modeled to continue nor contribute significant revenue into the second half of the year.

We have consistently projected that COVID testing as a percentage of revenue would drop off significantly as compared to the prior year as testing shifted to readily available rapid at-home antigen testing. We expect this dynamic will continue through 2022 and therefore do not expect any significant COVID revenue for the latter half of 2022. Gross margin as a percentage in the second quarter 2022 was 64% versus 40% in the second quarter of 2021 and 51% in the first quarter of 2022. The improvement in gross margin was primarily a result of growth in our core long diagnostic business and Medicare coverage for our Nodify CDT test.

We expect the overall gross margin as a percentage to remain approximately in the mid-60s, perhaps, with a small increase over the course of the year as a result of several factors, including the decline in COVID testing revenue expectation, which has a lower margin among diagnostics, plus the benefit of Medicare coverage for Nodify CDT tests and the expanding scale of our GeneStrat NGS test. Overall operating expenses, excluding direct costs and expenses, were 18.6 million in the second quarter 2022 compared to 15.4 million for the same period of 2021. The year-over-year increase seen in the quarter was primarily driven by increases in sales and marketing expense. As a cost maintaining measure, we effectively kept the size of our sales organization from the first quarter of 2022, but the main difference in expense was that the team had access to positions for in-person meetings requiring travel for the full quarter versus limited access in the first quarter.

While the impact of physician access and inflation contributed to an increase in travel costs within our sales and marketing expense, the sales team delivered increased productivity over the first quarter. Operating expense for the second quarter 2022 includes $7.0 million in noncash expenses, including stock-based compensation as compared to 2.4 million during the second quarter 2021. The net loss for the second quarter 2022 was $15.8 million compared to a net loss of $11.4 million for the second quarter of 2021. The increase in net loss is attributable to the restructuring of our contingent consideration arrangement with Integrated Diagnostics, the decrease in revenue from COVID-19 testing in 2021, and the growth of the commercial organization in 2021.

In turning to our overall liquidity, we ended the quarter with 28.7 million in cash and cash equivalents, inclusive of 5.1 million restricted cash, an increase from prior quarter primarily due to the net proceeds of 14.5 million from our private placement and at the market offerings, and net proceeds of 12.8 million from the Securities Purchase Agreement entered into with Streeterville Capital LLC, partially offset by a partial repayment of our SBB 2021 term loan and Indi milestone payment of 3.0 million and 2.0 million, respectively. In addition to the successful liquidity enhancements during the second quarter 2022, we have taken a variety of steps to add access to additional funding and reduce our cash burn, all while focusing on continuing to grow revenue in 2022 and 2023. We will continue to focus on liquidity enhancements that will enable us to maintain focus on revenue growth and accelerate our time to profitability. As of June 30, 2022, the company had remaining available capacity for share issuances of approximately 29.9 million under our at-the-market facility and up to 49.2 million under the LPC facility.

In 2022, we will invest in projects and hires that result in near-term revenue growth while implementing additional cost savings measures that will impact the second half of 2022 and 2023. Turning to our outlook for 2022, we are reaffirming our previous guidance and anticipate 2022 total revenue to be between 37.5 million and 39.5 million. Now, let me turn it over to Scott. Scott?

Scott Hutton -- Chief Executive Officer

Thank you, Robin. So, as you just heard, it's been a busy, productive, and rewarding quarter. I'm extremely proud of the Biodesix team and excited for us to continue to grow as we progress through 2022. The Biodesix team remains steadfast in our commitment to: one, improve the lives of patients impacted by lung disease; two, integrate Biodesix testing into physician practices, providing all the testing needed for a lung patient through the continuum of care.

One patient. One trusted company. Multiple test. Personalized results; three, discover and develop new diagnostic tests like our risk of recurrence test, primary immune response test, and the newly announced molecular minimal residual disease test; four, lead the way with AI explainability and transparency; five, conduct numerous clinical studies to demonstrate and reinforce the real-world performance of our test; and, six, Grow and expand our biopharmaceutical partnerships to aid in their research, drug development, clinical trials, and development of companion diagnostics.

In closing, I'd like to thank all Biodesix teammates for their dedication to the Biodesix mission, vision, and culture, which revolves around our collective commitment and daily contributions to positively impact patients' lives. With that, I'll turn the call over to the operator for questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Brian Weinstein with William Blair. Your line is open.

Brian Weinstein -- William Blair -- Analyst

Hey, guys. Good morning.

Scott Hutton -- Chief Executive Officer

Hi, Brian. I think --

Brian Weinstein -- William Blair -- Analyst

So, we start just -- some questions on the guidance in particular. Can you help maybe break that down a little bit between the core lung, the COVID, and the biopharma? There's obviously a lot of moving pieces. Robin, I think you talked about COVID really trailing off, not sure how to think about biopharma, and then on the core lung side, what that would look like. I mean, it would appear to us that given the momentum that you guys are seeing, it sounds like access is pretty open.

You can talk about that if you want, certainly. But now the CDT reimbursement coming in, you know, higher level than I think that what we would have anticipated, it would seem like that core lung franchise used to have some pretty good momentum behind it. So, can you just talk about how you thought about all of that with the guidance and breaking it down for us?

Robin Harper-Cowie -- Chief Financial Officer

Sure. Good morning, Ben. Yes. Well, obviously, we're very pleased with the growth momentum in the core lung diagnostics and with the price for Nodify CDT, we do expect to continue to have strong growth.

But I think as I mentioned earlier, we've been very cautious about adding new heads and growing the size of the organization this year, trying to maintain or reduce our expected spend and burn, which could potentially temper some of that high-level growth versus if we just continue to wholesale -- expand the sales team. From COVID and biopharma, yes, we expect COVID to drop off due to the expiration of the contract with our state of Colorado partner; and with the biopharma, delays in shipping and extension of the timelines for those studies. we sort of look at COVID and biopharma as offsetting each other. So, we think with our lung diagnostics, we're on track as we've talked about over the course of the year.

And with COVID and biopharma somewhat offsetting each other, that's how we got and remained at our revenue guidance of 37.5 to 39.5.

Brian Weinstein -- William Blair -- Analyst

Yeah, it just feels as if there may be some conservatism that's built into that core lung, which I guess I understand they're just given, you know, prior uncertainty and whatnot and you guys are just kind of getting back on your feet a little bit. Is that an appropriate characterization that there's some conservatism that's sort of built in here? Because, again, just given the higher CBT reimbursement than what we would have thought in the momentum that you're seeing, that it would seem that those numbers could could actually be a bit higher. I just want to make sure that there's nothing that you're seeing in the end market that's, you know, concerning or anything like that that would kind of put a lid on that growth or it's just conservatism being just given what we've seen over the last couple of years.

Robin Harper-Cowie -- Chief Financial Officer

You're absolutely right, Brian. It's conservatism. We're trying to plan and anticipate that, you know, we could potentially have another COVID wave that that sneaks up on us. I think what we've learned over the last couple of years is nobody really can predict COVID or how it impacts hospitals and physicians and the general population.

So, yes, there's absolutely conservatism built into the lung diagnostic forecast.

Brian Weinstein -- William Blair -- Analyst

OK. Thank you. And then on on the lung portfolio, Scott, maybe you can talk a little bit about the sales cycle there, what you're seeing in terms of physician willingness to engage with you guys and how long it takes to kind of close an account and what kind of utilization you're seeing. You're not providing physician metrics, but you are providing test volume, which we appreciate, certainly.

But can you just talk about sales cycle, how long it takes to close -- kind of just feedback that you're hearing in general?

Scott Hutton -- Chief Executive Officer

Yeah. Thanks, Brian. Great question. As a reminder, you know, we launched Nodify XL2 and Nodify CDT both right into the pandemic headwind.

So, the way we look at this is we went into lockdown, we launched these two products, we were doing the best we could remotely. So, now with our returning to a pre-pandemic state of access, we're out there really educating and informing physicians on these two new products. In many cases, we're introducing them to Biodesix in our full portfolio of products and test capabilities. We're being received and welcomed exceptionally well.

And as you've seen, it resulted in the strong and significant growth we've experienced. It really depends from an individual sales rep perspective on the prior history experience with the Biodesix sales reps pre-pandemic. In some cases, as you'll recall, we're out introducing ourselves because we've expanded the salesforce significantly. Pre-IPO, we stated that we would double the size of the salesforce in 2021.

We did that. We continue to focus on expanding the salesforce. Given the current market and economic environment, we're more mindful of where we expand and when we expand. And we prioritize those areas that are under-penetrated with a high incidence and prevalence of lung cancer where we think we can go in and make a significant positive impact in patient care.

With the major society meeting for pulmonologists coming up in the fall, we think we've got a great opportunity to continue to increase those face-to-face interactions. And if you think about it, when I state that we launched Nodify CDT and XL2 going into the pandemic headwind, we've not attended CHEST since the launch of those two meetings in person. So, we're looking at this as a huge opportunity to continue to build on the momentum that we've got already. Is that helpful, Brian?

Brian Weinstein -- William Blair -- Analyst

Yeah, it is. And then one last one to Robin. Robin, can you talk about operating cash flow expectations for the year? You know, obviously, you'll have access to different sources of capital on the financing side. But just in terms of the cash flow from operations, how should we think about the burn the full year there?

Robin Harper-Cowie -- Chief Financial Officer

Yes. We anticipate, as our revenue grows, obviously, operating cash flow will improve, and our burn will reduce across the year. We noted in the remarks today that this quarter included 7 million of noncash expenses. I believe I noted last last earnings call that due to the changes in our debt structure, the reorganization of the Indi milestone payments and all of the other movements we've made, we had more expense hitting the interest expense line.

And so, we saw that for sure in the second quarter, and we'll continue to see that as we move forward through the rest of this year and into 2023. We plan to utilize the liquidity options we have over the rest of the year and into 2023, and also, we'll continue to look at other options and other facilities that could further enhance our cash position to get us to cash flow breakeven.

Brian Weinstein -- William Blair -- Analyst

OK. All right. I've got a bunch more, but we'll deal with those offline. So, thank you guys for taking the questions.

Operator

Your next your next question comes from the line of Max Masucci with Cowen. Your line is open.

Max Masucci -- Cowen and Company -- Analyst

Hi. Thanks for taking the questions. Great to see the continued momentum in the lung cancer diagnostics business. So, first one, you know, just based on today's release and commentary from prior calls, you know, it's safe to say that XL2 and the CDT volumes continue to ramp nicely.

I'm curious, you know, is there any detail you can provide around the amount of Nodify CDT volumes that you were processing or taking in before the Medicare coverage hit, but not getting paid on? And so, you know, with the CDT reimbursement starting to flow in during June and going forward. I'm just trying to understand if there's potential for a near-term revenue boost if you do start getting paid on, you know, some CDT volumes that you have -- that you've been taking in previously but not getting paid on prior to the coverage one.

Robin Harper-Cowie -- Chief Financial Officer

Morning, Max. Yes. We're very pleased, obviously, with the Medicare coverage and the pricing that we received. We have received some payments on tests that we brought in prior to the coverage as we move through the appeals process.

As with Medicare, you're never 100% certain how all of the claims volumes and the timing of those will flow. So we're not projecting any major backlog or large numbers here. We're just really looking to the future and projecting the full coverage of the test at the 649 moving forward.

Max Masucci -- Cowen and Company -- Analyst

OK. Great. And, you know, even before CDT earned Medicare coverage, my understanding that it was frequently being ordered in tandem with XL2. But maybe can you just remind us, you know, what the frequency is of, you know, of both, you know, CDT and XL2 being ordered together, you know, versus on a stand-alone basis? And then just given the bundled approach of the risk assessment strategy, you know, how do you expect the Nodify CDT Medicare coverage to influence, you know, the frequency of XL2 and just that bundle-type approach?

Scott Hutton -- Chief Executive Officer

Hey, Max. Great question. Yeah, as we stated in the past, what we've seen as physicians become comfortable and knowledgeable on the benefits of Nodify testing is both tests being ordered together. Physicians really see both the benefit of a rule in-test and a rule out-test.

And so, with Nodify, CDT being run first. That really falls in line with physician's thinking, right? As they're trying to find those patients with a likely malignant nodule so that they can intervene. We all know that since we're dealing with the deadliest of all cancers, early detection and diagnosis increases the likelihood of a positive outcome. So, with a with a positive or a likely malignant result, those physicians then know to intervene.

At that point in time, we do not run the XL2 test because there's no need. So, we've seen them ordered predominantly together. And then it really just depends upon whether XL2 is run, and those percentages will vary based upon each individual physician practice and how they're targeting and selecting patient populations. We do anticipate and expect, coming out of of the pandemic, because physicians told those at-risk patients to stay away and stay healthy.

As they come back out, they're prioritizing the high-risk patients. And so, when you reference the Medicare coverage for CDT, we think there's upside and a positive impact as we see more utilization or positive likely malignant test results for Nodify CDT.

Max Masucci -- Cowen and Company -- Analyst

Great. Appreciate that color. And maybe one final question for Robin, just on biopharma. I mean, is there any update or detail around just the size of the biopharma backlog and where it stands or even maybe the growth in the biopharma revenue backlog? If some of that conversion has occurred a bit slower due to factors that are not specific to bio just like we've seen it for many other companies.

So, you know, detail around the size of the backlog and the growth in the backlog, and then maybe even the percentage of the backlog that's, you know, coming from prospective versus retrospective studies.

Robin Harper-Cowie -- Chief Financial Officer

Sure, happy to. We currently have 7.8 million in backlog to currently signed contracts that are not yet recognized revenue. We are pleased with that number and really pleased actually with the funnel for contracts. The number of contracts and the size of the contracts that are under negotiation and moving forward really gives us confidence in long-term biopharma business.

You're exactly right that the conversion factor is really hard to calculate right now due to the outside factors. We really have sort of three timelines here that are sort of pre-COVID, the two years of COVID and now hopefully what is post-COVID. And they really all are very, very different. So it's hard to compare each other.

The the larger portion of the backlog is in prospective studies. The retrospective studies tend to be shorter timelines because the samples are already collected. And the biggest factor for us in getting those done is sample shipment. So, we've mentioned, and I've seen others mentioned as well, delays in getting samples in the door, so that does push off some of the retrospective projects from being completed.

But because the larger portion of our of the business right now is prospective, any delays or extensions of timelines really does impact the revenue in the current quarter.

Max Masucci -- Cowen and Company -- Analyst

Great. Super helpful, as always. Thanks again.

Operator

Your next question comes from the line of Kyle Mikson with Canaccord. Your line is open.

Kyle Mikson -- Canaccord Genuity -- Analyst

Hey, thanks. Congrats on the on the quarter. So, Robin, I want to start with the CDT reimbursement 649. Solid rate.

It's not on the CMS ADLT list, at least when I last checked. I guess is ADLT an option for CDT? Obviously, many of your tests have been granted ADLT status and enjoy those higher payment rates. Could CDT join that group? And if so, when could it happen?

Robin Harper-Cowie -- Chief Financial Officer

Great question, Kyle, and good morning. There is potential for ADLT, but I would not expect an increase in the price for ADLT category A if CDT were to receive that status. That's the category. It would be under -- the price for the test for the first nine months is actually the list price on the first day the test is offered.

And that list price for us is $649. So, we actually did receive our original list price from from Medicare already, so we're already above where we had expected to be. So, I would not expect any change to that price. And I also can't really comment about ADLT timelines if -- we were able to get that status sort of at the mercy of CMS.

Kyle Mikson -- Canaccord Genuity -- Analyst

OK. All right. Thanks. So, on gross margins, mid-60s through the second half of the year.

Does that basically mean that the fourth quarter gross margin could be like flat to 2Q levels? I'm just wondering like why that would be just given you would assume volumes would increase. You have the reimbursement here in the back half. So, maybe could you just walk through that the puts and takes, Robin for gross margins?

Robin Harper-Cowie -- Chief Financial Officer

Sure. I would expect a couple of points uptick but just not major increases. So, in the mid-60s, perhaps, up to the 67% by the end of the year, I think, makes sense. The biggest drag right now on gross margins is the GeneStrat NGS launch.

As with every test, as you're ramping and scaling, getting to scale is really a critical factor for strong positive gross margin contribution.

Kyle Mikson -- Canaccord Genuity -- Analyst

OK. That was great. And then, Scott, it would be meaningful if VeriStrat was found to be predictive of PFS and OS. Could you just walk through the path to develop like a very strong companion diagnostic? And I'm wondering if the biopharma partnerships are in place today could like enable that?

Scott Hutton -- Chief Executive Officer

Yeah. Good morning, Kyle. Great question. Yeah, we do offer all of our commercial test as available options for biopharma partnership continued research.

And so, we have a significant amount of data that they could support. But we're not capable at this point in time of disclosing any of that. I think what I would focus on is kind of connecting the dots to what we said a few months ago related to kind of cracking or breaking the black box. We know that historically a number of diagnostics couldn't clearly communicate what they were measuring and in what quantities or abundance.

And we've broken that black box. And so, our efforts with transparent AI and explainability, we feel strongly that we'll have the ability to highlight exactly what proteins in what abundance and combinations we're measuring with VeriStrat. And we think that leads to renewed conversations that will allow us to build hopefully toward companion diagnostic opportunities and then the same that will build toward the introduction of primary immune response and risk of recurrence. We think it's critically important that as more and more clinical interest shifts toward proteomics, that we be the leader on the LDT and commercially available proteomic test front to highlight exactly what proteins are being measured and, most importantly, continue to invest in data development.

And we've got our INSIGHT trial, which you may recall. We've got over 4,500 patients enrolled in that, where we have the ability to highlight patient response to different real-world treatments in combination with the VeriStrat test result. So, much more to come there, Kyle, but you're thinking about it exactly how we are and how the conversations with physicians and biopharma are going.

Kyle Mikson -- Canaccord Genuity -- Analyst

OK. That sounds promising. Thanks, Scott. If I could just ask another one before hop off.

There's obviously a lot going on at Biodesix right now. A lot of good things, AVEO, MSK, Philips, congrats on all those kind of updates. What are you doing, I guess, to ensure you can kind of thoughtfully contribute to all your projects, like all the current tests, the pipeline tests, while still executing business as usual and continuing to improve performance as you have done, obviously, in the recent quarters. You know, we're all excited for you and we're confident in Biodesix, just the company is not very large, obviously.

Just kind of a question worth asking. Thanks.

Scott Hutton -- Chief Executive Officer

Yeah, it's a great question. And thanks for the kind words, Kyle. We appreciate that. We take all of that to heart.

We think we punch above our weight class. It's taken a little bit of time for people to start to see that. But we don't want people to think is that we're not mindful and intentional with our time, energy, effort, and expenses. So, for us, it really is about the greatest impact.

We know that our Nodify testing strategy has the largest market opportunity. We also know that we can have the most significant impact there since those are the two tests that we've commercialized most recently and prior to the pandemic pandemic and then NGS to follow the pandemic. We're going to focus on Nodify on the sales front. We think that that's the introduction kind of that warm handoff as the patient comes in to -- with some concern, to assess whether they have a malignant nodule or not.

So, for us, that's top priority. We mentioned it on the call. We're very mindful of salesforce expansion. We're going to continue to expand opportunistically.

But we're going to pull back if we don't think we can get a near-term return. I think the same applies to our product pipeline and R&D efforts. We really want to be focused on near-term return. We're proud to share that.

We believe we're the only company focused in lung with five on market test that all have reimbursement that benefits us, as Robin said, as we strive to get closer to profitability. And so, we may pull a few levers here and shift some things in our our product pipeline cadence as we progress. But the nice thing about that is, you know, we got many shots on goal. Again, we continue to punch above our weight class, if you will, and we think that this opportunity will continue to fuel us.

But the more to come in the future quarters as we continue to make progress. And as Robin said, we'll start to highlight and tease out when we think we can get to profitability. But we feel really good about where we're at today.

Kyle Mikson -- Canaccord Genuity -- Analyst

Great. OK. That was well said. Thanks, Scott.

Thanks, Robin.

Operator

[Operator instructions] And the next question comes from the line of Tejas Savant with Morgan Stanley. Your line is open.

Yuko Oku -- Morgan Stanley -- Analyst

Hello. This is Yuko on for Tejas. Thank you for taking our questions. Could you elaborate on the scope of the research partnership with MSK on developing novel MRD tests? And what are the financial implications from the agreement?

Scott Hutton -- Chief Executive Officer

Yeah. Great question, and good morning. You know, we didn't disclose the specific details, but what we can tell you is really it's a broad research discovery and development agreement. And so, we highlighted MRD because that's the first in the highest priority.

We look forward in future earnings calls and quarters to highlight progress being made and give greater detail as we progress through that. But we think this is critically important. You know, to Kyle's question, when you think about our shots on goals and opportunities, we think it says a lot about not only who we are, our culture, and our capabilities to have someone like Memorial Sloan Kettering partnering with us. And so, those type of relationships and partnerships give you great access to physicians that are treating patients.

And in an integrated system, you've got the ability to align and focus on a common goal. And so, we think that the product development efforts in partnership with them. There's potential to accelerate timelines when compared to a diagnostics company going at it alone. So, we're very, very excited about that.

It's very promising. And again, we think it says and speaks volumes about who we are. And we expect to have more partnerships and collaborations like this in the future.

Yuko Oku -- Morgan Stanley -- Analyst

Great. Thank you for that color. And then some of the companies noticed staffing shortages in hospitals and physician offices. Are you seeing the same? And if so, does that represent a headwind for the lung diagnostic products?

Scott Hutton -- Chief Executive Officer

You know, it's a great question. And I think all of us experience that in our day-to-day lives. We're all consumers of something, and we've seen delays. I don't think that healthcare is insulated from that.

I think we all have read the press clippings. We're starting to understand that there is potential for increased nursing and physician shortages. For us, I wouldn't state that we're insulated from it. But at this point in time, we're not seeing a significant impact.

We continue to monitor it. Obviously, we're focused on building strong relationships with those healthcare professionals, their practices, and their teams. But the way we look at it is if they're scheduling patient visits, we know that they've got the staffing to support that. And because we're offering blood-based testing, we really don't see any constraints at this point in time.

But again, we're watching it closely. We want to be mindful of the different challenges that healthcare professionals have gone through, not just in the last few weeks and months, but over the last few years. They're tired. They're overworked.

They're frustrated. Most importantly, they're excited to get back to a pre-pandemic state to treat those patients that they've dedicated themselves to treating and positively impacting. So, we'll keep you posted as we progress through future quarters if and when that becomes an issue. But at this point in time, we don't see that being a rate limiter.

Yuko Oku -- Morgan Stanley -- Analyst

Got it. That's great to hear. And then a quick one for Robin. With the interest expense -- by interest rates going up, should we anticipate any changes in that interest expense line? And then could you also provide color on how we should think about opex trends for the remainder of the year with ongoing inflationary pressures?

Robin Harper-Cowie -- Chief Financial Officer

Yes. I would say that our interest expense should remain fairly similar to what we had in the second quarter. For the remainder of the year, less because of increasing interest expense because our current -- our debt and what we have those contracts that are already in place, but more from the restructuring and the facilities we put in place in the second quarter. As for opex, I would anticipate the slight increases in opex across the rest of the year, anticipating further costs and pressures from inflation and on travel.

And as Scott mentioned, we're very excited for the second half of this year to have actual in-person conferences again. This will be the first time since 2019 that our conferences are all in-person, and our teams will be there for the first time in two years or three years. So. I would anticipate some slight increases in opex as we move forward.

Yuko Oku -- Morgan Stanley -- Analyst

Great. Thank you so much.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Chris Brinzey -- Investor Relations

Scott Hutton -- Chief Executive Officer

Robin Harper-Cowie -- Chief Financial Officer

Brian Weinstein -- William Blair -- Analyst

Max Masucci -- Cowen and Company -- Analyst

Kyle Mikson -- Canaccord Genuity -- Analyst

Yuko Oku -- Morgan Stanley -- Analyst

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