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 September 30, 2026 (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, 2025 (Form 10-K) and the Condensed Financial Statements as of September 30, 2026 and for the three and nine months ended September 30, 2026 and 2025, included in Part I, Item 1 of this Quarterly Report on 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, 2025, which was filed on February 26, 2026.
The following MD&A discussion is provided to supplement the Condensed Financial Statements as of September 30, 2026 and for the three and nine 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 nine months ended September 30, 2026 and 2025 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 diagnostic solutions company, and our mission is to transform patient care and improve outcomes through personalized diagnostics that are timely, accessible, and address immediate clinical needs. We envision a world where patient disease is conquered through the guidance of personalized diagnostics.
At Biodesix, we have built a team with deep experience in diagnostics including commercialization, reimbursement, regulatory, medical affairs, research and development, technology, and operations to provide needed products and services to address critical clinical questions and help improve patient care. We believe that establishing a new standard of care utilizing personalized diagnostics requires an extensive understanding of clinical needs, scientific expertise to develop tests using the optimal technology for each clinical question, development of clinical evidence to demonstrate benefits of the testing, a scalable operational infrastructure, and an established commercial channel to drive market adoption and payer coverage.
We employ multiple technologies, including genomics, proteomics, and radiomics, combined with artificial intelligence (AI), to discover, develop, and commercialize innovative diagnostic tests for physicians, biopharmaceutical, life science, and diagnostics companies to help improve patient care.
Biodesix Diagnostic Tests support clinical decisions to expedite personalized care and improve outcomes for patients with lung disease. We believe our diagnostic tests help healthcare providers meaningfully improve lung disease diagnosis, treatment, and monitoring as well as lower the overall healthcare cost by reducing the use of ineffective and unnecessary treatments and procedures. We currently offer two tests (Nodify Lung® tests) that assess the risk of cancer in lung nodules and three tests (IQLung® tests) that provide treatment guidance after a lung cancer diagnosis.
Diagnosis - Nodule Management
Lung Cancer Treatment & Monitoring
Biodesix Development Services enable the world's leading biopharmaceutical, life sciences, and research institutions with scientific, technological, and operational capabilities that fuel the development of diagnostic tests, tools, and therapeutics. We provide development services to enable therapeutic clinical trials, the validation of life sciences tools and diagnostics, and the discovery, development, and commercialization of diagnostics. Biodesix Development Services have been utilized by over 65 industry clients and academic partners.
We continuously revisit our technology strategy and roadmap to integrate new technologies into our evolving offering, which ultimately support the addition of new service and product revenue offerings. We believe that no single technology can interrogate the complexity of the human disease state to help solve all clinical questions. For that reason, we employ a multi-omic approach to solving diagnostic challenges.
We offer end-to-end diagnostic solutions, including translational research, initial biomarker discovery, assay design, development, and validation, testing of clinical trial samples, regulatory, reimbursement, commercialization, and logistical support services. We offer our existing on-market tests, a suite of other research tests and the capability to custom design and develop novel tests for use by our customers.
While our Development Services revenue continues to grow, it is important to note that we benefit from these partnerships in ways that expand beyond revenue. We are continuously expanding our knowledge and biological understanding of multiple diseases and the rapidly evolving treatment and regulatory approval landscape.
Factors Affecting Our Performance
We believe there are several important factors that have impacted 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.
In addition, payers who were previously either not covering or paying a reduced rate for the tests may decide in the future to start or restart reimbursing for one or more of our tests. In the three months ended September 30, 2025, a major third party commercial payer who had previously stopped reimbursing us for certain of our tests began reimbursing claims for use of the tests. While we currently expect this trend to continue, there is no guarantee of future reimbursement performance from this particular payer or any other payer.
The INSIGHT study was designed to expand our clinical understanding of the predictive and prognostic value of the VeriStrat test. On June 27, 2023, we completed enrollment of 5,000 patients with non-small cell lung cancer. All study participants currently enrolled in the study are expected to complete study follow-up by the end of 2026. The participant data will be monitored, and sites will be closed accordingly throughout 2026.
The ALTITUDE study is a randomized control study, launched during the fourth quarter 2020, seeking to further demonstrate the utility of the Nodify CDT and XL2 tests. Patient enrollment requirements were reached in July 2025. All study participants are in two-year follow-up.
The CLARIFY study is designed to confirm performance of the Nodify CDT and Nodify XL2 tests in diverse patient subgroups through a retrospective chart review of up to 4,000 patients that were tested in a real-world clinical setting. The study's intent is to expand the extensive evidence characterizing the validation and utility of Nodify Lung testing. The study was launched in the fourth quarter of 2024, and through September 30, 2026, the study has accrued over 2,250 patients.
Our clinical research has resulted in over 90 peer-reviewed publications for our tests. In addition to clinical studies, we are collaborating with investigators from multiple academic cancer centers. In June 2022, we announced the intent to develop a new novel molecular residual disease (MRD) test as 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. In March 2024, we announced a new master collaborative research agreement (MCRA) with MSK under which the teams will collaborate on a development plan for diagnostic tests aimed at improving the treatment of cancer. Biodesix will utilize its array of genomics, proteomics, and data mining capabilities with the aim of developing and commercializing oncology biomarker assays in collaboration with MSK. Bio-Rad Laboratories (Bio-Rad) will provide its industry-leading digital PCR assay technology in support of this important work.
On September 24, 2026, the Company announced strategic progress in two collaborative programs for tumor-informed and tumor-naïve MRD solutions intended to support cancer centers and clinical laboratories. The tumor-informed solution is the result of a multi-year collaboration with Bio-Rad and was previously announced. The tumor-naïve solution is a newly launched program with ThermoFisher Scientific that extends a collaboration for companion diagnostic validation and other development work. Both approaches will be validated by Biodesix in collaboration with key investigators at MSK and are designed to run on partner platforms already installed in laboratories around the world.
We also expect to incur research and development expenses to fund further innovation and develop new clinically relevant tests. On October 19, 2026, the Company announced the addition of Digital Diagnostics to our Lung Diagnostics strategy, establishing the foundation for a multimodal diagnostic platform that combines blood-based biomarkers, imaging biomarkers, and artificial intelligence. The first product, a radiomics-based test for lung nodule risk assessment developed with Vanderbilt University and Vanderbilt Health, is designed to complement the Nodify Lung portfolio and represents the next phase of innovation in lung diagnostics. In addition, the Company announced a new clinical study, STRATIFY, that will prospectively collect patient management and outcomes data for the Nodify Lung Risk Assessment strategy as well as incorporate an exploratory blinded radiomics classifier test. This study will generate one of the first proprietary matched datasets of blood-based biomarkers, imaging-based biomarkers, and clinical outcomes. The STRATIFY study is a multi-site study that will collect at least 1,000 patients and is expected to open in late 2026.
We believe these studies, collaborative arrangements, and the continued development of our product pipeline are critical to gaining physician adoption and driving favorable coverage decisions by payers and expect our investments in research and development to increase.
While each of these areas presents significant opportunities for us, they also pose significant risks and challenges that we must address. See Part II, Item 1A. "Risk Factors" for more information.
Third Quarter 2026 Financial and Operational Highlights
The following were significant developments affecting our business, capital structure and liquidity during the three months ended September 30, 2026 as compared to the same period in 2025 unless otherwise noted:
Components of Operating Results
Revenues
We derive our revenue from two sources: (i) Biodesix Diagnostic Tests (Diagnostic Tests), providing lung diagnostic testing services for healthcare providers associated with our five blood-based tests and (ii) Biodesix Development Services (Development Services) providing diagnostic testing services to biopharmaceutical, life sciences, and diagnostic companies.
Diagnostic Tests
Diagnostic Tests revenue is generated from the 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 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, test type, the historical amount of time until payment by a payer, and historical price concessions granted to groups of customers.
Development Services
Development Services revenue is generated from the delivery of our on-market tests, pipeline tests, custom diagnostic testing, and other scientific services from contracts and business agreements with other diagnostic and life sciences tool customers for a purpose as defined by the individual customer. The performance obligations and related revenue for these sales are 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 mid-sized to 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 significant swings in our overall net revenue line from quarter to quarter.
Operating Expenses
Direct costs and expenses
Cost of diagnostic testing generally consists of cost of materials, direct labor, including bonuses, employee benefits, share-based compensation, 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 allocated 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 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, which 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, share-based compensation and benefits, reagents and supplies used in research and development laboratory work, clinical trials infrastructure expenses, including allocated facility occupancy and information technology costs, contract services, quality and regulatory support, 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, share-based compensation, 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 expenses 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, public relations, communications and reimbursement, as well as business development personnel who are focused on projects with our biopharmaceutical customers. These expenses consist primarily of salaries,
commissions, bonuses, employee benefits, share-based compensation, 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 and services. 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 nature of these expenses.
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, share-based compensation, 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.
Non-Operating Expenses
Interest Expense and Interest Income
For the three and nine months ended September 30, 2026 and 2025 interest expense primarily consists of cash and non-cash interest from the Perceptive Term Loan Facility. Interest income, which is included in 'Other income, net' in the condensed statements of operations, consists of income earned on our cash and cash equivalents.
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 September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
2026 | 2025 | $ | % | 2026 | 2025 | $ | % | |||||||||||||||||||||||||
Revenues | $ | 24,041 | $ | 21,768 | $ | 2,273 | 10 | % | $ | 76,457 | $ | 59,744 | $ | 16,713 | 28 | % | ||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||
Direct costs and expenses | 4,660 | 4,106 | 554 | 13 | % | 13,685 | 11,840 | 1,845 | 16 | % | ||||||||||||||||||||||
Research and development | 2,994 | 2,992 | 2 | 0 | % | 9,414 | 9,131 | 283 | 3 | % | ||||||||||||||||||||||
Sales, marketing, general and administrative | 22,499 | 21,714 | 785 | 4 | % | 71,042 | 64,573 | 6,469 | 10 | % | ||||||||||||||||||||||
Impairment loss on intangible assets | - | 7 | (7 | ) | (100 | )% | 17 | 106 | (89 | ) | (84 | )% | ||||||||||||||||||||
Total operating expenses | 30,153 | 28,819 | 1,334 | 5 | % | 94,158 | 85,650 | 8,508 | 10 | % | ||||||||||||||||||||||
Loss from operations | (6,112 | ) | (7,051 | ) | 939 | 13 | % | (17,701 | ) | (25,906 | ) | 8,205 | 32 | % | ||||||||||||||||||
Other (expense) income | ||||||||||||||||||||||||||||||||
Interest expense | (2,002 | ) | (2,074 | ) | 72 | 3 | % | (5,961 | ) | (5,657 | ) | (304 | ) | (5 | )% | |||||||||||||||||
Change in fair value of warrant liability, net | - | - | - | - | % | - | (280 | ) | 280 | 100 | % | |||||||||||||||||||||
Other income, net | 82 | 409 | (327 | ) | (80 | )% | 564 | 558 | 6 | 1 | % | |||||||||||||||||||||
Total other expense | (1,920 | ) | (1,665 | ) | (255 | ) | (15 | )% | (5,397 | ) | (5,379 | ) | (18 | ) | (0 | )% | ||||||||||||||||
Net loss | $ | (8,032 | ) | $ | (8,716 | ) | $ | 684 | 8 | % | $ | (23,098 | ) | $ | (31,285 | ) | $ | 8,187 | 26 | % | ||||||||||||
Share-based compensation (1) | $ | 852 | $ | 1,053 | $ | (201 | ) | (19 | )% | $ | 2,787 | $ | 3,064 | $ | (277 | ) | (9 | )% | ||||||||||||||
Revenues
We generate revenue by providing laboratory testing of our diagnostic tests and services. Our revenues for the periods indicated were as follows (in thousands, except percentages):
Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
2026 | 2025 | $ | % | 2026 | 2025 | $ | % | |||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||||
Diagnostic Tests | $ | 23,055 | $ | 19,835 | $ | 3,220 | 16 | % | $ | 70,695 | $ | 54,049 | $ | 16,646 | 31 | % | ||||||||||||||||
Development Services | 986 | 1,933 | (947 | ) | (49 | )% | 5,762 | 5,695 | 67 | 1 | % | |||||||||||||||||||||
Total revenues | $ | 24,041 | $ | 21,768 | $ | 2,273 | 10 | % | $ | 76,457 | $ | 59,744 | $ | 16,713 | 28 | % | ||||||||||||||||
Total revenues increased $2.3 million, or 10%, and $16.7 million, or 28%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025.
Diagnostic Tests revenue increased $3.2 million, or 16%, and $16.6 million, or 31%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The increases are primarily due to an increase of $3.2 million and $16.5 million, respectively, in the Nodify Lung Nodule Risk Assessment testing strategy driven by increases in tests delivered as our sales efforts continue to focus on Nodify CDT and XL2 tests.
Development Services revenue decreased $0.9 million, or 49%, and increased $0.1 million, or 1%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The decrease in revenue for the three months ended September 30, 2026 was primarily due to timing of sample receipts in the current year and the recognition of revenue from significant contracts in the prior year period. The increase in revenue for the nine months ended September 30, 2026 was primarily a result of delivering against our expanding book of contracted business and securing new agreements.
Operating Expenses
Direct costs and expenses
Direct costs and expenses related to revenue increased $0.6 million, or 13%, and $1.8 million, or 16%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025, primarily driven by an increase in total testing volume. Additionally, during the nine months ended September 30, 2026, the Company recognized a one-time recovery of previously paid sales and use taxes, which were recorded in Direct costs and expenses in prior years. The recovery of $0.4 million was recorded as a reduction to Direct costs and expenses during the three months ended March 31, 2026. This item is non-recurring and is not expected to continue in future periods. Excluding this one-time recovery, Direct costs and expenses would have increased $2.2 million, or 19%, compared to the nine months ended September 30, 2025.
Research and development
Research and development expenses were flat and increased $0.3 million, or 3%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The increase in costs for the nine months ended September 30, 2026, was primarily due to an increase in external costs associated with contracted services, partially offset by a decrease in internal expenses related to compensation and benefit costs.
The following table summarizes our external and internal costs for the three and nine months ended September 30, 2026 and 2025 (in thousands, except percentages):
Three Months Ended September 30, | Change | Nine Months Ended September 30, | Change | |||||||||||||||||||||||||||||
2026 | 2025 | $ | % | 2026 | 2025 | $ | % | |||||||||||||||||||||||||
External expenses: | ||||||||||||||||||||||||||||||||
Clinical trials and associated costs | $ | 446 | $ | 284 | $ | 162 | 57 | % | $ | 1,275 | $ | 1,287 | $ | (12 | ) | (1 | )% | |||||||||||||||
Other external costs | 927 | 834 | 93 | 11 | % | 2,677 | 2,212 | 465 | 21 | % | ||||||||||||||||||||||
Total external costs | 1,373 | 1,118 | 255 | 23 | % | 3,952 | 3,499 | 453 | 13 | % | ||||||||||||||||||||||
Internal expenses | 1,621 | 1,874 | (253 | ) | (14 | )% | 5,462 | 5,632 | (170 | ) | (3 | )% | ||||||||||||||||||||
Total research and development expenses | $ | 2,994 | $ | 2,992 | $ | 2 | 0 | % | $ | 9,414 | $ | 9,131 | $ | 283 | 3 | % | ||||||||||||||||
Sales, marketing, general and administrative
Sales, marketing, general and administrative expenses increased $0.8 million, or 4%, and $6.5 million, or 10%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The increase in costs was primarily due to an increase in internal expenses associated with employee compensation and benefit costs resulting from an increase in headcount and variable compensation as well as an increase in external costs associated with sales and marketing educational and event expenses. These increases are due to the planned expansion of the sales team to support Lung Diagnostic sales growth, as well as to enhance Biodesix awareness and drive product adoption.
Non-operating Expenses
Interest expense
Interest expense decreased $0.1 million, or 3%, and increased $0.3 million, or 5%, for the three and nine months ended September 30, 2026, respectively, compared to the same periods in 2025. The interest expense for the three and nine months ended September 30, 2026 is primarily related to interest and amortization of debt issuance costs associated with the Perceptive Term Loan Facility. The decrease for the three months ended September 30, 2026 is due to reductions in the variable interest rate compared to the same period in 2025. The increase for the nine months ended September 30, 2026 is due to the Company drawing the Tranche C loan of $10.0 million in May 2025.
Change in fair value of warrant liability, net
On February 28, 2025, the Company entered into the Fifth Amendment to the Credit Agreement with Perceptive, whereby subject to the terms and conditions of the Fifth Amendment, the Tranche C Loan Commitment Termination Date was extended, providing continued availability to the Tranche C Loan through December 31, 2025. In addition, on the Tranche C Loan borrowing date, the Tranche C Warrants, as amended, would become vested and exercisable at an exercise price equal to $15.86, the Company's closing stock price on February 28, 2025. During the three months and nine months ended September 30, 2025, the Company recorded no change and a loss of $0.3 million as a change in fair value of warrant liability through the condensed statements of operations due to changes in unobservable inputs. This was a result of changes in the probability of our ability to draw on the Tranche C Loan. The Tranche C Warrants were subsequently reclassified to equity during the three months ended June 30, 2025 in connection with the draw of the Tranche C Loan.
During the three and nine months ended September 30, 2026, the Company recorded no change in fair value of warrant liability through the condensed statements of operations.
Other income, net
During the three and nine months ended September 30, 2026, the Company recorded other income, net of $0.1 million and $0.6 million, respectively, primarily related to interest and other income. During the three and nine months ended September 30, 2025, the Company recorded other income, net of $0.4 million and $0.6 million, respectively, primarily related to interest and other income.
Liquidity and Capital Resources
Thus far in our operating history, we have yet to generate annual 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.
On November 16, 2022, the Company entered into a Credit Agreement and Guaranty (the Credit Agreement) with Perceptive Credit Holdings IV, LP (Perceptive) as lender and administrative agent (the Lender) for up to $50.0 million, with funding of $30.0 million and the issuance of warrants exercisable into 150,000 shares of the Company's common stock occurring on November 21, 2022, and two additional contingently issuable tranches of $10.0 million each subject to certain terms and conditions, including revenue milestones. During the three months ended December 31, 2023, the Company met the conditions precedent associated with the Tranche B Loan and, on December 15, 2023, the Company exercised its ability to draw the Tranche B loan for $10.0 million (the Tranche B Loan). The Tranche C loan had a prior commitment date through September 30, 2024 and, as of that date, the Company did not exercise its ability to draw the Tranche C loan. On February 28, 2025, the Company entered into the Fifth Amendment to the Credit Agreement, whereby subject to the terms and conditions, the Tranche C Loan Commitment Termination Date was extended, providing continued availability to the Tranche C Loan through December 31, 2025. On May 8, 2025, the Company exercised its ability to draw the Tranche C loan for $10.0 million.
On February 25, 2026 (the Sixth Amendment Effective Date), the Company entered into the Sixth Amendment to the Credit Agreement (the Sixth Amendment) with Perceptive, whereby subject to the terms and conditions of the Sixth Amendment, the Perceptive Term Loan Facility Maturity Date was extended to November 21, 2028 (the Extended Maturity Date). Consistent with the existing financial covenants, the Company must continue to, at all times prior to the Extended Maturity Date, (i) maintain a minimum cash balance of $2.5 million and (ii) meet certain minimum net revenue threshold amounts agreed to between the Company and Perceptive through and including the fiscal quarter ended December 31, 2028. The Perceptive Term Loan Facility continues to provide for an interest-only
period through the Extended Maturity Date at an annual rate equal to the greater of (a) forward-looking one-month term SOFR as posted by CME Group Inc. and (b) 3.0% per annum, plus an applicable margin of 9.0%.
On November 1, 2024, the Company filed a shelf registration statement on Form S-3 and entered into a new sales agreement with a financial institution, pursuant to which the Company may issue and sell, from time to time, shares of its common stock having an aggregate offering price of up to $50.0 million, subject to terms and conditions (the 2024 ATM Program). The shares of common stock offered pursuant to the 2024 ATM Program will be offered and sold by the Company pursuant to its registration statement on Form S-3 which became effective with the SEC on November 12, 2024. Sales of common stock under the 2024 ATM Program, if any, will be made at market prices by methods deemed to be an "at-the-market offering" as defined in Rule 415 promulgated under the Securities Act, including sales made directly on the NASDAQ Global Market, or any other existing trading market for our common stock. During the three and nine months ended September 30, 2026, the Company raised approximately $6.6 million and $30.4 million, respectively ($6.3 million and $29.5 million, respectively, after deducting underwriting discounts, commissions and offering expenses payable), in gross proceeds from the sale of 248,827 and 2,460,441 common shares at a weighted average price per share of $26.37 and $12.38, respectively. The Company had remaining available capacity for share issuances of up to $12.2 million under the 2024 ATM Program as of September 30, 2026. Subsequent to September 30, 2026, the Company raised approximately $0.9 million in gross and net proceeds from the sale of 32,457 common shares at a weighted average price per share of $28.89.
Cash Flows
The following summarizes our cash flows for the periods indicated (in thousands):
Nine Months Ended September 30, | ||||||||
2026 | 2025 | |||||||
Net cash flows (used in) provided by: | ||||||||
Operating activities | $ | (18,933 | ) | $ | (24,049 | ) | ||
Investing activities | (998 | ) | (299 | ) | ||||
Financing activities | 29,353 | 14,708 | ||||||
Net increase (decrease) in cash and cash equivalents and restricted cash | $ | 9,422 | $ | (9,640 | ) | |||
Our cash flows resulted in a net increase in cash and cash equivalents and restricted cash of $9.4 million during the nine months ended September 30, 2026 as compared to a net decrease in cash of $9.6 million for the nine months ended September 30, 2025. For the nine months ended September 30, 2026, net cash used in operating activities totaled $19.0 million, a decrease of approximately $5.0 million compared to the same period in 2025 primarily due to a year-over-year decrease in net loss from operations of $8.2 million, partially offset by unfavorable changes in net working capital of $2.7 million resulting from the timing of cash receipts from customers and payments to vendors.
Net cash used in investing activities during the nine months ended September 30, 2026 totaled $1.0 million, an increase of $0.7 million compared to the same period in 2025. The increase in net cash used in investing activities was primarily due to increases in purchases of property and equipment and capital expenditures.
Net cash provided by financing activities during the nine months ended September 30, 2026 totaled $29.4 million, an increase of $14.6 million compared to the same period in 2025. The net cash provided by financing activities for the nine months ended September 30, 2026 primarily resulted from $30.4 million in gross proceeds from the issuance of common stock under our 2024 ATM Program and $0.7 million in net proceeds from our ESPP, partially offset by payments of $1.0 million in equity financing costs and $0.8 million associated with our finance lease obligations. The net cash provided by financing activities for the nine months ended September 30, 2025 primarily resulted from $10.0 million in net proceeds from the issuance of Tranche C under the Perceptive Term Loan Facility, $4.8 million net proceeds from the issuance of common stock under our ATM facility, and $0.5 million in net proceeds from our ESPP, partially offset by payments of $0.6 million associated with our finance lease obligations.
Contractual Obligations and Commitments
The following table summarizes our non-cancelable contractual obligations and commitments as of September 30, 2026 (in thousands):
Payments due by period (1) | ||||||||||||||||||||
Total | Less than | 1 to 3 | 4 to 5 | More than | ||||||||||||||||
Borrowings and interest (2) | $ | 64,212 | $ | 6,550 | $ | 57,662 | $ | - | $ | - | ||||||||||
Operating lease obligations | 39,185 | 4,951 | 9,121 | 8,898 | 16,215 | |||||||||||||||
Finance lease obligations | 1,543 | 681 | 763 | 99 | - | |||||||||||||||
Total | $ | 104,940 | $ | 12,182 | $ | 67,546 | $ | 8,997 | $ | 16,215 | ||||||||||
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, 2025.
Off-Balance Sheet Arrangements
As of September 30, 2026, 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 I of this Quarterly Report on Form 10-Q as well as Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2025, which was filed on February 26, 2026.
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. The Company generates revenues from (i) Diagnostic Tests and (ii) assay development, testing services, and licensing our technologies (Development Services).
The Company recognizes revenues related to blood-based lung diagnostic billings based on estimates of the amounts ultimately expected to be collected from customers on a portfolio approach. In determining the amount to accrue for a delivered test, the Company considers factors such as test type, payment history, payer coverage, whether there is a reimbursement contract between the payer and the Company, payment as a percentage of agreed upon rate (if applicable), amount paid per test and any current developments or changes that could impact reimbursement. Variable consideration, if any, is estimated based on an analysis of historical experience and adjusted as better estimates become available. These estimates require significant judgment by management.
The Company also provides services to patients with whom the Company does not have contracts as defined in Financial Accounting Standards Board (FASB) Accounting Standards Codification 606 (ASC 606). The Company recognizes revenue for these patients when contracts, as defined in ASC 606, are established at the amount of consideration to which it expects to be entitled, or when the Company receives substantially all of the consideration subsequent to satisfaction and delivery of the performance obligations.
Development Services revenue consists of various types of tests or other scientific services for a purpose as defined by any individual customer, which are often larger biopharmaceutical companies, as defined by a written agreement between the Company and the customer. These services are generally completed upon the delivery of testing results, achievement of contractual milestone(s) as defined in the customer agreements, or over the term of the contract which is generally expected to be completed in one year or less. Customers for these services are typically large biopharmaceutical companies where collectability is reasonably assured and therefore revenue is accrued upon completion of the performance obligations. Revenue for these services is recognized upon delivery of the completed test results, upon completion of the contractual milestone(s), or over the term of the contract.
Implications of Being a Smaller Reporting Company
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 exceed $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.