CareDx Q3 2024 Earnings Call Transcript

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November 4, 2024

Key Takeaways

  • CareDx reported Q3 revenue of $82.9 million, a 23% year-over-year increase, achieved positive adjusted EBITDA of $6.9 million (above guidance), generated $12.5 million in operating cash and ended the quarter with $241 million in cash and no debt.
  • Testing services volumes reached ~44,600 tests (+16% YoY) marking the fifth consecutive quarter of sequential growth, while revenue grew 27% to $60.8 million; the company is adding 30 sales and marketing hires and 20 billing staff to drive further volume growth and ASP expansion.
  • CMS reaffirmed coverage for solid organ transplant surveillance testing in August, and 10 transplant centers have already implemented new protocols; commercial coverage expanded by 4 million lives in Q3 and Highmark Blue Cross Blue Shield added kidney and expanded heart coverage.
  • Patient & digital solutions revenue rose 20% to $12 million, driven by SaaS migrations, HLA lab information management software and a large UC Health System agreement, while lab products grew 7% to $10.2 million on broad adoption of AlloSeq TX assays and next-generation software innovations.
  • Management added key executives (COO, CCO, Chief Data & AI Officer), closed DOJ and SEC probes with no findings, dropped a competitor’s patent claim, and raised 2024 revenue guidance to $327–331 million (≈17% YoY growth), targeting a 15% CAGR to $500 million revenue by 2027 with 20% adjusted EBITDA.
AI Generated. May Contain Errors.
Earnings Conference Call
CareDx Q3 2024
00:00 / 00:00

There are 10 speakers on the call.

Operator

Good day, everyone, and welcome to today's CareDx, Inc. 3rd Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. Call. Please note, today's call will be recorded.

Operator

It is now my pleasure to turn the conference over to Greg Chodacek, Managing Director. Please go ahead, sir.

Speaker 1

Thank you, Chloe, and good afternoon. Thank you for joining us today. Earlier today, CareDx released financial results for the quarter ending September 30, 2024. The release is currently available on the company's website at www.caredx.com. John Hanna, President and Chief Executive Officer and Abhishek Jain, Chief Financial Officer will host this afternoon's call.

Speaker 1

Before we get started, I would like to remind everyone that management will be making statements during this call that include forward looking statements within the meaning of the federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward looking statements. All forward looking statements, including without limitation, our examination of historical operating trends, expectations regarding coverage decisions, pricing and enrollment matters and of our financial expectations and results are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements.

Speaker 1

For a list and descriptions of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission. The information provided in this conference call speaks only to the live broadcast today, November 4, 2024. CareDx disclaims any intention or obligation, except required by law, to update or revise any information, financial projections or other forward looking statements, whether because of new information, future events or otherwise. This call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles. Reconciliation to the most direct comparable GAAP financial measure may be found in today's earnings release filed with the SEC.

Speaker 1

I will now turn the call over to John.

Speaker 2

Thank you, Greg, and thank you to all who are listening to today's call. CareDx had another strong quarter with year over year growth across our business. We reported revenue of $82,900,000 representing 23% year over year growth. We expanded our gross margins and managed our expenses well, leading to positive adjusted EBITDA of $6,900,000 above our guide of being EBITDA neutral. We generated $12,500,000 in cash from operations and ended the quarter with a strong balance sheet of $241,000,000 in cash and cash equivalents and no debt.

Speaker 2

We believe CareDx has turned the corner toward long term profitable growth. In my prepared remarks, I will provide commentary on Q3 and insight into Q4 and our revised guidance. Then I will turn the call over to Abhishek, who will review our finances and guidance assumptions in further detail. In Testing Services, we delivered approximately 44,600 tests, up 16% from the prior year. This represents the 5th consecutive quarter of sequential growth in Testing Services volumes.

Speaker 2

Testing services revenue was $60,800,000 up 27% year over year, including $1,200,000 in revenue from tests performed in prior periods. We have begun to execute the strategy we laid out at our 2024 Investor Day that will unlock profitable growth at CareDx by engaging transplant centers with solutions that include a synergistic portfolio of testing, digital and lab products and are seeing early successes with this strategy. The first step was to reorganize our go to market team into a structure that places our customers at the center of everything we do. To capture the testing services growth opportunities ahead of us, we have already added 15 of a planned 30 sales and marketing team members to promote and sell our leading transplant solutions. In addition, we are adding 20 team members to our billing organization, of which we have already hired approximately 10 team members to date to drive greater collections and expand our ASP.

Speaker 2

In mid August, the Centers For Medicare and Medicaid Services reaffirmed their commitment to covering testing for solid organ transplant monitoring, including for surveillance. I anticipate it will take 2 to 3 quarters for kidney transplant centers across the country to readopt surveillance testing protocols. Establishing a protocol at a transplant center is a departmental consensus process that may take several months to agree upon, draft, document and logistically implement the workflow. Since the beginning of September, 10 transplant centers that we work with have established new protocols that include kidney surveillance testing. And we began to see a shift in our testing mix towards surveillance in the second half of September that continued through the month of October.

Speaker 2

In their August press release, CMS signaled that a future draft LCD may be introduced that we anticipate may address the rapidly growing literature in this field, including the recent Nature Medicine multicenter study of 2,882 patients demonstrating that surveillance with AlloSure kidney improves detection of all types of rejection. We continue to maintain an open line of communication and message advancements in the evidence supporting AlloSure testing to the agency and our MAC contractors. For example, in October, the American Society of Transplant Surgeons issued a statement on the importance of serial testing using donor derived cell free DNA in kidney and heart transplant patients. In kidney, they recommended serial testing in patients with stable renal allograft function to exclude the presence of subclinical antibody mediated rejection and in patients with acute allograft dysfunction to exclude the presence of rejection. In heart, they recommended using donor derived cell free DNA to rule out subclinical rejection.

Speaker 2

They also recommended that clinicians using donor derived cell free DNA also utilize peripheral blood gene expression profiling, such as our heart care solution as a non invasive diagnostic tool to rule out acute cellular rejection in stable low risk adult transplant recipients. On the commercial payer side, in the Q3, we added 4,000,000 commercial covered lives. And last week, Highmark Blue Cross Blue Shield issued a policy providing coverage for AlloSure kidney. For Heart Care, coverage was expanded by Highmark to begin 2 months post transplant from the previous coverage beginning 6 months post transplant. As of the end of the third quarter, we have gained approximately 31,000,000 covered lives nationwide across our testing services business.

Speaker 2

We anticipate that this coverage coupled with the expansion of our revenue cycle management team will contribute to ASP growth that we will benefit from in future quarters. Moving to our patient and digital solutions, we reported revenue of approximately $12,000,000 representing 20% year over year growth. First, as we migrate customers from on prem to SaaS products, we generate monthly recurring revenue and are able to improve our pricing. 2nd, HLA labs that utilize our lab products are increasingly adopting our HLA lab information management software solution, which we believe is best in class in the industry. And 3rd, among our testing services customers, we continue to sell our transplant pharmacy and medication adherence solutions to drive revenue growth.

Speaker 2

In October, we signed an agreement with the University of California Health System, which includes UCLA, UCSF, UC Davis, UC San Diego and UC Irvine to implement Med Action Plan, our medication adherence SaaS software application. Med Action Plan is clinically proven to improve patient medication adherence, has been shown to contribute to significantly lowering 30 day readmission rates. Collectively, the University of California Health System is one of the highest volume transplant health systems in the U. S. As we shared during our 2024 Investor Day, we've seen that the performance of accounts that had 3 or more CareDx digital solutions have a significantly higher new patient acquisition rate for testing services.

Speaker 2

We're encouraged by this early result from our account and portfolio based approach aimed at addressing the needs of our center customers and creating long term customer stickiness. Moving on to lab products, we reported revenue of $10,200,000 representing 7% year over year growth. The continued global adoption of our industry leading AlloSeq TX NGS based HLA typing kits primarily drove this growth. We continue to innovate to offer best in class HLA typing products in the market. 2 weeks ago at the annual meeting of the American Society For Histocompatibility and Immunogenetics or ASHI, the largest annual HLA lab meeting, we presented new data on AlloSeq TX11, the next generation of our AlloSeq assay with increased coverage of Class II loci.

Speaker 2

We also announced the launch of our next generation assigned software for AlloSeq TX HLA typing, featuring a newly improved user interface and streamlined workflow to view 24 or 96 multiplexed AlloSeq TX samples in real time as results become available without waiting for the full batch to result. We expect to make the new assigned software available to HLA Lab customers in December of this year, adding a best in class software solution to complement our best in class AlloSeq NGS chemistry. At ASEAN, we also announced our newly improved QTYPE rapid HLA typing solution for deceased donor organs, which now includes single bead antigen resolution to facilitate virtual cross matching for faster transplant organ allocation decisions. And finally, at Aashi, we also announced a partnership with Dovetail Genomics to launch an early access program combining CareDx's AlloSeq TX with Dovetail Genomics Hi C Link Prep technology to achieve high resolution genotyping and haplotyping without the need for family genotyping studies. The pairing of these technologies has the potential to improve transplant outcomes through better matching at the haplotype level.

Speaker 2

Our continued investment into HLA typing solutions demonstrates our ongoing commitment to delivering the most innovative solutions to support pre transplant recipient and donor matching across solid organ and stem cell transplantation. Moving on to our corporate business updates and guidance. In Q3, we also made significant corporate progress. First, I added new senior executives to the company, including a Chief Operating Officer, Chief Commercial Officer and Chief Data and AI Officer, and reorganized our operating structure for long term profitable growth. In addition, this past week, Chris Caesar, a seasoned market access professional from Pfizer, Myriad Genetics and most recently Delphi Diagnostics has joined CareDx to lead our global market access initiatives to drive coverage and reimbursement of our products.

Speaker 2

2nd, during our 2024 Investor Day held mid October, we laid out the CareDx 3 year growth strategy and financial plan to becoming the most innovative company in diagnostics. We are targeting to exit 2027 with $500,000,000 in revenue, 20 percent adjusted EBITDA profitability and an additional $100,000,000 in cash on our balance sheet. 3rd, the DOJ closed its investigation into CareDx with no findings of wrongdoing. The DOJ's decision follows the SEC's decision in September of 2023 to close its investigation and take no action against CareDx. We believe the closure of the DOJ's investigation underscores that the underlying allegations, which have now been reviewed by 2 separate government agencies, were meritless.

Speaker 2

And 4th, a competitor has dropped their pursuit of patent infringement claims and a potential injunction against our current AlloSure testing method. While we believe competition is good for innovation and patient care, we will continue to defend the novel technology we first brought to market against what we view to be baseless claims of infringement. The jury verdict against CareDx's prior AlloSure process remains under court review and we intend to continue to push for the invalidation of all patents that have been asserted against us. Now turning to our guidance. Giving our strong year to date results and expected growth for the remainder of the year, we are raising our revenue guidance for fiscal year 2024 to the range of 327,000,000 dollars to $331,000,000 from our prior guidance of $320,000,000 to $328,000,000 a growth rate of approximately 17% year over year at the midpoint of our guidance.

Speaker 2

From the midpoint of our revised guidance, we continue to target a growth CAGR over the coming 3 years of approximately 15%. We anticipate the pacing of that growth to accelerate from low teens in 2025 to high teens in 2027. Excluding $14,000,000 in one time revenue in 2024, the growth rate for 2025 is anticipated to be in the high teens. During our Q4 earnings call, we will provide further details on our full year 2025 guidance. In summary, we had a strong quarter with year over year growth across all our solutions, including testing services, digital and lab products.

Speaker 2

I want to close by congratulating the transplant community, including the hundreds of clinicians, thousands of patients and over a dozen members of Congress that advocated in support of monitoring assays for solid organ transplant rejection, including for surveillance. We continue to advocate vigilantly on behalf of patients to ensure that they have the same long standing access to monitoring assays that allow for early intervention of graft rejection and improved outcomes. I will now turn the call over to Abhishek to share more details on our Q3 financials and our guidance. Abhishek?

Speaker 3

Thank you, John. In my remarks today, I will discuss our Q3 results before turning to revised 2024 guidance. Unless otherwise noted, my remarks will focus on non GAAP results. For further information, please refer to GAAP to non GAAP reconciliations in our press release, earnings presentation and recent SEC filings. Let me start with the key financial highlights.

Speaker 3

Reported total revenue of $82,900,000 for the Q3, up 23% year over year. Delivered approximately 44,600 test results, up 16% year over year and 2% as compared to the last quarter, representing the 5th consecutive quarter of sequential testing services volume growth. Reported testing services revenue of $60,800,000 up 27% year over year, including $1,200,000 associated with tests performed in the prior periods reported Patient and Digital Solutions revenue of $11,900,000 up 20% year over year and products revenue of $10,200,000 up 7% year over year. Reported an adjusted EBITDA gain of $6,900,000 compared to a $10,900,000 loss in the same quarter of last year. Finally, generated cash of $12,500,000 from operations and ended the quarter with $241,000,000 in cash, cash equivalents and marketable securities.

Speaker 3

Moving to the details, starting with gross margin. Our non GAAP gross margin for the 3rd quarter was 69%, up 2 40 basis points as compared to non GAAP gross margin of 66.6% in the same quarter last year. Our non GAAP testing services gross margin was 79% in the 3rd quarter compared to 74% in the Q3 of 2023. The improvement in testing services gross margin was driven by volume growth, ASC expansion, as well as continued efficiencies in managing our lab operations. Dollars 1,200,000 in revenue associated with tests performed in the prior period also added about 40 basis points to the non GAAP gross margin.

Speaker 3

Our patient and digital solutions non GAAP gross margin for the Q3 was 37% as compared to 39% in the Q3 of 2023. Excluding our transplant pharmacy, which has a low gross margin profile, our Patient and Distress Solutions non GAAP gross margin for the Q3 was approximately 60%. Our products non GAAP gross margin was 46% in the 3rd quarter, down from 58% in the Q3 of 2023 and in line with non GAAP gross margin of 47% last quarter. Product gross margin can be impacted by the variability in our production schedule. In the Q3 of 2023, gross margin was higher due to an end of life bulk build for 1 of our HLA typing kits.

Speaker 3

We anticipate another end of life bulk build in the Q4 of this year. Moving down the P and L. Non GAAP operating expenses for the Q3 were $52,200,000 down approximately $5,500,000 from the Q3 of 2023 and down $3,000,000 from the previous quarter. The quarter over quarter decrease in our operating expenses was primarily associated with lower conference costs, push out of some expenses related to clinical trials and lower legal spend. Our adjusted EBITDA gain for the Q3 was $6,900,000 compared to adjusted EBITDA loss of $10,900,000 in the Q3 of 2023, an improvement of 18,000,000 dollars This was driven by strong revenue growth, improved dose margins and lower operating expenses.

Speaker 3

Excluding the $1,200,000 in revenue associated with test performed in the prior period, adjusted EBITDA gain would been $5,700,000 in the Q3. Turning to cash. We added approximately $12,000,000 to our cash balance in the 3rd quarter, primarily driven by cash generation from operating activities. We ended the quarter in a strong position with cash, cash equivalents and marketable securities of $241,000,000 and no debt. Turning to guidance.

Speaker 3

Based on the performance across our business in the Q3 of 2024, we are raising our full year revenue guidance to $327,000,000 to $331,000,000 from our prior guidance of $320,000,000 to $328,000,000 The midpoint of our 2024 guidance assumes testing services volume growth in the mid teens and implied revenue growth of 30% year over year for the Q4 of 2024. The difference in our assumptions between volume and revenue growth is driven by ASP expansion. In October, we experienced an impact of approximately 1% in testing volumes due to Hurricane Milton. This is incorporated in our revised guidance. We are assuming blended ASP of approximately $13.35 per test for the Q4 and no changes to our Medicare coverage.

Speaker 3

Our patient and digital solution is expected to grow in the mid teens year over year. In Q3, we recognized revenue of $1,000,000 in one time initial setup fee for the completion of HLA lab management software implementation. We do not anticipate this recurring in the Q4. Our lab products will grow in the high teens year over year. Moving to gross margin.

Speaker 3

We now expect our gross margin to be approximately 69% for the full year 2024, driven by the improved testing services gross margin. We're expecting a slight ramp up in our operating expenses in the Q4 associated with scaling of our commercial organization and billing operations to accelerate revenue growth in line with our growth strategy. Due to improved revenue expectations and gross margin, we expect our adjusted EBITDA gain for the full year 2024 to be between $18,000,000 $22,000,000 compared to previously guided gain of $9,000,000 to 15,000,000 dollars With that, I would now turn the call over to John to deliver closing remarks.

Speaker 2

Thank you, Abhishek. I want to reiterate how excited I am about CareDx's future and the journey ahead. We have the right team in place addressing the right market with the right products to deliver profitable growth. I want to thank the entire global CareDx team for their strong execution in the Q3. And with that, I'd like to ask the operator to open the line for questions.

Speaker 1

Chloe, are you there?

Operator

Yes. I did announce Bill Bonello with Craig Hallum. Your line is open.

Speaker 4

Hey, thanks. Hoping you guys are all there after that storm.

Speaker 2

So thank you. Yes, we can hear you, Bill.

Speaker 4

Okay, good. Thank you so much for all of that information. A couple of questions. Just on the Q4 guide, I guess I've sort of thought in normalized circumstances as Q4 being maybe a stronger quarter than Q3. Now I get that you had a little bit of prior period revenue this quarter, but even if you take that out, it seems like you're projecting revenue

Speaker 5

to be pretty

Speaker 4

flat sequentially. Is there anything you've seen in October in terms of trends that would make you a little more cautious than normal? Or how should we think about that?

Speaker 3

So Bill, in the Q4 guidance, you're right that the revenue for Q4 is more or less in line with the Q3 and it's primarily driven by a couple of factors. 1, the prior items that I called out the $1,200,000 in the testing services business and about $1,000,000 that I called out in our patient and digital solutions business. So if you actually exclude these two items, then the Q4 revenue actually grows as compared to the Q3. And in our testing services business, for example, we are baking in volume growth from Q3 to Q4 in line with how we have seen the volume growth in the last year. So there is volume growth in the testing services business as well as the revenue growth.

Speaker 4

Okay. That's helpful. I wasn't thinking about the $1,000,000 on the patient because I think if you back out the $1,200,000 you're still pretty flat, but maybe with the $1,000,000 you get a little bit of growth. And then I guess, I'm just trying to wrap my head around the comment on the ramping of the growth and maybe being at low teens revenue growth for next year. And I absolutely understand what you're saying about the pacing of surveillance testing coming back and how that will take some certainly take some time.

Speaker 4

But I mean, you just reported a quarter where you had 23.5% growth. And even if you take out the unusual items, I think it's 20% plus growth. And you had that kind of growth, if not better, last quarter as well. And I think implication for next quarter is sort of 25 ish percent kind of year over year growth. So what happens that we just fall off all the way down to low teens from sort of low 20s to mid 20s?

Speaker 3

I can quickly make one comment and I'll give this back to John. So at the midpoint of our guide, year over year growth is about 17% is what we have called out, Bill, right? And if you were to take those one timers out, which is about $14,000,000 then you're back to about 12% to 13% growth, which is pretty much in line with what John basically mentioned from the pacing of the revenue growth in 2025. And of course, as we start to invest in the commercial team and the billing operations, we will scale the growth at a higher number in the outer years of our 2027 plan.

Speaker 4

Yes.

Speaker 2

Yes. I think that's right.

Speaker 4

I mean Q1 was a bad quarter. So somewhere along the line, we should probably factor in another bad quarter? Or how do we I mean, Q1 was it was sort of leftover in how you had been growing before. So I guess that explanation kind of doesn't I'm not tracking.

Speaker 3

And I thought that in Q1, Bill, we grew like 6% on our testing services volume growth. So I thought that Q1 was like the growth was pretty decent. Maybe you might be kind of thinking from Q4 to Q1 and that could be more seasonal because of our products business.

Speaker 4

Yes. Okay. Well, I can follow-up more offline, but it doesn't make a heck of a lot of sense to me. But thanks.

Operator

We'll move next to Tycho Peterson with Jefferies. Your line is open.

Speaker 6

Hey, good evening. This is Jack on for Tycho. Just had one question on testing mix. It looks like surveillance mix increased nicely in September through October. Could you put a finer point on the magnitude of this?

Speaker 6

And maybe speak to the upper limit of surveillance mix versus new transplants?

Speaker 2

Thanks, Jack. We haven't provided any detail on the proportional mix rate. I think directionally though what we said is, we have seen a modest shift in that mix and we are seeing centers adopt protocols for surveillance testing and that we anticipate 2 to 3 quarters for that to return.

Speaker 6

Okay. That's fair. And then quickly on capital allocation, I know you're making nice progress in the P and L, have over $230,000,000 in cash. I guess, how are you thinking about capital allocation if deals aren't on the table? Should we assume any sort of buybacks in the near future?

Speaker 6

Thanks.

Speaker 2

Thanks, Jack. I think that for us, primarily we're thinking about growth and profitable growth long term. And then from there, we're going to look at ways to invest into the core business to grow more rapidly before moving into share buybacks. And so that's our prioritization set.

Speaker 5

Okay. Thank you.

Operator

We'll take our next question from Mark Massaro with BTIG. Your line is open.

Speaker 7

Hey guys, thank you for taking the questions. Congrats on the solid beat and raise. It's good to see the feedback about the surveillance picking back up in the second half of September and continued through October. You guys talked about how and it makes sense to me that it may take 2 to 3 quarters for transplant centers to establish surveillance protocols. But given that you saw a little bit of bounce back in September October, I just want to make sure that doesn't preclude some degree of recovery relative to say the first half of twenty twenty four, sort of continuing into 2025 even before these protocols are established?

Speaker 2

Thanks, Mark. Appreciate your question. No, we think this is additive on top of what we saw as we grew through the first half of twenty twenty four. A lot of the growth we've seen in the 5 quarters since the change in the coverage kind of reset the volume was really focused on the for cause area of indication and then growth in our heart care product.

Speaker 7

Okay. I also wanted to ask, it seems like we are waiting for, I think it's Palmetto GBA to finalize the LCD for transplant testing. Do you have any sense for when this might hit? And is it your understanding or impression that the LCD might be restored back to what it was originally? Just give us a sense for what your expectations are heading in.

Speaker 2

Thanks for the question, Mark. Yes, we don't have a specific timeline from the agency or from Palmetto as to when a new draft LCD would be released. Currently, the active LCD is the 2021 LCD that was originally published covering this indication broadly. And we anticipate that any future LCD would include an update to the literature, which has progressed significantly since 2021 to include some of the more, I would say, foundational studies like the Nature and Medicine publication that I talked to in my prepared remarks.

Speaker 7

Okay. I have one final 2 parter. Should we expect to see the impact of the impact of the impact of the impact of the impact of the impact of the impact of the impact of the impact of the impact of the impact of the impact of the impact of the impact of the impact of the impact of the impact of the impact of the impact of the potential expansion of commercial payer lives in 2025? I saw you hired you made a new hire on the commercial access team. Just give us a sense for what the order what the objectives are in 2025?

Speaker 7

Obviously, 2024 was a good year of new payer coverage.

Speaker 2

It was. Yes. Thanks for the questions, Mark. On your first question related to Milton, yes, we have seen a 1% volume impact in the 4th quarter and we have not yet, gained that volume back. And thus Abhishek called that out in his prepared remarks as being incorporated into our guide for the full year of 2024.

Speaker 2

And then as it relates to payer expansion, yes, we absolutely believe that 2025 should be a significant year for covered lives expansion, particularly in AlloSure Heart and AlloSure Kidney. We have in heart additional publications that we anticipate from the SHORE study to come out. In kidney, we are awaiting the publication of the K OAR study, which we think will be significant to drive in coverage for AlloSure kidney on top of the Nature Medicine publication, which only has been out for about a quarter and we continue to talk with payers about that data and the significance of that data.

Speaker 7

Okay. Thanks for taking my questions.

Speaker 2

Thanks, Mark.

Operator

We'll move next to Brandon Couillard with Wells Fargo. Your line is open.

Speaker 8

Hey, thanks. Good afternoon. John, it would be great if you could just talk about the 30 planned new heads in the commercial organization. How much of an increase in terms of percentage is that relative to the prior base? Where we kind of allocate those people in terms of scope of focus?

Speaker 8

And then A. J, is kind of $8,000,000 to $10,000,000 the right ballpark for incremental spend from that build out?

Speaker 2

Yes, great. Thanks, Brandon. Appreciate the question. The commercial heads are allocated between field sales and marketing. If you recall back in 2023, the company cut pretty significantly across the organization to control our spend and maintain our cash balance.

Speaker 2

And so we drew down across the board. And so this is a reinvestment in the commercial organization that includes probably about 1 third in marketing and 2 thirds in field sales that will be customer facing revenue generating team members.

Speaker 3

And I can take the second part. And your number is in the ballpark, Brendan, roughly $10,000,000 for the heads that we basically kind of mentioned here.

Speaker 8

Okay. So this would basically get you back to where you were before the CMS billing article. Is that the right way to think about it then?

Speaker 2

That's kind of the way we're thinking about it. We have been incredibly efficient as a commercial organization over the past 5 quarters in driving growth. And in order to continue to drive that growth and accelerate it over the next several years, we're starting with this 30 headcount and we'll provide additional updates if we decide to add more in the field to capture that volume opportunity that we have.

Speaker 8

Okay. That's helpful. And then

Speaker 2

as far as I don't

Speaker 8

know if you're degree to what you're willing to go into this much detail, but I'll give it a shot. So relative to the low teens kind of growth you pointed to next year, first, A. J, is the Q4 ASP a good jump off assumption for next year assuming you will should continue to benefit from expanded commercial coverage? And should we expect that the second half of next year to be stronger than the first half given your comments about the lag that it will take for those surveillance protocols to come back online? Thanks.

Speaker 3

No, you're thinking in the right way, Brandon, because the ASP of 1335 that will be the point of the 2025 numbers as you will start to think about it. And of course, the low teens guide for 2025, we'll provide more color in our earnings call, but that's where you should start to kind of think from the modeling standpoint, the 2025. And the last piece of your question around the second half being a little bit more stronger, you're again thinking it the right way because as we build our commercial organization as well as the billing organization, typically it takes about 1 to 2 quarters before they become fully effective. And therefore, you might be kind of thinking a little bit more growth in the second half of the year.

Speaker 5

Very good. Thank you.

Speaker 2

Thanks, Brandon.

Operator

We'll take our next question from Yi Chen with H. C. Wainwright. Your line is open.

Speaker 9

Thank you for taking my question. Could you comment on the general trend that expect to occur regarding the number of transplant or transplantation procedures in 2025? And what are the factors driving this trend? Thank you.

Speaker 2

Yi Chen, for 2025, in our Investor Day, we talked about mid single digit secular growth of the transplant market as being the baseline that we built our plan off of.

Speaker 9

Do you think there's any reason that we should believe there should be more or fewer numbers on number of transplant procedures in 2025?

Speaker 2

We don't have any catalysts to point to right now in terms of more procedures. I think that the introduction of perfusion technologies has accelerated the growth to where it is today across the full market. We're seeing heart and lung grow at a faster pace than kidney, obviously, off a smaller end sample size. And I think the only changes that could really accelerate this further would be government intervention of government programs. Recently, it was announced that the IOTA model for kidney transplant was going to be delayed in its implementation.

Speaker 2

And so we're awaiting further guidance from the agency regarding that program and its impact that it will have on the market.

Speaker 5

Got it. Thank you.

Operator

We'll take our next question from Mason Carrico with Stephens Inc. Your line is open.

Speaker 7

Hey, guys. Sorry if this has been asked jumping between a few calls tonight, but how should we be thinking about the framework for the surveillance opportunity going forward? There are 25,000 or so kidney transplants a year. There are obviously a lot more patients living with the transplant right now. Is the opportunity at least near term really more about rolling those newly transplanted patients into surveillance after that 1st year?

Speaker 7

Is there a plan to go out and expand patients who maybe are a few years out from transplant, just more than 12 months. Give us some color on how you're thinking about it?

Speaker 2

Thanks, Mason. I appreciate the question. Yes, I think you're thinking about it correctly. We're really targeting the 1st year post transplant for an implementation of a protocol to perform surveillance testing. That's where I believe the medical necessity is the greatest, right?

Speaker 2

The vast majority of rejection occurs in that 1st year. And thus, as centers think about implementing protocols and reinitiating surveillance testing, they're going to do so on newly transplanted patients, not on those that are 3 to 5 years out from transplant. We think in that group, there continues to be interest, particularly in for cause testing as we think about reducing immunosuppression in those patients. And then recently, there's been a number of articles and studies, peer reviewed studies looking at antibody mediated rejection, including new therapeutics for antibody mediated rejection, and the impact of those therapeutics when that condition is detected earlier. And we know that AlloSure, in particular, has demonstrated the ability to detect antibody mediated rejection before biopsy proven rejection.

Speaker 2

And so we think as that market grows and more therapeutics come to market for that indication that there'll be greater demand in the out years for surveillance testing to detect those events and treat and elongate graft survival.

Speaker 7

Got it. I'll keep it there. Thanks. That was helpful.

Speaker 2

Thanks, Mason.

Operator

We'll move next to Thomas DeBoursi with Nephron Research. Your line is open.

Speaker 5

Hey, guys. Could you hear me?

Speaker 2

We can.

Speaker 5

Okay, great. So my question just I guess maybe goes back to a few years ago, maybe earlier the launch where there was a focus on number of transplant centers. I guess discussion at that point approximately 100, 125 setters account for most of the volume. And I guess just kind of wondering, with all that has transpired, I guess, what has been your center retention over the last few years? And then also, not that there is a generalization, but in terms of implementing new protocols around surveillance, would you expect it to take on average 2, 3 quarters longer?

Speaker 5

I know there's maybe a dispersion, but just kind of any thoughts you have there just related to kind of the blocking attack like around transplant centers?

Speaker 2

Yes. Thanks so much for the question, Thomas. To your first question around retention, I mean, yes, we've seen a high level of retention and our products tend to be sticky with our customers because of the large solution set that we offer them across digital, HLA typing and testing services. And then as it relates to protocols, there's a varying degree of readiness to implement. So as I shared in my prepared remarks, we have 10 centers across the country that have already drafted and implemented to varying degrees new protocols since September 1.

Speaker 2

Many of the clinicians at these centers recognize that the care of their patients has been impacted by turning off surveillance. And so they're eager to get going again. And we are staffing up to support that effort by adding more commercial team members so that we're prepared to support them in the logistics

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