CareDx Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 31, 2024

There are 13 speakers on the call.

Operator

Good day, everyone, and welcome to today's CareDx Incorporated Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note this call may be recorded. I'll be standing by if you should need any assistance.

Operator

It is now my pleasure to turn the call over to Mr. Greg Chodaczek, Managing

Speaker 1

Director. Thanks, Leo. Good afternoon and thank you for joining us today. Earlier today CareDx released financial results for quarter ending June 30, 2024. The release is currently available on the company's website at www.caredx.com.

Speaker 1

John Hanna, President and Chief Executive Officer and Abhishek Jain, Chief Financial Officer will host this afternoon's call. 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 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.

Speaker 1

Accordingly, you should not place undue reliance on these statements. For a list and description 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, July 31, 2024. CareDx disclaims any intention or obligation, except as 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.

Speaker 1

Reconciliation to the most directly comparable GAAP financial measure may be found in today's earnings release filed with the SEC. I will now turn the call over to John.

Speaker 2

Thank you, Greg, and thank you to everyone who has joined today's call. After a good start to the year, we had another strong quarter, marked by growth across all of our businesses and disciplined operational execution. CareDx's commitment to patients, innovation and providing robust solutions that address transplant centers needs are driving our growth. We continue to publish compelling evidence supporting the role of our testing services in extending allograft survival. Our digital solutions are vital to helping our customers navigate complex workflows and achieve high quality outcomes.

Speaker 2

And our NGS based laboratory products are gaining wider adoption, supplanting legacy technologies. In my prepared remarks, I will share examples of how our solutions benefit patients, transplant centers and labs, underpinning the drivers of increased utilization and top line growth. We've reached an inflection point in our business. Our revenue growth coupled with our disciplined approach to expense management has translated into sizable improvements in our adjusted EBITDA resulting in both top line and bottom line growth. We became adjusted EBITDA positive this quarter and expect to be adjusted EBITDA neutral for the remaining two quarters of the year, resulting in positive adjusted EBITDA for the full year as reflected in our updated guidance.

Speaker 2

Given 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 $320,000,000 to 328,000,000 a growth rate of 15% year over year at the midpoint of our guidance. Turning to our financial results for the 2nd quarter, we reported revenue of $92,300,000 up 31% from the prior year. In our testing services business, we delivered approximately 43,700 tests, up 17% from the prior year and up 4% from the previous quarter. This represents the 4th consecutive quarter of sequential growth in testing services volumes. Testing services revenue was $70,900,000 up 33% year over year.

Speaker 2

We accrued $13,200,000 in revenue from tests performed in prior quarters, making our adjusted testing services revenue in the quarter $57,700,000 up 21% year over year. In the Q2, we achieved a significant milestone, the 1st peer reviewed publication of our SHORE study in the Journal of Heart and Lung Transplantation. As shown on Slide 6 of our earnings presentation, this prospective observational study demonstrates that heart care, which combines AlloSure heart and AlloMap heart identifies acute cellular rejection in heart transplant patients better than donor derived cell free DNA alone. The findings also demonstrate on Slide 7 that using heart care is associated with lower biopsy rates and excellent clinical outcomes 2 years post transplant. We believe that heart care could potentially guide clinicians to perform surveillance biopsies more sparingly.

Speaker 2

The SHORE study is the most extensive prospective study of its kind in heart transplantation with 67 participating centers and over 2,700 patients enrolled. SHORE is designed to follow patients for 5 years. So we expect SHORE will continue to generate meaningful publications for the foreseeable future. Moving to our kidney business, a landmark study was published last month in Nature Medicine validating our AlloView AI enabled risk prediction model and demonstrating that AlloSure kidney detects subclinical rejection in stable patients. The international multicenter study of 2,882 patients that underwent donor derived cell free DNA testing was conducted by the Paris Institute For Transplantation and Organ Regeneration along with researchers in the U.

Speaker 2

S. And Belgium. Several key findings from the study shown in Slide 9 of our investor presentation are AlloSure Kidney donor derived cell free DNA levels were elevated before biopsy proven rejection in an analysis of patients receiving consecutive biopsies. AlloSure kidney donor derived cell free DNA levels decreased for patients with successfully treated rejection, suggesting AlloSure kidney may be used to assess treatment response. AlloSure kidney surveillance testing detected subclinical rejection in clinically stable patients and surveillance monitoring with AlloSure Kidney and AlloView improves the detection of antibody mediated rejection and T cell mediated rejection compared to standard of care measures such as serum creatinine, donor specific antibodies and biopsy.

Speaker 2

This study underscores AlloSure's role as a leading indicator of kidney transplant rejection. It enables clinicians to intervene before clinical symptoms of rejection occur and monitor post treatment progress while avoiding invasive biopsy procedures. These findings contribute to a growing body of evidence that may establish new standards globally in routine monitoring of rejection and treatment response in kidney transplant patients. Turning to coverage, we look forward to the finalization of the draft Medicare local coverage determination likely in the Q3. CareDx, transplant clinicians and their specialty societies and transplant patients continue to advocate to permanently restore long standing coverage language.

Speaker 2

Recall, in February of this year, CMS issued a statement affirming their commitment to ensuring that patients with transplanted hearts, lungs and kidneys who meet Medicare's local coverage criteria can continue to access molecular blood tests and that these tests remain available to patients when medically necessary and ordered by a physician. We have had significant success in increasing commercial payer coverage for our kidney and heart testing services. In the first half of twenty twenty four, we gained additional coverage from Blue Cross Blue Shield plans and other commercial plans approximately 27,000,000 lives nationwide. This includes new policies for AlloMap Heart, AlloSure Heart, AlloSure Kidney. The coverage coupled with improvements in revenue cycle management have contributed to ASP growth that we will continue to benefit from in future quarters.

Speaker 2

Moving to our Patient and Digital Solutions business, we achieved our Q1 of over $10,000,000 in revenue, representing 19% year over year growth. This growth can be attributed to SaaS conversions and an uptake of our lab information management system software solution for HLA laboratories. Our digital offerings continue to gain traction in U. S.-based transplant centers with over 70% having at least one of our patient and digital solutions. Because our value added solutions complement each other and deliver positive outcomes, transplant centers are acquiring additional products from us.

Speaker 2

Florida Memorial Hospital and Joe DiMaggio's Children's Hospital, renowned for their adult and pediatric transplant program, have implemented CareDx's quality reporting software to facilitate their engagement with regulatory, accreditation and payer organizations. CareDx's software solutions are cloud based tools that in this case transform raw utilization data into insights, aiding centers in achieving high quality outcomes. In our lab products business, we reported another first, achieving over $10,000,000 in revenue, representing 35% year over year growth. This strong growth was primarily driven by continued global adoption of our industry leading AlloSeq TX NGS based HLA typing kits for use in bone marrow transplantation and solid organ transplantation. Centers are discovering that our AlloSeq TX has many benefits over legacy typing technologies.

Speaker 2

We expect this migration toward our best in class NGS HLA typing will continue. For example, 2 top HLA labs in Rome, Italy, Cagliara and San Camillo transitioned from legacy HLA typing solutions using real time PCR methods to NGS based AlloSeq TX. They recognize the value it provides in eliminating the need for reflex testing to resolve ambiguous results, thereby increasing operational efficiencies. This growth in a price sensitive market like Italy, which is one of the top 5 markets in Europe, reflects the value AlloSeq TX innovation brings to the region. In summary, we had a strong quarter across all three businesses, testing services, digital solutions and lab products and demonstrated solid year over year growth and we will believe this will continue.

Speaker 2

I want to thank the entire CareDx team globally for their commitment to transplant patients and for their disciplined execution in delivering against our plan to return to growth. With that, I will ask Abhishek to share more details on our 2nd quarter results. Abhishek?

Speaker 3

Thank you, John. In my remarks today, I will discuss our 2nd quarter results before turning to our 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 before providing more details around our revised 2024 guidance.

Speaker 3

Reported total revenue of $92,300,000 for the 2nd quarter, up 31% year over year. Delivered over 43,700 test results, up 17% year over year and 4% as compared to the last quarter, representing the 4th consecutive quarter of sequential testing services volume growth. Reported testing services revenue of $70,900,000 up 33% year over year, including $13,200,000 associated with tests performed in prior periods. On a comparable basis, adjusted revenue grew 21% year over year, driven by strong testing services volume growth. Reported patient and distal solutions revenue of $10,700,000 up 19% year over year and product revenue of $10,600,000 up 35% year over year.

Speaker 3

Reported adjusted EBITDA gain of $12,900,000 as compared to $10,400,000 loss in Q2 of 2023. Finally, generated cash of $18,900,000 from operations and ended the quarter $229,000,000 in cash, cash equivalents and marketable securities. Due to the strong overall performance in the second quarter, we are raising our full year 2024 revenue guidance to $320,000,000 to $328,000,000 from our prior guidance of $274,000,000 to $282,000,000 Moving to the details, starting with gross margins. Our non GAAP testing services gross margin was 81% in the 2nd quarter compared to 73% in the Q2 of 2023. Adjusted for the $13,200,000 in revenue associated with tests performed in prior periods, testing services gross margin was 76%.

Speaker 3

Our patient and distill solutions non GAAP gross margin for the Q2 was 37%, up from 33% in the Q2 of 2023. Excluding our transplant pharmacy business that has a lower gross margin profile, our Digital and Patient Solutions business non GAAP gross margin for the 2nd quarter was 59%. Our Products business non GAAP gross margin was 47% in the 2nd quarter, down from 59% in the Q2 of 2023 and flattish compared to 46% last quarter. Moving down the P and L. Non GAAP operating expenses for the 2nd quarter were $55,200,000 down approximately $3,700,000 from the Q2 of 2023 and up $2,900,000 from the previous quarter.

Speaker 3

The quarter over quarter increase was associated with conference spend and R and D spend associated with clinical trials. Reported adjusted EBITDA gain for the Q2 of 2024 was $12,900,000 compared to reported adjusted EBITDA loss of $10,400,000 in the Q2 of 2023 and a loss of $1,900,000 in the previous quarter. Excluding the $13,200,000 revenue associated with tests performed in prior periods, we were adjusted EBITDA neutral this quarter. Turning to cash. We generated $18,900,000 in cash from operations and ended the quarter in a strong position with cash, cash equivalents and marketable securities of $228,900,000 and no debt.

Speaker 3

Turning to guidance. Based on the healthy performance across all businesses in the Q2 of 2024 and the anticipated growth in the second half of the year, we are raising our full year revenue guidance to $320,000,000 to $328,000,000 The midpoint of our 2024 guidance assumes testing services volume growth in the high teens and revenue growth in the mid-20s year over year for the second half of twenty twenty four. The difference in our assumptions between volume and revenue growth rates is driven by ASP expansion. We're assuming approximately $1300 per test as our blended ASP for the second half of twenty twenty four. No change in Medicare coverage, products business to grow high teens year over year and our Patient and Distal Solutions business to grow in low double digits year over year.

Speaker 3

We expect our gross margin to be approximately 67% to 68%, driven by the improved testing services gross margin. Due to the improved revenue expectations and gross margin, we expect our adjusted EBITDA gain for the full year 2024 to be between $9,000,000 $15,000,000 compared to the previously guided EBITDA loss of $14,000,000 to 24,000,000 dollars I would like to now turn the call over to John to deliver closing remarks. Thank you, Abhishek.

Speaker 2

As we conclude our prepared remarks, I want to highlight the remarkable progress our team here at CareDx has made over the past year, translating into significant top line and bottom line growth. We stand in a strong position entering the second half of twenty twenty four. Prior to concluding the call, I want to share that CareDx will be hosting an Investor Day early in Q4 where we will provide insights into our long term growth strategy. A public advisory of the specific date and location will be released in the coming weeks. And with that, I would like to ask the operator to open the line for questions.

Operator

We'll take our first question from Bill Bonello of Craig Hallum. Your line is open.

Speaker 4

Hey, guys. Really nice looking quarter. Congratulations. A couple of things. So on the prior period collections, not at all surprising given the efforts that you've been making.

Speaker 4

But last quarter, I think you had about $3,700,000 and you thought maybe that was cleanup and now you have another 13,000,000 dollars Is there I get you don't want to include it in the guidance, but how should we think about that on a go forward basis? I mean, is there more opportunities still to go back and collect on prior period billing?

Speaker 3

Hi, Bill. This is Abhishek Desai. I'll take this question. So you're right. We basically had a good collection this particular quarter and we recognized $13,000,000 for the prior period.

Speaker 3

And from the guidance standpoint, what we have done this time around, we are including in the high end of our range, some improved collections that will help us in getting higher revenues, and that's baked in, in the guidance. That's the first part. And the second part is on the overall size of this particular opportunity and what we are seeing that based on some of these successes that we have seen in the last 1 year or so, the overall pool of such opportunities are kind of decreasing. And that's the reason we decided to kind of bake in some wins from this particular area in our high end of the guidance.

Speaker 4

Okay. That's really helpful. And then can you just tell us what you're seeing in terms of surveillance testing in kidney? Are physicians still behaving as though the draft MolDX LCD is the policy? Are you starting to see some reversion back to increased surveillance testing?

Speaker 2

Hi, Bill, it's John. Thanks so much for the question. We continue to see that clinicians are using the test and being more comfortable with the scenarios in which it can be used for cause. They have not changed their behavior relative to surveillance testing in anticipation of the draft LCD finalization.

Speaker 4

Okay. And then if I can ask one last question. Just any thoughts going into BAMF this September, possible that we could see an update to classification that references the under derived CF DNA?

Speaker 2

I'm going to ask Robert to respond to that.

Speaker 5

I think that is something that they've talked about over the years. It's unclear when that might happen as far as something coming out in the guidance, even if it is discussed that would be in the future publication. So that's not short term.

Speaker 4

Okay. Thanks a lot. Appreciate it.

Operator

We'll take our next question from Tycho Peterson of Jefferies.

Speaker 6

Hi, guys. This is Kayla on for Tycho. Thanks for taking the questions. I just wanted to start off with the IOTA program. You've mentioned potential reimbursement, changes that come down the line from the program.

Speaker 6

Assuming the program starts in 2025 and is successful, how soon could reimbursement changes be proposed and what changes would you be hoping to see?

Speaker 2

Can you repeat the question? You're referring to the IOTA program and reimbursement?

Speaker 6

Yes. You've talked about some potential reimbursement model changes that could come down the line from the program. I guess, what kind of changes could we see and when?

Speaker 2

Yes. I'm going to ask Alex to talk about the IOTA program. Thanks.

Speaker 7

Sure. So thanks for the question. This is a long term program for roughly half kidney transplant centers. And the penalties and rewards, so to speak, are really built into that program. It's a still in discussion and there's a lot of comments that have now come in.

Speaker 7

And so those ups and takes and gives and puts will happen as part of the IOTA program that's specific to those centers that are in the IOTA program.

Speaker 6

Okay. That's helpful. And then will the centers that are involved be able to stick with the tests they are currently using, say maybe like AlloSure versus Prospera? Or will there be an effort to standardize testing for the centers participating in the program and anything worth calling out that CNA can do to defend or pick up share as the market expands?

Speaker 7

I think what's important to realize that this program is to incentivize more utilization organs, right? It's to help patients and centers are going to make decisions on how to do that. And here at CareDx, we have tools, we have evidence driven solutions that can help them do that. And so we're thinking that we're in a very good position to help them execute on their strategies.

Speaker 6

Great. Thank you.

Operator

We'll move next to Matt Sykes of Goldman Sachs. Your line is open.

Speaker 8

Hey, guys. This is Prashant on for Matt. Congrats on the quarter and thanks for taking the question. So first, given how transplant volumes have trended for the first half of this year, it seems like for kidney and heart, transplant volumes are trending flattish to low single digit growth for the second half when you annualize that first half number in 2024. How are you thinking about this trend and the upside remaining for growth throughout the remainder of the year?

Speaker 2

Yes. Thanks for the question Prashant. I mean, I think that we there's plenty of opportunity for us to continue to grow as a business, regardless of the quarter over quarter trends in transplant volume. In general, we see volume increasing year over year, and we're going to continue to monitor that and we anticipate with the IOTA program that was addressed in the last question that we're going to continue to see the trend go in that upwards direction.

Speaker 8

Got it. Thanks. And then just a question on single versus multi modality testing. So your main competitor in the space is involved with this approach as well. Can you just quantify the market for multimodality and how much share have you been capturing?

Speaker 8

How is that projected to evolve going forward?

Speaker 2

I think we've built a strong base of evidence that supports multimodal testing in heart transplantation, that dual positive AlloMap heart and AlloSure heart identify rejection at a higher rate than a single test, in particular donor derived cell free DNA alone. And that dual negative results, patients are less likely to get biopsy and have significant fewer rejection events. And so the evidence is very strong there and the adoption of multimodal testing is high. And I think we've previously said upwards of 90% of patients that undergo a testing from CareDx for heart transplant get heart care.

Speaker 8

Got it. And then if I could squeeze one last one. So how do the market sizes for histomap and uromap compare with the market for AlloMap kidney given they're all gene expression profiling tests for kidney transplant monitoring?

Speaker 2

That's a great question. We're going to be addressing future pipeline products in our Investor Day in the 4th quarter. So we'll hold on that question until that time.

Speaker 5

Got it. Thank you.

Speaker 2

Thanks.

Operator

Our next question is from Andrew Cooper of Raymond James.

Speaker 9

Hey, everybody. Thanks for the question. Maybe first, just the scope of this step up kind of quarter over quarter in volumes was impressive. Has anything changed? I know you've kind of touched on it a little bit in terms of an inflection as we see some of the noise settle down over the last year?

Speaker 2

Yes. Thanks for the question. I'm going to ask Alex, our President of Patient Testing Services to answer that.

Speaker 7

Yes. Thanks, Andrew. We are leading through innovation and clinical evidence. That hasn't changed. And I think as you look to see how our differentiation is emerging in the market, you heard about heart care, we're talking about SHORE.

Speaker 7

But this is the lead. It's that type of evidence and us advocating for at a center by center approach to make sure that we're executing on our strategy. So while we see the growth and we're pleased, this is something that is really baked into our strategy and our go to market.

Speaker 9

Okay, helpful. And then maybe I think, John, I think you commented in response to Bill, something in terms of clinicians getting a little bit more comfortable on some of the For Cause uses. Could you just elaborate a little bit more on that and kind of whether it's in regards to what the disruption really has been when it shouldn't have been or kind of what you meant by that comment and what you're seeing from that regard?

Speaker 2

Yes. Sure, Andrew. Thanks for the question. I think this reflects on what Alex was commenting on a second ago, which is, that under the coverage criteria today in the Medicare program, there are a number of scenarios where the test can be ordered for cause. It could be as a result of clinical signs and symptoms.

Speaker 2

It could be the result of another pretest that was performed such as a serum creatinine being elevated. It could be as a result of trying to monitor a change in immunosuppression levels for the patient. And so what Alex and his team have done quite successfully has been to educate clinicians at the centers around these scenarios in which the testing is medically both appropriate, has utility and is considered reasonable and necessary under the policy, so that they can utilize it in those settings. And that is driving to some degree our growth as a company as they become more and more comfortable with those for cause scenarios and ordering it in those

Speaker 7

scenarios. Okay,

Speaker 9

helpful. Maybe just one last one to sneak in. Abhishek, I think you said around $1300 in terms of ASP for the rest of the year. If I back out, if I'm doing the math right, backing out the $13,200,000 this quarter, you were a little bit north of that in 2Q and you talked about the 27,000,000 additional lives being added in terms of coverage. So any reason we shouldn't expect that number to kind of trend a little bit higher from here?

Speaker 9

Or maybe what's some of the moderating factors?

Speaker 3

Yes. The way I'm kind of thinking about this, Andrew, that I have baked in some of those pieces in the high end of our guide, not necessarily the midpoint of our guide. So that's how I see. I'm not seeing any kind of a step change here from Q2. It's going to be more flattish at a very high level, the ASP assumptions.

Speaker 9

Okay, great. Appreciate the thoughts and I'll stop there.

Operator

Thank you. We'll move next to Mason Carrico of Stephens.

Speaker 10

Hey, guys. Congrats on a really strong quarter. How much of an impact has the SHORE data had on adoption trends? I mean once your reps put that in front of clinicians and talks through it with them, Do you see utilization pickup, whether it's frequency of testing or a ramp in new ordering clinicians? Yes, maybe I'll just

Speaker 7

leave it there. Yes. Thanks. This is Alex. Thanks, Mason.

Speaker 7

Ever since I think the introduction of the early data in Prague, this has been a big topic for clinicians around heart transplant and that has only increased. I think we're in the early days of seeing the impact of SHORE. This is a 67 center study with 2,800 patients being followed for 5 years. The amount of data that's going to come out of shore is tremendous. And I think we're just starting to see the early studies and the early data.

Speaker 7

So we're getting started and that's going to continue for some time.

Speaker 10

Got it. Okay. And could you maybe give us a little bit of color around some of the early conversations you're having with transplant centers around the IOTA model, has that driven any of the centers to increase their engagement with you guys or start to implement some sort of framework to more broadly utilize some of your offerings? Any broad color there, I guess?

Speaker 7

I think there is certainly increased interest. Centers know this is coming. They're trying to organize themselves. And there's certainly many more questions we're receiving on areas that we are well positioned to help them in.

Speaker 10

Okay. And last one here, I may have missed this, but did you guys call out volume trends across organ type during the quarter? Would you be willing to?

Speaker 3

No, we have not called out the volume growth at the organ level. But what we can say, Mason, that we are seeing growth across all the organs.

Speaker 10

Perfect. Okay. Thank you.

Operator

We'll take our next question from Mark Massaro of BTIG.

Speaker 11

Hey guys, this is Vivien on for Mark. Thanks for taking the question. So I understand that we're waiting for a CMS update in the coming weeks. Could you maybe just give us a sense for how you're thinking about what the range of outcomes might look in the final LCD, particularly given that the interim short data is out, and just any dialogue you've had with them, since that data read out? Thanks.

Speaker 2

Yes. Thanks, Cindy. We appreciate the question. As I shared in the prepared remarks, we have observed CMS publicly state that they continue to want to provide access to monitoring assays for solid organ transplant rejection. And we anticipate that that policy will be updated here in the coming month.

Speaker 2

And so we're monitoring for that. We as you asked, we do regularly communicate with the agency and with our MAX and of course have shared with them both the SHORE data as well as our Nature Medicine publication around kidney transplant management. So they are diligent about reviewing the literature and the positive results there. And so we'll just continue to await their final policy.

Speaker 11

Okay, perfect. Understood. And just one, just wanted to dig in a little bit more on the prior period collections, was pretty substantial number. So I did hear you guys say that it is contemplated in the high end of the guide to some degree, but should we think about it tapering off sequentially for the remainder of the year? And do the collections include tests just from the prior year?

Speaker 11

Or do they go back further than that?

Speaker 3

Yes. So these tests that we're calling out, they definitely go back prior periods. We're not including any tests that we've done in the current quarter in that $13,000,000 number. And as I was referencing previously, we have seen quite a few wins based on a lot of effort that we've done in the past many quarters, but we believe that now the available pool of these kind of wins is kind of shrinking. And that's the reason we decided to bake in part of that kind of our expectation on what it may kind of pan out in our high end of the guidance.

Speaker 11

Understood. I'll leave it there. Thank you.

Operator

Thank you. We'll take our next question from Yi Chen of H. C. Wainwright.

Speaker 12

Thank you for taking my questions. My first question is, when you talk about those tests performed in prior periods, are you primarily talking about maybe 1, 2 or 3 quarters in the back or maybe 1 to 3 years in the back?

Speaker 3

Yes. So there are a couple of components on these tests, Yi Chen. One is, of course, what we typically have called out around the Medicare Advantage, where we have been working with these payers. And these tests generally go back multiple years, not necessarily just a few quarters. So that's the first part.

Speaker 3

And the second part is that based on how we are seeing these increased collections and based on our discussions with the payers and everybody, we are kind of recognizing revenue on certain tests, which is actually helping us improving our ASPs in the current quarter and on go forward basis. So there are 2 components there.

Speaker 12

Okay. So in the near term, for the next 2 or 3 quarters, do you expect the top line growth to be primarily driven by test volume growth in the current quarter or better reduction of tests performing prior periods or maybe they could contribute equally to top line growth?

Speaker 3

The way we are guiding for the second half, Yi Chen, we are basically saying that our volume growth is going to be in the high teens and our revenue growth is going to be in mid-20s. So you can basically say that majority of the revenue growth is still driven by the volume, but still there is a pretty decent piece because of the ASP expansion, which is baked in our revenue guidance now.

Speaker 12

I see. Great. Thank you for the clarification.

Operator

We'll take our next question from Thomas D'Borsey of Nephron Research.

Speaker 5

Hello. Thanks for taking the question. I guess going back to the prior period question. So I just maybe just want to clarify around the incremental coverage. Are you getting a look back period from either MA plans or commercial plans, I guess as you negotiate a network reimbursement?

Speaker 5

Is that part of what's helping us?

Speaker 3

Yes. No, that's a great question, Tom. And let me give you an example here that we were we have been having these negotiations with the Medicare Advantage payers. And 1 large national payer actually decided to process many of these unpaid claims starting January of 2022. So that's just an example as to sometimes we are able to kind of negotiate with these payers some of the claims that we were not being paid in the past, and we're able to get that payment now.

Speaker 5

Understood. And then maybe just as a related follow-up around faster volume growth, obviously impressive even relative to last quarter. And just you mentioned some of it is related to, I guess, doctors understanding the various situations where they can order the test. Do you think overall, maybe across top transplant centers that there's a greater recognition or just more I guess maybe from early adopters it's shifting towards like maybe the middle or the majority in terms of transplant doctors adopting monoduric acid?

Speaker 7

Yes. Hi, this is Alex. I think it's listen, it's a factor of multiple, right? So one is these clinicians are getting more comfortable with ordering for cause. And that's clearly an area of value.

Speaker 7

They want to use these technologies to help their patients. But the bigger picture is we are early in this adoption cycle of these technologies. If you think about it, AlloSure for kidney was launched 6 years ago, right? Majority of patients have never had a molecular test to help monitor their transplant. And so when you think about both those trends coming in place, it's certainly a factor, but we have a long way to go on this adoption cycle and that's really what gets us excited about helping patients every day.

Speaker 5

Great. Thank you very much.

Operator

Thank you. This does conclude our question and answer session as well as our conference for today. You may now disconnect your lines and everyone have a great day.

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Key Takeaways

  • CareDx reported Q2 revenue of $92.3 million (up 31% YoY) on 43,700 tests (up 17%) and achieved adjusted EBITDA positivity for the first time, prompting FY2024 revenue guidance to be raised to $320 – $328 million.
  • The SHORE prospective heart transplant study showed that combining AlloSure Heart and AlloMap Heart improves acute rejection detection and reduces biopsy rates, while a Nature Medicine kidney study validated AlloSure Kidney and AlloView for early rejection detection and treatment monitoring.
  • CareDx expects a final Medicare local coverage determination in Q3 to sustain access to molecular rejection tests and has expanded commercial coverage for AlloMap and AlloSure in heart and kidney across about 27 million additional lives, contributing to ASP growth.
  • Patient and digital solutions revenue surpassed $10 million (up 19% YoY) with over 70% of U.S. transplant centers using at least one offering, and lab products revenue also topped $10 million (up 35% YoY) driven by global adoption of the AlloSeq TX NGS HLA typing kit.
  • For H2, CareDx projects testing services volume growth in the high teens, mid-20s revenue growth, a blended ASP of ~$1,300, gross margin of 67–68%, and full-year adjusted EBITDA of $9 – $15 million.
A.I. generated. May contain errors.
Earnings Conference Call
CareDx Q2 2024
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