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CareDx Q3 Revenues Grow 42 Percent; Firm Discloses Investigations by DOJ, SEC

This article has been updated with a statement from CareDx addressing the disclosures in its 10-Q SEC filing.

NEW YORK – CareDx reported after the close of the market on Thursday that its third quarter revenues rose 42 percent year over year, thanks largely to a 46 percent increase in testing service revenues during the quarter.

In a filing with the US Securities and Exchange Commission, the company also disclosed that it is under investigation about its business practices by the US Department of Justice and the SEC.

For the three months ended Sept. 30, the South San Francisco, California-based molecular diagnostics company reported revenues of $75.6 million, up from $53.4 million during the same period a year earlier and beating the average Wall Street estimate of $74.1 million.

Testing services revenues rose to $66.5 million from $45.5 million in the prior-year quarter, while product revenues rose 20 percent to $6.5 million from $5.4 million. Digital and other revenues rose slightly to $2.6 million from $2.5 million in Q3 2020.

CareDx said testing volumes grew 86 percent year over year, with approximately 40,000 AlloSure blood-based, donor-derived, cell-free DNA tests for organ transplant rejection and AlloMap Heart transplant tests returned to patients in Q3.

On a conference call with analysts following the release of the earnings, CareDx CEO Reg Seeto said that more than 70 kidney transplant centers in the US have now adopted regular AlloSure testing, and more than 320 kidney centers and community practices were using AlloSure as of the end of the quarter.

The company also highlighted its launch of AlloSure Lung earlier this month, a donor-derived cell-free DNA test for noninvasive surveillance of lung transplant patients.

"I'm pleased with our strong performance in the third quarter, driven by 86 percent volume growth in testing services," Seeto said in a statement. "We made significant progress toward our goal of OrganCare multi-modality, while continuing our pan-organ leadership in being the first with dd-cfDNA in heart, kidney, and now lung. We remain 100 percent committed to patients, and to transforming the transplant patient journey through innovation."

Seeto said during the call that transplant volumes related to office visits in August were negatively affected by the COVID-19 pandemic's Delta variant surge, as well as Hurricane Ida, which hit the East Coast late that month. However, the company saw a return to more normalized run rates in September and into October.

CFO Ankur Dhingra also noted that the increase in the company's product revenues was driven by strong demand for its next-generation sequencing products, and that NGS now accounts for 55 percent of CareDx's product revenues.

In an SEC filing this week, CareDx said it recently received a civil investigative demand, or CID, from the Department of Justice asking it to produce documents for a False Claims Act investigation the department is conducting into CareDx's business practices for its kidney testing and phlebotomy services. In addition, it received a subpoena from the SEC for an investigation about related matters as well as its accounting and public reporting practices, and it obtained an information request from a state regulatory agency.

"We do not believe that the CID, the SEC subpoena, or the state regulatory agency information request raise any issues regarding the safety or efficacy of any of our products or services and are cooperating fully with the investigations," CareDx said in the filing.

In an email, a company spokesperson said CareDx takes its compliance obligations "very seriously," adding that the company is "fully cooperating with information requests the company recently received. We are proud of the role CareDx plays in advancing innovation in transplantation and improving patient outcomes."

The firm's Q3 net loss widened to $11.9 million, or $.23 per share, from $2.8 million, or $.06 per share, in Q3 2020. On an adjusted basis, the company reported earnings of $.07 per share for the quarter, beating analysts' consensus expectation for earnings per share of $.01.

CareDx's Q3 R&D costs rose 55 percent to $19.4 million from $12.5 million in the year-ago quarter, and its SG&A expenses rose 49 percent to $40.1 million from $27.0 million.

The company ended the quarter with $353.1 million in cash and cash equivalents and $10.2 million in marketable securities.

For full-year 2021, CareDx raised its revenue guidance to a range of $290 million to $293 million from a previous expectation of $280 million to $290 million. Analysts, on average, are expecting revenues of $290.4 million for the year.

The company's shares fell nearly 22 percent to $54.88 in Friday morning trading on the Nasdaq.

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