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CareDx Sees Growth on Horizon Despite Year-Over-Year Testing Declines


NEW YORK – Despite a drop in overall testing revenue driving a year-over-year decline this quarter, CareDx sees itself as well positioned for future growth. The company has identified tailwinds coming from stabilizing test volumes and the completion of a large clinical study as well as from new drugs that may expand the living kidney donor pool and its continued recovery from the impact of a billing article decision.

The Brisbane, California-based company reported after the close of market Wednesday a year-over-year decrease in revenues of 15 percent for the third quarter of 2023, driven largely by a drop in AlloSure and AlloMap tests, its tests for gauging post-organ transplant injury and rejection, respectively.

Revenue from its testing service this quarter was $47.8 million, down about 26 percent from $64.8 million in the same quarter last year. Approximately 38,400 AlloSure and AlloMap patient results were provided this quarter, an 18 percent decrease as compared to the same quarter a year ago.

Overall, the firm finished the three months ending Sept. 30 with $67.2 million in total revenues, compared to $79.4 million for the same quarter in 2022, beating analysts' average estimate of $53.1 million. This excluded approximately $7.8 million related to Medicare claims billing held over from Q1 of this year and recognized in Q2 revenue.

In an after-market call with investors, Alex Johnson, president of patient and testing services, noted that some testing service areas did see year-over-year growth. Lab products and patient and digital solutions revenues, for instance, both grew approximately 33 percent compared to Q3 of last year. Furthermore, Johnson said that rising quarter-over-quarter testing revenues indicated that testing volumes were stabilizing.

Citing these factors and stated progress towards positive operating cash flow, Johnson said that the firm felt that its stock is currently undervalued. He also noted that the company will continue to "opportunistically" pursue stock repurchases moving forward.

"We continue to be well placed in the transplant market, which is growing and is expected to continue to grow," Johnson said.

The company noted other potential drivers of growth.

Johnson said the Kidney Allograft Outcomes AlloSure Registry (KOAR), which CareDx launched in 2018, completed the last of its clinical visits. KOAR data, the company says, is to support its quest for regulatory approval for its kidney transplant testing package KidneyCare from New York state and a reimbursement decision from MolDx and Medicare. KOAR is now moving to data analysis, and a publication is expected next year, according to Johnson.

Meanwhile, GLP-1 receptor agonists that are used to treat conditions such as diabetes and epilepsy have also shown promise as therapeutic options for patients with diabetic kidney disease. This, Johnson said, may influence kidney transplant volumes moving forward.

"GLP drugs have the potential to delay or may eliminate the need for dialysis in some patients," Johnson said. He further noted that the drugs have the potential to boost the number of dialysis patients eligible for a kidney transplant by improving their overall health or reducing BMI and to expand the pool of living donors by helping make this population healthier.

Despite these potential growth drivers, a headwind remains in the form of complications to expanding Medicare coverage.

CareDx and other companies in the organ transplant field have dealt with the effects of a MolDx decision this year to limit reimbursement for allograft testing. The decision caused widespread concern and confusion throughout the transplant community and led CareDx to withdraw its full-year financial guidance in the first quarter of this year.

"Had we not been impacted by the billing article, we would have been profitable in Q1 of this year," said company CFO Abhishek Jain.

Nonetheless, Jain said that CareDx has adapted to the changes brought on by that billing article and is making progress toward positive operating cash flow.

Despite the inertia to growth delivered by the billing article drama, CareDx has recently benefited from positive coverage decisions for its multimodal HeartCare service and its AlloSure Lung transplant rejection test.

Jain furthermore stated that the fallout from the billing article played a role in the firm's increased SG&A expenses this quarter, along with litigation stemming from several patent infringement and false advertising-related lawsuits. Overall, SG&A expenses this quarter rose to $52.4 million, up nearly 14 percent from approximately $46.1 million in the third quarter of 2022.

Counterbalancing somewhat the rise in SG&A spending, Jain noted that CareDx spent less this quarter in R&D, owing to workforce reduction, privatization of R&D investments, and cost savings related to discretionary spending. CareDx's Q3 R&D spending fell about 15 percent this quarter, to $19 million, down from $22.3 million in the same quarter last year.

CareDx's Q3 net loss was nearly $23.5 million, or $.43 per share, compared to approximately $16.9 million, or $.32 per share, for the same quarter last year. Analysts on average had predicted a LPS of $.39.

For the fourth quarter, Jain said that the company expects an approximately 5 percent decrease in testing services volume, due to seasonality and potential weather-related disruptions.

Nonetheless, the firm maintained an overall positive view toward future revenue, raising its full-year 2023 financial guidance to between $274 million and $278 million.

"We do not expect to need to raise cash for the foreseeable future," Jain commented.

Finally, Michael Goldberg, chair of the board and member of the Office of the CEO, said that the board remains confident that it will find a new CEO in the near future. Reginald Seeto stepped down as CEO at the beginning of this month.

"In my experience, it generally takes six to nine months to install a new CEO," Goldberg said.

CareDx ended the quarter with approximately $76.0 million in cash and cash equivalents, and $192.2 million in marketable securities.

In Thursday morning trading, CareDx's shares were up roughly 19 percent, at $7.57.