Q3 2021 CareDx Inc Earnings Call
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Greetings and welcome to the <unk> incorporated third quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
Once you require operator assistance during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce Anne Cooney Vice President of Investor Relations. Thank you you may begin.
Yeah.
Thank you good afternoon, and thank you for joining us today earlier today <unk> released financial results for the quarter ended September 30th 2021. The release is currently available on the company's website at Www Dot care Dx dotcom.
<unk>, President and Chief Executive Officer, and anchor Dean Gras, 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 federal security laws.
You 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 future financial expectations and results.
<unk> 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 occur.
Accordingly, you should not place undue reliance on these statements 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 October 28, 2020 Watt care Dx 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.
<unk> 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 directly comparable GAAP financial measure maybe found in today's earnings release filed with the SEC.
I will now turn the call over to rich.
Thanks, Dan and good afternoon, everyone and thank you for joining us <unk> third quarter 2021 earnings conference call.
During today's call I'd like to say something up.
The extended leadership in transplant.
Specific topics to cover today include delivering another record revenue quarter.
Connecting the patient journey.
Regressing multi modality across our solid urban portfolio.
Launching Alice Shaw alone.
<unk> with long term data generation and developing new areas of partnership.
During Q3, we delivered record revenues at $75 6 million with growth of 42% over the prior year quarter.
Notably our Q3 testing services volumes grew 86% as compared to the year ago quarter.
This result was achieved despite facing multiple headwinds.
Ladies and gentlemen, thank you for your patience please standby.
We get the speakers back on the line.
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Ladies and gentlemen, and thank you for your patience I do have the speaker line connected packet.
Hello, everyone apologies for the telecommunication issues here. So we will start right, where rich had to start off.
Great. Thanks, Gary.
During Q3, we delivered record revenues of $75 6 billion with growth of 42% over the prior year.
Notably at G. III testing services volume grew 86% as compared to year ago quarter.
This result was achieved despite facing multiple headwinds in the form of Delta search and hurricane.
Transplant volumes in all of the visits in August were particularly impacted but we have seen a return to more normalized run rate in September and into October.
The primary driver of revenue growth from our testing services.
Which increased 46% to $66 5 million.
<unk> provided approximately 40000, Alice Shaw and Allomap patient results growing 86% from the prior year quarter.
In addition, <unk>.
Revenue from our products business increased 21% to $6 5 million and digital and other revenues contributed $3 6 million to the topline.
GAAP net loss for the third quarter was $11 9 million and adjusted EBITDA was positive $4 7 million.
The kidney testing.
We continue without winning from their protocol adoption and adding you said.
As of the end of September more than 70, kidney transplant states have now adopted regulate <unk> testing and more than 320 kidney centers and community practices, using our Shaw and mobile money as the standard volume maintained approximately at 40%.
The hot testing the hotter attachment rate with 96 eight.
How long the value driving clinical utility to a multimodal innovation.
This was achieved in less than 12 months and underscores the importance of robust clinical data and driving adoption.
Generating data through multicenter prospective study continues to be an integral part of how we develop data that can be relied upon by physicians in a real world setting.
Example.
The foundational hot kit, Saudi deal published an 8-K T.
740 patients across 27 centers.
Seeking to enter the space and not invest in this magnitude of data generation and are focused on retrospective samples and one to two set of studies as non GSE entry point.
What we've seen with <unk> is a strong position to preach safety data sets generated prospectively and across many centers.
As of the end of September grading 130 heart citizen practices using our offerings.
We are executing on our 2020 on theme of also Nicking the patient on the transplant patient journey.
Combining outpatient care managers with our digital offerings, such as Alex here.
<unk> is helping create engagement and improve it.
Specifically, we continue to see robust uptake, although Alex your app.
Which is now about.
Apple and Android stores.
In addition, T X axis previously Kotex connect added 9000 dialysis patient referrals to centers and we now manage more than 38000 patient referrals from over a 1000 dialysis practices.
Now on to multimodal innovation driven.
Driven by the success of podcasts, we continued progress multimodal approach throughout our portfolio. We've invested over the last 48 months go to portfolio of assets and are positioned to deliver incremental utility.
Beyond <unk>, our organ care portfolio include kidney care.
And with the kit.
The kidney care, we're rapidly progressing development as highlighted by the recent peer reviewed publications showcasing the clinical validation of Allomap kidney in the journal kidney.
This 14th Sensus study validate the ability of allomap to differentiate between rejection.
Being quiet.
Notably it also showed that all of that is complementary to our Shaw delivering a combined area of the curve and AUC.
Alright.
These biomarkers offer a comprehensive assessment of kidney health compared to the content.
Looking forward, we expect completion of enrollment in the Okra study before the year end and plan CLIA lab validation.
Prolific here.
We are now supporting the second largest cohort of patients.
We continue to enroll patients in maple.
The molecular assessment and profiling of liver transplant recipients the first study.
Five modality, including donor derived cell free day with our Shaw.
Tissue and gene expression with Kitimat, nelnet, respectively infection with Aloidae and artificial intelligence.
<unk> will begin rolling all of this year and we.
Look forward to updating investors now progress in 2022.
The lung cure the upcoming element study.
He is a long to a multicenter prospective study of both modality in lung transplant patients.
Thinking about <unk>, we are proud to be addressing the significant unmet need and want to go to transplant patients.
Supporting lung transplant patients is absolutely critical as organ graft survival rates are the lowest among the transplantation with wanting to lung transplant patients failing within five years.
It was an exciting step forward for <unk> as a company on October <unk>, when we announced the commercial launch of <unk>.
Our next step into being a pan organ transplant services company.
Regarding reimbursement team is working very hard and we're working with payers to take coverage for our children. We are pleased that Alex alone is already covered by multiple private payors and address the key unmet need for these lung transplant patients.
During the third quarter, we continue to demonstrate our global leadership in transplantation, three peer reviewed publication and by participating in showcasing our latest clinical data.
Alice Shaw kidneys, Ernie to underwrites, hoping a platform that has demonstrated long term data.
These benefits were recently highlighted with a better one year outcomes study.
Study shared earlier this year at ATC.
The Admiral study FX also presented throughout the year have highlighted ability to predict the another DSA and Egfr decline.
Without coming publications, we excited to provide further scientific evidence, particularly differentiating Alice Shaw.
From the data about the <unk> okay.
For products.
We presented two leading transplant conferences, where we had a combined 40 abstracts highlighting more innovation.
At the 47th annual meeting at the American Society of the feedstock availability.
That is actually.
We presented our latest data on <unk> and <unk>.
And at the annual European Society organ transplantation also known as <unk>.
We announced the launch of our <unk> clinical and research services.
We are excited to expand our offerings and support continued innovation and great Europe, especially at launch about hate to late tightened service, which we announced in quarter two of this year.
We continue engage with innovative leaders across our business lines as we explore partnerships.
Most recently, we announced the exciting biopharma collaboration with <unk> Pharmaceuticals, where they will use our short to help assist the efficacy of their lead asset <unk> in the prevention of rejection in the upcoming clinical studies, we are thrilled, creating new market opportunity for <unk>, where we will support the next generation of transplant therapeutics.
According innovation I'd.
I would like to invite you to our transplant innovation data and kidney week.
On November 5th.
Presentations will include da Gros CEO of elegant duck, the bulb Montgomery, who complete the first peak.
Kidney transplant into humans.
Towards the end of the island on Allomap kidney validation and Dr. <unk> on <unk> largest independent validation of molecule.
Before turning the call Scott the financials I'd like to welcome <unk> to our board.
It has a long history of advocating for underserved populations.
Korea and more recently as a board that is the multiple types of organizations. We are really excited to add someone of that.
<unk> experienced some breath with respect to our board as we work towards building the pizza de Dx.
I will now turn the call over to <unk>, who will review our third quarter financials.
Thank you rich.
We are very pleased with the business performance and our financial results for the third quarter of fiscal year 2021.
Let me provide you more details.
Close to the income statement.
Total revenue for the third quarter of 2021.
At least 42% year over year to 70 to $75 6 million.
We see continued strong adoption for our testing services and products.
Testing services revenues grew 46% year over year to $66 5 million for the quarter.
Driven by strong volume growth of eight 6% with both heart and kidney contributing meaningfully to the strong growth.
As rich mentioned and especially in August.
Saw a reduction in both transplant volumes and testing volumes due to the impact of Hurricanes and the surge in Covid desktop radiant.
These impacts transitory.
<unk> volumes that he covered in September.
We also continue to see a higher growth in non Medicare business.
Overall, our business model of market penetration through addition of centers and patients continues to drive strong performance of our testing services business.
Product revenue increased 21% year over year to $6 $5 million.
Driven by strong demand for our <unk> products across all three regions.
And yet now accounts for 55% of product revenue.
Digital business revenues were $2 6 million growing 6% year over year.
Moving to gross margins.
For the third quarter of 2021.
GAAP gross margin was 67% compared to GAAP gross margin of 68% in the same period of 2020.
Non-GAAP gross margin for the period.
But 70% compared to 70% in the prior year's third quarter.
Continue to see strong volume growth in our testing services offerings and are investing to scale our capacity for the higher volumes across all organs.
Non-GAAP operating expenses for the quarter.
$49 million up $3 million sequentially from last quarter.
Our focus on increased investments is on expanding our R&D pipeline up new services for Transplantations clinical trials to provide data on clinical outcomes.
Continuing to build our commercial capabilities and scale out infrastructure commensurate with the size of our business.
For the third quarter.
GAAP net loss was $11 9 million compared to a net loss of $2 8 million in the same period of 2020 net loss per share was 23 for the quarter compared to a net loss per share of <unk> <unk> in the third quarter of 2020.
Non-GAAP net income for the quarter was $4 billion.
Compared to a non-GAAP net income of $5 $1 million in the same period of 2020.
Basic and diluted non-GAAP earnings per share in the third quarter of 2021 was eight seven.
<unk> seven respectively.
Compared to a basic and diluted non-GAAP earnings per share of 10% in the same period of 2020.
As mentioned, we continue to invest across R&D clinical commercial and infrastructure as we scale our business what upcoming larger pipeline as well as higher volumes of test.
As a reminder, we define adjusted EBITDA as non-GAAP net income before interest income tax depreciation amortization and other expense for the third quarter of 2021, we recorded positive adjusted EBITDA of $4 7 million or 6% of revenue compared to adjusted EBITDA of $5 $6 million.
2020.
Cash cash equivalents and marketable securities.
At the end of the quarter of $363 million operating cash flows were neutral neutral for the quarter.
That strength strong balance sheet position cash deployment focus remains on adding portfolio of products and services across the transplant patient journey.
Investing into this future is critical as we execute against our multiyear growth plan.
Turning to guidance.
We are raising our 2021 revenue expectations to reflect our third quarter results and continued strong demand for our testing services as of today, we anticipate.
Our revenue in the range of $290 million to $293 million for the year.
The guidance assumes the impact of sequentially.
Seasonally less working days in Q4, and predict continued market penetration of our products and services.
We are building a pan organ transplant services business that connects the entire transplant patient journey.
Our services and offerings are very well received by can't give us added patients.
As the transplant partner of choice, we have a tremendous opportunity in front of us to provide innovative clinical and digital offerings across the patient consequent journey, we remain focused on realizing that opportunity with that I'll open the call for questions.
Thank you we will now be conducting a question and answer session I would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
A moment, please while we poll for your questions.
Our first question is coming from the line of Matt <unk> with Goldman Sachs. Please proceed with your question.
Hi, good afternoon rich cranium.
During the quarter.
Maybe just for my view that hey.
Just for the first question just on the guide.
I think if I look at the high end of the 293 implies sort of sequentially flat in Q4, I think you mentioned I might have missed some of your comments about.
Some seasonality there, but just wondering.
Is this continuing uncertainty because typically Q4 has been we've seen a sequential increase from prior years and just what your thoughts are in Q4.
Yes, So let me lay out the the range and the entire guidance so.
At the at the midpoint of the guidance about.
About $75 million roughly flat to what our Q3 results, where the where we're looking at Q4.
Is that there are two main impacts one seasonally.
Certainly a lower number of work days in Q4.
Potentially impacting some of the testing volumes, but that we expect all of that could be offset by our core business model of continuing to add centers as well as transplant patients into our business at the midpoint.
Projecting that that would be an offset.
Historically, especially if you lost years wasn't it was an odd year.
Because of Covid, but prior to that we've typically seen that kind of a seasonality.
So that's that's one.
The high end of the guidance.
High end of the guidance presumes that our business model will more than outstrip any impact from the.
From the lower number of working days in Q4.
While the low end is the reversal of it.
Got it that's very helpful. Thank you.
And then just on the renal track.
You mentioned that 40% utilization range, which I think where you were last quarter.
Given the Delta variant.
Did you just see more people getting used to sort of the current environment and going back in or are how.
How did you sense the remote tracked uptake in this quarter with.
With delta impacting that.
Yes, it's pretty much equities.
So what is the steady state it would be around the.
40% range I think we said that over the last four quarters. So what we see as a mix in the actual geographical locations, where this takes place so as with the rest of the United States, we see variation to wear.
There's more patients actually going back into centers, where there's more concern.
The adult variant so thats sort of played out in the.
Overall mix I think the impact of the dollar vary but also some of the other natural disasters. We saw during the course of this Q3 also.
Led to a change in some of the actual days where they were.
Patients going into some locations. So we know the southeast, particularly impacted during the period, but the overall rima attracted planes that we see as a core offering continues to do well, but the mix imbalance, where it takes place geographically where.
We're looking about 40% for the last four quarters.
Got it and just one more from me just on the multi modality that you've been pushing in the data that you've shown with the <unk> hundred 60.
Article in peer reviewed study in and everything that you've been showing I'm just curious as you speak to the transplant centers in the various decision makers and the ecosystem. How is that resonating I would think with all this data that youre, putting out that is only increasing in value and that value proposition from multi modality going forward.
Yes, I mean, the future outfielders multimode modality, and we've driven that sort of innovation I think what youre seeing with hot cure incredible.
90% attachment rate in less than 10 months, you don't see that in any other sector industry and I think it's being driven by the fact that we feel really good data generation, it's easy to try to come in this space, but it's hard to actually bring meaningful value to physicians and practices and that's why this multimodal has resonated so well I mean, it's resonated well in market research, but more important it's resonated in.
Real World experience, what we sold for example, as something tangible with the okra enrollment as we we've always said that we would finish enrollment before the end of this year because the excitement behind this multimodal modelo has been very clear because.
Expenses had competing enrollment sites they wanted to.
Two <unk> because it was just driving new innovation. Some of these other studies Hussein being brought by the competitive sort of me too offering okra multi modality really has sort of both the excitement is.
We've sort of mentioned in script, we now see this sense of excitement and liver and also loan.
Got it thanks very much.
Youre welcome.
Yeah.
Thank you. Our next question comes from the line of Alex Nowak with Craig Hallum. Please proceed with your questions.
Good afternoon, everyone.
To start on the comment on the lower ASP.
Good afternoon can you comment on the lower asps in the quarter.
The testing revenue or volume or price per ton. It looks like it came down versus Q2 and the difference was pretty pronounced this quarter. So I'm. Just curious are you seeing any changes in Medicare billing practices or what else would really influence that cash price lower.
Yes sure so.
Aspects of that but one good observation good question there.
So a couple of observations there one the our overall mix of business.
We see higher adoption, we're seeing much higher mix of growth.
In the non Medicare part of the business.
So that's by far the largest impact a lot of that is driven by youre seeing higher attach rates and Alex short sight.
There are mix of coverage.
Is much lower than than the traditional business.
So that's one of the big contributors to your specific question any change in medical in the billing practices no no.
Don't change we haven't observed anything.
On the Medicare billing practices, primarily the business mix.
Where the volume growth is exceptionally strong, but the mix continues to evolve away from the core Medicaid business.
Yes, Alex with Alright.
Yes, I think one other way to position. This whole thing about is that we've seen really strong.
Margins with both kidney Allomap heart and Thats.
Built off.
What we've had previously communicated with great commercial coverage both of the hot side and on the kidney side. So what we're doing now is we've launched a new areas quickly Alice Shaw Hot Nashville, along this provides to its going to be different payer mix as we see as a result of that but at the same time, it's important for us to drive leadership in this area and that's why you're seeing this excellent volume growth.
But at the same time, there's a bit of a change the payer mix, which.
Shannon alluded to as well, yes, it's actually an opportunity for us we've talked about commercial pay as a as a multiyear opportunity that we have plans and focus it on that continuous to remain an attractive opportunity for us.
Okay. That's helpful. I appreciate it and then what's the latest with Medicare reimbursement on the Alice sure a long it seems like multi axis certainly seeing some backlog there and then how are you thinking about the revenue opportunity next year from lung.
Yes, so we remain in touch with with <unk> on this and continue to work with them.
Both in terms of the pace as well as the information that they're looking for.
It'll evolve.
We will give you an update when we have an update.
In terms of 'twenty, two will speak about the specific guidance.
New cadence, but youre, certainly anticipating revenue from lung in arc.
In our 2022.
Yes.
Yeah.
Yeah go ahead rich.
No I think the only thing.
<unk> comments as we look at.
The mix, particularly in some of the lung and also in heart liver, where there's greater commercial coverage. There is more of a focus for us as well to build out that commercial pay your strategy as well. So I just wanted to reinforce that and that also reflects in the payer mix discussion. So clearly the goal is to have leadership in all these different open spaces that we've just described.
Has different timing. So that's why it's important to have different strategies, because we got a long list, but turning back to you sorry, Alex.
No I was just going to say on the on the 2022. The company has been putting up some really strong performance has got.
A number of pipeline projects coming so I'm just curious as you're starting to think about the guidance going into 2002, and again I'm not looking for specifics, but how are you thinking about putting some of the puts and takes in there or are you focused on just given the core business growth is going to be adding in long in anything additional on multi modality in and just trying to.
Frame up what 2022 could look like for the street.
Yes, let me, let me frame that for you and I think you're touching well aware of this tony's youre touching on some of the key points there.
<unk>.
We've had tremendous success in Alice Shaw kidney Allomap heart and wholesaler show hard this year.
And getting close to getting reimbursed by <unk>.
As we think about 2022, the two distinct parts of that.
That is totally the core business, which is in the heart care and CT kidney.
We expect our business model to continue to drive adoption both across centers as well as in case of kidney the nephrology setting so that core business. We believe can continue to drive meaningful double digit growth on top of that a couple of additional analysts would be the catalyst would be in lung.
Lung, becoming an additional contributor.
And then at some point kidney, becoming an additional contributor now.
Consistent with our typical cadence has been.
Is that we typically provide estimates on our on our product and revenue when we get closer to the actual approval and validation et cetera.
Our kidney care that would be sometime in Q2. So certainly it's certainly a capital catalyst, they're coming in pretty soon but what I would say alright appointed and Alex Youre spot on with inflection points and catalysts, we saw that with.
The hot care approval, our Shaw Hot in Q4, 'twenty and how Thats driven meaningful revenue contribution in the course of 2021 I think as you look out in the outer years in 2022 cost. That's why we've had this focus on the organ care type of approach, where I think as long as you bring clinical utility I think that that's the one point of distinction I would make you have to bring clinical value.
And so often easy to try to come in this space, but the question is can you make something thats meaningful position in terms of clinical utility.
Good thing is we've looked at the entire landscape and we have sort of steady.
Steady and shaping how we want to evolve that story and narrative in both hot and Nellix, Sydney and London limit. So we have a very specific approach of continuing that clinical utility story is so important to do that.
Because and that's why you can keep on shaping what the reference standards.
So what should be meaningful innovation that we've had the benefit of conducting multiple inputs advisory board.
Lots of research over the last couple of years, we sort of have a good correct.
Multimodal approach and the one thing I would add to that is relative to view this as a multiyear.
Jenny right not just 2022.
Core business, given where current market penetration are.
There's certainly a lot of runway.
Runway in front of us for next several years not just training.
No. Thanks for framing up really appreciate it thank you.
Okay.
Thank you our next questions come from the line of Mark Massaro with BTG. Please proceed with your question.
Hey, guys congrats on a good quarter. Thanks for taking my question.
Thanks Mark.
Hey.
Looking back over the years.
Does have typically beaten.
Or I should say going from Q3 to Q4, you've typically come in about $2 million up sequentially from Q3 to Q4, obviously last year was different I have to imagine you did better last year I imagine a lot of that might have been related to some pent up demand and maybe the rollout of remote track in Q4.
Sure.
Right.
I could use a little more clarity as to.
Why the guidance came in probably a little bit lighter than I would've expected with this beat here in Q3.
Yes, I haven't calculated the number of.
Business stays in Q4, but if you could maybe clarify what that is relative to the prior year and then you talked about volumes recovering in September as well as October.
In your guidance are you expecting any.
Increase in Covid pressures in November and December or what other factors should we think about.
When we're updating our models here for Q4.
Yes, sure let me.
Add some color there relative to the previous comments I made.
First nothing's changing in the business model itself, our core business model are driving market penetration through additional patient additional centers, that's progressing quite well.
And specific to your question, Don Don Youre additional Colgate newer headwinds relative to Q3 have been built into the model now.
As a background we have now raised guidance three times this year each quarter, we have had a beat and replace the biggest guidance as you get towards the end of the year, both the range meadows and the business begins to get built into the into the Bankrate Andy expectations I'm remaining cognizant of the fact that we've raised our guidance.
Through the year by over $30 million now somebody is part of it.
And then that last $1 million is probably within the range.
Not trying to be too precise myself, there too to get into very specific but nothing at this changing in the business.
Model.
Yes that makes sense I guess building off of Alex's question.
You guys did.
Your revenue per test.
Certainly declined.
It looks like yet.
Let's talk about 5% sequentially.
As we think about that going forward.
<unk>.
Where do you think that levels out I mean, I would imagine that this may continue to decline sequentially for a little while as youre trying to get commercial payers onboard, but when we're thinking about our model for next year.
I had I had a 1% decline for next year on pricing revenue per test.
Do you think it will look closer to the Q3.
Sequential decrease or do you think it's flatter than that.
Yes, I'll, probably give you a very clear color on when we get to deactivate cadence of guidance I can tell you for the purpose of my Q4 guidance.
Bedding, our business mix, which is similar to Q3 right.
Bright house Im kind of cutting back forward into Q4, I'd like to step back.
Our expectation is.
Large new York tasks like other short heart has an impact and then our shuttle lung.
Is that a smaller volume than the other bucket.
We will have an impact because we will start with a much lower coverage on that too. So every time with launching new test. It will have a period until we caught up on the commercial copay.
You can go back to our core banking case that Sally should kidney in case of Allomap heart weight over a period of time, we've been adding coverage and have driven margins above 75% already.
New York.
Take a few years to get there.
But for the purpose of Q4 guidance I'm assuming.
Similar mix as Q3 right now.
Okay, and if I can sneak one last one in.
You guys have talked about being active on the M&A side.
Obviously.
You could double down in diagnostics, you could expand in and products and digital health and services.
But you could also potentially explore.
If therapeutics or even devices.
I guess, if you could help us think about what areas you are looking in and.
Just your appetite for doing smaller things or maybe some bigger things.
Yes, Thanks a lot.
Anything thats on the transplant patient continuum.
So I think the pre peri posting in some cases, we entry.
Todd patient journeys youre seeing at the start of this year.
<unk> made a full rate for example into more the.
Digital connection space with TX.
Access previous called TX.
Now connecting.
Close to 10% of all dialysis patients in United States.
And we didn't have that.
Offering.
At the start of the year. So as you think of the appetite at one has it been transplanted along the patient journey and I. Just gave an example of the digital type of connection I think if you go into the partnership we described at Amazon, That's one where we feel that's a natural way of extension how do we get involved in thinking of new therapeutics from the spaces with leveraging archive.
That holds as well you've also seen.
What we think is not just solid organs that stem cell.
Cell therapy is that the transplant continuum.
You look at M&A overall, if you look at partnering and licensing or if you look at sort of.
Creative types of collaboration it's anywhere along that.
Preparing post continue and it would involve.
The therapeutic so whether it's.
Med tech or whether it's digital or whether it's.
Other diagnostics, but essentially all alcohol as particularly as patients right I mean, I think our mission.
Mission is so simple right how do we improve outcomes with innovative solutions and then how do we become the Liza transplant ecosystem. So these are our core priorities. So I think anything along those lines instead of fair game.
Excellent. Thank you very much.
Thanks again for the question.
Thank you our next questions come from the line of Andrew Cooper with Raymond James. Please proceed with your questions.
Hey, everybody thanks for the questions.
Maybe first just on.
On lung.
When we think about maybe this process, taking a little bit longer than some of us had thought or.
Some other processes, we've seen under kind of a universal LCD is there anything in particular that that.
<unk> asking for or is this just hey, there kind of backed up as we've had a lot of things coming through the system and then is there any impact to any of that in terms of how we should think about.
Long and I'm, sorry, liver and kind of additional Oregon is coming through.
Kind of on a go forward basis, and what the timelines might be from.
The tech assessment side of things.
Yes, I would.
As we've said this is the first time now we're going through the new LCD process.
At <unk> at.
At this point I wouldn't predict any of that to the upcoming products.
That we would take you take through through mold ex weather.
Upcoming kicking kit or otherwise.
We are in touch with them right now and it's generally understood as to where they are at.
Providing any information that they're looking for.
Having said that I thought the repeating that at this point nothing that would impact any of our future submissions go through this process.
When we find the next one.
Probably set the expectations at that time.
Yeah, and the only caveat I'd give is that when we submitted all the.
Materials.
I was under the old system. So I think then that all the future submission at the end of the system. So I think that.
We'd have clarity on the guidelines expectations.
Great. Okay. That's helpful. I just wanted to make sure and then maybe one last one sort of on pricing and mix, but when we think about the adoption of our <unk> heart, we've always sort of talked about 25%, 30% of that market being Medicare the remainder largely commercial are you seeing more ordering.
On the commercial side of things and maybe that's part of what's playing into things.
And to that 25% to 30% or is there anything maybe on the accounting side of the cash accounting versus crude oil just anything else to consider in that ASC dynamics.
So.
The auditing side as always some of the center right.
When the actual order that the patient is submitting an art author Dr. Submitting in order it doesn't matter to them what the whether it is in Medicaid or other than challenge right. So we can specifically point to a front end system driving the change and that makes it the kind of test and the volume that we see happening could be more on patient.
That have dividend coverage.
And then Medicare.
Our revenue recognition process does take into account the collectability of the contracts and all of that.
<unk> assumed a higher risk.
And it's taking a slightly lower revenue on non Medicare business. So there are their computation there based on our.
Assessment of the collectibility etcetera, so once the once the commercial mix goes higher.
It does lead to lower revenue per test.
Okay, one of the telephone and then.
And because of that.
Sure.
And the attachment rate has gone up quite well in a very short period, which we sort of highlighted I think that is a true testament of clinical utility. So I do think.
The team is actively working on that commercial coverage, but if we go back to where we were.
In Q3 last year before our show.
Where we are today as being significant.
Yes, we haven't changed that mix just given the success, we've had and I think it's sort of in some ways. The success you've had in driving that attachment rate to 90% in less than 10 10 months.
Incredible in many ways right now.
We have dedicated teams that we are adding more capabilities and continuing to focus in our discussions with commercial payers to get the contracts.
Continue to publish additional clinical utility data to be able to drive those negotiations around that is that is the opportunity for us.
Okay very helpful. It's always I just want to make sure. It gets traction and some things that are early and not anything else going on.
And then just last one from me just when it comes to some of the areas you felt headwinds from Delta and Hurricanes was there any products that were impacted more than others. Do you have any sense for that or pretty evenly throughout the U S and largely on the testing services side pretty pretty evenly just want to make sure if there's any dynamics there.
Yes, it was definitely on the testing side and I think where we saw.
Well testing services.
Both heart and kidney impacted from particularly the month of August.
As comparison.
The second quarter, we didn't see any.
They are impacted by what we call natural disasters.
In Q3 and also in Q1, we've seen some as well but.
Probably Q3 was particularly synchrony multiples.
Great I'll stop there I appreciate the questions.
Thanks.
Okay.
Thank you. Our next question is coming from the line of Matt <unk> with Jefferies. Please proceed with your questions.
Hey, guys. Thanks, Hey, Thanks for taking my question just to stick with that theme. There is there any way you guys can help us quantify the impact of both delta and whether to revenues in <unk> and then just to confirm did you pick up or catch up any of this at any point in September or are you expecting to pick up or catch up that here in <unk>.
Well, it's hard to quantify that specifically it was kind.
Kind of regionally progressed, we did see a trend shift.
But harder to specifics.
In terms of.
It's a complex test so arguing tend to lead the business get pushed out so far if a patient has to go through a test in August.
And ended up going in September then the whole sequence of it gets pushed out like it doesn't create a bump.
I'm thinking like that.
Yeah.
Okay. That's helpful. And then can you just clarify what heart care testing volume was in <unk> I think you'd given that number in <unk> and sorry, if I missed it for <unk>. Thanks.
Yes, we provide I think the we started providing that data when when we launch the test originally in their thinking was to give it for a few quarters until our country. It is understood.
Again for competitive reasons, we wouldn't be.
We won't be discussing that specifically speaking about at that level of detail.
Makes sense. Thank you.
Thanks.
Thank you. Our next question comes from the line of <unk> Chen with H C. Wainwright. Please proceed with your question.
Thank you for taking my questions. My first question is which the competitors cell free DNA lung test launched we simply.
Do you plan to better position <unk> in the marketplace and can we expect to see some head to head comparison data in the future.
Yes.
Sure.
We're excited because we've had that in the marketplace.
Starting in 2019 and already were particularly in 2020, we sold a significant unmet need.
<unk> Dream code with centers actually reached out swaps to create the reference standard and in addition to that working with.
What's called the <unk> consortium, how do we now define the different protocols as part of that sort of adoption. So I think as the leader in this space.
<unk> reached out to and we're off to help create this sort of.
Reference standard and it was really exciting and privilege to be part of that sort of equation.
As he mentioned a lot of alcohol as a lead into transplant.
And Thats really important crops and as we look now moving forward to.
Different studies.
Historically studies haven't been done.
Or is that.
We do get real clinical scientific data and we'd be looking at ways of reward Devin I think its drive to what we've seen others do is what we call. This retrospective single Center studies.
Again, thats not playing we advocate that bulk claims that we do because we know from experience.
Nine nine out of 100 doctors want to get a multicenter prospective study very very few people want it.
And a single center approach or actually the book get retrospective samples. So I think what we've seen from others is a retrospective analysis again, so from a single center I believe.
Okay.
The next question is what percentage of the testing volume is based on new transplant patients.
Yes, I think what we have.
Yes, we have not shared that but what we have.
Look at New thought Tony then you start to we get so I think we've always said that well continue heart transplant patient Saturday.
<unk> talking in one in three patients in the.
Kidney sites allocating software.
Okay last question do you have any information how many transplant procedures have to be rescheduled or canceled among transplant centers that are clients of <unk> due to the centers Covid vesting mandate for the recipe and the donor.
Yes, I'm not sure we can specifically.
Two the volumes tied to class transplant recipient donor, but in aggregate. We can tell you that if you look at the overall transplant volume. This year first half was very strong on a year over year growth perspective, and then Q3 was sequentially down about 5% from Q2, just to go with our costs by volumes.
Yeah.
Alright, thank you.
Thanks.
Thank you there are no further questions at this time I would like to turn the call back over to rich sito for any closing remarks.
Yes, Thanks again for all the folks with fine I mean, I think without a doubt. This is really a strong quarter and one where I think we're really pleased to be able to talk about what we do for transplant patients and.
As we look forward to a strong again another strong to the end of the year. One thing I would say, it's hope everyone has a happy Halloween My kids, often remind me that that's.
That's one thing I should say because it's another milestone in life.
Make sure you have kids, you got with them and have a great Halloween. Thanks again.
Yes.
Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time.
Great Jay.