Q4 2021 CareDx Inc Earnings Call
Operator, welcome to the Coeur D X, Inc. Fourth quarter 2021 earnings conference call.
As a reminder, all participants are in a listen only mode and the conference is being recorded.
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I would now like to turn the conference over to Ian Cooney Vice President of Investor Relations. Please go ahead.
Good afternoon, and thank you for joining us today earlier today <unk> released financial results for the quarter and year ended December 31st 2020, what the release is currently available on the company's website at Www Dot Coeur D X dot com.
Red Sito, President and CEO and anchored in Ankara CFO 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 Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities litigation.
And 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 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 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 February 24, 2022 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 or other.
While this call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles.
A reconciliation to the most directly comparable GAAP financial measures may be found in today's earnings release filed with the SEC I will now turn the call over to rich.
Thanks Ian.
Good afternoon, everyone and thank you for joining us for <unk> fourth quarter and full year 2020 One earnings conference call before I start I want to thank the transplant community for all the efforts during COVID-19 over the last two years.
Been a tough two years trading in looking out to this vulnerable patient group, but your tireless efforts have made a difference for transplant patients.
We are proud to have also played a role with the transplant community consistent with our vision of being the leader in the transplant ecosystem and delivering on our mission of providing innovative solutions that make a difference in patient outcomes during the transplant patient journey.
At <unk>, we do not just measure success and revenues, but Q4 was another record quarter, where we delivered revenues of $79 2 million, representing a growth of 35% over the prior year quarter.
For the full year 2021 reported revenues of $296 4 million, representing a growth of 54%, notably our record fourth quarter testing services volume of 41900 tests represented a 67% year over year growth and led to our full year volume growth of 94% versus 20.
20.
This result was achieved despite Q4 being the second straight quarter of sequential decline in transplant volumes as Q4 saw the initial impact of the omicron said with kidney transplants down, 4% and hot down 2% sequentially versus Q3.
Over the longer term. However, we believe the number of organ transplants could increase in your fleet for example in kidney this could double through living donors improvements in transportation logistics increased use of high high risk organs.
New government initiatives Encino transplant.
On the topic of Zeno transplantation. This is an exciting suite and we've recently built out as he know Transplantee. This team is proud to be working with the University of Maryland team completed the first successful humans INO transparent with a pay cut.
We achieved Q4 year over year revenue growth of 36% and 29% in the testing services and products business, respectively, and we delivered revenues of $68, six and $7.7 million, respectively, and digital and other revenues contributed $2 9 million to the topline.
Adjusted EBITDA for the fourth quarter and full year were negative one point for me and and positive $17 8 million respectively.
Our profitability in Q4 was impacted by an increase in legal spend.
During Q4, we continued on our strategic plan focused on three goals.
First further deepening the competitive moat around transplant centers to resetting and raising the innovation bar to stay years ahead of our competitors and tree digitally connecting the patients which was the 2021 thing.
On gold one with a competitive moat, we further deepened our presence around transplant centers reflected by the commercial access across kidney heart and lung.
In kidney we saw continued strength of adoption of Alice Shaw with now 75 hour show kidney protocols in commercial use.
Bill do you bring a new standards improve outcomes and to have Alice Shaw is the status now and wanting three centers is a real testament to the innovation we have brought.
Our shows the only done derives Sofia test with publications covering using but full caused and surveillance settings with prospective long term outcome data. This is bin.
But our recent animal publication, the largest conducted multicenter real world study with over 1000 patient.
I will share more about this exciting results from Admiral in a moment.
Further extending our leading kidney was the completion of okra enrolment.
With 1500 patients generating real world Multimodal evidence, we're excited to show how kidney care can further support improvements in clinical utility now.
Now at the heart.
In Hot we saw the incredible response to hotkey, the first and only multimodal diagnostic test approved by moldings.
Greater than 90% attachment rate reflects the value of improved clinical utility at <unk>. We're proud of our scientific standards. For example, with Allomap. It's been extensively published in leading journals, including the New England Journal Medicine has been FDA cleared incorporating the international guidelines.
And as more than 80% pay coverage.
Contrast that with a competitor's recent slate of press releases with no publications all support to substantiate. The claims we have built and earn the trust of the transplant community and patients ancient decided by the right way by showing published data that's being generated from real world evidence using a multicenter prospective approach now to lung.
We were thrilled to launch <unk> to support a significant unmet clinical need.
Although smaller than the hot market, bringing Alice Shaw to lung patients has been of Paramount objective for the team at <unk>, especially when you think wanting to lung allograph patients will still fell within five years.
Achieving a 40% commercial penetration in transplant centers within three months and 700 patient test results was a true Testament of the need for this innovation with Alice Shaw alone as well as to the trust that we've built and established within a chance. Thank you mean, the last two decades.
Importantly, we are not a repurposed N O P T dangerous cell free DNA test Alice Shaw was designed and developed for transplant and for transplant specific patients.
Moreover, our tests with designed to cover all somatic chromosomes, whereas some competitors have a less than 20% of chromosomes.
Now on to go to Katy X. During 2021 has continually set and raise the innovation bar to remain ahead of Comtech competition, particularly thrilled well data.
We are proving through improved clinical utility.
That multi modality is the future of transplant organs found and investing in strong signs that our tests can be relied upon to perform as expected when the health of real world patients is at stake.
We have already moved out testing services portfolio to this next wave of multimodal innovation across hot and now we're following with kidney liver and lung.
In Q4, we were excited to achieve the CLIA validation for Allomap kidney and publish clinical validation data.
As a reminder, allomap kidney is a blood based gene expression test that identifies email quiets at a vital biomarker needed to comprehensively assess the immunological risk rejection and Allograph health.
Data provided by Allomap kidney and Alice Shaw kidney offers a more comprehensive assessment of kidney health and the current standard of care and the need to test alone.
We also mentioned early that we would reset the scientific barring kidney through Admiral is multicenter real World study showed Alex shows the first underwrites Sofia test with demonstrated long term utility in both the balance and for cause.
Admiral was demonstrated in over standard of care in more than 1092 kidney transplant patients from seven leading transplant centers and followed up for up to three years.
Based on this incredible publication.
Falling was saying with Alice Shaw, Alice Shaw demonstrated a 62% relative improvement either serum creatinine and ability to differentiate subclinical rejection number too elevated Alice Shaw dry surfing to a strongly correlated with clinical and subclinical allograft rejection injury at two different thresholds was associated with the 270.
1% increased risk of de Novo DSA antibody formation.
Persistent elevated al show levels correlated with a greater than 25% decline in egfr over three years Egfr being a monitoring of kidney function and then for persistent low levels of Ala show identified Allograph Quiescent. In addition to the absolute school we.
We believe these data are a game changer for kidney transplant patients and clinicians and Alice Shaw is the only test that has shown these results and in the long term setting, notably in Admiral we demonstrated a greater than 60% improvement overcrowding in the accuracy of identify rejection by contrast, the improvement over several craton was less than 20%.
And Ni P. T test repurposed for transplant in a single center retrospective by Bank study.
On which a competitive base its clinical validation.
Dx, we are known for this incredible strength of innovation and as we've built the standards around Alice Shaw that others now need to demonstrate we are further move the needle with multi modality and we will further again with our new digital offerings under the AI banner.
Now onto alone. We also raised the scientific bar in lung.
Through the recently published multicenter prospective alarm study done with the NIH during the Covid pandemic. This NIH led study was designed to demonstrate the ability of Alice Shaw lung <unk>, the signs of organ rejection and infection in asymptomatic lung transplant recipients in a real world Homebase surveillance setting.
This real world use of <unk> demonstrated and documented day, 83% reduction in surveillance biopsies as compared to a protocol dependent on Spanish biopsies I'll, just repeat that again, 83% reduction Alice Shaw also identified subclinical graph injuring 7% a surveillance test performed these were early detection that.
Can now enabled treatment before lung functions compromise. These tests define a clear utility for noninvasive surveillance with Alice Shaw as lung transplant patients.
We are the only company with publications using dendrites, okay in lung transplantation again, we're the only company with publications using judge I've got it right, Okay lung transplantation and the only company developing a multimodal solution with our first patients already enrolled in the Illinois study.
Now third Gulf It was to connect patient and we made significant progress during 2021.
We're the only company that is focused on the transplant patient journey and our ultimate goal and our long term goal is connect wanting to transplant patients.
To highlight two things from 'twenty to 'twenty. One there are many highlights the liza two that I'd like to share today. The first is through our acquisition of T X axis, we built a new group aimed at connecting dialysis patients and the clinics with transplant centers I'm pleased to report at the end of 2021 we have more than 44000 dialysis patients referred to more than.
17th transplant centers and over 1000 dialysis practices now have the ability to use T X axis. Secondly, during Q4, we accelerate our strategy of connecting the transplant patients and ended the year with more than 14000 patients on a L. A care app, notably over 6000 of the 14000 allocate patients.
We added in Q4 alone.
In addition, we have more than 11000 patients who have direct taxes three metrics.
While on the topic of digital and giving them multiple digital acquisitions, we've we've renamed the digital business to be patient and digital solutions patient and digital solutions. We're really pleased with the progress we delivered in 2021 and in 2022 revenue in this segment will benefit from our recent medication management acquisitions as we continue to be.
Build towards our goal of improving outcomes and openly managing wanting to avoid transplant patients.
Our suite of digital offerings now comes broad applications utilized throughout the continuum of care for all transplant patients.
Our two most recent acquisitions of med action plan and the transplant solvency moves this in a very meaningful way into the business of medications Sharon's, which is the third leading cause of graph was offered infection of injection.
As we continue to execute our vision of being the leading part of the transplant ecosystem is the focus on adding value at all stages of their patient journey that propels us forward towards our goal of improving long term outcomes in transplant patients.
Now moving to the products business.
Q4, and indeed, 2021 was a successful quarter and a year for the products team for the fourth quarter and full year, respectively product revenue increased 29% and 39% year over year, respectively, and we are pleased to now say that over 55% of this revenue comes from our LLC gross free.
<unk> versus auto technologies, we're excited about the progress of this business. After COVID-19 interrupted 2020 and are looking forward to further product launches and geographic expansion in 2022 as you continue to drive this business to a meaningful scale.
Gathering less of the spotlight with equally important to transplant patients has been the pharma partnering business, including allo cell as part of our sale of transplant and therapy business, otherwise known as C. G. T. Although the commercial revenues are longer term, we continue to make progress and initiated multiple new pharma partnerships. During 2021, we look forward to building more.
Partnerships during the course of this year.
Now as we reflect on 2021.
We are pleased by delivering another record revenue quarter and year, but were even more pleased by how kgs continues to extend its leadership in transplant as shared during our Investor Day Investor Day. Our goal is to connect wanting to transcend patient with that in mind. This is a multi year journey and the next 12 months will be another catalyst rich year, including.
The coverage of our show a lung by CMS the submission of Allomap kidney the launch of all of you and your map the publication of cable 1000.
And the readout of show data at ice H O T and okra data at ATC as a reminder, Shaw and Okra boat Multimodal studies in heart and kidney respectively.
2022 will be an exciting year to capture the growth opportunity with this rich set of countless to execute as we have demonstrated in our five year plan.
And to continue to innovate and generate real world evidence that sets us apart and.
And extend our leadership by connecting that patient journey.
Before turning over the call to anchor discuss the financials.
Like to spend a moment on equity and transplant.
Equity and transplant is an issue we care deeply about and in many parts of the Saudi minorities at high risk and in a need a transplant or pre transplant services, often have a harder time, receiving adequate and their critical care.
<unk> recently announced the partnership with no tip the minority organ tissue transplant education program founded by Dr. Clive calendar, we're thrilled to be working motive and thrilled to be working with Doctor Velma Scanno. Gary. It was one of the board members, but also America's first African American female transplant surgeon, it's a real honor and thrilled to be working with.
We're also on it to be working with Doctor hadn't Valentine, who recently joined our board of directors and who is the head of the diversity at the NIH, both Doctor Valentine and Doctor scanned array provide a wealth of expertise in helping us make a meaningful and lasting impact as we work on our mission of improving exiting transplant now handing over to Ankur.
Thank you rich we're very pleased the departments of our business. The progress we are making in connecting the transplant patient journey and the financial results for the fourth quarter and fiscal year 2021.
The first year of our five year growth plan exceeded our expectations.
Thanks to broad based growth across our businesses.
Adoption of our tests and meaningful acquisitions, and adding new offerings to our portfolio.
I'll give you some details about our financial results our proven business model and then guidance for next year.
For 2021, we recorded total revenues of $296 million up 54% compared to $192 million in 2020 with strong contributions across the portfolio.
Testing services revenues grew 58% year over year to $259 million as Ive testing volumes grew year over year by 94% to approximately 153000 tests.
Saw very strong adoption for our core kidney and heart tests as well as the newly launched Aloe short heart test attach rates, increasing throughout the year to 90% plus by the end of the year.
Alex showed lung was launched in Q4 with further excellent demand.
Product revenues grew 39% to approximately $27 million is that N. G. S based typing solutions achieved market leading position.
Patient and digital solutions revenues were above $10 million, an increase of 11% compared to 2020.
Our medication adherence acquisitions made action plan and the transplant pharmacy contributed about zero point $7 million in revenue in Q4.
This strong revenue performance was achieved despite impact from Covid multiple times during the year.
And is reflective of the strength of our offerings and strong execution by care Dx team.
This also sets us up very well with an excellent start to our five year plan.
The non-GAAP gross margins for the quarter were 68, 4% compared to 73% last year Q4 20 <unk>.
non-GAAP gross margins declined due to various factors.
With stronger adoption of new tests, our volume growth has far exceeded our revenue growth.
We're also expanding capacity in our Brisbane Laboratory.
And in a patient and digital patient solutions portfolio, Yeah, I did their transplant pharmacy business, which has lower gross margins.
We feel good about the margin profile of our core testing services solutions, each Oregon, when scaled brides very healthy gross margins as we have demonstrated without Allomap heart and other showed kidney test.
We intend to apply the same playbook to our newly launched tests of Alex showed heart and Alysha lung.
non-GAAP operating expenses for the fourth quarter put $56 $4 million up over $7 $5 million sequentially from Q3 'twenty one.
This increase in expenses was driven by investments, we're making to scale our capabilities and also by increases in legal spending of approximately $5 million.
non-GAAP operating expenses for 2021 $191 million up 49% compared with 2020 during the year, we invested to expand our portfolio of services started new clinical trials as we build our portfolio expanded.
Expanded our commercial reach and also invested in scaling our infrastructure.
All aimed at building this business for sustained long term growth.
Okay.
For the fourth quarter of 'twenty, one we recorded negative adjusted EBITA of $1 $4 million.
Compared to adjusted EBITDA of $4 $9 million in the fourth quarter of 2020.
We remain disciplined in our investments and as rich mentioned, our profitability was impacted by increased legal spend.
Portfolio 2021, we recorded adjusted EBITDA of $17 8 million compared to adjusted EBITDA of $8 million in 2020.
We also generated $4 billion of operating cash flows during the quarter ending the year with cash cash equivalents and marketing marketable securities of over $248 million.
With our strong balance sheet, our cash deployment focus remains on adding portfolio of products and services across the transplant patient journey.
During 2021, we invested in acquisitions of construct made action plan and the transplant pharmacy business we.
We invested in zero transplantation, Ramiro metrics and invested in partnerships to develop artificial intelligence for our multimodal testing services.
All of these investments strengthen our position in supporting patients through their transplant journey as we continue to execute on our multiyear growth plan.
Now I would like to address a couple of topics that have been top of mind for investors since our Q3 call.
The first is ongoing dynamics affecting our realized price per test on ESP.
The amazing success of Alex her heart combined with higher growth of commercial versus Medicare volumes. In 2021 resulted in very strong volume growth that materially outpaced our revenue growth.
In addition in kidney testing.
We saw patients shift from Medicare to Medicare advantage plans put the changes introduced with the cares Act last year.
We expect some of these trends to persist in 2022, but at a lower rate.
Although short heart lunch was annualized in Q4, 'twenty, one and hence should not be a headwind for go forward average prices we.
We expect growth in commercial business to continue to remain higher and more patients to continue to shift into Medicare advantage plans, albeit at a lower rate seen in 2021.
Strong adoption of our testing services has created a very significant commercial coverage opportunity for us.
With our increased focus on contracting with both commercial payers and Medicare advantage plans across a range of test. Our goal is to turn this into a tailwind as we worked through this in 2022 going into 2023.
The second is the information request from government agencies that we disclosed in 2021.
We are cooperating and moving expeditiously in responding to these respect if these request beyond that as I'm sure. You can understand we are limited in what we can say we remain confident in the quality clinical utility and innovation that our products and services bring to the market.
And that management team remains focused on running the business.
Now onto guidance for the year 2022.
For the full year 2022, we expect revenues in the range of $330 million to $350 million.
We annualize the launch of our short heart last quarter.
Our guidance is built on double digit growth in our core kidney and heart franchise, using our winning formula of adding centers and protocols and expanding into nephrology.
This guidance does not assume revenue contribution from Allomap kidney.
Our low end of the guidance assumes continued COVID-19 related impact on transplant procedure volumes as well as impact on testing volumes. As a reminder, we saw transplant procedure volumes decline in second half of 2021.
This decline has continued into early 'twenty, two as well, which led to generally having lowest number of transplant and a month since the beginning of Covid.
We've seen some rebound in latter part of February , but overall procedure volume still remain down.
The high end assumes recovery in demand from weak transplant volumes and resumption of strong long term growth trends and transplants, which we firmly believe in.
The guidance assumes high single digit declines in realized prices.
As we expect commercial testing volumes to continue to grow at a faster rate.
Regarding investments, we intend to maintain our discipline disciplined approach as we continue to invest for growth.
As the only company focused on connecting transplant patient journey and with our market position, we have a tremendous opportunity in front of us to significantly grow our businesses, we remain focused on realizing that opportunity.
2021 has been a fantastic year for Kt ex <unk>.
We saw strong adoption of our products and services published excellent data demonstrating clinical utility of our kidney and lung tests and made several acquisitions strengthening our portfolio.
With several upcoming catalysts, we're very excited about 2022.
With that I'll open the call for questions.
We will now begin the question and answer session to.
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Uh huh.
First question comes from Alex Nowak from Craig Hallum Capital Group. Please go ahead.
Great. Good afternoon, everyone just to stay there on the guidance I appreciate given all the color that what's included what's not included but just just curious what are you assuming for lung reimbursement and there is I mean that comes in.
I think we understand the transplant volumes, but also what are you what are you assuming as far as competition.
Yeah, I'll just start I mean Ellis show lung for US we had a phenomenal sort of launch I think with the exception of unmet need as I mentioned and with over 700 tests completed in Q4 were really excited by the opportunity here I just might late on canal talk about what's including guidance.
Specifically to your question on lung, we have assumed very minimal contribution from our lung test like in the range of 1% growth or something coming from lung to fairly minimal.
Okay, and then and then what about competition there and then I've got another follow up on competition.
Sorry, Alex competition on the lung side or just overall.
No competition overall in what Youre, assuming in the guidance or if competition is a factor not a factor in the guidance.
Yeah, No. We're no we're assuming we maintain out with al assumptions assume we will maintain our share I think the biggest impact was seen which I know we tanker mentioned was really what's been happening in the hospital system. In January was just put in reflection six 898 tests for lost time in kidney and lost in the last time, we saw that was in March 2020.
And then you have to go back ways beyond that says there was a significant impact.
I think for the start of the year that we've seen across transplant.
Centers and that's been sort of also reflected in.
Calls around.
Nation try and understand what's been happening so that that has been the biggest impact and a driver of our assumptions.
Okay that makes sense and then it looks like Natera on their call that's actually going on right now it looks like they broke out their kidney volume it looks like <unk> volume came in at about 20% of where you're at but it is a strong upward trajectory. So maybe just comment broadly on the competitive environment. It seems like youre not seeing an impact but certainly.
The terrorists seeing some strong volumes. So just thoughts on that and then any thoughts on the year end deal between biotech and Thermo Fisher, just what that means around your own your own that product.
Yes, I think with the breakout I think its good they've done that and I think typically what youll see is a lot of that is.
Their initial registry studies, they've done which is the 500 patients I think that's probably what you want to refer back to again I'd refer you to our.
To raise those questions, but I'd I'd separate out what is true commercial volume a reminder of what we've seen is we've added protocols every quarter. We have a model that continues to have recurring patient base, but more importantly that is driven by the ability to generate protocols center by center and now with over 75 protocols, we feel really good with this model with built in in addition to <unk>.
Adding new centers, so I think for us it's the strength of the competitive moat that we built Alex which is most impressive is this continues to help us sustain our growth and continuing every quarter because it's.
It's such a strong note.
That we've developed and built and I think the addition to add protocols quarter on quarter is quite quite impressive from outside as well if you think of overall competition.
Competition, we think it's good that not only the chair, but others come in space, because what's been able to do is help grow the overall.
Market share for us so we've been capturing market share, but on top of that it has enabled to also drive market growth.
I think obviously with COVID-19 being sort of an offset to that is current time point just given what we've seen in the overall volume numbers, but.
Pre COVID-19 , we had been seeing an increase in overall market growth as well. The other key thing about competition is really allowed us to accelerate our overall strategy. So as you heard what we're doing on the digital side, adding the number of patients who just described we're saying that we couldn't actually do before but by building our core business. We've now been expanded let me connect what's really unique in this space, which.
Is that patient journey, no one else's refocus on it on a known source also dunking about it but we have been able to do that so I think that's really key as well also as we described previously there are three sets of competitors are those which you.
You know, we'll follow the market leader and try to bring some innovation. We see you know one company moving on the multimodal route investing inside so that's where I think others are seeing whether.
The real opportunity is to drive innovation I think there are others you mentioned in the urine test where you see more of.
Not wanting to compete in this space how do we licenses out that's the biotech. An example, and you think there are other than opportunistic trying to take shortcuts to get in the marketplace. So that's sort of the segmentation we've given in terms of the different competitors.
Okay. That's extremely helpful. And then just lastly, just when you look at the price per test that's being paid now and you look at those tests that are being paid by commercial but certainly could be and you add all those up how much revenue is sitting out there and I just want to make it clear the guidance youre not assuming any of that revenue does come in.
Yes, that's right. So certainly a fairly significant opportunity if you were to get.
Fully reimbursed for every test out there, even where we don't have coverage could be about 60.
60% to 70% higher than revenues.
As of now in my guidance for next year, I'm, not assuming any improvement in asps.
Okay understood I appreciate the update thank you.
The next question comes from Mac Sykes with Goldman Sachs. Please go ahead.
Hi, This is Nick on for Matt.
So you mentioned the headwind to to the volumes that youre seeing so far from Amazon in the first quarter.
Are you expecting those headwinds to abate as the year goes on and maybe volumes kind of pick up to normal levels or are you baking in a certain amount of conservatism to that.
Yeah, I'll talk I'll, let uncle talking about what's what's put in guidance I mean, I think for US. It was just so remarked.
With less than 700 kidney test for example, being done in January it was the lowest since March of 2020.
And a lot of this had to do with the ability of hospitals to.
Is staffing shortages.
The beds that were available and as we spoke about probably 80 90 centers during that period was really interesting is.
A lot of centers in the past that sort of and including Ipos. It really held out during the Delta search for example, but then swaps the people are actually being infected and had to be taken out of the system and couldnt be part of the support network in the transplant community. They really the truth. The staff shortages of rural and then also the acuteness of needing beds during that time and I think you remember like.
It looks like $1 5 million patients that were getting infection. During this time in the country. During January so there really was a significant pressure so.
What we saw was really at least for the month of joining the good thing is what we're seeing in February is starting.
So an improvement in the transplant volumes and we hope that continues as well so I'll hand over to anchor now yeah. Thanks Reg.
Matt is that I did outline we.
The lower end of the guidance assumes a continued weakness in.
And of course at the midpoint at the high end given our belief in the overall transplant volumes in the end the various actions that regulators was outlining that the market will return to its long term strong growth profile.
During this year.
So that's how we're thinking about it right now.
Okay got it thank you.
And then on onshore along I know you said the overall growth contribution this year, probably isn't going to be too big but just how are you guys thinking about that growth cadence and how are you excited about the increased penetration you guys can see as the year goes on.
Sorry can you just repeat that.
Sure.
Yeah.
Yes.
Are you seeing that sort of that growth cadence.
Pick up as the year goes on and how are you looking to see.
The penetration center penetration increase similarly, as the year goes on.
Yeah, I mean, I think we've shared that this 40%.
In the first three months and it is such a huge unmet need that we've really seen.
Also we shed 700 tests take place in Q4 last year I think as we look at the penetration we expect to continue to.
Seed increase I mean, if we look at steady state for example in hot as a as an analog it's at 90 590, 95% and that was built over 15 years and if you think of what you see on the.
On the kidney side, it's at 75% plus and that was built over three and a half years and so if you think in three months getting 40% we have a pretty good benchmark that we're really exceeding everything. So I think if we continue that trajectory I think hopefully we'll get to that next power, which will be what the kidney penetration is.
Thank you.
The next question comes from Andrew Cooper with Raymond James. Please go ahead.
Hi, everybody thanks for the questions.
Maybe first just.
I want to spend too much time on it but in terms of the ASP the commentary around high single digit.
Klein.
Can you give a little bit more flavor for the breakout of what youre, assuming it is driven by long versus sort of the apples to apples year over year dynamics that youre expecting in kidney and heart.
Yeah, So Andrew roughly about I would say mid single digits also comes from the core heart and kidney franchise, where the the growth in the commercial business is expected to be higher as we've seen that trend in 2020 one.
And then for lung given that it is a relatively smaller market and we will continue to intend to provide visibility into their into their testing volumes for the next few quarters, I think you'd be able to kind of parse that out but that should be a smaller contributor.
Okay perfect.
Exactly what I wanted.
And then just in terms of of the latest and greatest.
As you think about mall Dx.
In terms of Allomap kidney submission and then also lung still kind of sitting there with a with Palmetto has there been some back and forth is there anything more you can add as to you know.
What they're asking for or what they are looking for before before you can get.
Alright Medicare coverage.
Okay, Yeah, I'll start with lung and then transition to kidney as as well in case of lung all all of our dose and the information, including some of the additional data that we published all of that is with non Dx it's in their hands.
And we are providing all the information that they're looking for.
We'll certainly let everyone know when the when the decision on approval comes through.
We are waiting for it as well in case of Allomap kidney continue to make good progress there as we had said earlier, we published earlier that the CLIA validation for that test is complete.
The work ongoing around the New York State approval is happening and then in parallel we are working on our dossier for former Dx at this point in time, given that we've been ready.
Really excited the teams has been has stayed on their timeline in case of Allomap kidney and the progress that is quite good.
Okay, Great and maybe just one more from me as we think about that legal spend that you called out can you give a flavor or is this is this doj related is there some other moving parts going on I know theres, some lawsuits as well, but just kind.
Kind of what what the driver is here and if theres anything I think going forward.
On that front.
Yeah, yes, evidenced several factors there right as you know we do have a few litigations, especially on the <unk>.
The false claims act then on the IP related work that has been going on we actually have a client coming up here shortly for our call quite a false claim act that is part of the contribution in that spend but also the work we're doing with the government requests.
And in Expeditionary sleep, providing all the information that was required in that in that that's part of the as well.
Okay, Great I'll stop there thanks for your time.
The next question comes from Mark Massaro with BTG. Please go ahead.
Okay.
Hi, Mary.
A question.
Okay.
Sure.
During the quarter could.
Could you just speak to how you might see any recovery trend that goes into next year.
Any measure you might peak.
That decline.
Okay.
Yeah. Thanks, Andrew I mean again just to reinforce how dramatically that was in January we talked about six to 898.
A little under 700 transcend to down the last time, you had to get a law was in.
We mentioned was AD.
In March of 2020, and if you go back even further in history. The last time that was in February 2019 was when you had something this slow and basically if you go back a couple of years that the trend. We saw then was back in 2017, where you had volumes round transplant volumes around 700.
You know a month so it really January was a big hit to the transplant community now that said January is beginning to February is beginning to recover. So we do see improvements in the transplant volumes that are being done in a lot of this recovery will happen as we saw last time with a rebound back when this hit in in the previous waves was around the living donor.
So there are a couple of areas where youll get some.
Natural points of increase but living donors and the kidney side would be the biggest delta increase that you had there and I think also the.
The gating step as return of the staff. The hospitals there has been staffing shortages across the U S. But I think you'll start seeing more of that happen now is as part of the recovery process as well, so I'd sort of twofold that youll start seeing that but we expect we will have more data as we continue through the quarter, but certainly February looked a bit more promising than it had in January .
Yeah.
Okay, Great and just one quick follow up given that you completed two acquisitions during the quarter.
Could you maybe discuss your appetite or what additional.
Or potential acquisition partners.
Yeah acquisitions as a core part of what we do I mean, we do like two or three every year last year, we probably did five so a bit more than what we'd normally done a run rate, but it's always good around the thematic and so I think for US you know 2019 was built about the direct to central approach and how do we actually look at improving the workflow there which is why.
Did the acquisitions with Zen and auto and then in 2020 is really this direct them ultimate Odell D. How do we drive innovation and we did partnerships on.
Bringing in your map and also with his some AD.
And then later on LOI DNA loss, she was really about the direct to patient connection which is why you saw us bringing the connection with dialysis patients to transplant centers for example, with T X axis and then how do we further progressed that with patient acquisition tree. The Atwood, TX hero and then more recently with the medication here with both the transplant pharmacy.
Well as med action plan, which is number one sort of.
Discharge form for transplant patients both on paper and also electronically. So really it's all part of an integrated strategy to somatic for 2022 is direct to patient management, and so I think youll see more offerings around that sort of area as well, but again, it's really part of our we have like a plan that's thrown out a couple of years.
So we're just executing on a plan that was developed a few years ago.
Okay, great. Thanks for taking the question.
Okay.
Before we go to the next question is a prediction I would like to make in responding to Andrew's question about the legal spend I mistakenly said litigation about false claims Andrew I meant to say false advertising. This is the litigation we have going on with one of our competitors.
Once again, if you have a question. Please press Star then one.
The next question comes from <unk> Patel from H C. Wainwright. Please go ahead.
Hi, gentlemen, thank you for the update my name is Dinesh pathologist Standalone E churn at H C. Wainwright.
An extension to the transplant question, but the volumes are kidney and heart transplants stable in recent months and do you anticipate any change going forward.
Sorry can you repeat 800 transplant volume.
Yes so.
Do you I guess, the the volumes of kidney and heart transplants are they stable in recent months and do you anticipate any change going forward.
Oh, no we just spent.
A couple of the last questions answering that January was the worst month since March of.
2020, when Covid first hit and then the last time you found a number as low as January was back in is.
Was back in February of 2019, and the last time, you Jon numbers that were.
Probably around the baseline, which we saw in January was about five years ago. In 2017 said there has been a cyclical nature in terms of the impact from transplant volume. However, the last three quarters, we've seen sequential declines in Q.
Q Q Q3 from Q2 and Q4 from Q3 and we've also seen that continue on in in in Q1. However, the point here is that we do think as we've seen in past cycles, the rebound will take place as well as.
Particularly on the living donor side.
Great and then my last question is do you expect total operating expenses to continue to increase throughout 2022.
Yes as mentioned, we are investing for growth and as we anticipate as we look at the market opportunity in front of US our intent is to keep investing both in D as well as in our commercial capabilities.
As we scale this company for sustainable growth.
Perfect. Thank you so much.
This concludes our question and answer session.
I would like to turn the conference back over to Red Sito for any closing remarks.
Yeah. Thanks, very much for all the analysts investors 10 days take todays call I mean for us it's a real mission for us as we think of the transplant space and transplant Communion February is really an incredible amount of not only hot month in Africa.
African American month, it's also donate life was on February 14, so as we think of.
All the different calls you may be listening to just continue to note that no I'll focus on the transplant patient and hopefully you continue to invest within this space as well so have a great day. Thank you again.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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