Q2 2022 CareDx Inc Earnings Call
[music].
Welcome to the <unk>.
Inc. Second quarter 2022 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Anne 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 ended June 30th 'twenty 'twenty. Two the release is currently available on the company's website at Www Dot care Dx Dot com.
Reg Sito, Chief Executive Officer, and I'll check Jane interim 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 Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation reform.
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.
A description of the risks and uncertainties associated with our business. Please see our filings with the Securities and Exchange Commission.
The information provided in this conference call speaks only to the live broadcast today August 4th 2022 care Dx disclaims any intention or obligation except as required by law to update or revise any information financial projections or otherwise or other forward looking statements, whether because of new information future events or otherwise.
We 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 Ian.
Good afternoon, everyone and thank you for joining us <unk> second quarter 2022 earnings call.
I'd like to again by focusing on the following financial operational and strategic highlights in Q2.
Through strong execution discipline I want to highlight with one continue to maintain an excellent financial position with over $300 million in cash no debt industry, leading gross margins and with a demonstrated path to profitable growth too.
Returned to sequential mid single digit testing such as volume growth Importantly, we have now passed the nadir in a sense that volumes, which we saw in Q1 and three with scout our collections infrastructure to more efficiently capture the revenue opportunity from the increasing mix of commercial and Medicare advantage patients.
Strategically we're delivering on our long term mission and vision. Our vision is the leader in the transplant ecosystem and with a long term goal of connecting wanting to transplant patients Allocher outpatient is a perfect example of that progress whether it's been now more than 50000 downloads pre and post transplant patients and our mission.
It's improved transplant outcomes.
<unk> innovative intelligence solutions exemplified by our new artificial intelligence modalities with AI kidney and heart.
Now onto the first topic, our excellent financial profile, our board and management team believe that maintaining a strong balance sheet is important to codexis success. You may recall that in Q1 of last year, we took advantage of favorable market conditions to bolster our cash position by raising $188 million from a public stock offering ensuring that we can be self funding for this.
Seeable future.
This is a competitive advantage for <unk> in the current market environment, particularly as we have a clear path to profitability.
Like our peers, we will not have a near term need to raise capital and over the longer term, we have the flexibility to deploy capital in a way that we will increase the value for shareholders.
Very positive feedback from a lot of investors on this.
Our path to profitable growth is built on industry, leading gross margin and we continue to focus on driving efficiencies in our lab and for the benefits of automation and scale.
We maintained our adjusted EBITDA margin versus Q1, despite increased costs in a conference heavy spend quarter.
After adjusting for nonrecurring legal expenses in Q2, we would be close to breakeven similar to Q1, notably 12, they'll probably 15 quarters with positive adjusted EBITDA looking forward, even including non recurring legal expenses, we had toggling to be adjusted EBITDA positive by the first half of 2023.
I want to transfer volume and performance.
As we predicted last quarter, we were pleased to see an increase in transplant volume in Q2.
We hope and increasing hospital starving will lead to even further volume increases in the second half the year as elective procedures, and leaving organ donation numbers return towards pre COVID-19 levels.
<unk> volume in Q2 grew mid single digits sequentially, but declined by mid single digits year over year. As a reminder, last year Q2, 2021 was the highest ever quarter the transferred volume.
During Q2 2022, all testing services volume grew roughly 6% sequentially and 20% year over year to deliver over 45000 tests.
With these 45000 tests, we passed a major milestone when <unk> has delivered more than 500000 patient test results across heart kidney and lung patients.
We're still encouraged by our Q2 performance in the face of a challenging trans fat market, but are also pushing the organization to do even better in the back half of the year.
Now looking at <unk> performance for the second quarter of 2022, total revenue was $86 million, increasing 9% compared to the year ago quarter with much of our revenues coming from testing services.
But kidney testing services, we continued with our winning formula of adding Alice Shaw named protocols, adding new centers and now expanding further into communion nephrology at the end of June we had more than 90, Alice Shaw kidney protocols across both centers ending community oncology, we are starting to see nice progress in community for LG, where we'd be.
<unk> field force and had our best ever quarter, we're encouraged by our continued progress in reaching this underserved population.
Well, it's a heart and lung testing services, the hotter attachment rate remains greater than 95% continue to highlight the value of multi modality, but patients and physicians. We are pleased to see continued momentum for our show along with a 1400 tests ordered in the quarter and now used in 60% of lung centers will remain.
In your discussions with CMS as the reimbursement of our short run and look forward to helping our patients receive reimbursement, but it's valuable test.
Now on to collections reimbursement, increasing our rates of collection has been a major priority. We continue to scale on internal billing infrastructure and have now added third parties to add extra horsepower because of the influx of new Medicare advantage and commercial plans as part of this process achieving reimbursement coverage is critical we.
We use the greater than 80% that allomap pay coverage has achieved as the gold standard well we are covered by all the major insurers in Medicare as a reminder, this was a long multiyear process, including conducting long term studies completed randomized control studies and with the goal of incorporating guidelines.
We are working towards achieving the similar level courage as Allomap heart in our show kidney Al show Hot in the household on.
This represents a kind of an upside opportunity as an example, if testing 2021 we're reimbursed at the same coverage levels Allomap heart than an additional $100 million plus would've been captured in the testing services bottom line. We continue to work closely with payers, while investing in producing the evidence required to receive reimbursement.
Recently, we were pleased to see the underwrites surfing day being considered as part of the next iteration of the.
S. H O T guidelines as a reminder, allomap has already been incorporated the ISO T guidelines.
On pricing I want to remind everyone. We do not set the Medicare price. In addition, we target commercial contracts at or above the Medicare rate and the main driver of fluctuations in Asps is changes in payer mix. The success of these new launches with Alice Shaw Hot.
Our show lung.
And the increased progress on our strategy to expand into the community Nephrology with Alice Shaw Kinney has increased the percentage of commercial patients receiving all tests.
Now moving on to innovation on.
On the pipeline, we continue to make progress with Allomap kidney and your map in May by Moccasin Medicine, published new data demonstrating that allomap kidney gene expression profiling predicts the probability of allograft rejection for both antibody mediated rejection and T cell mediated rejection.
This represents the second independent validation of Allomap kidney and notably uses multi center prospective data from Oprah we're on track with our delivery of Allomap kidney is thought about 2020 to plan and plan to also start laboratory validation process for your map in the second half of this year.
Additionally, we're now incorporating artificial intelligence into our testing services portfolio. We believe this represents the next major move within transplant patient care, we announced AI kidney at ATC. The only done dry cell free DNA solution, the pages and additive AI enabled algorithmic risk assessment tools AI.
Kidney will deliver information regarding a patient's current risk of rejection as well as prognosis allograph survival at different time points.
We've also licensed AI technology for our heart franchise, the first offering being a I see a V that is chronic allograph basketball apathy highlight June innovation day, Cedars Sinai one of the leading heart transplant institution, United States has been using this technology in assessing CIB, leading to a reduction in the need for Angiograms.
Now onto patient and digital solutions and the other parts of the business.
This quarter, we recorded $6 8 million in revenue a year over year increase of 178% driven by a medication management acquisitions and strong performance across the portfolio page.
Patient and digital solutions and now in power products business. As a reminder, we have built this over the last three years and now progressing critical scale.
We have an incredibly deep and efficient transplant across 150, plus centers with over 80, plus transplant emails and other 50, plus quality and administrative services. This moat has enabled us to expand pre transplant and we now have more than 55000 patient referrals to 60, plus transplant centers and it.
<unk> gone into the community with the recent introduction of Aloha and our personalized patient monitoring service, we're focused on playing a critical role connecting patients across the transplant patient journey because its ecosystem remains highly fragmented as part of this consolidation now L. A care App is now integrated with both T S access and med.
The action plan connect both pre and post transplant patients.
This patient focus is now enabling us to build our transplant data Lake platform that is AI track and represents a future opportunity to develop more algorithmic based solutions.
This focus on connecting the ecosystem is unique and delivers on our vision of being the leader in transplant.
Moving to products. This quarter was reported $6 7 million in revenue down 2% year over year, driven by foreign exchange and supply chain constraints. We were pleased to complete the IV, meaning registration process around tie our lab products portfolio as part of the recent climate is for operating Europe , and looking to reestablish momentum for this.
Is this line as the operating environment normalizes.
Sell a transplant therapy is early but represents an entry into one of the most promising and exciting areas of clinical medicine.
In addition to working with pharma partners and also partnerships. We signed our very first started partnership with Elohim at the end of Q2.
Now moving onto guidance as you saw in our press release, we lowered our guidance and now expect our full year revenue will be in the range of 325 to 335 million, obviously will cover this in more detail in his section.
As the transplant company, we made a commitment and a focus on patients as part of this commitment we have introduced new offerings entered new organs and expanded access to many patients in the short term. The success of our strategy has significantly increased the mix of commercial patients.
Lagging reimbursement for these commercial patients has impacted ASP dynamics compounding. This has been an increasing complexity in collections due to patient shifting from Medicare to Medicare advantage.
In the longer term the strong uptake of our offerings provides a longer runway for sustained growth in closing I'm proud of our performance and what it's been a challenging environment. During the first six months of the year between covered inflation geopolitical concerns and macro headwinds has been an eventful start to the year for everybody in transplant I believe.
The first half marked an idea for transplant volumes and I feel confident we'll see continued transplant volume improvement in the second half we are focused on the near term the opportunity to realize improved collections as we scale or infrastructure mid to long term, we have the opportunity to increase commercial coverage as a mix of commercial patients increases with new launches and expansion.
New organs from a market perspective, there are multiple drivers in place to double the number of transplant volumes being conducted including through government initiatives increasingly been going as you said the Scot at Oregon's organ perfusion and transport technologies and the potential alternative Oregon supplies like Zeno transplants.
Finally.
We're proud to being the company that is focused on helping transplant patients by building the collection of products services and other offerings across the transplant ecosystem with that I'll turn it over to <unk>.
Thank you rich we are pleased with the results from the second quarter and I would like to Echo the comments about us incredibly deep and I appreciate more across the transplant centers and the ability to deliver on our vision of being the leader in the transplant ecosystem I would like to highlight the following.
Strong cash position of 306 million strong volume growth and impressive gross margin performance, excluding sequestration be improved or change in ESP versus Q1 from four 9% to three 7% to better collections.
Our model for profitable growth, where we expect positive or just straight EBITDA by the first half of 2023, even including elevated legal expenses.
Wanted to start by highlighting our financial strength, we ended the quarter with $306 million in cash cash equivalents and marketable securities as we return towards a breakeven adjusted EBITDA. We expect future uses of cash to be driven mainly by capital allocation decisions focused on increasing shareholder value we are.
The business is self funding into the foreseeable future.
Moving to the quarter in Q2, we recorded total revenues of $80 6 million up 9% compared to $74 2 million in the second quarter of 2021.
Testing services revenue grew by 3% to $67 1 million product revenues decreased 2% year over year to $6 7 million and digital and patient solutions revenue increased 178% year over year to $6 8 million driven by our recent acquisitions of the transplant pharmacy and Medicare plan.
Notably our testing volumes grew by 20% to approximately 45000 deaths. A quick reminder, that our strong testing volume growth came despite a tough comparison from Q2 'twenty. One that was an all time high quarter for transplant volumes for the quarter, we saw solid sequential growth in all.
Oregon, particularly encouraging is the continued strong uptake of our <unk> lung with the volumes grew to over 1400 tests for the quarter and greater than 95% attach rate for Elisha Hot.
The non-GAAP gross margin for the quarter was 68, 8% compared to 73% in the second quarter of last year and 67, 9% in Q1.
We continue to maintain healthy gross margins of over 74% in our testing services business. Despite strong adoption of our new test that drives the mix shift between the tests that are reimbursed versus not reimbursed.
We are very pleased with the durability of our gross margin profile and proud of our lab and supply chain teams as they continue to drive efficiencies.
non-GAAP operating expenses for the second quarter was $62 4 million up about 2 million sequentially from Q1 'twenty two.
The increase in our operating expenses was driven by sales and marketing expenses in our content heavy quarter, we remain disciplined with our spend and plan to keep operating expenses flattish in the second half.
For the second quarter of 'twenty, two we recorded negative adjusted EBITDA of $5 7 million compared to negative adjusted EBITDA of $5 6 million in the previous quarter as rich mentioned, we are targeting to be or just towards EBITDA positive in the first half of 2023 and are confident in our ability to continue to drive profitable growth.
Now I would like to add some color on the factors driving the ASP change in the quarter and our assumptions for the second half of the year to help investors better understand the mix shift in the business.
Firstly, there's a mandatory Medicare sequestration impact on ESP of 1% in Q2.
Clothing. This ESP change of three 7% improved about 110 basis points over the last quarter.
As we had discussed in our last call ASP impact is the result of first driving our strategy to expand into higher commercial mix of patients driven by our new launches and our expansion into community nephrology.
The second part of the ASP impact is due to increased complexity in collections due to the patient shifting from Medicare to Medicare advantage to.
To provide further clarity on our strategy to serve patients along the entire patient journey has meant a marked increase in the mix of patients on commercial pay.
Given this leadership strategy, 75% off the change in ASP was driven by incremental volumes of commercial pairs and Ela shortly.
The other 25% of the change in ASP was driven by the shift of Medicare to Medicare advantage patients.
Our ASP assumption for the full year now includes a mid teens impact based on the factors as we discussed above.
We have increased our focus on the reimbursement strategy to capture the significant significant opportunity over the mid to long term. In addition, we are scaling our collections infrastructure to comply with increased administrative steps.
Regarding the information request from the government, we do not have any material updates to report.
Continue to cooperate and are moving expeditiously in responding to the request turning to guidance. We are revising our full year guidance in the range of 325 million to 335 million from 330 to 350 million previously.
This change in midpoint from 340 million. The 330 million is primarily driven by revised ESP assumptions due to higher mix of commercial patients including growth in our Ela showed lung test and shift of Medicare to Medicare advantage patients.
Our belief is that the industry has hit the nadir of transplant volumes and we'll see improvements as staffing shortages dissipate in the back half of the year.
Our business model and our solid cash position is a competitive advantage for <unk> as it places us in a position of strength.
We have a large untapped opportunity to drive sustainable profitability through increased reimbursement coverage have great products and a promising pipeline with that I'll open the call for questions.
And if you'd like to ask a question. Please press star one at this time.
Again that is star one if you'd like to ask a question.
Okay.
And our first question.
Will come from Andrew Cooper with.
Okay.
James.
Hey, everybody. Thanks for the question.
Maybe just first.
I wanted to get a sense for can you just tell us where specifically on transplant volumes. Today, you think that mix is in terms of Medicare Medicare advantage and <unk>.
True commercial and then to some degree you know talk us through what your actual volumes look like on each of that at least Directionally and then lastly.
Why has that been something that's been difficult for you to predict it sounds like the guidance is really tied to that mix dynamic. So I just want to understand whats changed relative to your expectations. Prior and maybe what have you learned since this time last year that informs sort of what the mix might look like going forward.
Yeah, Thanks, Andrew it's Reggie thanks.
Thanks for the question and you know we're we're.
We're excited by this quarter and we had a strong.
And volume growth I think in terms of as we look at this volume progression and the mix. What's clear is that you know we continue to see a significant increase in our commercial <unk> percent of total.
Patient volume and that's because of the strategy, we instituted bringing new launches such as I'll show, a lung Alice Shaw Hot and not expanding community Prologis has really added a series of patients who historically have not started with reimbursement and where we've had in and build that coverage and so if you look at the evolution of that.
What you can see is that the greatest increase or change has been in our commercial percentage.
It used to be you know under 50%, but now is about 50% in terms of the commercial patients and we've seen this mix continue where commercial continued to increase they probably you had just started this time last year. It was around 47% range and now we're about 53% so about a six 6% delta change that we've seen.
On the on the Medicaid side, we've seen that decline by about the same amount and the rest of that made up through Medicare advantage that through that makes so as you can see quite a bit of a dynamic shift that's taking place.
Okay, Great. That's helpful and then maybe kind of sticking to similar.
Capex with just the conversations with payers and continue to build that.
The data sets out there continue to build the clinical evidence so.
Any update you can give us on conversations with some of those commercial pay yeah, no absolutely I mean.
Sure.
Our Medicare advantage as well.
Yeah, absolutely I mean, this is a process and the good thing about this is why I mentioned Allomap heart as the Gulf sentiment. There you had every national payer of the five and there you have you know most of the major regionals as well and you have coverage, we use 80% as referenced but it's well in excess of 80% and so that that stand was sent over a period of time multi stage process, which.
Began with excellent studies in building being published in New England and included long term studies include randomized control studies included also getting the guidelines and so as we have seen from our approach across these new offerings. We've done the same right which is doing.
Excellent studies multicenter prospective in excellent journals.
Next thing is in the long term studies and now we've also started the randomized control studies, both in heart and kidney and the goal is to get incorporating guidelines as you can see from last quarter and also this quarter. We mentioned that the dry sulfonate that is our show is being considered as part of the next iteration of ice age old T. So it is a process it's one way.
Yeah, you know for those with me at the payer space you have annual conversations with the majors, but you can also have AD hoc discussions, which we are continuing to have as well.
Really as the process, but its one that its precedented. This isn't a mystery because we've seen this with with Allomap and I think it's a process now we're applying into our show hot.
Our show along and obviously into our show kidney.
Great I've got plenty.
Something else I could ask but I'll stop and hop back in thank you.
Yeah.
Thanks Ian.
Okay.
We'll take our next question from Alex Nowak with Craig Hallum Capital Group.
Great. Good afternoon, everyone I wanted to follow up on the ASB comments here and hope to clarify Theres, obviously, the newer tests out there in heart and lungs that has a higher mix of commercial when looking at year on year that obviously leads to less coverage there that Medicare, but then I'm curious why the ASP decline quarter on quarter.
Shouldn't you start to lapse that amount here at some point.
If you look at test volumes for them going from Q1 to Q2 isn't commercial test volumes pretty consistent from those two quarters. So I guess I'm trying to figure out what specifically led to a sequential decline in price, let's say specifically for Q2.
Yeah, I'll give some common cycle that obviously I've got more detail I think firstly, there was a new mandatory change which is part of sequestration, which is the 1%, which I think was mentioned bye bye Abishag and I think then we broke it up into what was commercial and Medicare and then what I can say is there actually was a law.
Larger increase in the commercial mix of these patients between Q1 and Q2. So I don't know Akshay. If you want to add some more commentary there no. Thank you raised you have covered most part of it but the key here is that when we start to look at the commercial.
Site, so increased volume most of that was driven by.
The payers and the test on the commercial side and as I mentioned it was about 75% of our ESP change and is primarily driven by our strategy here because as we can do to move into community nephrology. So we're getting more volume index pays and similarly on the early show lung since we actually.
Provided that number separately you can see the yellow show lung actually increased over 50%. So that those are the two factors that are driving almost like 3% of your ESP change and then the rest comes from the Medicare sequestration and a small part is coming from the collections.
Okay that is helpful. When we are thinking about the growth embedded into the new guidance can you just remind us first half how much acquisitions were added to sales in 2022, and then what does the guide assume here for growth in testing volume.
It looks like if you take the guidance and it almost implies a flat growth for the second half compared to the first half. So I'm just I'm trying to understand the volume trend.
Yes sure.
So first of all just to just to make sure that I get your question self fully right here. So when I look at the guidance the guidance changes coming primarily as we look into our ESP as of where we are today.
So we are now assuming that this mix shift will continue in the second half of the year and density than we are.
Revising the ESP assumptions that we had around the high single digits to the mid teens now and that is shifting the midpoint of the guidance from the previous $340 million due to the new midpoint guidance of the $330 million now I would only add that this has not been any change in our assumptions.
It related to the bond.
And the other.
Okay.
The high medium and low.
Alright, great assumptions, where the where the same I think what we communicated.
In the.
India.
Yeah.
Okay. I think you guys broke up on my end, but.
We can follow up offline. Thanks.
Yes.
Sorry, the packages.
Can you repeat the question.
Hello.
Hello.
Hello.
Ian.
Yeah.
Hello.
It's Alex dropped battles to speak route.
Alex are you still on the line.
Yes, I'm getting a text message.
Fun line cut out so I don't know if you can hear us.
This is the operator I am able to hear you on my end.
Okay, great well I think Alex dropped out, but we couldn't hear your question.
Alex are you still on the line your line is still open.
Yes, it's all in maybe we can come back to Alex we've done here and maybe go to the next.
Next to me, yes, we can.
Back to Alex when he rejoins.
Yes, we'll take our next question from Brandon Couillard with Jefferies.
Hey, Thanks, good afternoon.
I wish I could just in terms of the phasing.
The back half of the year should we assume that the asp's stepped down sequentially in both the third and fourth quarter and I know this may be a little preliminary but would it be your initial view that this mix shift against actually stabilize as we move into 'twenty, three or where you think it's likely to continue but perhaps at it.
Slower rate.
Sure. So this is a great question, so as I look into the second half of the year Mike.
ASP assumptions are pretty much how we are seeing the trends as of right. Now. So what we are assuming that the mix shift that we have seen so far this will continue in the next half of the so that's the first piece. The second piece is around the Medicare sequestration. So as you know that Medicare sequestration cut will go up to 2%.
In Q3, so it will have the same impact the way you tagged in the current quarter, but it will go away in Q4. So that's the second part so those are the two pieces that Vietnam zooming.
But other than that it will continue at least from our midpoint assumption standpoint in the same way.
For the second half of the year.
Got you okay.
Hey, Brandon.
'twenty three we haven't guided yet, but just I mean in terms of that commentary I think what you can see the sequestration will go away, but also as we build more commercial the largest two straight quarters coming from commercial sites. We work on commercial contractors look reimbursement voucher long deposits will reverse and also wind event multi modality for example countries. So what is the shrimp.
Is that progression, but what it doesn't factor in is during the.
2023 has been building in these additional contracts as they come through and then also the improved collections. So I just wanted to add that as well, although we're not guiding 23 just to show that there is there will be improvement.
Yeah.
Gotcha.
You kind of are talking about 2023 in terms of pointing to positive adjusted EBITDA by the first half I mean, just in general like why gifts that target right now.
What's the key driver of that shift to profitability is it stronger topline growth or actually a moderation in opex spending as you kind of indicated would be the case for the second half.
Yeah, Brent that we thought it was important to.
Again spoke to our investors and our long term versus its understanding that we have a really good business model, but also this path to profitability and I think.
Using adjusted EBITDA as a proxy and so as we've mentioned in the call. We had $12 15 in the past and will be incurred in the last.
A few quarters. This is incremental nonrecurring spend which will eventually go away, but say for example legal expenses. So.
If we assume that this year, that's $5 million a quarter of $12 million. For example, we've had to absorb that and so what we want to say as we go into the 2023 is that we have the operational model, including Opex, including top line growth that will absorb that and then we'll move back into this positive adjusted EBITDA. So that's the reassurance.
Went to provide and again just as a reminder, we know how to model well and I think what we're trying to do here is to say that you know where returns that after absorbing these incremental nonrecurring costs for example, nagel.
Got you, Okay and last question just about kidney care.
You could be more specific as far as the timelines for multiplex submission now what are the next milestones towards commercializing.
That's tough.
Yeah, No I think we feel really good about all that kidney week, obviously, you completed a second independent validation study with <unk>.
<unk> validation I mean, the process will as we mentioned in the second half will be with with moldings and as part of that facility has.
Started proud of their training.
As part of their cost is just as good you know part of.
Education.
Before any major launch, but I think we feel good about the progress in Allomap kidney. We also mentioned your math. Your math is also testing CLIA validation as well in the second half of this year as well so yeah, but.
Exciting opportunities for the organization, particularly in the kidney space.
Yeah.
Great. Thank you.
Thanks again.
We will take our next question from Nathan <unk> with Stephens.
Hey, guys its Jacob on for Mason, Thanks for taking my questions today.
So on the Medicare to Medicare advantage switching patients.
I know you guys talked on the call a little bit about building out the infrastructure for combating kind of this negative impact that's.
<unk> been a big part of the ASP.
ASP headwind just.
Could you maybe talk about the infrastructure you guys are building out there and maybe any metrics you can point to that shows our collection rates are going to start improving.
Thanks.
Yeah, No I can I can describe it and such but I think also with what.
Obviously described as well with 75% being you know the commercial and 25 years and being on the Medicare.
Medicare to Medicare advantage shift that was obviously a much higher shifts in medi can make advantage in product.
Prior quarters. So you can see that actually there has been some improvements on the collection side as well.
As part of that and excluding sequestration. It was actually three 7% so an improvement versus Q1.
Said the infrastructure that we've put in place during the first half year in which we continue to find out resolves around three things. One is people. The second is process and the third is looking at third parties and so as you heard during the call. We have now engaged third parties, helping us during.
During the process and we've obviously increased the number of people are just there's a plenty of edification for those and phone when you submit some Medicare it's fairly easy you put the paperwork submitted when you go from Medicare advantage. When you go for any commercial plans are different right you have difference.
Initiative needs such as different medical inflation and to provide a theres often a prior work required. This often like for example appeal process et cetera. So again this has required more people because it's a longer process as part of that and then secondly, and thirdly building out the process that.
That we have in the organization as we shift more to <unk>.
<unk> plans as well so again this process as a front end has mission process in the backend and he was scouted up and people and also with third party support.
Great. Thanks.
And then moving on to the next one could you just maybe provide an update for us on the inclusion of donor derived cell free DNA.
H O D guidelines, maybe just.
Talk about the impact inclusion would have from a timeline perspective on expanding commercial coverage for our shareholders.
Yes, I'm getting cooperate any national guidelines picky I still say cheese is a pivotal moment and in terms of the timing, we wouldn't be able to comment on that because that's developed by the committees and subcommittees and it was shared.
Part of the presentation is a draft guidelines. So we assume that process ongoing so we'd love to comment on that that we actually done because we don't run those committees that in terms of the impact it would it change part of the dialogue and discussion that we would then have with the commercial payers because it is seen as a fairly good validation proof point as.
So we saw that with obviously allomap as Walt and was instrumental in helping us to engage payers as well and those discussions so I'd say, it's equally important proof point and one that could be.
Quite a bit of an inflection point.
Alright. Thanks, that's it for me thanks, guys.
Thank you.
And as a reminder, if you'd like to ask a question. Please press star one at this time again that is star one for questions.
We will take our next question.
From.
Chen with H C Wainwright.
Okay.
Alright, Thank you for taking my questions.
Prepared remarks, you mentioned that the relatively low volume of transplant.
As a result of a shortage and stuff could you comment on what created the shortage of staff.
Yeah, the shortages that you're seeing across the health care network is pretty well documented I think during the process of Covid. There was a lot of stasi with firstly I'm, leaving.
Leading roles in going to other institutions that can be sold traveling this concept and so there was staffing shortages as a result of that secondly, there were people who were leaving a nursing rolls into other roles.
A lot of that during the course of closet and so less those roles Bentley.
Those two are being you know pretty soon can pivotal.
Creation to staffing shortages across the.
The hospital landscape and as lift to.
Various institutions actually being short in this where this has really played a role those when we sold them.
During Q3 in 2020 drink totally but that there were a lot of elective procedures being done on weekends for example play catch up.
Probably living living donor.
Transplants and so even if there is a desire to do more for example in transplant, you're not seeing that same sort of willingness or availability for example to schedule was out of hours or the schedule on weekends. For example, so it has been something that it.
It still exists.
And living donors have not returned back but have not returned back to craig's lipid levels.
What evidence have you observed to make you believe the situation could improve in the second half.
Yes, I think for staffing shortages tighter for us too.
Say that sensors will be able to recover but I think generally hold it in what we're seeing across the landscape is there has been an acceptance of.
Covid has also been acceptance of people now trying to get back more of a sense of normalcy. So on the first factor the traveling nurses, you'll see a bit of a trend shift there as well where the actual payment rates and.
The desire to keep them going round will probably change with payments coming down. So that's there'll be quite a difference. The second is you'll probably see less of the attrition of people wanting to retire because the bulk of that has already happened. So I think it's really dependent on more folks coming back into the.
Into those situations, but also that they're being lower attrition.
It's hard for us to make a macro comment of being top United States. Okay.
So the federal government just to clear most of the products.
Public health emergency, which aims to speed up new bashing distribution do you think that could possibly.
Create another round of snapshot of it.
Yes, I'm not I'm not sure to sugar that that question I think you know I think God.
Monkey Pox is an area that's still fairly early I think it's one where.
I, probably not the expert to.
To comment on in that area I don't believe it's stable and but.
Probably you know again I'd, probably light back just thinking as you know staffing shortage that is that your primary question.
It's really about I think now you'll see more of the return to the status quo, hopefully Q2, sorry Q3 Q4.
Okay. Thank you.
Okay.
Our next question from easy comps Koslovsky with Goldman Sachs.
Hi, Thanks for the questions.
So it's great to see transplant volumes recovering sequentially could you give us a bit more color around trends you've been seeing so far in July .
Yeah that the trends in July and these are weekly versus monthly so what we presented earlier with a bumpy days, which are more complete data sets on the weekly trends in July .
Which are directionally it seems to be very similar to what we saw in.
No no nothing like that.
So I used them up mid single digits.
Okay, Great. That's helpful. And then despite being down sequentially are up sequentially, you were still down versus last year, but obviously you've proven for the last few quarters, you've been able to still grow testing volume even when transplant volumes were down could you talk through what would happen if transplant volumes take longer to get back to last year's levels.
Yeah, I think for US we've seen the nadir in Q1, and we predicted that I think that's played out in Q2 with a nice rebound a recovery sequentially, but also year over year.
I think given the comparator.
You know Q2, 2021 being the peak point I think we'll probably see a year over year improvements in Q3, and Q4 I think sequentially. Some of the drivers, which we may see improvement will be driven by the living donor population, which is still below where it was pre COVID-19 helped.
Helping to assist with transplant volumes and let's not forget on the on the hot side as well, we talked about kidney, but there are other forms of drivers, which are leading to an increase in volumes for example, we've seen.
Ccd's versus DVD.
Patient hearts being used as well so.
I think you know the the ability of this market to come back long term is very strong and I think we'll hopefully see the start of that in the second half of the year.
Okay. That's helpful. Thank you.
Youre welcome.
There are no further questions at this time I'll turn the call back to rich for any <unk>.
Additional or closing remarks.
Yeah, well look I want to thank all the investors analysts shareholders being on today, you know what you mean.
<unk>.
A tough six months I think for many companies and operations and organizations that he you know for US we're really excited.
But the momentum that's coming out of Q2, and I think what we can do in the second half of the year and we just at the end of the day.
Each and everyone of you for supporting transplant, it's such a unique space in these patients where they need support and where we're proud to be 100% focused on transplant. So thank you again for your support and commitment and we look forward to on pulp discussions with each and every one of you. Thank you.
Okay.
Today's call. Thank you for your participation you may now disconnect.
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