Q4 2022 CareDx Inc Earnings Call
And so there were a couple of things going on this quarter. The first one was the milestone payment. So of course, we had these.
Agreements with some of the partners in the past, where we basically pay them, while achieving certain milestones and one of those contracts basically required us to pay for the milestone and Thats where that payment came in so that was a one time one and the second one of course is the clinical study payments as.
You would know that the startup cost will always stay a little bit of more bumpy and we paid some startup cost in Q4 that will increase the R&D spend.
One thing quickly and just lay out the expectations will have some results in the quarters for this year at least.
That metric of looking at.
Cash collections versus versus testing service revenues length that we anticipate to keep on sharing and in a positive way as well. So I think that should be just to set the cadence as well, but thank you again for the questions.
Yes.
Thanks, I'll jump back in the queue.
Our next question is from Mac Sykes with Goldman Sachs. Please proceed.
Hi, good afternoon. Thanks for taking my questions. Maybe my first one you had mentioned.
That post the ice <unk> guidelines that you had had some conversations further conversations with Payors would love to know kind of what the feedback is from those conversations in terms of are these guidelines what they're waiting for and do you think you can you can achieve some momentum from that.
You're obviously not baked into your guide, but that we could see in 'twenty three from a coverage standpoint.
Yeah, and I would say Matt.
We're thrilled to get the <unk> guidelines and what was shared at the end of last year as one of the areas. We thought would be important for the organization, particularly as we look at our El pay coverage I think I'd break it down to two fold. The first is on.
On Allomap I think firstly allomap.
Allomap is our FDA cleared test gene expression profiling sort of.
Published in New England, and what was clear to us in the guidelines as they should be earlier coverage.
At month two.
And there were some commercial payers today that don't cover that early and so this has led us to actually initiate several discussions already with some national and regional payers already this quarter two to start those discussions. So it has been firstly receptivity to have those discussions secondly to allow us to present, the information and then allow us to.
<unk> represents some further rash.
The rationale behind that <unk> stock, particularly because it's given and the guidelines are named specifically so.
It's ongoing process, but one we are particularly pleased with the second is if you look at.
Hot cure itself.
This is an area, which has now allowed us to actually trigger some of those discussions as a reminder.
Previously, we werent necessarily getting those discussions on an AD hoc basis, or even a routine basis with.
Our Shaw Hot but now this guidelines coming through particularly with the recommended testing and also looking at.
Some of the settings, such as during Covid has now allowed us to initiate those AD hoc discussions that as off cycle and allow those to take place as well. So that's how I bifurcated I think the first one is probably more readily.
On a cadence perspective to capture I think the other one is based on not only sharing those discussions, but certainly from accounting perspective happy to have that come through.
Got it thanks for that rich and then just.
Chuck just a little more details on the additional disclosure in the 10-K on the material weaknesses is there sort of a timeline for remediation that we should be thinking about it and is there going to be any additional costs incurred as a result of maybe further investment in technology stock or other types of cost will be involved in the remediation efforts.
Yes, Matt So we basically decently identify this and then.
It does not have any impact on the financial statements I just wanted to call that out specifically here.
The second piece is that you need to actually remediate. These weaknesses over a period of time, and then you need to test and prove it out before you can actually fully call. It out remediated. So it will take few quarters before we are able to kind of fully remediate and then also disclose that that base. That's the first part and the <unk>.
Paul to your point is that.
We as a company.
Has grown quite rapidly in the last few years and then we are trying to catch up on our infrastructure and some of our infrastructural areas and this is the piece, where we will be making some investments, but we are already having those things in our plan.
Got it and how yes.
Okay.
Our next question is from Nathan <unk> with Stephens. Please proceed.
Okay.
Hey, guys, maybe a couple here on the adjusted EBIT goal.
Yes.
Sorry, if I missed this but do you anticipate maintaining positive adjusted EBITDA going forward once you achieve that milestone in the first half.
Yes, I'll take that question and.
Yes, absolutely that is what the goal is Mason.
And I'm, hoping that we will be using our operating leverage after the Q2 to be able to kind of stay positive.
But at the same time I just wanted to also make a mention that we will be evaluating our investment opportunities as they come up in the second half and going forward and we will let you guys know if something were to happen that way.
Okay got it and then two other quick ones here, one I guess, if we were to take a step back and say look high level what.
What do you view I guess is the biggest risk to either not being able to achieve that positive adjusted EBITDA in the first half or maybe it flipping back negative what's the biggest risk there and then the second part of the question is what are you expecting stock comp to be in the upcoming year.
So on the adjusted EBITDA I think the biggest risk that I foresee is around the market volume growth.
So if something were to go wrong.
<unk> is the only only thing that I can think of we are trying to do as a company a lot of stuff too.
Manage our expenses and staple prudent there.
So that is that is that I foresee.
To hit our goals there and the second question second part of your question was around.
What was the second question Nathan can you say that stock comp, how we should be thinking about stock comp in the upcoming year.
Yes, I would basically assume a very similar trajectory off the stock comp going forward as well I wouldn't be thinking of too many changes there.
Got it thanks guys.
Okay.
Our next question is from Alex Nowak with Craig Hallum Capital Group. Please proceed.
Okay, great good afternoon, everyone.
First of all how much revenue does the HLA digital systems add that acquisition, how much that added to my choice right.
Not material.
Alex So I wouldn't call it out as one of the reconciling items to the guidance.
Okay.
And then I just wanted to stand the testing volume growth that you're expecting in 2023, so 3% to 5% top line growth digital products are growing call. It mid teens, so that yes.
That's going to push the testing is.
Download the market's indicating down to start the year on the testing volume side. So do you expect I guess at the end of the day testing volumes to decline in 2023, or how do we think about that growth in that business. When you strip out all the AFC dynamics.
Yes, so I still feel there will be a positive growth because when I build the guide im looking at the mid teens volume growth right.
Yes of course, the start of the quarter has been relatively slow, but I expect that the market growth will pick up and at least it will play out very similar to how it has it has played out last year.
So that's the first part and the second part is that when you talk about the payer mix change.
Asps are going to be better as compared to how it fared last year by about five percentage points of the mid single digit is what I'm, calling.
Because of our collection efforts and the Delta between those two will basically provide us the increase in the testing services revenue growth, that's how I see it.
Okay that is helpful. And then kind of a two part question here kind of on the regulatory side.
Any update from the Mol Dx CAC meeting any discussions with Medicare.
When do when should we expect the conclusion there and then the second part is a worry that was settled with the Doj or the FCC inquiry or was that a state inquiry and then if it is just the state what's the status of the Doj SEC state inquiries.
Yes, I think with.
The recent CAC meetings and these are things that are initiated.
But for regulatory review and I think it hasnt been any recent or further updates from that I think as we've talked in the past Alex in terms of benchmarks. You signed was to happens typically around a 15 month path sort of timeline does includes a period of public.
In our comments as well as part of that I think we've.
Received extensive support across all organs from Kols that we've talked about.
<unk>.
The different Biomarkers were both the space and what they represent in terms of clinical practice across kidney heart and lung so for us it's even as recent as this weekend at the.
The importance of what we do as an organization and bringing this breakthrough innovation is something that.
Kols tortilla have spoken about so we really feel thrilled about that level of support.
Important for us and again, we have this obligation is to innovate in this space continue to drive that innovation and it's gratifying to see that consistency.
Come across from Kols is also I think the timing of that meeting had just preceded the.
The guidelines as well we should come out from <unk>. So it's always good to get that reinforcement from our international organization.
And let me take the second part of your question on the on the state regulatory update that I provided at this time around so it wasn't the Doj SEC matter. This was basically a state regulatory agencies. So thats the first part.
The second part of your question was if there is any other update on that.
Youll see a Doj investigation at the onset is that there are no material updates to report on that particular matter. We continue to cooperate with the request that we received from these guys and of course, there hasnt been any questions raised.
Around the safety and efficacy of our products.
And the other inquiry that happened late 2022 that was related to the.
The Doj piece, just so I'm clear.
No. This was a completely different inquiries.
I think we should have some yes.
Yeah, any any comment I guess around.
That for one and then any comment on that just good. Thanks Youre welcome there.
So I didn't quite get the question, but I think in October 21, we disclosed.
What was in the following some time point and this is one that's been.
Finished and completed from the feedback we receive yes, yes, okay.
It looks like late 2022, it looks like and then Theres another inquiry that Ken but we can talk about later.
Or late 'twenty two there was another state in creative that we have received this is basically.
A recent one yes.
It's an isolated case state from a single vendor in a state that's what we have disclosed a single vendor in the state that we have disclosed.
Okay understood. Thank you.
Yes.
Our next question is from Mark Massaro with BTG. Please proceed.
Hey, guys. Thank you for taking the questions just kind of parsing through the guidance I appreciate all the color.
Low teens volume growth and test services low double digit decline in Asps.
That kind of nets me out at around 3% or so call. It low to mid single on testing services revenue.
But for the full year, you're guiding 2% to 5%.
When I look at last year.
And I add up the buckets for products.
Digital and products I think you grew about 57% last year. It represented 18% to 20% of revenue so really strong growth in products last year, but I'm not seeing a really strong outlook for products. In 2023. So can you just give me a sense. If there are any one timers in 2022 that arent.
Likely to repeat just to give us a sense for what.
The different scenarios are with respect to the range.
Sure Mark I think the one piece on the non testing services side that I have been calling out is around additional patient solutions because that business grew at like 180% year over year and that was primarily because of our acquisition of the transplant pharmacy, So thats not going to happen again in 'twenty three so that is the bit that probably you need.
Bacon.
That's super helpful. I guess can you give us a sense for what the underlying growth of the transplant pharmacy is.
All these sort of transplant pharmacy, let me provide you color on the testing services and let me call. The other two businesses as the non testing services I'm expecting the testing services revenue.
Revenue growth to be very similar to what you called out from the low single digit to the mid single digit and our non testing services would be high single digit very similar to what you have seen in the last year, yes.
<unk> that Mark was asking what is the transplant. So the transplant pharma essentially a white glove service.
Business that we have and it's essentially.
Those transplant centers and patients and so it's really built a reputation on.
This white glove service and.
Focus on yes, just on transplant patients pretty similar with our mission and our vision to lead in the transplant ecosystem. So that's one area that has has grown or had growth through that through that acquisition last year.
Okay, Great and then rich maybe just to clarify did I hear you say that the underlying volume growth in transplant is call. It around negative 3% here in Q1, and I know that you've called out a number of drivers.
To the challenging end market things like staffing shortages.
Living donor transplant changes.
A lot of the items that you call as potential.
Sure.
Benefits to the volumes many of those appear to be kind of multi year.
Drivers over over time.
I'm just curious if you see any short term potential changes with respect to staffing shortages for instance, maybe one but what are some things that you guys can actively do to manage this in the near term.
Yes, it's really interesting this whole market dynamic and I think we as you can see in the prepared slides as part of the webcast. I mean, you had seen this.
Increase in Q2 of last year.
Going to 6% and 4% and 2% sequential and year to date on seven quarters seven weeks of weekly data that minus three across.
The total but each organ group has had a decline so that hasn't gone the way that we had expected, but that said I do think the the drivers northern trains into there.
I meet with transplant centers every week.
Mark and I asked him the same question to see whats happening as well.
From their viewpoint and there's been various answers, but some of the consistent ones are definitely the living donors has not rebounded and staffing shortages means that they can't always do procedures as they would like to and this is something that is seen across so group.
Groups as well, we do we do have seen an increase in C stone as though for example on the kidney side.
At the end of the day some of the some of the different areas that you described they they will happen faster than later in terms of the drivers. So if you talk about.
The transportation or perfusion devices for example that expands the pool of patients. So for example in hot Stroppy, it's being what you call.
TBD brain dead donors, but now you've expanded the pool by adding desisto and switch a strike we hadn't been there and even recently is.
See you on the weekend and I talked to one center, which has increased the number of <unk>.
<unk> planned to do in the on the Hot side for example by.
Using this alternative approaches.
Using C store and so I do think there'll be changes that youll start seeing.
Hopefully sooner rather than later I do think living donors. However is the biggest data are the biggest drivers delta that one could achieve.
During that time period, and I do think.
The government initiatives, putting actually enforce that donation transplantation, right and really forces the whole ecosystem to play together. So I do think those unifying factors will play a role, but youre right. It will be a different cadence probably the.
To see the expanding of the donor pool as the first one and then over time I think some of those got initiatives will kick in quite nicely.
Excellent if I can sneak in one final one two parter.
Where are you guys doing with respect to remote track I know that used to hover around 40% of your volumes and then finally, you guys have $293 million of cash historically, you've done a great job of bolting on tuck ins sort of differentiating the product suite across your portfolio you recently acquired HLA data systems.
So how should we think about and.
And you're about to achieve adjusted EBITDA positivity.
How should we think about M&A funnel and what sorts of things.
Potentially looking at.
Yes, Mark it's a great question I mean, historically, we have always done.
Anywhere from one to three acquisitions a year. That's these are small bolt ons consistent with the HLA data systems. We we have a unique ability to find smaller opportunities, but really can add either to the mobile ad budget.
But in the case of transplant pharmacy to some of the top line. So we feel we feel good about these opportunities because every one of them and people have come to us. It hasnt been one where we've had to slip it out I mean, we get so many inbounds, but it's really finding.
Those that can drive leadership box. So those can be one or two it doesn't really make sense to get site, where it's still nascent or one where it's not going to be in a leadership position. So that's probably one of the key things to note.
<unk> always one has to look across the board for opportunities, but also which makes sense for us as an organization. We are committed to the transplant say so I think there is a defined number of opportunities and again, we get these in a very routine basis, and we assess them with a lot of rigor. So again very excited by the year ahead, great to be in this financial position.
Table to deploy our capital in the appropriate ways, we have done historically.
Yes.
Okay, and then any update on remote tracker mobile phlebotomy.
No nothing significant change there.
Mark.
Okay guys. Thanks for all the questions.
Thank you again.
Our next question is from me Chen with H C. Wainwright. Please proceed.
Thank you for taking my question.
First question is is there additional room for.
Hello.
Is there additional room for cash collection improvements.
Yes, we as we mentioned this is an area that we'll start sharing.
Quoting paces <unk> changed and I think what we've signaled is that we expect.
The cash collections to exceed the testing services.
Revenues as we now play a bit of catch up with for example, some of the.
Delayed processes and collections of past such as Medicare advantage and also as we.
Also add more commercial.
Pay coverage on a regional basis so.
There's certainly the opportunity and we'll compare this year over year for you and provide that metric.
Okay, and when do you expect to generate meaningful revenue from cell therapy monitoring.
Yes.
It's an excellent question I mean, I think for US we've always signaled that.
Al.
<unk> therapy franchise with an allo cell talking about some of the other elohim and some other offerings we have.
Probably more on the greater than the five year horizon. The reason, we say that is because it's really predicated on having the.
Actual.
Cell therapies make it to market.
And as of date in the U S. None of the allogeneic.
Cell therapies have made it to market. So there's a lot of activity.
Activity preclinical phase one phase III.
But unfortunately <unk> got over the line yet.
So we look we look forward to those.
Future now our goal now is to be very early in that process to develop those research and clinical partnerships. So that we can be there once.
Some transformative type of opportunity makes it too critical scale and mass so similar to what we have done without.
Approach in the solid organ space.
And lastly, maybe you touched upon this before.
Evidence have you observed that make you feel confident the number living donors will actually rebound in the coming quarters or years.
Yes, I think living donors is such a huge area of.
If an opportunity and I think I'll I'll share a real example for U.
<unk> I think how we think of behavior in the community.
One of our.
Team members actually his wife.
Was actually needing a transplant and.
Actually put out a post.
To get.
In Oregon and altruistic.
And <unk>.
During that week.
There were probably more than a dozen plus in altruistic Don has it stepped up and offered to.
To help out during that time, so I do think there is.
That opportunity I do think addressing staffing shortages that do you think making sure they stay at a time.
I think now seeing the.
Decline in some of the infectious diseases, which were quite high during Q4.
Last quarter go away will be important, but I do think just knowing that at least in the altruistic side not.
Not including directed donor that Theres always and <unk>.
Credible opportunity of human behavior that we've seen where people willing to.
Help out in <unk>.
Organ space, and we've seen a real timing out organization.
[laughter].
Okay. Thank you.
Thank you we have reached the end of our question and answer session I would like to turn the conference back over to management for closing comments.
Yes, thanks, very much and we really 2022 was.
A year that was <unk>.
<unk> got I think 2023 is one where we.
We want to build on the catalysts that we have to.
Build the organization to continue increasing collections as part of the infrastructure. We built last year and also to focus on coverage or the three CS as we call them. We think we have an incredible role to play as an organization in the transplant ecosystem and we certainly feel that obligation not only from physicians.
But patients and associations and everyone looks at <unk> to really play that role and it's a role that we've got.
<unk> taken as to be leader in this space. So I think if you think of anything involving transplant and will be involved in it so I want to thank again the <unk>.
Team for working so hard during 2022 and I also want to thank you the to the analysts for the great questions and also to any shareholders or investors, who may be listening in and supporting this space at such a critical one and it's a great one to be thank you again and have a wonderful evening or afternoon, depending where you are thank you.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
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