Q3 2024 CareDx Inc Earnings Call
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Please standby your program is about to begin.
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Speaker Change: Good day, everyone and welcome to today's Chair Dx, Inc. Third quarter 2024 earnings Conference call.
Speaker Change: At this time all participants are in a listen only mode.
Later, you will have the opportunity to ask questions. During the question and answer session.
Speaker Change: Please note today's call will be recorded and I will be standing by should you need any assistance.
Speaker Change: It is now my pleasure to turn the conference over to Greg <unk> Managing director. Please go ahead Sir.
Greg: Thank you Claudia and good afternoon.
Greg: Thank you for joining us today earlier today <unk> released financial results for the quarter ending September 30th 2024.
Speaker Change: The release is currently available on the company's website at Www Dot care Dx Dot com.
Speaker Change: John Hanna President and Chief Executive Officer, and I'll be shocked Jan Chief Financial Officer will host this afternoon's call.
Speaker Change: 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 the federal Securities laws, which are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Speaker Change: Any statements contained in this call that are not statements of historical facts should be deemed to be forward looking statements.
Speaker Change: All forward looking statements, including without limitation, our examination of historical operating trends expectations regarding coverage decisions.
Speaker Change: <unk> and enrollment matters and our financial expectations and results are based upon current estimates and various assumptions.
Speaker Change: 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.
Speaker Change: Accordingly, you should not place undue reliance on these statements for.
Speaker Change: For a list and descriptions of the risks and uncertainties associated with our business. Please see our filings with the Securities and Exchange Commission.
Speaker Change: The information provided in this conference call speaks only to the live broadcast today, they'll never put forth 'twenty 'twenty four.
Speaker Change: <unk> disclaims any intention or obligation except required by law to update or revise any information financial projections or other forward looking statements, whether because of new information future events or otherwise.
Speaker Change: This call will also include a discussion of certain certain financial measures that are not calculated in accordance with generally accepted accounting principles.
Speaker Change: Reconciliation to the most direct comparable GAAP financial measure maybe found in today's earnings release filed with the SEC I will now turn the call over to John.
John: Thank you Greg and thank you to all who are listening to today's call.
John: <unk> had another strong quarter with year over year growth across our business.
John: We reported revenue of $82 9 million, representing 23% year over year growth.
We expanded our gross margins and managed our expenses well leading to positive adjusted EBITDA of $6 9 million above our guide of being EBIT neutral.
John: We generated $12 5 million in cash from operations and ended the quarter with a strong balance sheet of $241 million in cash and cash equivalents and no debt.
John: We believe <unk> has turned the corner towards long term profitable growth.
Speaker Change: In my prepared remarks, I will provide commentary on Q3 and insight into Q4 and our revised guidance.
Speaker Change: Then I will turn the call over to <unk>, who will review, our finances and guidance assumptions in further detail.
Speaker Change: Yes.
Speaker Change: In testing services, we delivered approximately 44600 tests up 16% from the prior year. This represents the fifth consecutive quarter of sequential growth in testing services volumes.
Speaker Change: <unk> services revenue was $60 8 million up 27% year over year, including $1.2 million in revenue from tests performed in prior periods.
Speaker Change: We have begun to execute the strategy, we laid out at our 2024 Investor day that will unlock profitable growth at <unk> by engaging transplant centers with solutions that include a synergistic portfolio of testing digital in lab products and are seeing early successes with this strategy.
Speaker Change: The first step was to reorganize our go to market team into a structure that places our customers at the center of everything we do.
Speaker Change: To capture the testing services growth opportunities ahead of US we have already added 15 of a planned 30 sales and marketing team members to promote and sell our leading transplant solutions.
Speaker Change: In addition, we are adding 20 team members to our billing organization of which we have already hired approximately 10 team members to date to drive greater collections and expand our asps.
Speaker Change: In mid August the centers for Medicare and Medicaid services reaffirmed their commitment to covering testing for solid organ transplant monitoring including for surveillance.
Speaker Change: Anticipate it will take two to three quarters for kidney transplant centers across the country to re adopt surveillance testing protocols.
Speaker Change: Establishing a protocol at a transplant center is a departmental consensus process that may take several months to agree upon draft document and logistically implement the workflow.
Speaker Change: Since the beginning of September 10 transplant centers that we work with have establish new protocols that include kidney surveillance testing.
Speaker Change: And we began to see a shift in our testing mix towards surveillance in the second half of September that continued through the month of October.
Speaker Change: Yeah.
Speaker Change: And their August press release, CMS signal that a future draft LCD may be introduced that we anticipate may address the rapidly growing literature in this field, including the recent nature Medicine Multicenter study of 2882 patients demonstrating that surveillance with Alisher kidney.
Speaker Change: Improves detection of all types of rejection.
Speaker Change: We continue to maintain an open line of communication and message advancements in the evidence supporting our short testing to the agency and our Mac contractors.
Speaker Change: For example.
Speaker Change: In October the American Society of transplant Surgeons issued a statement on the importance of serial testing using donor derived cell free DNA in kidney and heart transplant patients.
Speaker Change: In kidney they recommended serial testing in patients with stable renal allograft function to exclude the presence of subclinical antibody mediated rejection and in patients with acute allograft dysfunction to exclude the presence of rejection.
Speaker Change: In heart they recommended using donor derived cell free DNA to rule out subclinical rejection. They also recommended that clinicians using donor derived cell free DNA also utilize peripheral blood gene expression profiling, such as our heart care solution as a noninvasive diagnostic tool to rule out.
Speaker Change: Acute cellular rejection in stable low risk adult transplant recipients.
Speaker Change: On the commercial payer side in the third quarter, we added 4 million commercial covered lives and last week Highmark Blue Cross Blue Shield issued a policy providing coverage for al assure kidney for.
Speaker Change: Or heart care coverage was expanded by high Mark to begin two months post transplant from the previous coverage beginning six months post transplant.
Speaker Change: As of the end of the third quarter. We have gained approximately 31 million covered lives nationwide across our testing services business. We anticipate that this coverage coupled with the expansion of our revenue cycle management team will contribute to ASP growth that we will benefit from in future quarters.
Speaker Change: Moving to our patient and digital solutions, we reported revenue of approximately $12 million, representing 20% year over year growth.
Speaker Change: First as we migrate customers from on Prem to SaaS products, we generate monthly recurring revenue and are able to improve our pricing.
Speaker Change: Second HLA labs that utilize our lab products are increasingly adopting our HLA lab information management software solution, which we believe is best in class in the industry.
Speaker Change: Third among our testing services customers, we continue to sell our transplant pharmacy and medication adherence solutions to drive revenue growth.
Speaker Change: In October we signed an agreement with the University of California Health system, which includes UCLA UCSF UC Davis, UC, San Diego and UC Irvine to implement med action plan, our medication adherence SaaS software application.
Speaker Change: That action plan is clinically proven to improve patient medication adherence.
Speaker Change: <unk> has been shown to contribute to significantly lowering 30 day readmission rates.
Speaker Change: Collectively the University of California Health system is one of the highest volume transplant health systems in the U S.
Speaker Change: As we shared during our 2024 Investor day, we've seen that the performance of accounts that had three or more <unk> digital solutions has a significantly higher new patient acquisition rate for testing services.
Speaker Change: We're encouraged by this early result from our account and portfolio based approach aimed at addressing the needs of our center customers and creating long term customer stickiness.
Speaker Change: Moving onto lab products, we reported revenue of $10 2 million, representing 7% year over year growth.
Speaker Change: The continued global adoption of our industry, leading allo CTX N G. S based HLA typing kit primarily drove this growth.
Speaker Change: We continue to innovate to offer best in class HLA typing products in the market.
Speaker Change: Two weeks ago at the annual meeting of the American Society for Histocompatibility, and Immunogenetics or Archie the largest annual HLA lab meeting, we presented new data on our <unk>, TX 11. The next generation of our <unk> assay with increased coverage of class two low Si.
Speaker Change: We also announced the launch of our next generation assigned software for Alethia, TX HLA typing featuring our newly improved user interface and streamlined workflow to view 24, or 96 multiplex Ala seek TX samples in real time as results become.
Speaker Change: Available without waiting for the full batch to result.
Speaker Change: We expect to make the new assigned software available to HLA lab customers in December of this year, adding a best in class software solution to complement our best in class <unk> N G S chemistry.
Speaker Change: At <unk>, we also announced our newly improved Q type rapid HLA typing solution for deceased donor organs, which now includes single bead antigen resolution to facilitate virtual cross matching for faster transplant, Oregon allocation decisions.
Speaker Change: And finally at <unk>, We also announced a partnership with dovetail genomics to launch an early access program combining carroty acts as our CTX with dovetail genomics High C link prep technology to achieve high resolution Geno typing and haplotype thing without the knee.
Speaker Change: Need for family Geno typing studies the.
Speaker Change: The pairing of these technologies has the potential to improve transplant outcomes through better matching at the haplotype level.
Speaker Change: Our continued investment into HLA typing solutions demonstrates our ongoing commitment to delivering the most innovative solutions to support pre transplant recipient and donor matching across solid, Oregon and stem cell transplantation.
Speaker Change: Moving on to our corporate business updates and guidance.
Speaker Change: In Q3, we also made significant corporate progress first I added new senior executives to the company, including a chief operating officer, Chief Commercial officer, and Chief data and AI officer, and reorganized our operating structure for long term profitable growth.
Speaker Change: In addition, this past week, Chris Sezer are seasoned market access professional from Pfizer myriad genetics and most recently Delphi diagnostics has joined <unk> to lead our global market access initiatives to drive coverage and reimbursement of our products.
Speaker Change: Second during our 2024 Investor day held mid October we laid out the <unk> three year growth strategy and financial plan to becoming the most innovative company in diagnostics we.
Speaker Change: We are targeting to exit 2027 with $500 million in revenue, 20% adjusted EBITDA profitability and an additional $100 million in cash on our balance sheet.
Speaker Change: Third the Doj closed its investigation into security acts with no findings of wrongdoing.
Speaker Change: The Doj's decision follows the Sec's decision in September of 2023 to close its investigation and take no action against care Dx. We believe the closure of the Doj's investigation underscores that the underlying allegations, which have now been reviewed by two separate government agencies were <unk>.
Speaker Change: Lists.
Speaker Change: And fourth our competitor has dropped their pursuit of patent infringement claims and a potential injunction against our current Alice sure testing method.
Speaker Change: While we believe competition is good for innovation and patient care, we will continue to defend the novel technology. We first brought to market against what we view to be baseless claims of infringement.
Speaker Change: The jury verdict against Carroty access prior al assure process remains under court review and we intend to continue to push for the invalidation of all patents that have been asserted against us.
Speaker Change: Now turning to our guidance.
Speaker Change: Given our strong year to date results and expected growth for the remainder of the year, we are raising our revenue guidance for <unk> for fiscal year 2024 to the range of 327 million to $331 million from our prior guidance of 320 million to 328 million a growth rate of approximately.
Speaker Change: Limitless, 17% year over year at the midpoint of our guidance.
Speaker Change: From the midpoint of our revised guidance, we continue to target a growth CAGR over the coming three years of approximately 15%.
Speaker Change: We anticipate the pacing of that growth to accelerate from low teens in 2025 to high teens in 2027.
Speaker Change: Excluding $14 million in one time revenue in 2024 the growth rate for 2025 is anticipated to be in the high teens.
Speaker Change: During our Q4 earnings call, we will provide further details on our full year 2025 guidance.
Speaker Change: In summary, we had a strong quarter with year over year growth across all our solutions, including testing services digital and lab products.
Speaker Change: I want to close by congratulating the transplant community, including the hundreds of clinicians thousands of patients and over a dozen members of Congress that advocated and supportive monitoring assays for solid organ transplant rejection, including for surveillance.
Speaker Change: We continue to advocate vigilantly on behalf of patients to ensure that they have the same long standing access to monitoring assays that allow for early intervention of graft rejection and improved outcomes.
Speaker Change: I will now turn the call over to Abishag to share more details on our third quarter financials, and our guidance average check.
Speaker Change: Yeah.
Speaker Change: Okay.
Abishag: Thank you John in my remarks today, I will discuss our third quarter results before turning to revised 2024 guidance unless otherwise noted my remarks will focus on non-GAAP results for further information. Please refer to GAAP to non-GAAP reconciliations in our press release earnings presentation and recent set.
Speaker Change: E filings.
Speaker Change: Let me start with the key financial highlights.
Speaker Change: We reported total revenue of $82 9 million for the third quarter up 23% year over year.
Speaker Change: <unk> delivered approximately 44600 tests, it does up 16% year over year, and 2% as compared to the last quarter, representing the fifth consecutive quarter of sequential testing services volume growth.
Speaker Change: Reported testing services revenue of $60 8 million up 27% year over year, including $1 2 million associated with tests performed in the prior periods.
Speaker Change: Reported patient and distant solutions revenue of $11 9 million up 20% year over year and product revenue of $10 2 million up 7% year over year.
Speaker Change: We reported an adjusted EBITDA gain of $6 9 million compared to $10 9 million loss in the same quarter of last year.
Speaker Change: Finally generated cash of $12 5 million from operations and ended the quarter with $241 million in cash cash equivalence and marketable securities.
Speaker Change: Moving to the details starting with gross margin.
Speaker Change: Our non-GAAP gross margin for the third quarter was 69% up 240 basis points as compared to non-GAAP gross margin of 66, 6% in the same quarter last year.
Speaker Change: Our non-GAAP testing services gross margin was 79% in the third quarter compared to 74% in the third quarter of 2023.
Speaker Change: The improvement in testing services gross margin was driven by volume growth is the expansion as well as continued efficiencies and managing our lab operations.
Speaker Change: One 2 million in revenue associated with test performed in the prior period also added about 40 basis points to the non-GAAP gross margin.
Speaker Change: Outpatient and digital solutions non-GAAP gross margin for the third quarter was 37% as compared to 39% in the third quarter of 2023.
Speaker Change: Excluding our transplant pharmacy, which has a lower gross margin profile outpatient and defense solutions non-GAAP gross margin for the third quarter was approximately 60%.
Speaker Change: Our products non-GAAP gross margin was 46% in the third quarter down from 58% in the third quarter of 2023 and in line with non-GAAP gross margin of 47% last quarter.
Speaker Change: Product gross margin can be impacted by the variability in our production should do.
Speaker Change: In the third quarter of 2023 gross margin was higher due to an end of life Blackberry for one of our HLA typing kits.
Speaker Change: Anticipate another end of life, both bird in the fourth quarter of this year.
Speaker Change: Moving down the P&L non-GAAP operating expenses for the third quarter, but $52 2 million down approximately $5 5 million from the third quarter of 2023 and down 3 million from the previous quarter.
Speaker Change: The quarter over quarter decrease in our operating expenses was primarily associated with lower conference call push out of some expenses related to clinical trials and lower legal spend.
Speaker Change: Our adjusted EBITDA gain for the third quarter was $6 9 million compared to adjusted EBITDA loss of endpoint and 9 million in the third quarter of 2023, an improvement of $18 million.
Speaker Change: This was driven by strong revenue growth improved gross margin and lower operating expenses.
Speaker Change: Excluding the $1 2 million in revenue associated with tests performed in the prior period, our adjusted EBITDA gain would have been $5 7 million in the third quarter.
Speaker Change: Yes.
Speaker Change: Turning to cash we added approximately $12 million to our cash balance in the third quarter, primarily driven by cash generation from operating activities.
Speaker Change: We ended the quarter in a strong position with cash cash equivalents and marketable securities of 241 million and no debt.
Speaker Change: Turning to guidance based on the performance across our business in the third quarter of 2020 fold, we are raising our full year revenue guidance to $327 million to $331 million from our prior guidance of $320 million to $328 million.
Speaker Change: The midpoint of our 2024 guidance assumes.
Speaker Change: Testing services volume growth in the mid teens and implies revenue growth of 30% year over year for the fourth quarter of 2020 full.
Speaker Change: The difference in our assumptions between volume and revenue growth is driven by ASP expansion.
Speaker Change: In October we experienced an impact of approximately 1% in testing volumes due to hurricane Milton.
Speaker Change: And this is incorporated in our revised guidance.
Speaker Change: We are assuming blended ASP of approximately $30 35 per test for the fourth quarter.
Speaker Change: And no changes to our Medicare coverage.
Speaker Change: Outpatient and digital solutions is expected to grow in the mid teens year over year.
Speaker Change: In Q3, we recognized revenue of $1 million in one time initial setup fee for the completion of HLA Lab management software implementation.
Speaker Change: We do not anticipate this recurring in the fourth quarter.
Speaker Change: Our lab products will grow in the high teens year over year.
Speaker Change: Moving to gross margin.
Speaker Change: Now expect our gross margin to be approximately 69% for the full year 2024, driven by the improved testing services gross margin.
Speaker Change: We are expecting a slight ramp up in our operating expenses in the fourth quarter associated with scaling of our commercial organization and billing operations to accelerate revenue growth in line with our growth strategy.
Speaker Change: Due to improved revenue expectations and gross margin, we expect our adjusted EBITDA gain for the full year 2004 to be between 18 and $22 million compared to previously guided gain of 9% to $15 million.
Speaker Change: With that I will now turn the call over to John to deliver closing remark.
John Hanna: Thank you Avishai I.
John Hanna: I want to reiterate how excited I am about <unk> future and the journey ahead.
John Hanna: Have the right team in place addressing the right market with the right products to deliver profitable growth.
John Hanna: I want to thank the entire global <unk> team for their strong execution in the third quarter and with that I'd like to ask the operator to open the line for questions.
John Hanna: Okay.
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Speaker Change: Okay.
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Speaker Change: Now back in.
Speaker Change: Well, we are you there.
Speaker Change: Yes.
Speaker Change: Announced bill Bonello with Craig Hallum. Your line is open.
Bill Bonello: Hey, thanks.
Speaker Change: Hoping you guys are all there after that storm.
Speaker Change: So thank you we can hear you bill okay. Good. Thank you so much for all of that information.
Speaker Change: Aye.
Speaker Change: Couple of questions just.
Speaker Change: On the on the Q4.
Speaker Change: Right.
Speaker Change: I guess I sort of thought in normalized circumstances, as Q4, being maybe a stronger quarter.
Speaker Change: Then then Q3 now I get that you had.
Speaker Change: A little bit of prior period revenue this quarter, but even if you take that out it seems like you're you know you're projecting revenue to be pretty flat.
Speaker Change:
Speaker Change: Sequentially is there is there anything you've seen in October in terms of trends that that would make you a little more.
Speaker Change: Cautious than normal or.
Speaker Change: How should we think about that.
Speaker Change: So bill in the Q4 guidance, so youre right that the revenue for Q4 days, so more or less in line with the Q3 and is primarily driven by a couple of factors one the prior period items that I called out the $1 $2 million in the testing services business.
Speaker Change: And about a $1 million that I called out in outpatient and distance solutions business. So if you actually exclude these two items than the Q4 revenue actually grows as compared to the Q3 and in our testing services business. For example, we are baking in volume growth from Q3 to Q4 in line with how we have seen the <unk>.
Speaker Change: <unk> growth in the last year.
Speaker Change: So there is volume growth in the testing services business as well as the revenue growth.
Speaker Change: Okay. That's helpful I wasn't thinking about them.
Speaker Change: The $1 million on the patient because I think if you back out the $1 $2 million are still pretty flat, but.
Speaker Change: Maybe with the $1 million you get a little bit of growth and then I guess.
Speaker Change: I'm just trying to wrap my head around the comment on the ramping of the grow within maybe being at low teens.
Speaker Change: Revenue growth for next year, and I, absolutely understand what youre, saying about the pacing of surveillance testing coming back in and how that that will that will take some.
Speaker Change: Certainly take some time.
Speaker Change: You just reported.
Speaker Change: A quarter, where you had.
Speaker Change: 23, 5% growth and even if you take out the unusual items I think it's 20% plus growth.
Speaker Change: You had a.
Speaker Change: Is that kind of growth if not better last quarter as well and I think the implication for for next quarter is sort of 25 ish percent.
Speaker Change: On a year over year growth what happens that we just fall off all the way down to low teens from sort of <unk>.
Speaker Change: Low twenty's to mid twenties.
Speaker Change: I can quickly make one comment.
Speaker Change: This back to John So at the midpoint of our guide year over year growth is about 17% is what we have called out better right and if you were to take those one timers are solid which is about $14 million menu and back to about 12% to 13% growth, which is pretty much in line with what John basically mentioned from the pacing.
Speaker Change: The revenue growth in 2025 and of course, as we start to invest in the commercial team and their billing operations, we will scale the growth at a higher number in the outer years of our 2027 plant.
Speaker Change: Yeah, I think that's right.
Speaker Change: I mean Q1 was a bad quarter, so somewhere along the line, we should probably factor in another bad quarter or how do we I mean.
Speaker Change: Q1 was.
Speaker Change: It was sort of leftover and how you had been growing before.
Speaker Change: So I guess that explanation kind of it doesn't.
Speaker Change: Not tracking.
Speaker Change: And I thought that in Q1, we grew like 6% on our testing services volume growth.
Speaker Change: So I found that Q1 growth rate the growth was pretty decent maybe you might be kind of thinking from Q4 to Q1 and that could be more seasonal because of our products business.
Speaker Change: Yeah, Okay well.
Speaker Change: I can follow up more offline, but it doesn't it doesn't make a heck of a lot of sense to me, but thanks.
Speaker Change: Okay.
Speaker Change: And once more for your questions that is star one.
Speaker Change: Draw yourself from the queue at any time by pressing star two.
Speaker Change: Next to Tycho Peterson with Jefferies. Your line is open.
Speaker Change: Okay.
Speaker Change: Hey, good evening this is Jack on for Tycho.
Jack: Just had one question on testing mix it looks like surveillance mix increased nicely in September through October.
Speaker Change: Could you put a finer point on the magnitude of this and Mays.
Speaker Change: Maybe speak to the upper limit.
Speaker Change: You know of surveillance mix versus new transplant.
Speaker Change: Thanks, Jack we haven't we haven't provided any detail on the proportional mix rate I think directionally, though what we said is we have seen.
Speaker Change: Modest shift in that mix and we are seeing centers adopt protocols for surveillance testing and that we anticipate two to three quarters for that to return.
Speaker Change: Okay. That's fair and then quickly on capital allocation and you're making nice progress on the P&L have over $230 million in cash I guess, how are you thinking about capital allocation if deals are on the table.
Speaker Change: Should we assume any sort of buybacks in the near future.
Speaker Change: Thanks, Jack I think that for US, primarily we're thinking about growth and profitable growth long term.
Speaker Change: And then from there we're going to look at ways to invest into the core business to grow more rapidly before moving into share buybacks and so that's our that's our prioritization set.
Jack: Okay. Thank you.
Speaker Change: We'll take our next question from Mark Massaro with <unk>. Your line is open.
Mark Massaro: Hey, guys. Thank you for taking the questions congrats on the solid beat and raise.
Mark Massaro: It's good to see the the.
Mark Massaro: The feedback about the surveillance picking back up in the second half of September.
Speaker Change: And continued through October.
Mark Massaro: You guys talked about how it makes sense to me that it may take two to three quarters for for.
Mark Massaro: For transplant centers to establish surveillance protocols, but given that you saw a little bit of a bounce back in September and October I, just wanted to make sure that doesn't preclude some degree of recovery relative to say the first half of 'twenty four.
Mark Massaro: Sort of continuing into 'twenty five even before these protocols are established.
Speaker Change: Thanks, Mark I appreciate your question.
Speaker Change: No. We think this is additive on top of what we saw as we grew through the first half of 'twenty four right a lot of the growth we've seen in the five quarters since the change in the coverage kind of reset the volume was really focused on the four cause area of indication.
Speaker Change: And then growth in our heart care product.
Speaker Change: Okay.
Speaker Change: I also wanted to ask.
Speaker Change: It seems like we are waiting for I think its palmetto GBA to finalize the LCD for transplant testing.
Speaker Change: Do you have any sense for when this might hit and.
Speaker Change: Is it your understanding or impression that.
Speaker Change: That the LCD might be restored back to what it was originally just give us a sense for what your expectations are heading in.
Speaker Change: Thanks for the question Mark.
Speaker Change: Yes, we don't have a specific timeline from the agency or from Palmetto is to win a new draft LCD would be released.
Speaker Change: Currently the active LCD as the 2021 LCD that was originally published covering this indication broadly and we anticipate that any future LCD would include an update to the literature, which has progressed significantly since 2021.
Speaker Change: To include some of the more I would say foundational studies like the nature medicine publication that I talked to in my prepared remarks.
Speaker Change: Okay.
Speaker Change: One final two parter out should we expect any impact in Q4 from from Hurricane Milton and then the second part which is completely unrelated.
Speaker Change: How are you thinking about.
Speaker Change:
Speaker Change: Potential expansion of commercial payer lives in 2025.
Speaker Change: I saw you hired.
Speaker Change: You made a new hire on the commercial access team just give us a sense for.
Speaker Change: What the order.
Speaker Change: What the objectives are in 25, obviously 24 was a good year of new payer coverage.
Speaker Change: It was yes. Thanks for the questions Mark on your first question related to Milton, Yes, we have seen a 1% volume impact in the fourth quarter.
Speaker Change: And we have not yet.
Speaker Change: Gain that volume back.
Speaker Change: And thus abishag called that out in his prepared remarks as being incorporated into our guide for the fourth for the full year of 2024.
Speaker Change: And then as it relates to payer expansion.
Speaker Change: Yes, we absolutely believe that 2025 should be a significant year for covered lives expansion, particularly in al assure heart in al assure kidney.
Speaker Change: In heart additional publications that we anticipate from the shore study.
Speaker Change: To come out in kidney we are awaiting the publication of the K Oar study, which we think will be significant to driving coverage for al assure kidney on top of the nature medicine publication, which only has been out for about a quarter and we continue.
Speaker Change: To talk with payers about that data and the significance of that data.
Speaker Change: Okay. Thanks for taking my questions.
Speaker Change: Thanks Mark.
Speaker Change: We'll move next to Brandon <unk> with Wells Fargo. Your line is open.
Speaker Change: Yeah.
Speaker Change: Hey, Thanks, good afternoon.
Speaker Change: Great. If you could just talk about the 30 planned.
Speaker Change: <unk> hedged in the commercial organization, how much of an increase in terms of percentages that relative to the prior base wherever you kind of allocate to those people in terms of the scope of focus and then hey, Jay is kind of $8 billion to $10 billion, the right ballpark for incremental spend from that.
Speaker Change: Build out.
Speaker Change: Yeah, great. Thanks, Brandon I appreciate the question.
Speaker Change: The commercial heads are allocated between field sales and marketing if you recall back in 2023, the company cut pretty significantly across the organization to control our spend and maintain our cash balance and so we drew down.
Speaker Change: Across the board and so this is a reinvestment in the commercial organization that includes probably about one third in marketing and two thirds in field sales that will be customer facing revenue generating team members.
Speaker Change: And I can take the second part and your number is in the ballpark Brendan roughly $10 million for the hedge that we basically kind of mentioned here.
Speaker Change: Okay. So this was basically get you back to where you were before the CMS spelling article is that the right way to think about it.
Speaker Change: That's kind of the way we're thinking about it.
Speaker Change: We have been incredibly efficient as a commercial organization over the past five quarters and driving growth and in order to continue to drive that growth and accelerated over the next several years. We're starting with this 30 head counts and will provide additional updates if we decide to add more in the field to capture.
Speaker Change: Sure.
Speaker Change: <unk> volume opportunity that we have.
Speaker Change: Okay. That's helpful and then as far as I don't know if youre the degree to which you're willing to go into this much detail, but I'll give it a shot.
Speaker Change: So relative to the low teens kind of growth you pointed to next year first.
Speaker Change: He is the fourth quarter ASP good jump off assumption.
Speaker Change: For next year, assuming you will should continue to benefit from expanded commercial coverage.
Speaker Change: Should we expect that the second half of next year to be stronger than the first half given your comments about that.
Speaker Change: The lag, but it will take for those surveillance protocols to come back online.
Speaker Change: No youre thinking the right way Brandon because the ESP of $30 35 that will be the point of.
Speaker Change: The 2025 numbers as you will start to think about it and of course.
Speaker Change: The low teens guide for 2025, we will provide more color in our earnings call, but that's where you should start to kind of think from the modeling standpoint, the 2025 and the last piece of your question around the second half being a little bit more stronger again.
Speaker Change: That <unk>, because as we build our commercial organization as well as the billing organization typically it takes about one to two quarters before they become fully effective and therefore, you might be kind of peak a little bit more growth in the second half of the year.
Speaker Change: Okay. Thank you.
Speaker Change: Thanks Brandon.
Speaker Change: We'll take our next question from Chen with H C Wainwright.
Speaker Change: Your line is open.
Chen: Thank you for taking my question could you comment on the general trend that expense.
Chen: Adding the number of transplants are transplantation procedures in 2025, what are the sectors alright.
Speaker Change: Great. Thank you.
Speaker Change: Hi E churn for 2025 in our Investor Day, we talked about.
Speaker Change: Mid single digit secular.
Speaker Change: Secular growth of the transplant market as being the baseline that we built our plan off of.
Speaker Change: Do you think there's any reason.
Speaker Change: But we should believe there should be more or fewer numbers a number of our transplant procedures in 2020.
Speaker Change: We don't have any any catalysts to point to right now in terms of more procedures.
Speaker Change: The I.
Speaker Change: I think that the introduction of perfusion technologies has accelerated the growth to where it is today across the full market, we're seeing heart heart and lung grow at a faster pace than kidney, obviously off a smaller and sample size.
Speaker Change: And I think the only changes that could really accelerate this further would be government intervention of government programs recently, it was announced that the Io Ta model for kidney transplant was going to be delayed in its implementation and so we're awaiting further guy.
Speaker Change: <unk> from the agency regarding that program.
Speaker Change: And its impact that it will have on the market.
Speaker Change: Got it thank you.
Speaker Change: Well take our next question from Nathan <unk> with Stephens, Inc. Your line is open.
Speaker Change: Yes.
Speaker Change: Hey, guys.
Nathan: Sorry, if this has been asked jumping between a few calls tonight, but how should we be thinking about the framework for the surveillance opportunity going forward.
Speaker Change: There are 25000, or so kidney transplants a year there are obviously a lot more patients living with a transplant right now is.
Speaker Change: Is the opportunity at least near term really more about rolling those newly transplanted patients into surveillance. After that first year is there a plan to go out and expand to patients who may be or a few years out from transporting you just more than 12 months.
Speaker Change: Give me give us some color on how youre thinking about it.
Speaker Change: Thanks, Nathan I appreciate the question.
Speaker Change: Yes, I think youre thinking about it correctly, we're really targeting the first year post transplant for an implementation of a protocol to perform surveillance testing, that's where I believe the medical.
Speaker Change: Necessity is the greatest.
Speaker Change: The vast majority of rejection occurs in that first year and thus as centers think about implementing protocols and re initiating surveillance testing, they're going to do so on newly transplanted patients not on those that are three to five years out from transplant.
Speaker Change: We think in that in that group there continues to be interest, particularly in our four cause testing as we think about reducing immuno suppression in those patients and then recently theres been a number of articles and studies peer reviewed studies looking at.
Speaker Change: Antibody mediated rejection, including new therapeutics for antibody mediated rejection.
Speaker Change: The impact of those therapeutics when that condition is detected earlier and we know that al ashore in particular has demonstrated the ability to detect antibody mediated rejection before biopsy proven rejection and so we think as that market grows and more.
Speaker Change: Therapeutics come to market for that indication that there'll be greater demand in the out years for surveillance testing to detect those events and treat and elongate graft survival.
Speaker Change: Got it I'll leave it there thanks that was helpful.
Speaker Change: Thanks Nathan.
Speaker Change: Okay.
Speaker Change: Well move next to Thomas <unk> with Nephron Research your line is open.
Speaker Change: Hey, guys good here.
Speaker Change: We can.
Speaker Change: Okay, Great. So my question, just I guess, maybe it goes back to.
Speaker Change: A few years ago, maybe earlier, the lodge, where there was a focus.
Speaker Change: Number of transplant centers.
Speaker Change: You know I guess.
Speaker Change: Discussion at that point.
Speaker Change: Approximately 100 125 centers account for most of the volume.
Speaker Change: And I guess.
Speaker Change: Just kind of wondering with all that has transpired.
Speaker Change: Okay.
Speaker Change: I guess what is that your set of <unk>.
Speaker Change: Over the last few years and then also.
Speaker Change: Not that there is a generalization but.
Speaker Change: In terms of a bluebird dig new protocols around surveillance.
Speaker Change: Would you expect it to take.
Speaker Change: On average.
Speaker Change: Two three quarters longer I know theres, maybe a dispersion, but just kind of any thoughts you have there just related to you.
Speaker Change: Kind of the blocking and tackling around transplant centers.
Speaker Change: Yeah. Thanks, Thanks, so much for the question Thomas.
Speaker Change: Your first question around retention.
Speaker Change: Yes, we've seen a high level of retention and and you know.
Speaker Change: R.
Speaker Change: Our products tend to be sticky with our customers because of the large solution set that we offer them across digital HLA typing and testing services.
Speaker Change: And then as it relates to protocols.
Speaker Change: Hey, there's a varying degree of readiness to implement so as I shared in my prepared remarks, we have 10 centers across the country that have already a drag.
Speaker Change: Drafted and implemented to varying degrees new protocols since September the first.
Speaker Change: Many of the clinicians at these centers recognized that the care of their patients has been impacted by turning off surveillance and so they're eager to get going again, and we are staffing up to support that effort by adding more commercial team members.
Speaker Change: So that we're prepared to support them in the logistics and workflow for implementing our shore testing to get back to the high level of.
Speaker Change: Care and outcomes they expect for their patients.
Speaker Change: Great that was all I had appreciate it.
Speaker Change: Thank you.
Speaker Change: And this does conclude the question and answer portion of the call. Thank you, ladies and gentlemen for joining.
Speaker Change: You may disconnect at this time and have a wonderful evening.
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