Q4 2024 CareDx Inc Earnings Call
Stand by, we're about to begin.
Good afternoon, everyone. Welcome to the CARE DX Incorporated fourth quarter and fiscal year 2024 earnings conference call.
At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during our question and answer session.
Speaker Change: You may register to ask a question at any time by pressing star 1 on your telephone. Also, today's call is being recorded, and if you should need any operator assistance during the call today, please press star 0. Now at this time, I'll turn things over to Ms. Caroline Corner, Investor Relations. Please go ahead, ma'am.
Caroline Corner: Thank you, Operator. Good afternoon. Thank you for joining us today.
Speaker Change: Earlier today, CareDX released financial results for the year ending December 31, 2024. The release is currently available on the company's website at www.caredx.com. John Hanna, President and Chief Executive Officer, and Abhishek Jain, 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 security laws, which are made pursuant to the State Part of the Private Security Litigation Reform Act of 1995.
Speaker Change: Any statements contained in this call that are not statements of historical fact 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, pricing, and enrollment matters, and our financial expectations and results.
Speaker Change: 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.
Speaker Change: Accordingly, SHNAP plays undue reliance on these statements. For a list and descriptions of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission. The information provided in this conference call speaks only to the live broadcast today, February 26, 2025.
Speaker Change: CANDEX disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections, or other forward-looking statements, whether because of new information, future events, or otherwise.
Speaker Change: This call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles. Reconciliations of the most directly comparable GAAP financial measure may be found in today's earnings release filed with the FEC. I will now turn the call over to John.
John Hanna: Thank you, Caroline, and welcome to everyone joining today's call. In early January, we pre-announced our fourth quarter and fiscal year 2024 financial results, highlighting what was a transformational year for CARE-DX.
Speaker Change: I want to start by congratulating the approximately 650 employees globally at CareDX for supporting the care of transplant patients, from the early stages of establishing a donor-to-recipient match all the way through post-transplant monitoring, sometimes for the rest of the patient's life.
Speaker Change: We impacted the lives of over 50,000 patients in 2024 and in 2025 look forward to continuing to deliver on our mission to create life-changing solutions that enable transplant patients to thrive.
Speaker Change: In the fourth quarter, we reported quarterly revenue of $86.6 million, up 32% year-over-year.
Speaker Change: Positioned to build upon that performance, we reiterate our 2025 guidance of $370 million in revenue and our target to exit 2027 with $500 million in revenue and 20% adjusted EBITDA.
Speaker Change: At CARDI-X, we continue to drive gains in positive adjusted EBITDA due to revenue growth and discipline management of our operating expenses, and achieved $9.8 million in adjusted EBITDA in the fourth quarter and $27.8 million for the full year.
Speaker Change: We generated $22 million in cash from operations in the fourth quarter and ended the year with a cash balance of $261 million and no debt.
Speaker Change: We are committed to long-term profitable growth, and in 2025 we expect an adjusted EBITDA gain of between $29 and $33 million.
Speaker Change: I'm going to highlight several accomplishments from the fourth quarter and then turn to the key growth drivers for 2025, which you should anticipate hearing from me, providing further commentary on throughout the year.
Speaker Change: In testing services, we delivered approximately 45,500 tests in the fourth quarter, up 14% from the prior year. The fourth quarter was our sixth consecutive quarter of sequential testing services growth.
Speaker Change: We again experienced Testing Services volume growth across all organs, heart, kidney, and lung. Testing Services revenue was $63.8 million for the fourth quarter, up 37% year-over-year.
and many more. Thank you. Thank you.
Speaker Change: We completed our plan to add 30 sales and marketing team members to promote and sell our transplant solutions.
Speaker Change: We also completed the addition of 20 team members to our billing organization to drive greater collections and expand our ASP. We will continue to invest in our commercial operations where we see an outsized opportunity to drive growth by further penetrating market.
Speaker Change: We continue to make strides in PAIR coverage. In the fourth quarter, we expanded ALIMAP heart coverage from beginning of month 6 post-transplant to month 2 post-transplant by 21 million commercial lives.
and added 12.2 million new commercial covered lives for Alishore.
Speaker Change: For the full year of 2024, we added or expanded coverage for 28 million lives for Alamap Heart and added 36 million new commercial covered lives for Alishore.
Speaker Change: This coverage and disciplined revenue cycle management will continue to drive our ASP in future quarters.
Thank you.
Speaker Change: Moving on to our patient and digital solutions, which includes our transplant pharmacy, software tools, and remote patient monitoring services.
Speaker Change: We reported revenue of approximately $11.4 million in the fourth quarter, representing 18% year-over-year growth.
Speaker Change: We continue to see strong synergies between patient and digital solutions and our testing services offerings. When accounts use three or more CARDIACS patient and digital solutions, they have a 50% greater new patient capture rate for our testing services.
Speaker Change: In the fourth quarter, our Digital Solutions team, in collaboration with our partner Leidos, was awarded a contract by the U.S. Department of Health and Human Services that provides us the opportunity to bid on projects associated with the Organ Procurement and Transplant Network, or OPTN, modernization initiative.
Speaker Change: This multi-year initiative aims to modernize the data collection, reporting, organ allocation, and other facets of the organ transplant system to better serve the more than 100,000 individuals on the National Organ Transplant Waitlist.
Speaker Change: This partnership leverages CARDIAC's deep expertise in transplant software development, data science, and AI, and Leidos' experience in health systems and large-scale health IT programs.
Speaker Change: We are proud to be a part of this initiative, which has the potential to expand access to organ transplants.
Speaker Change: Moving on to lab products, which includes PCR kits for rapid deceased donor HLA typing and NGS kits for transplant recipient HLA typing globally, and IVD monitoring assays for solid organ and stem cell transplant recipients outside of the U.S.
We reported revenue of $11.4 million, representing 23% year-over-year growth.
Speaker Change: Sales of our industry-leading ALICE-TX NGS-based HLA typing kits for organ recipients primarily drove this growth.
Speaker Change: In December, the results of a multi-center prospective study of our ALICEQ cell-free DNA IVD kit, which included 580 transplant patients from three referral centers in Europe, was published in the journal Transplant International.
Speaker Change: The study demonstrated that AlloSeq cell-free DNA detects allograft rejection consistent with our AlloSure donor-derived cell-free DNA lab-developed test in the U.S.
Speaker Change: Today, approximately 5% of CARITYx revenue come from outside the U.S.
Speaker Change: However, there are over 18,000 kidney, 2,000 heart, and 2,000 lung transplants performed annually across the European Union alone.
Speaker Change: We look forward to these data expanding adoption of ALICEQ cell-free DNA for detecting allograft rejection in the same labs that use our industry-leading ALICEQ-TX17 NGS HLA typing assay.
Speaker Change: The transition to NGS in HLA labs globally for HLA typing and the detection of allograft rejection will continue to drive growth in our lab products business.
Speaker Change: 2024 was a truly transformational year at CaredX, and we believe we are well positioned for continued profitable growth in 2025.
Speaker Change: I now want to highlight what we view to be our key drivers of growth in 2025 that enable us to achieve our three-year long-range plan and that we've laid out in our presentation.
Speaker Change: Number one is our go-to-market strategy to provide solutions to transplant centers across the care continuum to drive testing services volume growth. Our pharmacy, digital, and lab products are synergistic to growing our testing services adoption.
Speaker Change: Number two, evidence generation to expand payer coverage. We continue to demonstrate the testing services we provide improve patient health outcomes and provide significant value to the healthcare system.
Speaker Change: Evidence generation, coverage, and coding allow us to achieve in-network status and improve payment and ASP.
Speaker Change: And number three, operational excellence, to scale our business profitably, including business process optimization, which allows us to have revenue growth, outpace operating expense growth, and generate cash.
Speaker Change: Throughout 2025, we anticipate achieving significant milestones in each of these areas.
Speaker Change: First, in go-to-market strategy, through our synergistic offering of our patient and digital solutions, we anticipate continued adoption in surveillance testing with Allisher Kidney.
Speaker Change: Namely, the IOTA program, which we anticipate will be implemented by CMS in July of 2025, is the current focus of most kidney transplant centers nationally. The program provides both upside and downside risk payments for transplant centers.
Speaker Change: The two program metrics of importance are growing kidney transplant volumes and the organ acceptance rate at each center.
Speaker Change: Both of these metrics may drive centers to perform more complex transplant cases, which may increase the risk of rejection.
Speaker Change: These patients may require more regular monitoring, which we believe AlloShore Kidney is well positioned to support.
Speaker Change: CARITY-X's upcoming release of our quality reporting software, VINQAPI, is designed to specifically allow transplant centers to monitor their IOTA performance score in real-time with no manual data entry required.
Speaker Change: This digital tool is an example of how our synergistic solutions are enabling sales engagements around expanding the use of our Alisher surveillance testing services and is anticipated to be released prior to the July 2025 start of the IOTA program.
Speaker Change: Another example of our patient and digital solutions that are driving engagement in kidney surveillance testing is the anticipated launch of our medication therapy management program through our CARDI-X transplant pharmacy.
Speaker Change: A key reason why transplant patients undergo organ rejection is the lack of adherence to their immune suppression medications, which are often the result of symptoms of drug-to-drug interactions.
Speaker Change: The Cardiacs Transplant Pharmacy is launching a medication therapy management program in the first half of 2025 to support those patients, in particular individuals with a less-than-ideal allograft match that are on a higher dose of immune suppression medication with greater side effects.
Speaker Change: In addition, we intend to launch several new products this year, including in testing services, Alloshore Heart for pediatric patients under the age of 15, Alloshore Kidney for simultaneous pancreas and kidney transplant patients, which is primarily performed for patients with insulin-dependent diabetes and renal failure.
Speaker Change: and our histomap kidney assay, a gene expression profiling test for determining molecular subtype of organ rejection such as antibody-mediated rejection.
Speaker Change: In our patient and digital solutions, we intend to expand the launch of AlloView, an AI risk prediction model for kidney allograft projection.
and in lab products.
Speaker Change: We plan to provide commentary on the ongoing launch of our Assign 2.0 software that pairs with our Alloseq TX17 NGS assay for HLA typing and later in the year the launch of SCORE 7, our next generation software for rapid PCR HLA testing.
Speaker Change: Moving to evidence generation, I will start with kidney. In the fourth quarter, study investigators submitted the first of several anticipated manuscripts from the CAOR registry, a long-term follow-up study of nearly 4,000 patients who underwent kidney transplantation.
Speaker Change: We anticipate those data will be published in the second half of 2025, and the second K.O.R. manuscript is expected to be submitted in the second quarter of 2025.
Speaker Change: The major conference in kidney transplantation and additional abstract data that will lay the groundwork for future publications occurs in August of this year, the World Transplant Congress in San Francisco.
Speaker Change: In HART, we anticipate the second manuscript from the SURE registry to be submitted in the first half of 2025 and to be published in the second half of 2025, and in LUNG, we expect the manuscript to be submitted for publication in the second half of 2025.
Speaker Change: The International Society for Heart and Lung Transplantation, or ISHLT, meeting is taking place in April 2025, where we expect data presented in abstract form to drive future publications in heart and lungs.
Speaker Change: These data in kidney, heart, and lung will be the catalyst for additional commercial payer coverage for Alishure as we continue to build the evidentiary library that demonstrates Alishure testing changes clinician behaviors and improves patient health outcomes in each indication.
Speaker Change: Switching to our pipeline and CARDI-X's alloheme assay for hematologic malignancies. An interim one-year readout of the two-year alloheme ACROBAT trial to monitor for minimal residual disease recurrence for patients with hematologic malignancies that have undergone an allogeneic stem cell transplant was presented at the Tandem Cell Transplant and Cell Therapy meeting last month.
Speaker Change: These interim data demonstrate allergy detects relapse, a clinically meaningful time ahead of standard of care approaches.
Speaker Change: We anticipate further interim readouts of this trial throughout 2025 at scientific conferences. These data supporting Allochene will build the foundation for our future Medicare coverage submission following the completion of the ACROBAT trial.
in 2026.
Speaker Change: In operational excellence, we are improving our enterprise infrastructure and business processes to operate more efficiently.
such that revenue growth outpaces operational expense as we scale.
Speaker Change: We have rebuilt our revenue cycle management team and look forward to seeing the impact that may have on ASPs in future quarters.
Speaker Change: and a key initiative in our supply chain operations is to increase the gross margins of our lab products business.
Speaker Change: If you recall, as a first phase, we transitioned Allafee TX17 manufacturing from Fremantle, Australia to contract manufacturers in the U.S. and EU to reduce costs.
Speaker Change: And we now are taking additional steps in supply chain and manufacturing processes to improve our gross margin profile by the end of 2025.
Speaker Change: And with that, I will now turn the call over to Abhishek to share more details on the fourth quarter and full-year financial results and 2025 guidance. Abhishek?
Abhishek Jain: Thank you, John. In my remarks today I will discuss our fourth quarter and full year 2024 financial results before turning to 2025 guidance.
Unless otherwise noted, my remarks will focus on non-GAAP results.
Abhishek Jain: For further information, please refer to GAP to Non-GAP Reconciliations in our press release, earnings presentation, and recent SEC filings.
Let me start with the key financial highlights.
Abhishek Jain: We reported fully at 2024 revenue of $334 million, up 19% year-over-year, exceeding the high end of our updated guidance.
Abhishek Jain: We delivered approximately 176,000 test results in 2024, up 6% year-over-year.
Abhishek Jain: Test volumes grew 14% year-over-year in the fourth quarter to approximately 45,500 tests, representing the sixth consecutive quarter of sequential testing services volume growth.
Testing services revenue was $249.4 million, up 19% year-over-year.
Abhishek Jain: Patient and digital solutions revenue was $43.6 million up 18% year-over-year and products revenue was $40.8 million up 22% year-over-year
Abhishek Jain: We reported an adjusted EBITDA gain of $27.8 million in 2024 compared to an adjusted EBITDA loss of $38 million in 2023.
Moving to the details, starting with gross margin.
Abhishek Jain: Our non-gap dose margin for the full year was 69.4% up 280 basis points as compared to non-gap dose margin of 66.6% in 2023.
The gross margin expansion was primarily driven by testing services.
Abhishek Jain: The improvement in testing services' dose margin was driven by volume growth, ASD expansion, as well as continued efficiencies in managing our lab operations.
Abhishek Jain: Our patient and resource solutions non-capitalist margin for 2024 was 35% as compared to 36% in 2023.
Abhishek Jain: Our product's non-gap gross margin for 2024 was 49% as compared to 54% in 2023.
Abhishek Jain: Moving down the P&L, non-GAAP operating expenses for the year were $212 million, down approximately $21 million from 2023, demonstrating the continued discipline in managing our operating expenses.
Abhishek Jain: The reductions in our operating expenses were driven principally by a reduction in legal spend.
Abhishek Jain: Earlier this week the district court reversed the jury decision in the patent litigation case brought by our competitor overturning the prior 96 million verdict.
Abhishek Jain: In our year-end 2024 GAAP financial statements, we reversed the $96 million accrued liability recorded in 2023, resulting in a positive GAAP net income of approximately $52.5 million for 2024.
Abhishek Jain: Our adjusted beta gain for the full year was $28 million as compared to our adjusted beta loss of $38 million in 2023.
Abhishek Jain: Our adjusted EBITDA margin improved from a loss of 14% in 2023 to a gain of 8% in 2024.
Abhishek Jain: The improvement in adjusted EBITDA was driven by revenue growth and operational leverage, which contributed to better gross margins and non-gap operating expenses as a percent of revenue.
Abhishek Jain: Turning to our cash balance, we ended the year in a strong position with cash, cash equivalents and marketable securities of $261 million and no debt, an increase of approximately $26 million year over year. The increase in our cash balance was driven by strong cash flow from operating activities.
Abhishek Jain: As a reminder, we repurchased approximately 29 million worth of shares in a previously approved shared buyback program that expired in December 2024 at an average price of $1.09.4 over a two-year period.
Abhishek Jain: Turning to guidance, we expect our revenue to be in the range of $365 to $375 million in 2025.
Abhishek Jain: The midpoint of our 25 guidance assumes approximately 17% growth from our adjusted 24 revenue of 316 million.
Abhishek Jain: Our adjusted 2024 revenue excludes the $17 million in revenue associated with tests performed in prior periods.
Let me now provide more details on our 25 guidance.
Abhishek Jain: For testing services, we anticipate our test volumes to grow mid-teens year-over-year. We estimate our ASP to be approximately 1360, a test on a blended basis, for the full year.
Abhishek Jain: We do expect to see some seasonality in our testing volumes. Additionally, in the first quarter so far, we have seen impacts from LA fires, snowstorms, and having midweek New Year holiday.
Abhishek Jain: We expect a modest growth of 2-3% in the first quarter, 5-6% in second quarter, 2-3% in the third quarter, and 5-6% growth in the fourth quarter of 2025.
Abhishek Jain: On ASP, we expect 1335 a test for Q125 growing proportionately throughout the year.
Also, this does not assume any changes to Medicare coverage.
Abhishek Jain: Our patient and distal solutions and lab products revenue is expected to grow in the mid-teens year-over-year, approaching approximately 100 million in total.
Abhishek Jain: We expect our non-gap gross margin to be approximately 70% for the full year 2025.
Abhishek Jain: We're expecting our operating expenses to be approximately $235 million, an increase of approximately 11% year over year.
Abhishek Jain: We expect our adjusted bidder gains for the full year 2025 to be between $29 and $33 million.
Abhishek Jain: Q1 is generally a soft quarter due to reset of employee benefits such as 401k matching, payroll taxes, etc.
Abhishek Jain: Q1 of 25 will also have a full quarter impact of recent hires.
Abhishek Jain: We expect a low single-digit adjusted EBITDA in Q1, mid single-digit in Q2, high single-digit in Q3, and remaining in Q4 of 2025.
Abhishek Jain: With that, I would now turn the call over to John to deliver closing remarks.
John Hanna: Thank you, Abhishek. At CareDX, we are deeply proud of the work we do to support the care of patients on their journey to a curative transplant.
John Hanna: Earlier this month, we were honored to have Meryl Zuhl, one of our first ALAMAP heart transplant patients, join us to celebrate the 18th year of the gift given to him, a newly transplanted heart.
John Hanna: Merrill is a father, grandfather, nurse, and respected patient advocate for donors and recipients alike. He loves creating music and art, which he shared with our team.
John Hanna: For the past 18 years, he has dedicated himself to living a rich and meaningful life, profoundly impacting the transplant community through his selfless volunteer efforts.
Speaker Change: It is the stories like Meryl that inspire our employees every day to continue their important mission to create life-changing solutions that enable transplant patients to thrive.
and many more. Thank you. Thank you.
Speaker Change: I would now like to ask the operator to open the line for questions.
Speaker Change: Thank you Mr. Hanna. Ladies and gentlemen, at this time if you would like to ask a question, please press star 1. If you find your question has been already addressed, you can remove yourself from the queue by pressing star 2. Once again, that's star 1 for questions. We go first this afternoon to Matt Sykes of Goldman Sachs.
Speaker Change: Hey guys, congrats on the quarter. This is Prashant on for Matt.
Speaker Change: So you previously talked about multi-solution customer accounts generating more testing services revenue Can you talk about your efforts in converting your existing accounts with less than three solutions to three or more solutions? versus acquiring new customer accounts
Speaker Change: Yeah, thanks for the question, Prashant, and yeah, absolutely. So, as we talked about in our prepared remarks,
Speaker Change: In our patient and digital solutions, we're really focused on our ZinQafi product for quality reporting and dashboarding that enables, in particular, kidney transplant centers to monitor their performance leading into the IOTA program where they're now having new metrics to assess.
Speaker Change: And then in addition, we shared how we're working on launching a medication therapy management program.
Speaker Change: which really is geared toward assisting patients that are having those pesky drug-to-drug interactions that cause them to
Speaker Change: skip taking immune suppression, which can lead to rejection. And so these types of patient and digital solutions.
Speaker Change: As they become more adopted at transplant centers across the country, we believe they're synergistic and will drive the use of Alishore, be it in kidney, heart, or lung, and as we've talked about,
Speaker Change: Since our Investor Day in October, we have put together a commercial team here that is focused on selling our total portfolio of solutions into each account. And so we really think this is going to be a catalyst for continuing to drive growth in 2025.
Speaker Change: Got it, that's helpful. And then my follow-up is, can you talk about the impact on ASPs that launching these tests like Alisher Heart Pediatric and Alisher Kidney for simultaneous kidney and pancreas.
Speaker Change: transplantation will have. I imagine you may initially have to provide some tests without reimbursement, so how large of a dilutive impact, if at all, will this have on gross margins in 2025?
Yeah, thanks for the question, Prashanth. I think that...
Those two indications in particular, Alisher, Hart, Keyes,
Speaker Change: and Al-Ashour Kidney for Simultaneous Pancreas Kidney are relatively smaller indications, but very important in high acuity conditions, right? So pediatric station, undergoing a heart transplantation. We anticipate that we'll be paid on those claims consistent with how we're paid on other commercial.
Speaker Change: claims for alatrur heart and for alatrur kidney when a patient undergoes a simultaneous pancreas and kidney transplant. So we're not we're not providing any guidance that that would have an impact negatively or positively on gross margins for 25.
Thank you.
Tycho Peterson: Thank you. We go next now to Tycho Peterson at Jeffries.
Noah: Hey, this is Noah for Tyco. Congrats on the quarter. I wanted to ask about
Noah Tyco: litigation, particularly with, you know, the reversal, what is the path forward from here? You know, if you're no longer on the hook for the $96 million and you have $200 million in cash, how are you kind of thinking about capital allocation from there? You know, you have the buyback authorization, but also what kind of options are there in organic and also M&A. Thanks.
Speaker Change: Yeah, thanks Noah for the question. You know, the path forward with any IP litigation, you know, we anticipate that it'll likely be appealed. However, you know, our assessment is that, you know, having those patents invalidated is significant such that we reverse that accrual and believe, along with our, you know, audit partners, that that was the appropriate thing to do at this time.
and John Hanna. Thank you.
In terms of
Your second question around the share buyback and capital allocation.
Speaker Change: It doesn't change our perspective on this, which I think we've talked about for several quarters. First and foremost, we're going to continue to reinvest in the business where we see opportunities for continued growth. Second, we'll look for strategic opportunities in the marketplace adjacent to transplant or in that transplant plus field that we've described. And then third, if we don't see any opportunities to invest in the business or do strategic transactions, then we'll go to share buybacks.
and BIVAC shares as appropriate.
Speaker Change: Great. That's helpful. And then for my follow-up here, if I could just ask on new hires, I think you noted that you completed that in 4Q. And so I'm wondering about the ramp to see impact from new hires, particularly how they'll play out first half or second half in 2025.
Abhishek Jain: Absolutely. We typically see the new hire ramp in this space to be roughly six months to get them fully ramped up and effective in the field. As Abhishek commented in our prepared remarks, we've seen a little bit of disruption here in Q1 from weather and fires and events like that, but that also has given us time to really focus on training, call planning, field strategy, and the teams out there.
Abhishek Jain: are hitting the pavement and we expect to have a stronger quarter in Q2.
Speaker Change: Thank you. We'll go next now to Mark Macero at BTIG.
Mark Macero: Hey guys, thank you for taking the questions, congrats on a good quarter.
Speaker Change: I wanted to hit the topic of prior period collections. Maybe, Abhishek, can you clarify how much might have hit in Q4? And then I think I heard you say the number for full year 24, but can you just repeat that? And then as we think about 2025, is there any contribution for prior period collections in the guidance?
Abhishek Jain: Thanks for the question Mark. So on your first question, the Q4 revenue includes about 2.2 million in revenue which is associated with the tests that were outside of Q4.
Abhishek Jain: And what I've also called out that throughout the 2024, we recognized about $17 million in revenue. That was the test, those were the tests that we had done prior to 2024. So that's the second part of the question. And the third and the last piece, Mark, in 2025 guidance,
Abhishek Jain: We are not baking in contribution from this one-timer test and that stays one of the upsides.
Speaker Change: Okay, that's very helpful. And then I think I heard you guys talk about mid-teens volume for 2025.
and ASPs of 1360.
Speaker Change: I'd be curious to try to understand how much of that mid-teens volume
Speaker Change: is baking in increased surveillance testing. And then maybe more broadly, what are you seeing now that we're, you know, into the month of February, what are you seeing in the marketplace for surveillance testing here in Q1?
Speaker Change: Yeah, thanks for the question, Mark. Thanks for joining the call today. Yes, you know, we do believe that surveillance testing is going to contribute substantially to that mid-teens volume growth. In Q4, kidney testing outpaced all of the organs.
Speaker Change: And we continue to have institutions that are turning on surveillance protocols through the quarter.
and those institutions, you know, move at their own pace.
Speaker Change: Right, so as I've said previously, it's going to take us probably two to three quarters to turn those protocols back on, and then it's going to take time for new patients to get started on protocol and that volume to build.
Speaker Change: through the course of, you know, the 12 months following the initiation of that protocol.
Speaker Change: And going forward, that is a primary focus, right, of our team in having those discussions and engagements and working through the workflow to get those protocols turned back on.
Speaker Change: Okay, great. And then one last quick one. It looks like you just provided a five million dollar buffer on the guidance.
Speaker Change: I think you pre-announced a rev guide of 370 and now it's 365 to 375. Maybe just the rationale for that, maybe it's due to weather or other variability, but can you also just explain what you think some of the levers are to the upper end and the lower end of the guide?
Yeah, so...
At the midpoint of our guide, the $370 million
Speaker Change: What we have basically called out, of course, the mid-teens, the 17% growth from the adjusted 2024 revenue.
Speaker Change: And if I were to kind of bridge the low end and the high end of the guide, that's about five percent, five million dollars difference. And I'm kind of assuming plus minus one percent on the volume, plus minus half a percentage point on the ASP, and there is a small portion in the non-testing services. That basically makes up the five million.
Speaker Change: All right, thanks for taking the question. Yeah, no, it's a great question. I think on the upside, it's really about.
You know the speed at which
Speaker Change: surveillance and kidney comes back on and how effective we are with the new billing organization that we built
Speaker Change: with a focus on operational excellence to go out and collect cash. As you know,
Speaker Change: you know, our reimbursement rate at 13, you know, 60 that we've suggested for the year, you know, is less than half of our Medicare reimbursement rate. And so we think there's a lot of opportunity there, but it's very difficult to forecast ASP.
Speaker Change: But it's something we're really focused on here in the organization.
Great, thanks guys.
Speaker Change: Thank you. We go next now to Bill Vanello at Craig Hallam.
Hey guys, thanks a lot. A couple of questions.
Speaker Change: First of all, just following up on the on the ASP front, you know, that assumes it's pretty flat, which I get makes total sense in terms of a guide.
Speaker Change: But what kinds of things, you talked about adding and sort of reorganizing the billing team, and you obviously made really good strides last year, so can you just kind of lay out for us a little bit what some of the opportunities or the most important opportunities you have to improve revenue capture?
Speaker Change: Yeah, absolutely. Thanks for the question, Bill. Thanks for joining today. You know, we brought in a new leader for the team to kind of up-level the skill set across the organization. And it's really about, you know, understanding what are the dials and knobs that can drive cash collection and billing.
Speaker Change: You know, what are the right appeal letters that get claim denials overturned? What are the, you know, steps in the process? Are we appealing the claims in a timely manner so that we don't miss the timely filing deadline?
Speaker Change: There's a lot of what I would call, like, industrial engineering operations work that goes into the billing workflow and processes in these organizations. And we needed to revamp ours and really get tight on what we're doing so that we can collect cash. And we think it's going to have an impact. We feel really good about the leadership team we've put in place.
Speaker Change: and the talent we've been hiring. And now we're kind of turning towards, okay, we've got to improve our systems and business processes in order to be able to collect that money. You know, do you have the appropriate keys in place to assist the individuals know which claims to work on and which ones are going to hit time with filing? So a lot of that detailed blocking and tackling is what we're working on right now.
Speaker Change: sorts of tools or is part of what you're going to be doing, sort of upgrading the systems themselves.
Speaker Change: Yeah, the system is capable of it. We just upgraded, you know, our license and the modules we were using, and then you can customize workflows in the system. So a lot, a lot of what we were doing was very basic out of the box previously, and the team was under resourced, and they were just collecting what they could.
Speaker Change: And so we came in and said, hey, the return here way outside of the spend, let's build up the team, let's upgrade the system, let's ensure we have the right talent that can build out the workflows and go execute and collect what's left there on the table.
Speaker Change: You know, of course, we're, as I've said repeatedly, it's hard to forecast ASP appreciation because you're kind of like looking in the rear view mirror at stuff, but
Speaker Change: We've done this before, this team has done this before, and we feel really good about what we're putting in place to be best in class, and so we think we have, you know, upside opportunity there if we execute appropriately.
Speaker Change: Excellent. That's really helpful. And then just completely switching gears, on KAOR, can you just remind us, I know you can't speak to the results, obviously, but can you just kind of remind us of the study objectives and maybe the, you know, the endpoints that you were looking for or evaluating? I guess what I'm trying to get at is just, you know, remind us why this is such an important study.
Speaker Change: Yes, it's an important study because, as you know, Bill, with all of these products, the more evidence you build, the weight of the evidence becomes important. The size of the study, the number of patients enrolled, is it prospective, retrospective, is there a control group? All these things are evaluated by payers.
Speaker Change: And, you know, typically when we launch these products, you see single-center studies, no-control groups, retrospectives.
Speaker Change: and now we've got several multi-center studies, no control groups, relatively retrospective by and large. And so KR is a prospective multi-center study of nearly 4,000 patients with a control group.
evaluating the efficacy of Alishore kidneys to detect rejection.
Speaker Change: ahead of other standard of care tools like serum creatinine, protein urea, ultrasound, clinical signs and symptoms, and really solidify
Speaker Change: that the use of the product is the best way to guide physician management of these patients, be it observation or biopsy, which has a much higher yield of rejection when you're managing the patient with Alloshore than without.
Speaker Change: The comparison point is other clinical laboratory tests, it's not that the comparison point isn't biopsy, is that accurate or is that not the case?
Speaker Change: Yeah, I mean, I think the intended use of Alice Your Kidney is to identify rejection in order to clinically manage patients.
Speaker Change: And so the goal of the study is not to avoid biopsies. The goal is to manage patients effectively such that when a biopsy is performed, the yield of rejection is much higher than in a patient who undergoes a biopsy that's not guided by Alloshore.
Perfect. Okay, thank you very much.
Thank you.
We'll go next now to Andrew Cooper at Raymond James.
Andrew Cooper: Hey everybody, thanks for the question. Maybe just first starting a little bit on the P&L.
Andrew Cooper: You know, Abhishek, I think you called out legal spend down, really kind of helping the EBITDA. You don't back that out. You know, looking at the run rate here in 4Q as a starting point,
Speaker Change: Even if we adjust for some of the new hires and comp increases you get at the start of the year, why isn't that the right starting point? Why couldn't we see something higher than that kind of 29 plus million guidance framework that you're laying out right now?
Speaker Change: Yeah, no, that's a great question, Andrew, and the two pieces to this, number one, on the adjusted EBITDA, the way I start to look at that we did $28 million in adjusted EBITDA in 2024.
Speaker Change: So I backed out the $70 million in revenue that basically we called out the revenue pertaining to
the period prior to 2024.
Speaker Change: So just for that, you arrive at about $10 million in adjusted EBITDA, and the midpoint of our adjusted EBITDA guidance for 2025, that's $31 million. So that $21 million drop on a $56 million increase in the revenue,
Speaker Change: on a comparable basis, that's about like 37-38% of incremental margin drop to the bottom line.
Speaker Change: And given the fact that we are making the investments to scale our operations, I believe that that's a pretty good number to kind of drive just a little bit our profitability, specifically to achieve our goal of $100 million in 2027.
Speaker Change: And on your legal question part, the legal spend is already down in 2024.
Speaker Change: So, that's not going to be impacting your 2025 because you've already kind of seen the impact of that lower expense in 2024 itself.
if that makes sense, or maybe I'm missing anything otherwise.
No, that's helpful.
Speaker Change: I know somebody already asked on surveillance trends, so I don't want to get into kind of the nitty-gritty of where exactly are we right now. But when we think at a higher level and you think about some of the things you talk about in IOTA and updates to the procurement and utilization of organs and things like that,
Speaker Change: You know, these should all kind of be pointing people towards
Speaker Change: Some of the reasons that Alloshare and or Allomap are used.
Speaker Change: You know, when you think about the guy, when you think about the long term, how much of a lift can programs like that, can that focus really drive to drive that penetration from
kind of where it is in new patients today to...
you know, something substantially higher, and I guess...
and many more. Thank you. Thank you.
Yeah, I mean, I...
Speaker Change: We're pushing, Andrew. I don't disagree with you, and I think...
Speaker Change: you know, any conversations that I've had, you know, with the administration about this, or our team has had with the administration is that, yeah, they understand that these testing are important to monitor for patients, especially when you're asking centers to use more organs.
Speaker Change: that are being allocated to them that they previously would turn down.
Speaker Change: and that those patients are going to be at increased risk of rejection when those organs are utilized. And so we think there's a huge role for our services.
Speaker Change: particularly in the context of the IOTA program and we're having active conversations across the country with transplant centers that are going to be a part of that.
Speaker Change: program around everything from our digital tools, our HLA matching, our new score, I'm sorry, our new HLA matching software.
Speaker Change: to ensure that they have all the tools they need to manage those patients effectively and maintain high quality patient health outcomes post-transplantation.
Speaker Change: Okay, helpful. And then maybe just one last one. I know Bill asked a little bit on ASP, but I just want to kind of dig a little deeper on how you think about the ROI of, for example, the incremental heads. And I ask that with kind of in the back of my mind, if we back out the 2.2 million in 4Q, you're at about
Speaker Change: a little north of 1350 from an ASP perspective, you should get some momentum with those incremental heads, hopefully. So when you think about that ROI, I mean, is this just an abundance of caution in
Speaker Change: in the guidance, or is there some other sort of offset here to where, from a mixed perspective or something like that, we should think about that, you know, couple dollars of lift as being a success?
Speaker Change: Yeah Andrew, so you're spot on there that if you were to back out the 2.2 million dollars from the Q4 revenues
then the ESP would be roughly 1350-ish.
Speaker Change: and we are looking at 1360 for the full year so we're baking in what we have initially told that
Speaker Change: We are anticipating our ASPs to be growing in the low single digit. And of course, as John kind of called out, that as we are building this team, as we bring in the new leader, as well as we look for the system improvements on our RCM side, that basically stays an opportunity for us to kind of grow.
Speaker Change: So we'll see as to how this pans out, but these are the numbers for now.
Okay, great. I'll stop there. Thank you.
Thank you.
Speaker Change: Thank you. We go next now to Mason Carrico at Stevens.
Mason Carrico: Hey guys, sorry if I missed this but could you update us on the number of protocols you have in place today? Any wins worth calling out year-to-date?
Speaker Change: We didn't provide a protocol number, Mason. I think that's something that the organization did previously and then discontinued. And in Q3, we gave the number that we saw in that initial.
Speaker Change: that initial period post the redaction of the restrictive language in the LCD just to provide you know investors with some insight that this was starting to move in earnest.
Okay.
Speaker Change: Well, maybe if you could at least give us a little bit of insight into what you're seeing so far. I know you guys have talked about it taking a few quarters.
Speaker Change: for these protocols to start pulling through surveillance volumes, but you also called out kidney outpacing other organs in the quarter. So
Speaker Change: Could you just give us a sense of, you know, how much of your surveillance volume that you're seeing today is coming from centers with protocols versus the broader market, just starting to utilize them in that way?
Speaker Change: Are you seeing an increase in inpatient testing frequency at those centers, particularly the centers that were early to adopt a protocol versus your broader patient base?
Speaker Change: Yeah, that's a great question, Mason. I'm happy to break that down. I think, you know, yes, we are seeing movement and it's very consistent with what I've previously described, which is that when a center does initiate a protocol, they're going to initiate that protocol on newly transplanted patients.
Speaker Change: and thus we're seeing a ramp-up in volume at those centers consistent with
Speaker Change: the, you know, volume of transplants that they're performing on a monthly basis and then those patients transitioning from being incident transplant patients to prevalent patients on an ARTS protocol of 744.
Speaker Change: In addition to that, we are, and I appreciate your question here, because I think it's sometimes missed and not understood well that
Speaker Change: The lack of a protocol does not mean that a center or a clinician does not use donor-derived cell-free DNA testing for surveillance purposes.
Speaker Change: in the test and the impact that it has on patient outcomes because they've had that case.
where they've detected subclinical rejection using Alishore.
Speaker Change: performed a biopsy, found that rejection, and treated that patient effectively, and were able to save that graft. So there are believers like that all over the country that are managing patients with kidney transplants today, and we continue to work with those clinicians to make sure that their patients have high quality outcomes.
Got it. Thanks, guys.
Speaker Change: Thank you. We go next now to Eduardo Martinez at H.C. Wainwright.
and many more. Thank you. Thank you.
Eduardo Martinez: Good afternoon, this is Eduardo on for Yi Chen. A quick question, I guess you talked about it already about the pharmacy management for the patient suffering from these drug-drug interactions with these immunosuppressants and trying to improve their adherence to some of these
Speaker Change: Do you have any more details about what strategies you're planning on implementing? Is it going to be like text reminders or whatever it may be? Just hoping to get some more color on the strategy there.
Speaker Change: medication reminders. We have a medication program that is used by many transplant centers where at the point of discharge
Speaker Change: the clinician is able to download effectively like a PDF document that's specific to that patient, what their immunosuppression regimen is, along with all the other medications they take, and it summarizes the drug-to-drug interaction so that the clinician
Speaker Change: can walk the patient through prior to discharge that information. And then they're followed with a phone app, a consumer app that the patient utilizes that has reminders on using the medication. That's our digital solution. In addition to that,
Speaker Change: We have a specialty pharmacy that we operate as a business.
Speaker Change: that delivers a specialty therapeutics to patients that have undergone a transplant and the pharmacists at that specialty pharmacy, we're launching a more high-touch
Speaker Change: MTM program where the pharmacists interact directly with the patients and have that consultative discussion in a setting where perhaps
Speaker Change: you know, the transplant center, the hospital or health system they're in, their pharmacists aren't really transplant specialists, right? And they're not trained to deal with those patients in a specific way. And so that clinician can refer, he or she can refer their patients
Speaker Change: to the CARDI-X transplant pharmacy be managed in a more high-touch way. And we see that today, particularly in higher-risk patients.
Speaker Change: right, that perhaps don't have a good match, or it was a compromised organ, or maybe the patient has a concomitant health condition that complicates that medication-drug-to-drug interaction issue.
Speaker Change: Great, that's really helpful. And then pivoting more towards, you mentioned the one-year interim.
read out for the
Hematopoietic Stem Cell Transplantation Study.
Speaker Change: I'm curious what the timeline is on that study and kind of launch and what kind of vision you guys have for that for that product.
Speaker Change: Yeah, absolutely. So it's a two-year study, two-year follow-up study, and in February at the Tandem Cell Therapy meeting, there was a one-year interim readout of data. And so there's another year of follow-up.
Speaker Change: required in that study, but it is nearly fully enrolled. And so we anticipate talking about the launch of that product in upcoming calls as we get closer to the conclusion of that trial, the write-up of that data, and its submission for Medicare coverage.
Speaker Change: Great and I guess one final curiosity is as you guys are now thinking about capital allocation and you mentioned about strategic partnerships, M&A opportunities, do you have any thoughts on a Zeno transplantation? Any interest in partnerships in that area?
Speaker Change: CARDI-X has a number of partnerships in xenotransplantation. We have a product specifically for the monitoring of xenografts.
Speaker Change: that has been utilized in nearly all of the xenotransplants that have occurred to date. So we have partnerships with each of the companies developing those modified organs and the transplant centers that are performing those procedures.
Speaker Change: Okay, that's great. That's really helpful. That's all the questions for me. Thank you.
Great, thank you.
We'll go next now to Thomas DeBorsey at Nefron Research.
Hi guys, can you hear me alright?
We can hear you, Thomas.
Speaker Change: Okay, great. My question relates to, I guess, your kidney data for this year, and was curious, I guess, in terms of...
Speaker Change: You know what that incremental data adds to I guess your existing evidence base I think it has real-world outcomes in it And so is there a potential I guess to drive greater protocol compliance and and or drive I guess additional payer wins as well. Thanks
Speaker Change: Absolutely, thanks for the question. I think the answer is yes to both.
Speaker Change: you know there are there are many clinicians you know that are non-believers in donor-derived cell-free DNA testing and are waiting for more data to be published on these products before they adopt them so like like with any medical technology there's an adoption curve that's a it's a long cycle and so continuing to publish
Speaker Change: well-designed, large, multi-center prospective trials is important both for clinician adoption and of course for payer coverage as I highlighted earlier. So we we anticipate as I described the the initial
Speaker Change: K. R. manuscript to be published in the second half of 2025. So I think that would really impact payer policies in 2026.
Great. Thank you. Appreciate it.
Speaker Change: Thank you and gentlemen it appears we have no further questions at this time so that will bring us to the conclusion of today's call. Again we'd like to thank you for joining CAREdx's fourth quarter and fiscal year 2024 earnings conference call. Again thanks so much for joining us we wish you all a great remainder of your day. Goodbye everyone.