CareDx, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. CareDx is a precision-medicine company focused on diagnostic testing, products, and digital and patient solutions for transplant care.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $79.4 million | $67.4 million |
| Operating loss | $19.1 million | $0.9 million |
| Net loss | $19.6 million | $0.7 million |
| Net loss per share, diluted | $0.37 | $0.01 |
| Cash used in operations | $21.5 million | $33.6 million |
- Revenue grew 18% year over year. Testing services revenue was $66.4 million, product revenue $6.8 million, and patient and digital solutions revenue $6.2 million.
- Testing services revenue rose 12%, primarily reflecting more than 8,000 additional AlloSure Kidney, AlloMap Heart, and AlloSure Heart results. Management reported approximately 42,600 AlloSure and AlloMap results in the quarter and record monthly Heart and Kidney testing volume in March.
- Product revenue increased 17%, principally from NGS typing products. Patient and digital solutions revenue increased 164%, mainly reflecting the 2021 acquisitions of TTP and MedActionPlan.
- Operating expenses increased 44% to $98.5 million, outpacing revenue growth. Reported gross margin, using the three disclosed direct cost categories, was approximately 66% versus 68% a year earlier; operating margin was approximately negative 24% versus negative 1%.
- Higher expenses included increases in general and administrative costs of $11.3 million, sales and marketing of $7.7 million, and research and development of $5.9 million. General and administrative growth included $6.7 million of additional legal expense. Stock-based compensation was $10.6 million, up from $6.5 million.
- Operating cash use improved year over year. Investing activities used $156.0 million, mainly due to $148.5 million of purchases of short-term marketable securities and $8.5 million of capital expenditures. Financing provided $0.9 million; the prior-year period included proceeds from a public offering.
Liquidity and balance sheet
- At March 31, 2022, cash, cash equivalents, and marketable securities totaled $319.2 million; CareDx reported no debt and an accumulated deficit of $402.8 million.
- Cash and cash equivalents declined to $171.9 million from $348.5 million at year-end, while short-term marketable securities increased to $147.3 million. The decline in cash largely reflects investment in securities rather than operating cash use alone.
- Current assets were $411.5 million and current liabilities $66.9 million. Total liabilities were $89.2 million; stockholders’ equity was $457.5 million.
Outlook, risks, and unusual items
- Management stated that existing cash and expected cash from operations and agreements should be sufficient for anticipated requirements for the next 12 months. The filing provides no specific revenue or earnings guidance.
- Management said COVID-19-related reductions in transplant procedures and medical personnel availability affected testing volumes early in Q1; a sustained decline in transplant volume could adversely affect testing revenue. The company also cited potential supply-chain and clinical-study disruption.
- Medicare represented approximately 54% of total revenue in Q1 and, separately, 65% of testing services revenue. Changes to Medicare coverage or reimbursement are a material exposure.
- A jury awarded CareDx $44.9 million in its false-advertising case against Natera, including $21.2 million compensatory and $23.7 million punitive damages. CareDx had not recorded the award pending post-trial motions. Separate Natera patent litigation against CareDx remained pending, with trial scheduled for July 2023; CareDx reported no liability for these matters.
- CareDx disclosed ongoing DOJ and SEC investigations concerning kidney testing and phlebotomy business practices, and SEC review of certain accounting and public reporting practices. The company said it was cooperating and could not predict the outcome.
- On April 14, 2022, CareDx established an at-the-market offering program of up to $200 million of common stock. Any sales may dilute existing shareholders. A separate lawsuit filed April 15, 2022 was stayed pending a hearing on CareDx’s motion to compel arbitration and dismiss.
- Other key risks include continuing losses, dependence on reimbursement and third-party suppliers, reliance on a single U.S. testing laboratory, regulatory and intellectual-property risks, and foreign-currency exposure.
Most important facts to verify
- Whether the $44.9 million Natera jury award survives post-trial motions, and its eventual accounting and cash impact.
- Developments in the DOJ and SEC investigations, the pending Natera patent case, and the Olymbios matter.
- Testing volumes, payer mix, Medicare reimbursement and collections, particularly given Medicare’s share of revenue.
- Whether operating expense growth moderates relative to revenue growth and how the company funds continued losses and investment.
- Whether CareDx uses the $200 million ATM program, and the resulting proceeds and shareholder dilution.