CareDx, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Unaudited; comparisons are to the corresponding 2018 periods. Amounts below are in USD millions unless otherwise stated.
Business context
CareDx develops transplant diagnostics, testing services and related products. Its principal commercial tests are AlloMap Heart and AlloSure Kidney. On May 7, 2019, CareDx acquired transplant-management software provider OTTR for approximately $16.1 million, expanding its digital business.
Financial performance
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Total revenue | $31.5 | $17.8 | $57.4 | $31.9 |
| Gross profit | $19.9 | $10.6 | $36.2 | $18.3 |
| Gross margin | 63.4% | 59.6% | 63.0% | 57.4% |
| Operating loss | $(6.8) | $(5.2) | $(12.2) | $(10.4) |
| Net loss attributable to CareDx | $(7.8) | $(14.1) | $(15.4) | $(23.0) |
| Basic and diluted loss per share | $(0.19) | $(0.40) | $(0.37) | $(0.71) |
- Q2 revenue rose 76% year over year. Testing services revenue increased 83% to $25.7 million; product revenue rose 29% to $4.6 million; digital and other revenue was $1.2 million, including $1.1 million from OTTR after acquisition.
- First-half revenue increased 80%, led by AlloSure Kidney volume: 13,065 reported results versus 3,351 in the first half of 2018. AlloMap Heart results increased to 8,852 from 7,979.
- Q2 operating expenses rose to $26.8 million from $15.8 million, including higher research and development, sales and marketing, and general and administrative costs. First-half stock-based compensation was $11.0 million, versus $3.2 million a year earlier.
- Net loss improved year over year, despite a higher operating loss, partly because 2018 included larger warrant/derivative remeasurement charges and debt-related expenses. Q2 2019 included a $1.4 million warrant fair-value expense; first-half 2019 included $4.4 million.
Cash, debt and liquidity
- At June 30, 2019, cash and cash equivalents were $43.5 million, down from $64.6 million at December 31, 2018; total assets were $142.9 million and stockholders’ equity was $93.2 million.
- First-half operating cash use was $2.3 million, compared with $6.4 million in 2018. Investing cash use was $17.7 million, mainly the $16.0 million OTTR acquisition and $1.1 million for Cibiltech-related intangible rights. Financing cash use was $1.0 million.
- The company reported no outstanding debt at June 30, 2019. It stated existing cash and expected revenue should cover anticipated cash needs for at least 12 months, while noting it may need future financing and cannot assure financing will be available on favorable terms.
Outlook, commentary and risks
- No specific revenue, earnings or cash-flow guidance was provided. Management described growth as dependent on test volumes, payer coverage and collections, product sales, successful commercialization of new offerings, and OTTR integration.
- AlloMap Heart had Medicare reimbursement of $3,240 per test and coverage decisions from several large private payers. AlloSure Kidney had Medicare reimbursement of $2,841, but no positive private-payer coverage decisions were reported; private payments were case by case.
- CareDx planned the OKRA study, an extension of its kidney registry, for a combined KidneyCare offering. AlloSure Lung was available through a compassionate-use program while further studies continued. The company had not applied for payer coverage for AlloMap Kidney, KidneyCare iBox or AlloSure Lung.
- Medicare accounted for approximately 54% of first-half 2019 revenue, up from 45% in the comparable 2018 period. This creates payer concentration and reimbursement exposure.
- Risks include successful OTTR integration and realization of expected benefits, payer coverage and reimbursement for newer tests, clinical and regulatory execution, competition, and the possibility of needing additional capital. CareDx also disclosed foreign-exchange exposure; an unfavorable 10% currency move was estimated to affect first-half financial results by $0.1 million and product revenue by $0.5 million. No near-term formal hedging plan was stated.
- Unusual items include $0.6 million of OTTR acquisition-related costs expensed in general and administrative expenses, and preliminary purchase accounting for OTTR, including $10.6 million of goodwill. Management reported no goodwill impairment indicators during the period.
Important facts for investors to verify
- Whether AlloSure Kidney volume growth converts into sustainable collections and broader private-payer coverage.
- OTTR integration progress, retention of key personnel, and whether anticipated cross-selling benefits materialize.
- Cash consumption following the acquisition and whether management’s stated 12-month liquidity expectation remains valid.
- Clinical-study progress and the timing, evidence, regulatory status and reimbursement prospects for HeartCare, KidneyCare and AlloSure Lung.
- Potential effects of Medicare concentration, warrant-liability remeasurement, share-based compensation and dilution from outstanding equity awards.