CareDx, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. CareDx develops transplant-focused diagnostic testing, products and digital solutions. Unless otherwise noted, financial amounts below are in millions of dollars.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $41.8 | $31.5 | $80.2 | $57.4 |
| Gross profit / margin | $26.8 / 64.1% | $19.9 / 63.4% | $52.8 / 65.8% | $36.2 / 63.0% |
| Operating loss | ($10.8) | ($6.8) | ($16.6) | ($12.2) |
| Net loss | ($6.6) | ($7.8) | ($12.4) | ($15.4) |
| Net loss per share, diluted | ($0.15) | ($0.19) | ($0.28) | ($0.37) |
- Q2 revenue grew 33% year over year; testing services rose 41% to $36.3 million, product revenue fell 28% to $3.3 million, and digital and other revenue increased 87% to $2.2 million. Testing services accounted for 87% of Q2 revenue.
- For the first half, revenue increased 40%. Testing services grew 44% to $67.7 million; product revenue declined 12% to $8.0 million; digital and other revenue rose to $4.5 million from $1.2 million.
- Operating expenses rose to $37.6 million in Q2 from $26.8 million, including higher research and development, sales and marketing, and general and administrative costs. Operating losses widened despite higher revenue.
- Q2 net loss was lower year over year partly because of a $4.8 million CARES Act Provider Relief Fund payment recorded as other income. This payment is not recurring revenue. First-half net loss also benefited from a smaller warrant remeasurement expense than in 2019.
Cash, liquidity and capital
- Cash and cash equivalents were $211.4 million at June 30, 2020, versus $38.2 million at year-end 2019. Current assets were $251.5 million and current liabilities $56.9 million.
- Cash from operating activities was $21.0 million for the first half, compared with $2.3 million used in the prior-year period. The 2020 amount included a $20.5 million CMS advance payment, so it should not be viewed as solely reflecting operating performance.
- Investing activities used $5.7 million; financing activities provided $158.0 million, primarily from a June public offering ($134.6 million net proceeds) and an April at-the-market offering ($23.5 million net proceeds).
- The company reported no debt outstanding. It recorded the $20.5 million CMS advance as deferred revenue; claim payments will be offset to repay it after the 120-day period, with repayment expected to be completed within up to 210 days.
- Management said existing cash and expected revenue should cover anticipated cash requirements for the next 12 months, while noting that additional financing may be needed in the future.
Changes, outlook and key risks
- COVID-19 slowed testing volumes in late March and April as transplant visits declined. After launching RemoTraC home blood draws, testing volumes returned to pre-pandemic levels and were at or above those levels in May and June. More than 4,000 patients had enrolled, and over 150 transplant centers could offer the service.
- COVID-19 constrained onsite product demonstrations and reduced forecasted product sales in Q2. Management said the pandemic’s full-year impact could not be estimated; supply chain, clinical study enrollment and operations remained exposed to disruption.
- CareDx provided no specific revenue or earnings guidance. Developments included first AlloCell partnership revenue, CE-mark approval for AlloSeq Tx 17 in May, and the commercial launch of AlloSeq HCT in June. Reimbursement coverage for AlloSure Heart remained subject to a final Medicare coverage determination; KidneyCare iBox, AlloMap Kidney and AlloSure Lung had no payer applications for coverage.
- Medicare represented 56% of Q2 revenue and 55% of first-half revenue. The company’s U.S. testing services rely on a single laboratory in Brisbane, California, with no redundant U.S. facility.
- Natera filed counterclaims alleging false or misleading AlloSure performance claims and patent infringement, seeking injunctive and unspecified monetary relief. CareDx said it would defend the claims; it had recorded no liability for the suits.
- New equity issuance increased shares outstanding; the company had 48.9 million shares outstanding at June 30, compared with 42.5 million at year-end 2019. The company also reported effective disclosure controls and no material change in internal control over financial reporting during Q2.
Investor verification points
- How testing volumes, RemoTraC costs and reimbursement collections evolve, particularly if COVID-19 again restricts transplant-center activity.
- Whether the CMS advance is repaid on schedule and how much reported operating cash flow reflects this temporary source of cash.
- Progress toward Medicare and commercial payer coverage for newer tests, including AlloSure Heart, and evidence supporting clinical adoption.
- Product revenue recovery following Q2 sales disruption, and the commercial contribution from AlloSeq launches and digital acquisitions.
- Updates on the Natera litigation, potential exposure, and any effect on AlloSure commercialization.
- Cash use and operating-loss trends relative to management’s stated 12-month liquidity expectation, including the effects of dilution and ongoing investment.