CareDx, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing is an annual report, not a standalone Q4 filing; quarterly figures below are unaudited. CareDx provides transplant testing, diagnostic products and digital solutions. Its principal services include AlloSure Kidney and AlloMap Heart. The company reported one operating segment.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $127.1 million | $76.6 million |
| Testing services revenue | $104.6 million | $60.3 million |
| Product revenue | $18.3 million | $15.7 million |
| Digital and other revenue | $4.2 million | $0.6 million |
| Gross profit / margin | $81.6 million / 64.2% | $43.6 million / 56.9% |
| Operating loss | $24.5 million | $15.6 million |
| Net loss / diluted loss per share | $22.0 million / $0.52 | $46.8 million / $1.31 |
| Net cash used in operating activities | $2.8 million | $4.0 million |
| Cash and cash equivalents at year-end | $38.2 million | $64.6 million |
| Debt at year-end | None | None |
Revenue grew 66%, led by a 73% increase in testing services; management attributed the latter primarily to 21,472 more test results provided year over year. Gross margin improved with testing-lab efficiencies. Operating expenses rose 79% to $106.1 million, including substantial increases in R&D, sales and marketing, and general and administrative costs. The narrower net loss largely reflected the absence of 2018’s large warrant remeasurement and debt-extinguishment charges, despite a higher operating loss.
For Q4 2019, revenue was $35.8 million versus $23.5 million in Q4 2018; net loss was $4.8 million versus $3.8 million. Working capital was $37.1 million at year-end. Operating cash use improved, while investing cash use was $22.6 million, including $18.2 million for the OttrCare and XynManagement acquisitions. CareDx said existing cash, expected revenue and available financing were expected to cover anticipated cash needs for at least 12 months from the financial-statement issuance date; additional financing may nevertheless be needed.
Business developments and material changes
- The company reported more than 49,000 commercial AlloSure Kidney and AlloMap Heart tests performed in 2019.
- Medicare represented 66% of testing-services revenue and 55% of total revenue. Medicare reimbursement rates were $2,841 for AlloSure Kidney and $3,240 for AlloMap Heart. BCBS of South Carolina issued the first positive private-payer coverage decision for AlloSure Kidney in October 2019.
- CareDx acquired OttrCare in May and XynManagement in August 2019, expanding transplant-center software and waitlist-management offerings. Its software solutions were used in 84 U.S. transplant centers.
- R&D spending more than doubled to $30.7 million. AlloSeq Tx and AlloSeq cfDNA launched in 2019; AlloSure Heart received a positive draft Medicare coverage determination. AlloSure Lung remained in a compassionate-use program, and KidneyCare and HeartCare registries were underway.
Outlook, risks and unusual items
The filing provides no specific revenue or earnings guidance. Management expects continued investment in product development, clinical evidence, commercialization and integration of acquired businesses, and states that losses may continue for several years. AlloMap Kidney and KidneyCare iBox had not yet been submitted to payers for coverage.
- Reimbursement concentration: Medicare exposure and limited private coverage for AlloSure Kidney make changes to coverage or payment rates a material risk.
- Profitability and funding: CareDx had an accumulated deficit of $333.8 million and remained loss-making; future financing may be required.
- Competition, evidence and regulation: Adoption depends on clinical evidence, payer decisions and clinician uptake. FDA policy changes affecting laboratory-developed tests could require additional studies, approvals or costs.
- Litigation: Natera filed a false-advertising counterclaim in February 2020 and a patent-infringement suit in January 2020 alleging AlloSure infringes a Natera patent. CareDx said it would defend the claims; no liability was recorded.
- Lease commitment: After year-end, CareDx extended its Brisbane facility lease; the amendment entails $23.9 million in minimum payments from March 2021 through February 2029.
- Other execution risks: The company relies on certain sole-source suppliers and a single U.S. testing laboratory, and must integrate acquisitions while managing privacy, reimbursement, clinical-study and intellectual-property risks.
The independent auditor issued an unqualified opinion on the financial statements and internal controls. Its control assessment excluded most controls at the two 2019 acquisitions during the permitted first year, except for goodwill and intangible assets.
Key facts for investors to verify
- Whether test volumes and testing-services growth continue, and whether improved gross margins persist as operating expenses rise.
- Whether private-payer coverage for AlloSure Kidney and Medicare coverage for AlloSure Heart become effective and broaden; verify applicable rates and payment collections.
- Whether cash generation supports the stated 12-month liquidity outlook, considering acquisition spending and the Brisbane lease amendment.
- Progress, enrollment and published outcomes for K-OAR, OKRA and SHORE, and the reimbursement path for newer solutions.
- Developments in the Natera litigation, supplier continuity and integration of OttrCare and XynManagement.