CareDx, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This annual filing reports full-year results, not standalone fourth-quarter results. CareDx develops and sells transplant diagnostics, laboratory products, and patient and digital solutions; it operates as one reportable segment.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $321.8 million | $296.4 million | +9% |
| Testing services revenue | $263.7 million | $259.3 million | +2% |
| Product revenue | $29.3 million | $26.8 million | +9% |
| Patient and digital solutions revenue | $28.8 million | $10.3 million | +180% |
| Gross profit and margin | $209.6 million; 65.1% | $199.0 million; 67.2% | Margin down about 2.1 percentage points |
| Operating loss | $77.2 million | $29.7 million | Loss widened |
| Net loss | $76.6 million | $30.7 million | Loss widened |
| Net loss per share, diluted | $1.44 | $0.59 | Loss per share increased |
| Cash used in operations | $25.2 million | $19.3 million | Use increased |
Testing volume increased by 28,000 results year over year, but much of the incremental volume was covered by commercial payers with limited coverage, reducing revenue per test. Digital revenue growth primarily reflected the full-year contribution of MedActionPlan and The Transplant Pharmacy, acquired in late 2021. Operating expenses rose to $399.0 million from $326.1 million, including higher R&D, sales and marketing, and general and administrative costs.
At year-end, CareDx reported $89.9 million in cash and cash equivalents and $203.2 million in current marketable securities, or $293.1 million combined, and no debt outstanding. Total assets were $543.0 million and total liabilities were $112.1 million. Management stated that existing cash and expected operating cash were sufficient for anticipated needs over the next 12 months. Cash and cash equivalents declined by $258.3 million during 2022; investing cash use included $315.1 million of marketable-securities purchases, partly offset by maturities. The company reported an accumulated deficit of $460.4 million.
Business, changes and outlook
- CareDx reported more than 182,000 commercial tests in 2022. Its principal U.S. laboratory tests include AlloSure Kidney, AlloMap Heart, AlloSure Heart and AlloSure Lung; it also sells AlloSeq and HLA-typing products and transplant software and pharmacy services.
- Medicare represented 64% of testing-services revenue and 34% of tests in 2022. Separately, the filing reports Medicare billings as 53% of total company revenue. The tests’ stated Medicare reimbursement rates were $2,841 for AlloSure Kidney, $3,240 for AlloMap Heart and $2,753 for AlloSure Heart.
- The filing provides no specific revenue or earnings guidance. Management described continued investment in product development, clinical evidence, commercialization and integration, while noting that profitability is not assured and losses may continue.
- AlloSure Lung was launched, but was undergoing further studies and Medicare coverage discussions; it had early adoption with some commercial payers. KidneyCare and iBox had not yet been submitted to private payers for reimbursement coverage.
- In January 2023, CareDx announced a restructuring that includes closing its Fremantle, Australia operations, with closure expected by June 2024. It also acquired a U.S. software-system company in January 2023; purchase-price allocation was not yet complete.
- A $50 million share-repurchase authorization began in December 2022. The company repurchased 50,051 shares for $0.6 million during 2022; $49.4 million remained authorized at year-end.
Material risks, contingencies and unusual items
- Financial reporting controls: Management identified material weaknesses in IT general controls, purchase-order approvals and components of the COSO control framework. Management concluded disclosure controls were ineffective; the auditor issued an adverse opinion on internal control over financial reporting. The auditor separately gave an unqualified opinion on the financial statements. Remediation was ongoing, with no assurance of success.
- Litigation: A jury awarded CareDx $44.9 million in its false-advertising case against Natera, but post-trial motions remained pending; the company had not recognized the award because cash had not been received and the matter was unresolved. Natera’s separate patent claims against CareDx remained pending. CareDx’s patent-infringement judgment against Natera was affirmed as dismissed on appeal.
- Investigations and other claims: DOJ and SEC investigations concern business practices related to kidney testing and phlebotomy, and matters including accounting and public reporting. CareDx said it was cooperating and could not predict outcomes. A securities class action and derivative litigation were also pending; the company recorded no liabilities for these suits.
- Commercial and operating exposure: Dependence on Medicare reimbursement, payer denials and collection estimates, competition, adoption of new tests, and the ability to generate supporting clinical evidence could affect revenue. The filing also identifies sole-source suppliers, a single U.S. testing laboratory without a redundant facility, regulatory uncertainty for laboratory-developed tests, and potential supply-chain and COVID-19 disruption.
- Other unusual items: The company recorded $46.6 million in stock-based compensation and $3.8 million in net interest income. A $44.9 million litigation award was not included in earnings. A potential $200 million at-the-market equity offering could dilute shareholders if used; no shares were reported sold under that facility in 2022.
Investor verification priorities
- Track remediation and independent-auditor findings on the material weaknesses, including whether controls become effective and whether future filings require corrections.
- Monitor Medicare and commercial-payer coverage, reimbursement rates, collections and revenue per test, particularly as test volumes grow.
- Review developments in the Natera litigation and DOJ, SEC and state inquiries; verify whether the jury award is upheld, collected or otherwise resolved.
- Assess operating cash burn, liquidity and spending, separating cash used for operations from purchases and maturities of marketable securities.
- Verify progress and costs of the Fremantle closure and the January 2023 acquisition, as well as any use of the repurchase authorization or at-the-market offering.