CareDx, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. CareDx is a precision-medicine company focused on transplant testing services, products and digital solutions. Financial statements are unaudited and consolidated. Unless otherwise noted, amounts are in U.S. dollars.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $75.6 million | $53.4 million | $217.2 million | $133.6 million |
| Operating loss | $8.7 million | $2.9 million | $14.3 million | $19.5 million |
| Net loss | $11.9 million | $2.8 million | $14.5 million | $15.2 million |
| Net loss per share, basic and diluted | $0.23 | $0.06 | $0.28 | $0.33 |
| Operating cash flow | Not provided for quarter | $(23.5) million | $26.3 million |
- Q3 revenue rose 42% year over year; testing services increased 46% to $66.5 million, product revenue rose 21% to $6.5 million, and digital and other revenue rose 6% to $2.6 million.
- Nine-month revenue increased 63%. Testing services grew 68% to $190.6 million, products grew 43% to $19.2 million, and digital and other revenue grew 7% to $7.4 million.
- Approximate gross margin was 67.1% in Q3 2021 versus 68.5% in Q3 2020, and 67.6% for the first nine months of 2021 versus 66.9% in 2020. Operating expenses grew faster than Q3 revenue, and the Q3 operating loss widened.
- Nine-month operating expenses rose to $231.5 million from $153.0 million. Increases included R&D, sales and marketing, and G&A; management cited higher staffing and personnel costs, stock-based compensation, clinical and research spending, marketing, and legal expenses.
Balance sheet, liquidity and cash flows
- At September 30, 2021, cash and cash equivalents were $353.1 million and marketable securities were $10.2 million; management reported combined cash, cash equivalents and marketable securities of $363.3 million.
- Current assets were $444.7 million and current liabilities $69.7 million. Stockholders’ equity was $472.1 million; accumulated deficit was $367.0 million.
- The company reported no debt outstanding. It repaid the $20.5 million CMS advance payment in January 2021.
- Nine-month operating cash use was $23.5 million, compared with cash provided of $26.3 million in 2020. The 2021 use reflected, among other items, higher receivables and repayment of the CMS advance. Investing activities provided $55.5 million, primarily due to marketable-security maturities; financing activities provided $186.5 million, primarily from an equity offering.
- CareDx raised approximately $188.7 million net through its January/February 2021 public offering. Common shares outstanding were 52.8 million at September 30, compared with 49.4 million at December 31, 2020.
- Management said existing cash and expected cash from operations and agreements should meet anticipated cash requirements for the next 12 months, while noting that additional financing may be needed in the future.
Material changes and business developments
- Management reported approximately 40,000 AlloSure and AlloMap patient results in Q3, an 86% year-over-year increase in testing-services volume, and an approximately 90% HeartCare attach rate.
- TxAccess referrals increased more than 30% sequentially to approximately 38,000. CareDx acquired TransChart in January 2021 and Transplant Hero in June, and continued developing digital and analytics offerings.
- CareDx received its first commercial coverage for AlloSure Lung and launched the test in October 2021, after the quarter-end.
- The company recorded a $3.4 million Q3 other expense, primarily associated with an unrealized loss on its Miromatrix investment. It also reported a $5.0 million Miromatrix investment made in May 2021.
- Medicare accounted for approximately 61% of Q3 revenue and 60% of nine-month revenue, making reimbursement policy and collection important exposures.
Outlook, risks and contingencies
- The filing provides no quantified revenue, earnings or margin guidance. Management expects continued investment in product development, clinical evidence, commercialization, and operating capacity, and expects losses to continue for the next several years.
- CareDx said COVID-19 had not reduced testing volumes during the reported period, but warned that renewed restrictions could affect supply chains, clinical studies, staffing and operations.
- The company disclosed a DOJ civil investigative demand concerning certain kidney-testing and phlebotomy business practices, an SEC subpoena concerning related matters and accounting/public reporting practices, and a state regulatory information request. CareDx said it was cooperating and could not predict outcomes.
- CareDx faces Natera litigation involving alleged false advertising and patent infringement. The false-advertising matter is proceeding toward trial, with no date set. In September 2021, a court ruled three CareDx-asserted patents invalid; CareDx appealed and stated that the ruling did not affect its ability to continue providing AlloSure. Natera’s patent claims against CareDx remain unresolved.
- The company identified dependence on reimbursement, competition, potential future financing, acquisition integration, cybersecurity and privacy, and reliance on a single U.S. laboratory as risks. It reported no material change in internal control over financial reporting and said disclosure controls were effective at a reasonable-assurance level.
Key facts investors should verify
- Progress and potential financial or operational effects of the DOJ, SEC and state inquiries, including any subsequent disclosures.
- Developments in the Natera cases, including the patent appeal and potential effect on CareDx’s intellectual-property position.
- Whether testing-volume growth converts into improved margins and operating cash flow as staffing, clinical, sales and legal costs rise.
- Ongoing Medicare and private-payer coverage, reimbursement rates, collections and the high Medicare revenue concentration.
- Commercial uptake and reimbursement for AlloSure Lung, and execution of product, digital and acquisition-related growth plans.