CareDx, Inc. — Q1 2020 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2020, compared with Q1 2019. CareDx provides transplant-related testing services, products, and digital solutions. All amounts below are in USD millions unless otherwise noted.
Key financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $38.4 | $26.0 | +48% |
| Gross profit | $26.0 | $16.2 | +60% |
| Gross margin | 67.7% | 62.5% | +5.2 percentage points |
| Operating expenses | $31.7 | $21.6 | +47% |
| Operating loss | $(5.8) | $(5.4) | Loss widened $0.4 |
| Net loss | $(5.8) | $(7.5) | Loss narrowed $1.7 |
| Net loss per share, diluted | $(0.14) | $(0.18) | |
| Cash used in operating activities | $(3.1) | $(5.9) | |
| Cash, cash equivalents and restricted cash at quarter-end | $32.4 | $57.6 |
Revenue comprised testing services of $31.4 million (+46%), product revenue of $4.7 million (+6%), and digital and other revenue of $2.2 million, up from $0.03 million. Testing services growth reflected more than 5,000 additional test results; digital revenue primarily reflected the OttrCare and XynManagement acquisitions. Management attributed improved gross margin to laboratory operating efficiencies.
Research and development expense rose 78% to $10.0 million and sales and marketing rose 69% to $11.7 million, mainly from higher headcount and related costs, clinical studies, and commercial programs. The smaller net loss mainly reflected a substantially lower warrant revaluation expense year over year; operating loss nevertheless widened.
Financial position and liquidity
At March 31, 2020, cash and cash equivalents were $32.2 million, current assets $66.1 million, and current liabilities $28.3 million. The company reported no debt outstanding and an accumulated deficit of $339.6 million. Cash and cash equivalents declined from $38.2 million at year-end 2019. The company believes cash on hand and expected revenues will cover anticipated cash requirements for the next 12 months, while noting that future financing may be needed.
April 2020 liquidity events, subsequent to quarter-end, included a $20.5 million CMS advance payment, subject to repayment through offsets against future claims; $23.5 million net proceeds from an at-the-market stock sale of 1.0 million shares; and a $4.8 million Provider Relief Fund payment described as non-repayable. These events are not included in the March 31 balance sheet.
Changes, outlook and principal risks
- COVID-19: The company reported slower testing volumes in the final weeks of March and during April as transplant visits were deferred or avoided. It launched RemoTraC for home blood draws; more than 140 transplant centers could offer it and over 2,000 patients had enrolled as reported. Management said it could not estimate the pandemic’s full-year effects.
- Outlook: The filing provides no specific revenue or earnings guidance. Management cited uncertainty around COVID-19 effects on testing volumes, clinical studies, suppliers, operations, and access to capital.
- Reimbursement and concentration: Medicare represented approximately 53% of Q1 revenue. AlloSure Kidney’s Medicare rate was $2,841 and AlloMap Heart’s was $3,240. Broader private-payer coverage remains important; certain offerings had not yet applied for payer coverage.
- Litigation: Natera filed counterclaims alleging false or misleading AlloSure performance claims and separate patent infringement claims seeking, among other relief, an injunction and unspecified damages. CareDx intends to defend the matters; it recorded no liability.
- Operating exposure: U.S. testing is performed at one Brisbane, California laboratory with no redundant U.S. facility. The company also cited potential supply-chain and clinical-study disruption from COVID-19.
- Other items: Operating lease right-of-use assets rose to $17.0 million, including the effect of an eight-year, two-month lease extension beginning in 2021. The company reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Subsequent-period testing volumes and the duration and financial effect of COVID-19 disruptions.
- Repayment timing and claim offsets for the $20.5 million CMS advance, and any conditions attached to the $4.8 million relief payment.
- Whether testing growth and gross-margin improvement persist as operating expenses rise.
- Coverage and collection trends for AlloSure Kidney, AlloMap Heart, and newer tests, including Medicare and private-payer developments.
- Developments in the Natera litigation and any effects on CareDx’s products, intellectual property, or financial exposure.
- Cash burn and financing needs relative to management’s stated 12-month liquidity assessment.