CareDx, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; the provided filing text does not give standalone fourth-quarter financial results.
Business context
CareDx develops and sells transplant diagnostics, laboratory products, and patient and digital solutions. Its principal testing services include AlloSure Kidney, AlloMap Heart, AlloSure Heart and AlloSure Lung. Testing services remained the largest business, accounting for 87% of 2021 revenue. CareDx reported more than 153,000 commercial tests during the year and operates as a single reportable segment.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $296.4 million | $192.2 million | +54% |
| Testing services revenue | $259.3 million | $163.6 million | +58% |
| Product revenue | $26.8 million | $19.3 million | +39% |
| Patient and digital solutions revenue | $10.3 million | $9.3 million | +11% |
| Gross profit / gross margin | $199.0 million / 67.2% | $129.1 million / 67.2% | Margin broadly flat |
| Operating loss | $(29.7) million | $(22.5) million | Loss increased |
| Net loss | $(30.7) million | $(18.7) million | Loss increased |
| Operating cash flow | $(19.3) million | $33.4 million | Declined |
Testing-services growth reflected more than 74,000 additional AlloSure Kidney, AlloMap Heart and AlloSure Heart results versus 2020. CareDx said cost growth reflected higher testing volumes, staffing and other operating costs, increased research and development, and expansion of sales and marketing. General and administrative expense also rose, including higher legal costs.
At year-end, cash and cash equivalents were $348.5 million, accounts receivable $59.8 million, total current assets $433.4 million and current liabilities $77.3 million. Working capital was approximately $356.1 million (derived); the current ratio was approximately 5.6x (derived). The company reported no debt outstanding. Total liabilities were $100.7 million, including operating lease liabilities.
Cash and cash equivalents increased from $134.7 million at year-end 2020. Operating cash use was $19.3 million, while financing provided $185.6 million, principally from the 2021 stock offering. Operating cash flow was affected by higher accounts receivable and repayment of the $20.5 million CMS advance payment. Management stated existing cash and expected operating cash were sufficient for anticipated needs over the next 12 months, while noting that additional financing may be needed in the future.
Material changes and notable items
- CareDx acquired TransChart, MedActionPlan and The Transplant Pharmacy in 2021, expanding its transplant software, medication-management and pharmacy offerings. It also acquired certain BFS Molecular assets and the Transplant Hero application.
- Research and development expense increased 56% to $76.5 million; sales and marketing increased 43% to $77.2 million; and general and administrative expense increased 54% to $75.0 million.
- CareDx raised approximately $188.9 million net through a January–February 2021 underwritten public offering. Shares outstanding were 52.9 million at year-end, up from 49.4 million a year earlier.
- CareDx recorded a $1.7 million unrealized loss on its Miromatrix equity investment and $2.6 million of other expense, net. Net loss per share was $0.59, versus $0.40 in 2020.
- Medicare accounted for 68% of testing-services revenue; separately, the filing reports 59% of total revenue was billed to Medicare. AlloSure Kidney, AlloMap Heart and AlloSure Heart Medicare reimbursement rates were $2,841, $3,240 and $2,753 per test, respectively.
Outlook, risks and contingencies
No numerical revenue or earnings guidance is provided in the supplied filing text. CareDx expects continued investment in product development, clinical evidence, commercial expansion and integration of acquisitions, and anticipates net losses for the next several years. Management cautions that past revenue growth may not continue.
- Reimbursement concentration: A reduction in Medicare coverage or payment could materially affect revenue; commercial coverage and payment remain variable for some tests. KidneyCare and iBox had not yet been submitted to private payers for coverage.
- Legal and regulatory matters: Natera litigation includes false-advertising claims and patent disputes; the filing reported trial dates in 2022 and 2023 and no liability accrual for these suits. The company was also cooperating with DOJ and SEC investigations, including a DOJ False Claims Act inquiry into kidney testing and phlebotomy practices; outcomes were uncertain.
- Operations and supply: U.S. testing is concentrated in one Brisbane, California laboratory, with no redundant laboratory facility. Certain key instruments and reagents have sole-source suppliers. COVID-19 may still disrupt operations, suppliers or clinical studies.
- Other risks: Competition, clinical validation and adoption, intellectual-property challenges, cybersecurity and privacy, acquisition integration, and regulatory changes affecting laboratory-developed tests are material risks.
- Audit and controls: Deloitte issued an unqualified opinion on the financial statements and internal control over financial reporting; management also concluded controls were effective. Revenue estimation for testing services was identified as a critical audit matter because it relies on judgments about payer collections and denials.
Important facts for investors to verify
- Whether test-volume growth converts into collections and improved operating cash flow, given the increase in accounts receivable.
- Current Medicare and commercial payer coverage, realized reimbursement per test, and any changes to rates or claims policies.
- Developments and potential financial exposure in the Natera cases and DOJ, SEC and state inquiries.
- Acquisition performance and integration costs, particularly for MedActionPlan, TransChart and TTP.
- Progress and evidence from K-OAR, OKRA, SHORE and AlloSure Lung studies, and the commercial and reimbursement trajectory of newer offerings.
- Cash runway against continued operating losses, stock-based compensation and planned investment; management’s 12-month liquidity statement is not a longer-term profitability forecast.