CareDx, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. CareDx is a precision-medicine company focused on transplant testing services, diagnostic products, and patient and digital solutions. Financial figures below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $67.2 | $79.4 | $214.8 | $239.4 |
| Gross profit and margin | $42.7; 63.5% | $51.1; 64.3% | $138.4; 64.4% | $156.7; 65.5% |
| Operating loss | $(28.8) | $(17.3) | $(80.7) | $(58.1) |
| Net loss | $(23.5) | $(16.9) | $(72.2) | $(58.3) |
| Net loss per share, diluted | $(0.43) | $(0.32) | $(1.34) | $(1.09) |
Q3 revenue fell 15% year over year. Testing services revenue declined 26% to $47.8 million; product revenue grew 33% to $9.5 million, and patient and digital solutions revenue grew 33% to $9.9 million. The filing attributes lower testing revenue principally to reduced Medicare testing volume amid revised billing requirements. Management reported Q3 revenue increased 7% from Q2 excluding the approximately $7.8 million of Medicare claims catch-up revenue recognized in Q2.
Operating expenses totaled $96.0 million in Q3, versus $96.7 million a year earlier. Lower research and development and sales and marketing costs were offset by general and administrative expense rising $10.1 million to $34.0 million, primarily from higher legal and personnel costs. Nine-month operating expenses included $0.8 million of restructuring costs.
Cash flow and liquidity: Net cash used in operations was $10.0 million for the first nine months, compared with $32.4 million in the prior-year period. Investing activities used $0.9 million and financing activities used $2.7 million. Cash, cash equivalents and restricted cash ended the period at $76.6 million; cash, cash equivalents and marketable securities totaled $268.2 million. The company reported no debt, an accumulated deficit of $534.2 million, and current assets of $345.2 million against current liabilities of $72.7 million. Management said existing resources and expected cash from operations should cover anticipated requirements for at least 12 months, while noting future financing may be needed.
Material changes and notable items
- For the first nine months, total revenue declined 10% year over year, primarily due to testing services, partly offset by growth in products and digital solutions.
- Medicare represented approximately 36% of Q3 revenue and 41% of nine-month revenue, compared with 53% and 54%, respectively, in the corresponding 2022 periods.
- CareDx reported 38,400 testing services patient results in Q3, up 2% from Q2. It also reported four consecutive quarters of testing-services collections exceeding 100% of revenue.
- Cash and marketable securities declined from $293.1 million at December 31, 2022 to $268.2 million at September 30, 2023. The company purchased $1.6 million of shares under its repurchase program during the first nine months; $47.7 million remained authorized.
- HLA Data Systems and MediGO were acquired in 2023. Their combined cash consideration was $6.7 million; the acquisitions added $6.1 million of identifiable intangible assets and $2.6 million of goodwill.
Guidance, risks, contingencies and controls
- Outlook: CareDx raised its full-year 2023 revenue guidance to $274–$278 million. The filing cautions that quarterly results are not necessarily indicative of full-year results.
- Medicare billing and reimbursement: Noridian adopted revised billing requirements effective retroactively from March 31, 2023. CareDx recognized approximately $7.8 million in Q2 for previously held March AlloSure Kidney claims, after initially deferring approximately $8.9 million. Certain later AlloSure Kidney claims remained unbilled pending additional physician information. The company warned that some previously submitted heart-test claims could be subject to forfeiture and that billing restrictions have reduced testing volume.
- Coverage developments: Medicare coverage began for AlloSure Lung effective May 9, 2023 and for HeartCare effective April 1, 2023, subject to limitations. Proposed revisions to the underlying coverage policy were still under review at quarter-end.
- Legal and regulatory matters: The SEC notified CareDx in September that it had concluded its investigation and did not intend to recommend enforcement action. The DOJ False Claims Act investigation remained ongoing. In the Natera false-advertising case, the court upheld the jury’s finding but not the monetary damages; CareDx planned to appeal and an injunction against Natera was issued. Natera’s patent claims against CareDx and a securities class action remained ongoing. CareDx recorded no liabilities for the described lawsuits.
- Post-quarter development: In October 2023, the U.S. Supreme Court declined to hear CareDx’s patent case against Natera. The Stanford license automatically terminated after that review concluded; CareDx said certain previously suspended royalties would be payable within 90 days of termination.
- Internal controls: Management concluded disclosure controls were not effective as of September 30, 2023 because previously reported material weaknesses remained unremediated. Weaknesses involved IT general controls, purchase-order approvals, and the COSO control framework. Remediation was underway; the financial statements were reported as fairly presented in all material respects.
- Other exposures: The company cited ongoing operating losses, reimbursement and payer concentration risks, potential future financing needs, litigation, regulatory changes including proposed FDA oversight of laboratory-developed tests, and foreign-currency exposure. No goodwill impairment was recorded despite a sustained share-price decline and an impairment indicator.
Investor verification priorities
- Track final Medicare coverage and billing-policy decisions, claim supplementation and denial rates, and any repayment or forfeiture exposure.
- Reconcile the $274–$278 million revenue outlook with Medicare-dependent testing volumes and the pace of growth in product and digital revenue.
- Assess cash burn, collections, and available liquidity against continuing losses, acquisitions, the share-repurchase authorization, and possible financing needs.
- Monitor the DOJ investigation, Natera-related litigation and appeal, securities class action, and payment of royalties following termination of the Stanford license.
- Confirm progress in remediating material weaknesses and whether controls are tested and deemed effective in subsequent filings.