Good day, ladies and gentlemen and welcome to the CareDx Q4 Quarter Financial Results Conference Call. At this time, all participant lines are in a listen-only mode to reduce background noise. But later, we will be conducting a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host for today Leigh Salvo with Investor Relations. Ma’am you have the floor.

Thank you. And thank you for participating in today’s call. Joining me from CareDx are Peter Maag, President and CEO and Ken Ludlum, CFO. Earlier today, CareDx released financial results for the quarter ended December 31, 2014. The release is currently available on the company’s website at www.caredxinc.com. Before we begin, I would like to remind you that management will make statements during this call that include forward-looking statements within the meaning of federal securities laws which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, our examination of historical operating trends, and our future financial expectations are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please see our filings with the SEC. CareDx disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements whether because of new information, future events or otherwise. This conference call contains time sensitive information and is accurate only as of the live broadcast today March 17, 2015. I will now turn the call over to Peter Maag. Peter?

Thanks, Leigh. Good afternoon, everyone. It’s Saint Patrick's Day and since we are always starting with the patient story, I wanted to share this with you. I found Ernesto Antonio, an Irish, online. Since his transplant at the Mater Hospital, Dublin in 1999 he has undertaken a multitude of physical challenges on land and in water. He has done numerous half marathons, triathlons and an Ironman in Galway. He holds the marathon record for heart transplant patients. He swam the English Channel in a relay, cycled London to Paris last spring, climbed Kilimanjaro, raced across Scotland in two days and represented Ireland at the European Heart and Lung Transplant Games. His aim is to create awareness and promote organ donation. I find this inspirational, something Irish on Saint Patrick's Day. And one more patient story that makes CareDx employees and myself come to work every day. Now in this call I will touch on 2014 full year and our Q4 performance. I will also focus on a business update with a view on our growth drivers. I will then ask Ken to dive deeper into the financials for the fourth quarter and full fiscal year and he will provide guidance on 2015. I will close with some remarks and then we look forward to your questions. 2014 was a transformational year for CareDx and I'm proud of our many accomplishments. Highlights of the year included revenues were 27.3 million for the year 2014, which translated into a year-over-year revenue growth of 24%, largely driven by the solid volume growth from new and recurring use of AlloMap which had a 19% increase in 2014 over 2013. To recap other milestones, our strategic partner Illumina made a $5 million investment in support of our cell-free DNA initiatives and in the ImmuMetrix acquisition.…

Thank you, Peter. Starting with revenue in the fourth quarter, revenue was 8 million, up 36% from the fourth quarter of 2013. Note that 1.1 million of the 8 million was a combination of $500,000 cash payment and $600,000 in deferred revenue from LabCorp. This came around from the transfer of assets and rights to them for our lupus project that was previously a collaborative initiative. AlloMap revenue in the fourth quarter of 6.7 million was up 16% from the fourth quarter of 2013. Cost of testing in the fourth quarter was 2.2 million compared to 2.3 million in the fourth quarter of 2013. The major reason for the better cost of testing were increased efficiencies in absorbing overhead in our lab as well as lower overall cost. Also helping was the positive effect of our lower royalty payments. This resulted in a gross margin in the fourth quarter of 67%, up from 60% a year ago. R&D was $1.3 million in the fourth quarter compared to $660,000 in the fourth quarter of 2013, and roughly a $1 million in Q3. As expected, R&D expenses have increased as our cell-free DNA program moved beyond the initial development stage and into enrolment of a cell-free DNA study in heart as well as towards more extensive kidney research and development. Sales and marketing expenses for the fourth quarter were on plan at $1.6 million, and steady with the third quarter. G&A expenses were $2.3 million for the quarter. We have a new line item on our P&L which started last quarter. This is the change in contingent consideration owed to the ImmuMetrix shareholders. Remember that this is the accounting estimate of the value of our future milestone payment. This payment is payable in stock and if the stock price fluctuates quarter-to-quarter, the…

Thanks Ken. We enter 2015 in a position of strength, stemming from the continued traction we have achieved with AlloMap. As we continue to pursue AlloMap adoption, our strategy for 2015 includes the advancement of our cell-free DNA surveillance program which has the potential to directly detect organ health. We believe that our rejection surveillance management solutions could become a new diagnostic alternative in the estimate 1 billion post-transplant surveillance market for heart and kidney. Given our strong financial foundation and our market presence in molecular diagnostics, we expect to continue to seek inorganic opportunity. With that, thank you for joining us today. We look forward to updating you on our progress in the future calls. We will now open it up to questions. Operator?

[Operator Instructions] And our first question for the day is from the line of Dan Leonard from Leerink. Your line is open.

Great. Thank you. First off on kidney, is your expectation that you’ll launch the kidney product as an LDT by year end 2015 or is that a 2016 event?

Thank you very much for the question Dan. Really appreciate you picking up on our kidney transplant program. Where we'll focus right now is on the clinical validation of our test with the DART I program. We believe that ultimately we will need clinical utility to seek reimbursement, but we haven’t guided yet on the launch date of the LDT of the kidney transplant program. So, we'll update you on that launch of the LDT at a later stage.

Got it. Appreciate that clarification. And Peter can you elaborate further on the difference in mechanics between DART and KARGO?

Yeah, we call it KARGO. The KARGO sample set was a sample set of 300 samples where we qualified 222 samples for analysis. This was -- this sample set was collected in 2004 and had a number of limitations as was outlined in the call. We learned that the KARGO sample set is probably not valid for a full clinical validation study as it has been collected in serum samples and these serum samples had some limitations. We'll need to go back and collect kidney samples in our new initiative called DART. The quality of these samples will be significantly different, but it will also be the same as in KARGO a longitudinal sample set for kidney transplant patients.

Got it. And then my final question on the lupus, do you still own lupus IP and is that something you can monetize? Or does this payment from LabCorp close that?

Yeah, no, absolutely, we do continue to have lupus samples in our freezers. We have given LabCorp their rights to revert back to the joint data set that has been generated by the collaboration. But we continue to hold relative -- relevant IP and samples in our freezers here in South San Francisco.

Got it. Thank you.

Thank you. Our next question is from the line of Bill Quirk from Piper Jaffray. Your line is open.

Great. Thanks and good afternoon everyone. Peter just taking with kidney for a moment here, you mentioned a couple of times now that serum was problematic, you need to collect some additional kidney samples. Are you referring to actually kidney tissue samples, or I guess I'm a little confused there?

No, it is really serum sample. So, what we learn is that we need to collect in plasma to really have the high quality sample for cell-free DNA. We were using serum's pour offs in the KARGO sample set as well as in the CARGO II sample set for heart. Remember that the CARGO II sample set are also -- was valid for the clinical validity studies for cell-free DNA. But in -- we need to collect in plasma and need to do that in these extract tubes to get the high quality and high integrity samples for the development of cell-free DNA.

Okay, good. Thanks for the clarification there. And just thinking a little bit about I guess the time to run the DART I and then DART II study recognizing that we're going to talk more about DART II later in the year. So, help us think a little bit about -- you mentioned 200 patients at 10 or greater centers with an 18 month follow with the potential for six months early access to that. So, when I guess are you guys thinking you might be able to get that kind of early look at those samples and I know you probably don't want to commit to it, but I assume as soon as you get that then that might trigger the LDT release.

Now, Bill -- and I think the -- you know me well enough that I don't want to commit to it. So, I appreciate that half sentence. And I think we're right now laser-sharp focused on making DART I a reality even prior to the [KIDNA] [ph] trial. We always said that we want to start KIDNA in the second half of the year and since we're guiding on DART I starting earlier than KIDNA, I think we would be hoping that KIDNA -- DART I could start even in the first half of this year. Then the question will really be how quickly can we recruit patients into the DART I trial and the excitement in the community is very significant on cell-free DNA, so we believe that we can recruit very quickly. But you know that the reality in these centers will be determined by how quickly we can have investigators going through an IRB process and so on. I think it would be premature to inform right now on the DART I study. But think of this as a minimum of nine to 12 months in terms of given where we are at -- in this current program.

Okay. That's very helpful color. Thank you. And then just I guess a design or conceptual question, lot of the data that we've seen thus far in cell-free DNA has been from female donors into male recipients. And it strikes us that designing an assay to identify female DNA in a male donor is relatively easy as compared to say a male-male donor and transplant. And so I guess what I'm kind of driving at Peter is how many potentially different assays do you think you would need to cover both heart as well kidney cell-free DNA? I mean it sounds like it's going to require at least a couple, but just trying to get better handle on that.

No, thank you very much for that question. We call this the gender mismatch studies. And in gender mismatch, it’s relatively easy because you can use QT-PCR technology in order to detect donor versus recipient cell-free DNA. And this in early studies, 1989, [Lowe] [ph] has actually demonstrated that you can detect this based on this phenomena of gender mismatch. So, we're not concerned at all about gender mismatch. That is relatively easy and straightforward as scientific evidence. To speak to your specific question, we, in our technology, use probably 200 to 300 SNPs to detect the type of forensic panel that you're referring to in terms of differentiating donor to recipient-specific cell-free DNA. So, think of this as 200 to 300 SNP panel that allows us to make the right analytics in the targeted cell-free DNA.

Okay.

Does that address your question?

It does. Yeah, it's very helpful, thank you, Peter.

Thank you. Our next question comes from the line of Nicholas Jansen from Raymond James Associates. Your line is open.

Hey guys. Just going back to kidney in terms of the timeline now, which looks a little bit -- a little bit more elongated. Just trying to get a sense of when we should anticipate some potential for revenue here. I think when the process was unfolding over the summer you were hopeful that 2016 could be a year where you did get a nice little bolus of revenue, has that been pushed now to probably 2017 given the update here?

I think that's a fair assumption. We have been mentioning in the reimbursement section of this call that we don't anticipate any revenue in the year 2016 for our cell-free DNA kidney test. And I think I would reiterate that statement. Obviously, the team here is focused on establishing the clinical utility which will allow us to file for Medicare reimbursement, which will be the major component in generating a commercial success for cell-free DNA and transplantation. And that's really the core focus of the organization right now.

Okay. And then on the expense side of the house thinking that there is a change here, is there any increased R&D efforts now associated with this change or are we still thinking about the development timeline costing the same amount as before.

I think that's a very good question. We always guided that we only start the significant cost component of a clinical outcome trial once we are -- have established the clinical validity of the test. So, think of the bolus of the R&D expense also shifting somewhat. We continue to track on our R&D spending, but I'll let also Ken comment on that component.

Yeah, so we always discussed the overall cell-free program costing $13 million to $15 million. We think it might be a couple million dollars above that given that we'll be doing DART I and DART II now. And that's spread out over three years.

Okay. And is there any -- how much dollars have been spent thus far?

Very small amount of that. I would say less than $2 million.

Okay. And then lastly looking at the revenue guidance for 2015, very kind of consistent with what you were expecting on the core AlloMap there, is the expectation there mid-teens unit volume growth, you didn’t provide kind of unit volume expectation, just wanted to get a sense of how you're thinking about heart AlloMap test orders in 2015?

Yeah, we haven’t guided on volume and we'd like to not continue to -- we'd like to be consistent on that in terms of volume guidance. The revenue guidance and the math that you have made Nick is right on target. So, without giving you specific volume guidance, I think the math is very consistent on we're thinking about it.

Okay. Thanks guys.

The AlloMap revenue for this year in our plan is right smack in the middle of that revenue guidance that I just mentioned.

Are we ready for the next question?

Yes.

[Operator Instructions] Our next questioner comes from the line of Eric Criscuolo from Mizuho. Your line is open.

Thanks for taking my question tonight. Just one for Peter. On the early data readout in the DART study, what type of data or results should we expect to see from that?

Eric, thank you so much for stepping in on Peter and great to have you on the call. What we're looking for is clinical validation of our cell-free DNA test probably in connection with biopsy reads to be able to detect rejection in different time points post-transplant. So, there will be a number of clinical parameters and other parameters that we're looking at. But in kidney transplantation, there are really two things important for rejection monitoring, one is the biopsy read, the other would be serum creatinine reads in combination with clinical observations. So, these are the three things that probably build at the core of our clinical validation program of the kidney sample.

Great. And then the ISHTL data, could you go over again what you'll be presenting and may call out which were the most impactful --?

Yeah. We have the -- a bit of a limitation in terms of diving into the data of the ISHLT due to the scientific nature of the information and the embargos that are associated with it. But basically what we're doing is really three buckets. The first one is we're reporting out on cell-free DNA on our CARGO II analysis and only samples of [indiscernible] that we have in heart. Very exciting data on the cell-free DNA component. The second elements are around the usage of AlloMap in our registry study where we follow-up more than 300 patients now longitudinally and correlate AlloMap with clinical outcomes longer term. And the third elements are really around our story that we try to continue to build on AlloMap's use in immune-suppression optimization and personalization of AlloMap. Think of this as if there is a very low risk of rejection demonstrated with AlloMap, you can actually optimize immune-suppressive therapy. The imaging was done by tapering steroid in some of the publications that you'll see at ISHLT. Actually optimization of immune-suppression was done also on the CNI component of the immune-suppressive therapy. So, very exciting data for us at ISHLT.

And lastly your expectations for European commercialization and when we might expect to see revenues from that geography? Can you provide any insight or clarity onto that?

Yeah. No, thank you for asking that question. In the call, we have guided that there's relatively little expectation for us this year, but given that we have this Strasbourg Lab coming on-stream and beneath ISHLT, Congress being in front, we believe that this is the year where we will actually generate a lot of interest on AlloMap and we'll be in a much better position to then gauge AlloMap revenue for next year and we'll be in a very good position. Just, historically, has taken the adoption of AlloMap in some centers has taken some time until it really comes from fruition and it becomes the standard-of-care in these centers. And then the reimbursement question will be question that our partner Diaxonhit will answer country-by-country.

Great. Thank you very much.

Thank you. That's all the questioners that we have at this time. So, I'd like to turn the call back over to Peter for closing remarks.

Well, thank you very much. We look forward to update you on our future progress and have a great evening. Thank you very much for the call.