Welcome to the CareDx Third Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management prepared remarks we will hold a Q&A session. [Operator Instructions] As a reminder, this conference is being recorded today November 11, 2015. I would now like to turn the conference over to Leigh Salvo, Investor Relations. Please go ahead.

Thank you, Abigail and thank you for participating in today’s call. Joining me today from CareDx are Peter Maag, President and Chief Executive Officer; and Ken Ludlum, Chief Financial Officer. Earlier today, CareDx released financial results for the quarter ended September 30, 2015. The release is currently available on the company’s website at www.caredx.com. Before we begin, I’d 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, November 11, 2015. I’ll now turn the call over to Peter Maag. Peter?

Thanks, Leigh. Good afternoon, everyone. As you know we begin with the patient story on each of our quarterly calls. This quarter we had an event that hit really close to home. Reminding all of us that caring for transplant patients is a significant and life determining undertaking. One of our CareDx associates that used to work in our customer care group has passed away after being put on the waiting list for our heart transplant. Then transitioned to a ventricular assist device, but it turned out that her condition had deteriorated already too much. She will be missed by her family and all of her colleagues. Now turning to page, I'm thrilled to the progress we have made this quarter, the momentum we saw in the first half of the year continued into our third quarter as we made substantial progress on each of our objectives for 2015. We start this call by covering the recent highlights in our cell-free DNA pipeline. Then I’ll cover the update on our AlloMap business, where our focus continues to be increasing patient access. Ken will cover the financials for the third quarter and our guidance for 2015. And then, we look forward to your questions. Before we discuss operational highlights I would first like to briefly comment on our overall financial performance. Total revenue was $7.2 million in the third quarter of 2015; AlloMap test volume reached a record level in the quarter and continues to be a strong foundation for our business. We saw 13% year-over-year volume growth, which underscores the importance of AlloMap as the core product for CareDx. Based on this foundation we are succeeding in building a strong adjacent R&D effort centered on our cell-free DNA technology and a much bigger market opportunity in kidney surveillance. This translated…

Thanks Peter. So as you saw revenue in the third quarter was at $7.2 million that was up 7% from the third quarter of 2014. As Peter noted, we had record AlloMap volume in the quarter. However, this quarter revenues grew a bit slower than AlloMap volume due to a lower Medicare mix than budgeted in the transition of bringing collections and billings in-house. Cost of testing in the third quarter was $2.6 million, compared to $1.8 million in the third quarter of 2014. This translated to a gross margin of 63% in line with recent performance. Remember when comparing this to last year's quarter we had a one-time credit from a used royalty that reduced our COGS by over $0.5 million. R&D expense was $2.7 million in the third quarter, compared to $1.0 million in the third quarter of 2014. The increase was primarily due to increases in headcount expenses in the research department and also an increase in all clinical trial activity especially cell-free DNA clinical trial expense, which did not exist last year. Sales and marketing expenses for the third quarter were $2.1 million, compared to $1.8 million in the third quarter of last year. This was related to increased marketing programs that we conducted this year. G&A expenses were $3.4 million for the quarter, up from $2 million in the third quarter of 2014. During the third quarter several activities affected these expenses most of which were not – either non-reoccurring or one-time in nature including the filing of an S3 and the related ATM program. Stepping up our external business development activities and the initial expenses involved with our CMS response. In addition we brought billings and collections in-house on July 1, which will reduce expense starting next year after a transition period in which we are running our old outside service and our in-house activities in parallel. The third quarter net loss was $3.5 million compared to a profit of $1.2 million for the same quarter in 2014. Basic and diluted loss per share were $0.29 in the quarter ended compared to positive earnings-per-share in the year ago quarter. Our shares outstanding for this year were at $11.9 million. Turning to balance sheet, at the end of the third quarter we had $34 million in cash and cash equivalents on hand versus $36.9 million at June 2015. And we are reaffirming our revenue guidance for this year to be in the range of $28 million to $30 million. Peter.

I am delighted by the progress we made throughout the first nine months of this year, as we moved towards advancing our mission to improve patient outcomes in transplant care. We look forward to updating you on our progress. With that, we’d now like to open the call up to questions. Operator?

Thank you. [Operator Instructions] And our first question comes from the line of Bill Quirk with Piper Jaffray. Your line is open.

Great. Thanks, and good afternoon, everyone. First question, Peter, just kind of going back to CMS issue, any update on that when you guys obviously came out pretty strong against methodology that CMS have used in the preliminary updates and then obviously it looks like you have quite a bit of support not only from the advisory committee, but also from some additional laboratory groups as well?

Yes. Thank you Bill for the question. We are in the open common period I think we have done a tremendous job in responding very swiftly and very forcefully in the challenge that CMS has provided as you know many of these companies are affected and CareDx has been affected significantly with a 77% price cut given that many transplantations are actually Medicare patients, more that 50% of our revenue would be impacted. So we’ve been out in Washington lobbying with Congressman having direct interactions with CMS and we are pretty content with the effort that we put together in building a rationale that capital would be the right methodology. As you know, CMS will issue guidance at end of this month towards the middle of December, the latest on the update of clinical lab fee schedule.

Got it. And then just you mentioned regarding reimbursement thing and about that 80% rate. So is it safe to say Peter that you're not hearing from any payers who are considering following CMS as lead?

No, actually we haven't had any of these challenges because as you know we have total a 175 million contracted lives and another 50 million lives are paying on a very regular basis, we haven't had any of these challenges. Just as a reminder, many of these plans have undergone a rigid effort to evaluating the technology and the pricing off of AlloMap and we as a company have made a very strong push to never contract without considering the Medicare pricing. So we're pretty comfortable on where we are in regards to AlloMap pricing and the challenge is that this might proposed to other private payers.

Okay, very good. And then I guess just switching topics real quick, as it relates to AlloSure, just to be clear that other than perhaps the cut off percentage for rejection versus quiescent. This is the same test or same workflow is that the right away to understand that’s essentially a software account algorithmic difference between say kidney versus heart for AlloSure?

I think from an assay development standpoint, Bill, you are absolutely correct. I think when it comes to the clinical utility of test, the frequency when it is tested – when it is tested and maybe after rejection occurrence or prior to rejection or maybe as a surveillance tool, maybe say different clinical utility. But from an assay perspective, you are absolutely correct that cell-free DNA focusing on donor-derived cell-free DNA is universal, applicable and that's why AlloSure is a good name because it's a generic Allo put to the Sure with the cell-free DNA.

Okay, got it. Thanks guys.

Thank you. Our next question comes from the line of Dan Leonard with Leerink. Your line is open.

Thank you. My first question Peter, has the Medicare language around EDLTs impacted your reimbursement strategy at all for AlloSure?

No, because I think AlloSure is square in the middle of being an advanced diagnostic laboratory test. So we fit very well into this nomenclature. We don't anticipate right now as we have guided previously to that this would be in the beginning in FDA tests, which would even stronger build the case towards this being in EDLT. But we see AlloSure very clearly in the EDLT bucket and we don't see that even be contested in the current panel legislation.

Okay. So you would likely declare AlloSure as an EDLT under the Medicare guideline is opposed to trying to go different route?

Yes, I think it’s also to the context of the law and how this is bidding I think it does fits right where this law will try to be regulating advanced diagnostic laboratory test.

Got it. And maybe a question for Ken. Ken how are you measuring the success of your efforts to internalize billing, is that something that should materialize in a higher ASP for test or in lower COGS for test or how do we think about that?

Materialize two ways, one is a lower overall expenditures related to billing and collections versus what we were doing on an outhouse spaces earlier. And then secondly we should have a one-time pickup or acceleration in cash collections as we get rolling their. So those two things should be the primary benefits.

And then finally was the 12% to 13% volume growth for AlloMap this quarter was that apples-to-apples versus the prior year, was there any difference in number of days in the quarter this year versus the prior year?

No there was no meaningful difference in the days of year-over-year, that’s apples-to-apples.

Thank you.

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

Hey guys, in light of the clinical lab fee schedule potential changes I wonder if that kind of accelerated any of the inorganic growth opportunities that you are pursuing clearly a large reimbursement cut of this magnitude might make it difficult to continue to perform the same level of service under that platforms. So I just wondered to kind of get your sense of the inorganic opportunities that you guys are currently looking at?

Well, I think as we talked about in the call we are a relatively focused team and given the CMS challenge, a number of our senior executives were actually focused on putting out the fire that CMS was posing to us. So in that sense we have put inorganic growth options a little bit on the back seat, but as we are going into the next year and we continue to look through executing on all these pillars at the same way. We as a company, we have AlloMap as the foundational core product, we have AlloSure as the internal growth driver and then we try to mitigate that with external inorganic growth opportunities. This has always been part of the strategy and both continue to look for opportunities of adding that to our portfolio.

That’s helpful. And then Ken maybe for you from an expense perspective I think you mentioned as one of the maybe non-recurring items in the third quarter was the beginning cost associated with the defense – with the clinical lab fee schedule changes and just wanted to get a sense for our models for the fourth quarter, certainly you guys probably ramped up your efforts in October and November, how we should be thinking about those expenses for the fourth quarter?

Yes, so there are going to be substantial expenses following through into the fourth quarter and I think people need to be increasing their G&A expenses in Q4 actually quite a bit also to reflect taking reimbursement in-house which would be an ongoing expense. So you want to talk about specific numbers here at this point or…

It’s more of the context we are taking about $1 million or multi-million dollars anything helpful would be great for the broader community to understand?

Ballpark would be $1 million higher than what consensus is.

Okay, that’s helpful. And then lastly in terms of all the – you are certainly doing a good job enrolling patients in all these trials, you are clearly developing a pretty sizable biobank of samples, just wanted to get your sense perhaps you can potentially monetize that, if there were some negative ramification associated with your pricing in AlloMap. Is there any way where you could perhaps get a cash inflow with regards to perhaps partnering with folks with all that data you are collecting? Thanks.

I think that’s an excellent question, Nike, I mean this is when we compare the biobanks in post-transplant management this is a very substantial effort and invaluable resource as we learned that a lot of the technologies are focusing now on post-transplant surveillance this will be an invaluable asset to the company. We have and we will continue to have conversations with the various industry players given that it is transportation actually we know each other very well and know what samples sets each other have. We feel extremely well-positioned for technology partners, but also other partners that are running labs to provide them with these samples. Right now, obviously we have a vested interest to detail those on AlloSure and make them available for the AlloSure development this is our top priority.

Thanks guys, I will hop back in the queue.

Thanks.

Thank you. [Operator Instructions] Our next question comes from the line of Eric Criscuolo with Mizuho. Your line is open.

Yes, good afternoon guys and thank you for taking my questions. Peter, I think you bit speaking a little bit more about the pipeline especially when you talked about the new sequencing center that you opened. So I was wondering if you could maybe talk about what’s coming behind kidney and the extensions of the AlloMap tests that you’ve spoken about previously.

Thank you for the opportunity talking about that Eric, because I think AlloSure as mentioned earlier really universal test, while we focus the development on kidney, obviously it is applicable for heart, for liver and for lung for example, we have a very small effort in lung that that we continue to look for exciting data in lung transplantation. These are clearly smaller opportunities but if you add them up they continue to be sizable. Within the next phase of the cell-free DNA development is really in the space of infectious diseases we have now more and more data generated around Anellovirus for example as a marker for post-transplant health. And given that this is genomic information or genomic fragment that are non-recipient genomic fragment, infection is the next way to go. And also then frankly the follow-ons will be cancers, because you have genomic fragments in the bloodstream that are non-recipient owned fragments and that would be cancer cell fragments and that’s something that we have in our research and development pipeline. On the backdrop of melanoma being a very significant cancer exposure to these transplantations. So there is an ample opportunity on this technology, but then also on adjacent technology thinking about gene expression technology and [proteomic sensor] to be providing these tests to transplantations and others.

Great. That’s very helpful. Thank you. And coming back to the – unfortunately coming back to the CMS issue, assuming a worst case scenario does the organization have any contingency plans as far as operations go cutting expenses or anything like that?

Eric I think that’s a good question. I think we right now have been focusing on defending the existing power from CMS and having a very strong response. We feel pretty comfortable on where we are today in terms of our response and we will cross the bridge when we get there. I think we're a couple of weeks maybe four weeks maximum away from a CMS response and then we’ll be guiding on our other scenarios that might bodes. You probably have heard that the $644 for – that were introduced as a potential other reimbursement for AlloMap are actually below our cost of offering the test. So that would pose a very significant challenge to the company.

Great. Thank you. And then just lastly the NIH program that you are a part of – is there any assumptions or should we make any assumptions as far as this effect could have a positive impact on your test or your revenue volume?

I think this – we don't think of this as directly translatable into revenue, but it is cachet and reputation to be part of that consortium, this is who is who in transplant care that are initiating these trials there, NIH funded. So think of this as a huge endorsement that don't – it’s hard to measure that in dollars, it’s more – this is – we continue to be at the forefront of making that technology available to the field of transplantation.

Understood. Thank you very much.

Thank you. Our next question comes and the line of Bill Bonello with Craig-Hallum. Your line is open.

Thanks, good afternoon guys. This is actually [indiscernible] in for Bill today. Congratulations on the progress. A lot of the questions that I had frankly have been answered, but I did want to ask a quick one on the AlloMap variability score. I know it's only been a few weeks now, but I guess I would be interested in hearing sort of the initial qualitative feedback that you've heard from some of your centers that you work within maybe bigger picture, what kind of an opportunity to start test or that offering give you to sort of further develop that year two to five opportunity that sounds a little bit underpenetrated at this point? Thanks.

Yes, thank you for the question. We started to make AlloMap variability available in October and we have a series of centers that are very excited on testing or receiving the AlloMap variability score. We have an internal plan as it stands today I believe we have more than 10 centers already that are using the AlloMap variability and are interested in the data and that will really drive penetration of AlloMap in the two-year to five-year segment as I mentioned during the call. This is probably a lifecycle management opportunity for AlloMap don't think of it as a standalone product, but really a way of engaging our clinician and encourage them to continue surveillance of patients that normally have stopped biopsy surveillance and moving two-year to five-year much less frequent surveillance period and with AlloMap variability we give them good rationale to continue to monitor for this patients. Keep in mind that the rejection rates actually between year two and year three are relatively the same. So continued to monitoring makes a lot of sense and with AlloMap variability we drive that into that segment.

That makes perfect sense. Thank you, guys. End of Q&A

Thank you. I am showing no further questions. I’d like to turn the call back to Peter Maag, for closing remarks.

Well, thank you very much. We look forward to updating you on our progress. And have a great evening. Thank you.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Everyone have a great day.