Greetings. Welcome to CareDx, Incorporated Second Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Greg Chodaczek. Sir, you may begin.

Thank you. Good afternoon and thank you for joining us today. Earlier today, CareDx released financial results for the quarter ended June 30, 2020. The release is currently available on the company’s website at www.caredx.com. Peter Maag, Chief Executive Officer; and Michael Bell, Chief Financial Officer, will host this afternoon’s call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of the 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 fact should be deemed to be forward-looking statements. All forward-looking statements including without limitation, our examination of historical operating trends, expectations regarding coverage decisions, pricing and enrollment matters, and our future financial expectation and results are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list of descriptions of the risks and uncertainties associated with our business, please see our financials or financing -- excuse me, our filings with the Securities and Exchange Commission. The information provided in this conference call speaks only to the live broadcast today, August 04, 2020. CareDx disclaims any intention or obligation except as required by law to update or revise any information, financial projections or other forward-looking statements whether because of new information, future events or otherwise. This call will also include a discussion of certain financial measures that are not calculated in accordance with Generally Accepted Accounting Principles. Reconciliation to the most directly comparable GAAP financial measure may be found in today’s earnings release filed with the SEC. I will now turn the call over to Peter.

Thanks, Greg, and good afternoon, everyone. I’m pleased to welcome you to CareDx's call to review our results for the second quarter of 2020. Back on April's call, I began by talking about how we chose Transplant Proud as our theme for 2020, and how proud I was of our team's response to the COVID crisis. Today, I can say that our team has taken CareDx to a whole new level. The dedication and resiliency of every member of CareDx is truly inspiring. I want to thank our employees and say, you have made the lives of transplantations and their caregivers better because of your grit, your hard work and your devotion. You exemplify what essential businesses and workers stand for. Thanks for leaning in. Now turning to our exceptional results for the quarter. In the second quarter of 2020, we reported revenue of $41.8 million, an increase of 33% compared to the second quarter of 2019. Growth primarily came from our testing services with revenue of $36.3 million. We provided over 17,100 AlloSure Kidney and AlloMap Heart patient results, an increase of 44% year-over-year. Product revenue for the quarter was $3.3 million and digital revenue added $2.2 million to the top line. We believe that these are exceptional results in a challenging environment. During this crisis, we have chosen to invest strategically in areas that will accelerate the building of our mode in transplant care. We are leaning in. These strategic areas include our direct to patient capabilities and our clinical activity, especially those focused on our multimodality testing and digital solution. These investments will all accelerate our precision medicine offering in transplantation. Our digital acquisition have proven to be a tremendous asset as it has enabled us to pivot faster than anyone in the industry in building out…

Thanks, Peter. Turning first to the income statement, total revenue for the second quarter was $41.8 million, a year-over-year growth of 33%. Growth in revenue was primarily driven by AlloSure Kidney and AlloMap Heart. We saw increased penetration primarily due to the success of RemoTraC and the need for [indiscernible] to be able to monitor that patients remotely. As a result, testing services revenue in the second quarter increased 41% year-over-year to $36.3 million. Our second quarter product revenue decreased to $3.3 million due to the COVID related issues outlined earlier by Peter. And our Digital Revenue was $2.2 million. Moving to our gross margins, for the second quarter of 2020, the gross margin was 64% compared to a gross margin of 63% in the same period of 2019. The non-GAAP gross margin for the quarter is 68% compared to 67% in the prior quarter. On a sequential basis, the non-GAAP gross margin was down approximately 300 basis points compared to the first quarter of 2020, primarily due to the increased number of tests originating from RemoTraC or rather mobile phlebotomy services. As a reminder, the cost of a mobile phlebotomy draw can be between $100 and $150, more expensive than a lab draw. Although the incremental cost of RemoTraC and mobile blood draws are ahead to stay. We are still confident that gross margins will continue to improve over time due to the operating leverage of our testing lab in Brisbane. For the second quarter of 2020, net loss was $6.6 million compared to a net loss of $7.8 million in the same period of 2019. Our net loss per share was $0.15 for the quarter compared to a net loss per share of $0.19 in the second quarter of 2019. Non-GAAP net income was $1.7 million in the…

Thank you, Mike. In closing, the second quarter was an exceptional quarter for CareDx. With COVID-19 limiting access to hospitals and advancement centers in the United States, our team continued to roll out solutions like RemoTraC across the country to bring much needed surveillance testing to transplant patients. We believe, we are experiencing the beginning of the tectonic shift in the way clinicians are monitoring the health of transplant patients and precision medicine overall. The movement towards DNA and molecular testing from traditional biopsies is happening and we are well positioned for the shift. But importantly, we are also the reason for it. Thank you all for joining the call and I'll open the call for questions.

Thank you. [Operator Instructions] Our first question is from Brandon Couillard with Jefferies. Please proceed.

Thanks. Good afternoon. Peter just on RemoTraC, be curious to just get your prognostications of where you think that program can go, the portion of volume do you think it contributes in the back half of the year and is there some upper level where you think it will just be a remaining portion of the market, but just won't convert to a mobile phlebotomy model and sort of speak to what this program kind of goes next six months.

Thank you so much, Brandon, and greetings to Nashville. Good to have you on the phone. So thank you very much for joining. Now RemoTraC is embraced by patients. They love it. It's an amazing service where we have phlebotomist going to the home of the patient that makes sure that they get the blood draw in the convenient environment that they’re used to. And so they don’t have to go to transplant centers. And this has been by embraced by many patients across the country, 150 centers are using the service now. Now we’ve 4,000 patients on the platform. That number is growing every day, but it's really depending on where transplant centers are and what their stance is towards telehealth. Some centers have really jumped in and adopted telehealth solutions. Some other centers are actually moving now back as they're reopening up to face to face visits. And so it's hard to say that's one of the reasons why Mike says it's hard to give guidance yet because there's a lot of variability across the country. But RemoTraC as a service is due to stay. We are all in. We have invested into the platform and there are many, many patients care managers now on CareDX that are servicing this patient population. So there is significant growth drivers going forward.

I think you talked about lots in AlloCare app later this year, maybe by September. Mike kind of mentioned some more direct to patient marketing programs. Are those two tied together, sort of talk about what that app is, how it helps you actually capture more volumes and not withstand the marketing plan looks like around that initiative.

Thank you very much. This is in the broader context of CareDx managing the transplant patient journey, and you are here [indiscernible] with RemoTraC. The reason why we were able to pivoting so quickly was having our digital solution encompassing our surveillance testing modalities. Now, with AlloCare we are prone to tackle one of the biggest issue in post-transplant care, which is compliance and adherence to a standardized protocol. And we are all about standardization, so we can fully individualize the offering. With AlloCare we are now having a simple patient app that allows the patient to monitor their schedule to be able to monitor their medications and maybe even build a community for transplant patients. So we're very excited about this. This is another touch point for CareDx for the patient that makes sure that there is -- patient journey. So AlloSure -- AlloCare is launching in September and we are very excited about that launch.

Hey, guys. Thank you.

Our next question is from Rachel Vatnsdal with Piper Sandler. Please proceed.

Hi. This is Rachel on for Steve today. Congrats on the nice quarter and thanks for taking the question.

Well, thank you so much, Rachel.

So first off, can you just give us an update -- yes. So first, can you just give us an update on the transplant pipeline and impacts on donation to the pandemic, or if you started to see that pipeline return and geographic regions has started to open back up?

I think overall transplant volume is roughly about 7% down year-to-date. So a very, very nice recovery because we obviously living donation has been stopped for a few weeks. But as we look around the country right now, many transplant centers are back to normal or maybe even overcompensated because transplant centers are really at the forefront of wanting to come back and supporting. Now, transplant volumes is back up and we don't see that these -- this will further down, even so we see some cities might being in hotspots of COVID because the organs will be reallocated to other parts in the country. We have seen that in -- when there were issues in Detroit, actually Cleveland was taking over the organs and we have had a significant surge in transplantation in Cleveland, overcompensating the down go in Michigan and Detroit. So the system is very adoptable. And so we think that for the next six months to come, I think the transplant volumes will be back up.

Great. That's awesome. So then on the OKRA and SHORE studies, so can you give us any more clarity on the timing and is it more going to return, given those delays [indiscernible] to COVID earlier this year?

Sure. With the context of AlloMap and AlloSure is kind of standard of care now. It's so well penetrated. I think CareDx has defined for many years that AlloMap post transplant surveillance that was noninvasive. But now in this COVID era, we have seen a tectonic shift away from biopsies really into noninvasive procedures. And so, the short trial and the combination of AlloMap and AlloSure has really demonstrated the power of our platform moving away from biopsy driven protocols over to post-transplant surveillance. I think, with OKRA being a more sophisticated study where we have AlloSure plus AlloMap, kidney plus the i-BOX scoring that is more driven by research coordinators and research events. And so we have seen some research coordinator being furloughed, some research activities actually put aside in these kidney transplant centers. And so on kidney, we have seen a small delay on the OKRA recruitment. But actually the -- as we are reopening up the country the last week has been very promising on our recruiting of our OKRA study. I will say, as well as that, we had a phenomenal second quarter even without OKRA being supportive. So this really speaks testimony to the value proposition that we bring to transplant centers overall.

Great. Thank you. Those were all my questions.

Thank you, Rachel.

Our next question is from Alex Nowak with Craig-Hallum Capital Group. Please proceed.

Hey, good afternoon everyone. In this centers that have moved from doing more AlloSure's and AlloMap's during the heart of the pandemic and essentially going away from biopsy, and [indiscernible] agreement track on that. Has there been a durable benefit as these centers have reopened and try to go back to normal. I guess said another way, do you think this pandemic at all has accelerated your penetration goals into some of those transplant centers?

I would say from the proof is in the budding and we'll need to see that in a couple of quarters, but absolutely. I think we have seen a true shift away from biopsy protocols into noninvasive procedures. I've talked to so many cardiologists that said we always wanted to retire our biopsy protocol and maybe now it's the time to do it. Now, the reality might be that some of them are going back onto biopsy. We'll see that in the past. But if you see the feedback from patients that don't have to spend more or less a day in a cath lab and go through an invasive procedures. And now they are doing this for the blood test. You wouldn't believe how many positive patient notes I receive and the entire team receives from patients that are saying, well, this is so much more convenient and not being able to do that from home even better. But, I think there's a true shift in care, but yet to be seen, right? I mean, this is one quarter and I think the heart franchise has been extremely successful. But I think this is something to stay.

That's great to hear. And of the 4,000 RemoTraC patients, how many would you say are brand new to CareDX and just on RemoTraC -- RemoTraC in general, can you say if compliance has actually improved compared to the traditional getting a blood draw in the clinic? Because I remember that being a core piece of the RemoTraC thesis that compliance would increase.

And Alex, you have followed the story for a long period of time. So I don't wonder why -- I'm not wondering why you are asking that question. We -- we ourselves are looking at these numbers very, very carefully. There has been a number of new patients come onto the RemoTraC franchise. And it's probably true that some patients have been pushed out for a few weeks or another quarter for their surveillance visit. But I think this is a brand new trend. I think RemoTraC has been exceptionally successful in areas where COVID hit extremely hard, like New York, or now we're seeing some uprise in Florida and guess what RemoTraC is just accelerating. But I think we'll need to give ourselves a couple of quarters to really demonstrate how much is RemoTraC here to stay, what is the impact on surveillance? And I think, what you're getting at what's adherent with CareDx now being much more aggressive and intimately involved in the scheduling of patients. We think that long-term, there will be a significant upside for us to manage these adherence rates. But again, we need to make sure that we demonstrate that yet. And one quarter is not time enough in these quarterly follow ups to really determine if we're successful in doing that. I'll maybe ask Reg Seeto to also to comment on RemoTraC and patient adherence. We actually significantly invested into our patient care management group. Reg?

Yes. Thanks, Peter. Very much I’ve seen -- hi, Alex [indiscernible] a stunning success and I think we've obviously added new centers, new patient as well as adherence has gone up. And Peter has mentioned, this is obviously from a full month sort of experience that those pull those three parameters that are being certainly seeing during the period of [indiscernible] track along the full thousand plus patients that we've had enrolled in this program.

All right. Understood. Thanks for that. And there's last question for me, any update on heart care reimbursement related with EMS and [indiscernible] and Palmetto. And then when would you expect a request Kidney care reimbursement.

Excellent questions. I'll give the Kidney care. This is really too early yet for us to comment on Alex. We will probably see this communicating about our reimbursement timelines on kidney care. Once we have clarity on heart care and I will punt [ph] that question over to Mike Bell on heart care.

Yes, on how -- Alex, I think no change from really the status. Last time we spoke, we're still expecting that to go to the final coverage decision towards the back end of the year. It's usually within 12 months from the public comment period, which was up to October of last year. So we're expecting something around that timing.

All right. Understood. Thank you everyone.

Alex, keep the fingers crossed for us in the third quarter, right? So thank you for doing that.

Our next question is from Andrew Cooper with Raymond James. Please proceed.

Hi, thanks for the questions. Maybe just first, I think Peter, you mentioned it at least as potentially part of what went on in the quarter. But just do you have any sense for was there any amount of volume that might've been delayed from 1Q or sort of adjusted based on RemoTraC becoming available that we should think about as we think about pacing kind of through the remainder of the year.

Excellent question, Andrew. And we finished obviously the second quarter, very strong and you see that continue -- that trend continue into the third quarter. I think on the heart franchise, we are looking at our numbers and saying, this has been very, very strong in the second quarter. Well, that momentum carry on throughout the rest of the year. So I think that's a good question. On the kidney volume, I think the value proposition, at the end of the day, we are so low penetrated overall. So this is such a big opportunity that we are here to stay and build the franchise going forward. So in that sense, there's so much ample opportunity. Now we did comment on the side notice as well, is that we are building out our presence in community in nephrology. So there's going to be an ongoing expansion for CareDx, tremendous fields to grow going forward. So in that sense, we see continued growth going forward.

Thanks. That leads actually right into the next question I wanted to ask, which was on that community nephrology effort. Is that -- when you think about that, should we think about this as building direct kind of one-by-one in hospital settings or community settings, or is there an opportunity to maybe partner with some of the larger players that are interacting with ESRD patients and patients that presumably are coming on to transplant lists. What's the way we should think about you trying to address that?

No -- thank you so much, Andrew. You've been following the company as well, and we are all about the continuity of care, the transplant journey. We're managing patients on the wait list, we are managing them during the transplantation procedure and then we are managing them also post-transplant. Reg Seeto has actually masterminded our presence into the community and [indiscernible] study, which is a very natural progression about growing our franchise, expanding from a transplant center now into the community nephrology setting. So it's a very, very, natural evolution. Over to you Reg.

Yes. Thanks, Peter. I mean I think with more than 150 centers quarter-on-quarter, actively using our SHORE, we've had deep penetration within the centers and now we're three years on, we have patients, moving community doing [indiscernible]. And obviously [indiscernible] one. So with that in mind, we've been able to develop a plan, which allows us to now strategically follow the patients and also bring new patients into the world of [indiscernible] SHORE. So that's something, we have a team that build up to allow for that expansion as part of that cost there.

Great. I'll stop there. I appreciate the question.

Our next question is from Yi Chen with HC Wainwright. Please proceed.

Thank you for taking my questions. Could you please comment on the transplant volume in second quarter and early third quarter as compared to those in prior periods. And do you [indiscernible] transplant volume will continue to go up during the remainder of 2020 or remain at current levels for an extended period of time due to the new COVID-19 cases in the country.

Excellent question. I think this is really driven by two dynamics. One is living organ donation is back to a previous level and deceased owner donation has actually never stopped. So in a way, your question is about those living organ donation continues to increase and I would say, yes. I think there was a shell shock reaction in many transplant centers during COVID-19 that said, oh, we are backing off. And now, as they have learned how to deal with the crisis, we see actually a significant increase. The latest numbers on organ availability, these are actually significantly increasing due to COVID-19 because of cardiovascular deaths and believe it or not because of overdosing. So there's a lot more patients, unfortunately, that are overdosing. And there are more patients that are [indiscernible] at home that are experiencing cardiovascular deaths, which leads to an increase in organ availability. With the need increasing need of organ transplantation because we have a hundred thousand patients on the waiting list on kidney. So in a way I see a significant increase, which is also driven by a support of kidney health initiative from CMS, which you might have read last year, that we are kind of releasing the 1-year graft survival metric as the key quality metric for transplantation and releasing that metric really allows transplant centers to do take a little bit more risk when we are transplanting and not only taking perfect kidneys, but also taking kidneys that are okay. And that will drive volume. And the last thing that I would say Yi Chen, is that many of these centers are also financial -- financially driven on institutions and transplantation is a profitable activity within a hospital. And as we read now, many hospitals are looking for sources of income. Transplantation might be an easy area to be because you have relatively low case rates, but these are tend to be pretty profitable. So I think all these things will play to a significant increase in transplantation throughout the rest of the year.

Got it. Thanks. My next question is related to operating expenses, which have increased in second quarter. Was that simply a result of the investment in RemoTraC and other COVID 19 related solutions? And do you expect that to remain at such levels as COVID-19 continues to spread?

I'd like Mike to speak about our operating expense, but what we'll see is that we're all in. I think this one we've taken out some stops and really invested heavily, especially in our direct to patient Activities and we'll see what sticks. I think you have seen us as a company being extremely responsible and extremely focused on building a long-term sustainable business model. But this was the quarter where we said, no, we are going -- other companies might go another way, but we are going all in. And so I'll turn over to Mike, which can give you more detail.

Yes, each and I think on the RemoTraC side, most of the impact that we saw actually was in the cost of goods line. An impact in our gross margin on the call earlier, I talked about a 300 basis point impact from RemoTraC on the gross margin. And so we'll probably see -- those costs needed to stay and we'll see them going forward. On the OpEx side, there was cost related to RemoTraC in that we've built out our patient care manager and our direct to patient capabilities in some extent. And as Peter mentioned, that's going to continue in future quarters, as we want to touch more and more patients. We also had increases on the OpEx side, on the R&D line. Again, some of this COVID related as we saw more expense related to show and more uptake of heart care. But some of those costs were non-related to COVID. We had this upfront to Cornell. So that's for developing the pipeline and that was for [indiscernible]. I mean, on the G&A line we also have some increase in the -- in our legal expense line. But yes, I mean, overall, as Peter mentioned, I think going forward, we see a bit of a change in the business model and that will drive some additional expense, but again, it's all focused on top line growth.

Thank you.

Thank you, Yi Chen.

We have reached the end of our question-and-answer session. I would like to turn the call back over to Peter for closing comments.

Well, thank you very much for your interest in CareDx. We will continue to keep you updated as we are going into the second half of 2020, and looking forward to keep in touch with you. Thank you so much. Bye, bye now.

Thank you. This concludes today's conference. You may disconnect your lines at this time, and have a pleasant evening.