Good day, ladies and gentlemen, and welcome to the CareDx, Incorporated Third Quarter 2022 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Ian Cooney. Please go ahead.

Good afternoon, and thank you for joining us today. Earlier today, CareDx released financial results for the quarter ended September 30th, 2022. The release is currently available on the Company’s website at www.caredx.com. Reg Seeto, Chief Executive Officer; and Abhishek Jain, 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 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, are examination of historical operating trends, expectations regarding coverage decisions, pricing and enrollment matters and our future financial expectations 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 filings with the Securities and Exchange Commission. The information provided in this conference call speaks only to the live broadcast today, November 3rd, 2022. CareDx disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections or otherwise 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 Reg.

Thanks, Ian. Good afternoon, everyone. And thank you for joining us for CareDx’s third quarter 2022 earnings conference call. Today, I'd like to focus my discussion on the following three topics. The first is our differentiate financial profile and Q3 results. The second is our growth platform over the next 18 months, which we call the three C's catalysts in the pipeline, selections, improvements and coverage expansion. The third is building on our vision of leadership in the transplant ecosystem. Moving to the first topic, in the last earnings call, we made a commitment to achieve adjusted EBITDA profitability by the first half of 2023. Since then, we've made tremendous progress towards this committed goal. Notably, we meaningfully improved our adjusted EBITDA losses in Q3 versus Q2. This is a trend break we like, especially when combined with our strong balance sheet and debt free position. As a management team and board, we believe maintaining this strong financial position is critical to building sustainable business, especially in this current economic environment. We plan to deliver on our profitability goal, and this will enable us to operate as a self funding business. This has been a constant source of feedback from our long term shareholders and truly differentiates CareDx when compared to others in our space. As highlighted our financial position, we, one, retain an excellent cash position with $291 million in cash and marketable securities on the balance sheet. Two, we maintain a higher gross margins highlighted by 73% GAAP, and 74% non-GAAP in our testing services. Three, which is strong volume growth with a 15% year-over-year and 3% sequential growth. And four, we improved our adjusted EBITDA position to enable our progress towards profitability. Regarding Q3 results, overall revenue for the quarter was up 5% year-over-year, and down slightly…

Thank you, Reg. We are pleased to report that we're making progress on the commitments we made last quarter on returning to adjusted EBITDA profitability. I would also like to echo the comments about our confidence in being able to expand coverage and improve collections over time and leverage our business models. Reg alluded to our differentiated financial profile. Let me provide further details on the same and Q3 results. Number one, strong cash position of $291 million and self funding business model. Number two, solid volume growth and impressive gross margin performance. Number three, progress on a path to adjusted EBITDA profitability. Number four, the strength and the consistency of our ASP on reimbursed tests. I want to start by highlighting our financial strength. We ended the quarter with $291 million in cash, cash equivalents and marketable security and no debt. We continue to invest our portfolio in line with our goals of preserving principle, diversification and maximizing returns. In Q3 2022, we generated over $1.2 million in net interest income. We do not require to raise capital and have the flexibility to deploy capital that increases value for our shareholders. This is a unique story in our space. We remain confident that the business is self funding into the foreseeable future. Moving to the quarter. In Q3, we recorded total revenues of $79.4 million, up 5% compared to $75.6 million in the third quarter of 2021. Testing Services revenue was down 2.6% to $64.8 million. Product revenues increased 10% year-over-year to $7.2 million, and patient and digital solutions revenue increased 185% year-over-year to $7.4 million. Our revenues in Q3 2022 were impacted by slower than anticipated market volume growth. Our higher mix of non-covered test, final and second part of sequestration cuts have been off with Hurricane Ian…

Thank you. [Operator Instructions] We'll take our first question from Brandon Couillard with Jefferies. Please go ahead.

Thanks. Good afternoon, guys. Maybe just starting with the guidance for the year and applied for the fourth quarter and you've been running kind of around $80 million in revenue for the first two quarters of the year, that would imply a step up of $4 million or $5 million sequentially into the fourth quarter. Would you just elaborate on level of confidence in that? And how we should be modeling the realized ASP trends sequentially? Is there another kind of 5%, 6%, 7% step down again, in 4Q?

Hi, thanks, Brandon. It's Reg Seeto. And I'll hand over Abhishek to take some more questions, comments. And for us, we had the strong run rate going to that 320 what you just sort of described and where we think there's actually further opportunity in the marketplace will come from the testing services, we do see growth in the products, business and also with digital. So the guy, Abhishek is outlined and go through step by step. Please go now.

Yes, sounds good. So Brandon, the way the change in the guidance of the midpoint from 330 to 322.5, that primarily has been on account of two factors. The first one is the carryover, the Q3 revenue that came in at the low end of our expectations. And the second change in the guidance midpoint is primarily due to the slight modification that we've made on the market growth and the payer mix assumptions based on the Q3 result. So those are the two factors that are changing our midpoint from 330 to the 332.5. Now, is the level of confidence? And I think that was the question that you asked. I think that it's a very balanced guidance. And the way I think about it, that the market growth, the way we are assuming as of right now that it will stay around the [Indiscernible] number, and slightly above. And that's what we're assuming that our testing services volume growth will stay in line with slightly above the market growth. We have made sure that our mix will continue to shift towards the commercial payers, and there will not be any sequestration cut. So those are three of the four pieces that we're assuming in our guidance. And that provides us a good confidence in the guidance that we're providing.

Yes. Maybe you'll not be in a position to talk too much about 2023. But how should we think about the ASP trend as we model out next year in degree of further erosion? Any parameters may you give us something about that line within the next year?

Yes. Brandon, I'll take the question, then I'll hand over the Abhishek. I think wasn't that clear. But I think you talk about ASP transplant. So I think for us -- what we want to get to it's and you've heard sort of our coverage. I mean, this really is about coverage, not about ASP say for us. And I think you saw that we've shown a slide now which for the last seven quarters where we get reimbursed tests. We have achieved in excess of 2500. And the key here is how we now focus on getting additional coverage or focus on additional collections in these areas, which will then overall benefit that inflection point with ASP. So, we've delivered a series of catalysts, which goes through launches, which goes through coverage, and which goes through looking at different collections to improve that overall profile. But I think, we've often talked about, and we've seen this over the last few quarters that I see they are trying to show the transparency here that really, there is, when we get reimbursed, we're reimburse at pretty constant rate. Right? When we're not reimbursed, that's what we have to work on. We have to work on how do we get coverage, right? And then we have to work on how do we collect. The key piece is, which is why we focus so much on talking about three Cs. This is where we build an infrastructure around like we've demonstrated during this quarter, we have the path to profitability, right? That's the key metric we put out for next year in our last earnings call, how do we get to profitability? Can we demonstrate and that's why we said the first half of next year. The OpEx, I think we have a good hand on demonstrating that. The second thing is now laid out this 18 months sort of period of how we now build on getting improved collections. How we leverage the catalyst which we expect to come. And then also how we build on coverage as part of that process. But I'll let Abhishek talk more on specific, if it's required on the ASP. But just to manage expectations, this is where we're pivoting towards?

No. I think guys, you have covered it very well. So I think this is what we have been trying to discuss and provide the clarity in the past that the way we look at the ASP, that is basically to make sure that we are actually taking care of the strategy of getting into the community nephrology, for example, or getting into the new organs or providing the multi-modality for heart. And we spend a lot of time in our prepared remarks on that one. And the key point there Brandon, that our ASP for paid test has not changed. Now the question is how do we start to get paid on some of the unpaid tests or the non-covered test. And that is the whole piece on the collection and the coverage? So those are the two pieces. And that's where we are going to be focusing on.

So the last one. What's next steps in terms of the timeline for kidney care? And how about the timing of potential commercial launch next year?

Yes. We're really excited about some of the catalysts that we have coming up. And that's why we're thrilled to share what's happening with kidney care with AlloMap Kidney and now that was submitted to MolDx for review. And for us, we know that there's demand for this test, because we saw that through the open enrollment, where this was really the study that people wanted to do, and really understand more about this multi modality approach. They weren't really interested in doing another donor-derived cell-free DNA test and we really see that, being in the marketplace, from the market research we've done. The other thing that we also have taken away in this demand is having a quantitative test, that is one that you can sort of get a longitudinal measure on as well as you do these test. And so for us, the market prep is, with the team are prepared with, prepared for our marketing materials. The organization infrastructure is already in place. I think we've obviously had some nice publications resolved there. So, in terms of the offering itself has been defined. And so again, we look forward to exciting payers and review process, when we have those discussions. But clearly, this is a key catalyst for us, which is we've put in the pipeline and along with UroMap as well.

Brandon, this is the operator. If you're maybe muted. Did you have any other follow ups? Hearing no response1. We'll take our next question from Alex Nowak with Craig-Hallum Capital Group. Please go ahead.

Great. Good afternoon, everyone. This is Connor on for Alex. I guess first, MoIDX is holding a Contractor Advisory Committee Meeting in mid November to kind of discuss the coverage of transplant test. I mean, what's going to be discussed at this meeting? Is CareDx invited to present, kind of just some color from you guys would be helpful there?

Yes. And thanks, Connor. I think what has been laid out there is that it's an invitation event. People can obviously attend and we'll be attending as part of that. But it's really been run by subject matter experts. And it's a meeting that's been run by Noridian and Palmetto. So, we're showing how far we've come as a person as a field, that transplant gets an additional meeting, looking at this process and know we think we've done a lot to bring transplant to the forefront. There is an existing LCD process which we're going through, which doesn't change. The Universal LCD, which was completed, I believe, in June of 2021, which we're going through current approval through at this time point. There was in the past and CAC committees that were held, for example, infectious diseases, those one held in 2021. And I think about 14, 15 months later, there was an update in terms of LCD, which actually became a broader LCD.

So, I think the thing here is that, we've been invited, I think everyone's been invited to attend, it's open, although they won't be taking questions from those attending. It's by subject matter experts, and it's fine you're reading as well as Palmetto, as being hauled over two days, one above the diaphragm, one below diaphragm, and we look forward to learn more about that at the meetings.

Got it. Okay. That all makes sense. And I'm just a couple questions and dig a little deeper on the pricing side. I mean, I know you mentioned, you're having some success and appeals to kind of through this better infrastructure you're building. But just to kind of dig a little deeper, like when do you expect that to kind of help ASP stop their decline? And then just kind of -- is the impact ASP still roughly 25% Medicare, 75% commercial or kind of how we're thinking about that right now?

Yes. I'll make some comments, then I'll hand over to Abhishek. Again, as we mentioned with Brandon's, well, I mean, the way you want to think about his coverage, we've shared the ASP on reimburse test, there was a set of slides attaching with this webcast. And I think when tests are reimbursed, they're pretty much reimbursed about 2500 across the portfolio. And I think that's important thing that one should take note on. Where we don't get reimbursed is A, if we don't have coverage, or if we don't collect. So it's pretty simple, right? We need to collect when you get coverage as part of that. So I'll let Abhishek decide how he wants to answer that. But I just want to get across again, kind of the notion is, you need coverage and collections talking about this ASPs has been a bit of a red herring, because you're talking about there has been no price, they would actually look at the slides were presented as well, over the last seven quarters. So when we get reimbursed get reimbursed well.

No. I think you've covered it well, Reg. I will only add to that, that on the collections infrastructure, when we talk about, there's a pre-submission, submission and the post submission side effect. On the pre submission, now we are building the capacity, we've almost doubled the capacity there, by putting in more internal resources there. Then comes to submission and the post submission on the appeal side. In fact, we are now contracting with a third party agency. Again, we have doubled our capacity there. Now how soon we are going to be seeing the result. A lot of these payers are basically as you know, the Medicare Advantage of the commercial payers, and they have a long payment time. So generally, it is not very immediate, that you build the capacity, and then you will start seeing the result. So this was definitely to read this point, it will come and those are the pieces that we're trying to work on.

Got it. That makes perfect sense. And then maybe just one more. I mean, the timing of the CAC meeting kind of comes when you're seeking reimbursement for long. I mean, I guess just it's been on their desk for a while just any incremental updates there, feedback from MoIDX, what are they saying, things like that?

Yes, as I mentioned, there's an existing pathway, which is a universal LCD, which has been in place since June 2021. We don't believe we'll be quoting any changes. The key here is that there is an existing process we have submitted. We have good ongoing discussions with MoIDX: And so, we look forward to continue those discussions. Again, this is really just the subject matter experts. There is no agenda that's been set. We've talked about CAC meetings as well. The only if we took a precedent where we saw that with infectious disease actually went in and actually brought in the LCD in that sense. So again, we don't know, the agenda hasn't been set. It also -- this is on the website, but again, we do look forward to making more about it, but we've submitted under the current process, which is the existing process.

Alright. Got it. Thank you for the questions.

We'll take our next question from Matthew Sykes with Goldman Sachs. Please go ahead.

Hey. This is Prashant on from Matt. Congrats on the quarter. So just two questions for me. First one, according to recent data, seems like transplant volumes have recovered post COVID, seem to be trending upward compared to prior couple of years. Do you see that continuing? And how do you account for that in your guide if at all?

Yes, I'll comment about the overall trends and volume. So I'll let Abhishek in this to guide. But for us if we look at and I think this is also covered this slide in the webcast where taking 18 months to get transplant back at where it was at its previous peak or high. And so we're thrilled that it's finally there, but it has taken 18 months. And I think nothing is a given, because we did see some sequential growth not as strong as we'd seen in Q2 where we saw slightly stronger recovery with the mid single digits and we saw it in probably the single digits again this quarter. Longer term, and midterm, it really is an exciting opportunity. There are multiple levers that will increase the number of organs that are done in the United States and I think we can go into a couple of different areas there, including improvements perfusion that the advent of no more living donor, which has been impacted by most during this time period. We also know that our government initiatives, increase the number of donation and transplantation rates have taken place here as well. And really, there's a lot of different places where organ donation can go out. But, at this stage, I think, we haven't sort of seen that full rebound, we saw that impacted, again, this quarter with not hitting that higher projection that we had as well. So Abhishek, I'll let you talk about the market growth in terms of the guide.

Thanks Reg. So when you start to look at the market growth, actually the Q3 transplant volume growth was lower than Q2. Now, when I start to look back the last three quarters where we had seen the transplant volume to recover from a high single digit declines since the third quarter of 2021, to a mid single digit growth in the last quarter, that growth of 4% actually came in at the low end of our expectations. And that kind of impacted some of our expectations with testing services revenue for the current quarter. Now, when we start to look at going forward, we have actually pruned down our market growth assumptions a little bit in line with what we have seen last couple of quarters. And we will see as to how this kind of pans out in the next two, before we actually start to make more further changes there.

Got it. Thanks. That's really helpful. And then one last question. Could you talk about how you see the longer term opportunity for cell transplant? Is a timeline to realize this opportunity further out? Or do you see any factors that could accelerate the development of this opportunity?

Yes, cross cell therapy is really an exciting area. And I think, for us, it's really predicated on cell therapies making it onto market. And as at this stage, there hasn't been ones in the solid organ side that have made it true. And I think that's sort of the key in it. As we built out, I think are different strategic steps. Now, it's more meaningful contribution, probably in the five-year time period, when you have more of these different therapeutics that are approved on the cell therapy side. However that said, we have increasing number of partnerships. We're really excited by the progress we're making here. It is a really exciting stage of development. And for us, it's one that -- for us, as a company that's fully dedicated transplant. It gives us multiple options. We've been focused on solid organs now expanding different organs. As part of that you've seen with kidney, heart and lung more to come as well. And now we've had the chance also to get in stem cell, which is probably more of a near term opportunity. And then cell therapy and then longer term beyond five years is cell therapy. But again, anything transplant is open for business from outside. But thanks for the question.

Great. Thank you so much.

We'll take our next question from Mason Carrico with Stephens. Please go ahead.

Hey, guys, thanks for taking the question. This is Jacob on for Mason. So just following up here on the AlloMap kidney submission in MoIDX. Another, it's been submitted. I know it's largely out of your guys's hands, but just kind of wondering what maybe your guy's internal timeline or expectation is to get Medicare coverage for that test? The fourth quarter of 2023 still a possibility? Or is that largely off the table at this point?

Yes. I mean, we've submitted the application typically, there's like a six days plus, it's probably been a little bit longer in, what we've seen, obviously, with the current process. And I think for us, we'll just have to wait and see the feedback from there. We again, still we've got a pretty robust package with the publication's we've been able to do. And I think with the demand that exists out there as well. But I think once again, it really is not dependent on us to depend on others, we just respond and provide answers or ask questions as part of that process.

Yes, understood. So in terms of the launch there, once you do get positive coverage, again, is just focusing the initial launch with in transplant centers, or do you plan on driving adoption in both transplant centers, as well as patients community setting? And then, any additional color on the difference in clinician behavior in those two settings? Do you see it -- do you see one being more strongly adopted than the other?

Yes. I mean, I think there are two very different stages, right. I mean, I think we have, transplant centers, we're in more than 75% we clearly the leader there. We have extensive protocols and in the community it's still fairly early, it's fairly diffuse, but although we had more than 200 centers use AlloSure last quarter and we're starting to get protocols here as well. But I would think of them as two very different segments in terms of that approach. And I think, there's still more education that has to be done in the community side about usage of AlloSure and other donor-derived cell free DNA and its utility, I think it's important not to just try to put something out, but to provide the right education supported by strong clinical data with multicenter prospective studies, and transplant specific tests. But on the -- as we look at AlloMap kidney, I think it's probably more geared towards probably with his existing adoption of AlloSure and using that as a basis, because then they'll understand the utility of multi-modality. Again, it all depends on the data. We think we have strong data and I think we have good experience what we've seen in heart care as well.

Okay. Got it. Thanks. That's it for me.

Thanks for the question.

We'll take our next question from Yi Chen with H.C. Wainwright. Please go ahead.

Hey, this is Chad on behalf of Yi Chen. We just have a couple of quick questions. The first one being and I'm sorry, I missed it during your prepared remarks. But were there any color on the dip in revenue quarter over quarter? And then the second one being, I guess this was answered a little bit in the previous question, but any color or timelines as it relates to both of your upcoming catalysts? Thank you.

Yes. I'll take the catalyst questions. And I'll hand over to Abhishek. I mean, for us, it's, there's a set requirement of what one has to submit. And we've done that for AlloMap Kidney UroMap when the preparation for that, as we mentioned in prepared remarks. And then it's actually a back and forth after the submission. And normally there's ongoing dialogue with the agencies that take place. So that's hard for us, it wouldn't be appropriate for us to comment on timeline. But what we do know is that we have good relations, we have good discussions. And again, we feel really good about the scientific robustness of the packages, we have delivered on AlloMap Kidney possible deliver UroMap. And again, just recall your data. I mean, UroMap for example, New England Journal medicine publications, apart from AlloMap, but don't think others have gone and been submitted with such robust data. So, again, we feel really good by the approach we're taking. The timelines, we've missed, that the organization prepared for all types of scenarios. So again, our goal is to have a fairly efficient field force, it's concentrated, it's one where they know the stakeholders, there's a bit of overlap in some of those stakeholders, as well. Handing over to Abhishek.

Yes. So, on the revenue side, the testing services revenue dropped by about a couple of million dollars versus the last quarter. So there are a couple of factors there. The first one, of course, when we start to look back, we didn't anticipate the sequestration impact that we will have in Q3 2022. And we also made some assumptions on the market growth in the paired mix. Now the first piece of the sequestration that came in as we had projected because we knew that this was going to be about 1% further cut on the Medicare rate. That impacted one-third of the overall revenue dropped. The other drop came in because of market growth, the way we were anticipating, the market was actually came in at the lower end of our range. So that was the other impact the one-third of the drop. And the last and the third piece of the puzzle is basically your payer mix. We anticipated a payer mix and the actual payer mix came in slightly higher than that. So that was the other third part. So those were the three pieces.

Excellent. Thank you so much.

We have no further questions in the queue. I would like to turn the conference back to your presenters for any additional or closing remarks.

Yes, hi. Reg Seeto again. Thanks for all the folks who are listening in and thanks for the great question from the different analysts. We have a real incredible mission here at CareDx, which is we how do we improve patient outcomes, organ outcomes for a very subset of special patients in the transplant community along that patient journey. So, for us is all we do day in day out. We thank you for taking time to listen this call in supporting us for CareDx for what we do as well. Thanks again. Have a great day.

Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.