CareDx, Inc (CDNA) Earnings

Management highlights

John Hanna focused on transforming CareDX into a precision diagnostics market leader, mentioned portfolio actions like divestiture of lab products business and acquisition of Nevaris. Organic growth drivers include pipeline programs, go-to-market strategy, and evidence generation strategy. Details on Nevaris acquisition were provided, including its business overview, testing platform, and patient journey in head and neck cancer.

Guidance

Raised 2026 revenue guidance to $447 - $465 million, adjusted EBITDA to $43 - $57 million. Expected testing volume between 224,000 - 229,000 tests. Revenue guidance for testing services, patient digital, and product lines provided with details on assumptions such as revenue per test increase and impact of out-of-period revenue and LCD.

Segment performance

Testing services revenue increased 48% to 91 million, Patient digital solutions revenue increased 33% to 16 million, and Lab products revenue declined 4% to 10 million. Testing services contributed 48% of revenue, Patient digital solutions contributed 33%, and Lab products contributed 10%.

Risks & headwinds

Forward-looking statements involve material risks and uncertainties that could cause actual results to differ from those anticipated. Information on risks is in SEC filings.

Analyst Q&A

• Q: On the $4.5 billion TAM for MRD, how much of this market right now is immediately accessible to you guys through your existing infrastructure? And what new clinical channels must be established for the 30% to 40% projected annual growth? And then second, on the digital solutions business, As you guys are growing this out in the solution selling strategy, what's the attach rate for digital solutions among your high-volume transplant center customers?

  A: As we outlined in the prepared remarks, $1.5 billion of the TAM is currently in the MRD space and covered in head and neck and anal cancers. And from a channel access perspective, the Nevaris team has done a great job building a channel into the specialty providers that diagnose and monitor those patients, including ENTs predominantly in head and neck, and then medical oncologists that they work with. And so we don't anticipate having to build a net new channel. Nevaris has already built that channel. And with CareDx capabilities, in driving repeat testing, building workflow optimization, epic integration, we think we can accelerate that revenue and volume growth rate. Your second question on the attachment rate of digital solutions, we said previously that 70% of transplant centers across the U.S. use at least one of the CARE-DX patient or digital solutions, and that continues to be true today. And as we've shared previously, the more solutions a transplant center has, the more embedded we become into their workflow. And therefore, the more testing we see and revenue generated from those centers.

• Q: Just curious how long this asset's been on your radar screen. Looks like they also operate two labs, one in Massachusetts, one in North Carolina. Would it be your expectation to keep both? And R&D spend must be pretty lean here. Would this be a type of situation where, hey, you know, maybe we could spend an extra $10 or $20 million and get a lot of, you know, juice out of that, be it commercially or with the R&D pipeline? Or would you expect to keep operating this business, you know, near break even to slightly profitable things?

  A: On the labs, we will, you know, they operate and have, you know, CLIA licenses in both their labs. You know, it's not really that material at this point, and they're in the middle of automating some of their workflows. So we will be spending a lot of time really helping them on their cost per test and continuing to drive that as well as the revenue cycle management. Over time, we'll evaluate the lab strategy. Yeah, and I think, Brandon, on the R&D spend, the company operates incredibly efficiently. There's a high number of active clinical trials in addition to the 56 publications that have already been published on the study or on the products. Right now, you know, there's a focus on the aid to diagnosis indication, both in head and neck and anal cancer, to unlock that larger portion of the TAM. and then development work really around the gynecologic indication and MRD. But by and large, I think, you know, the vast majority of the spend and investment here is really around workflow, commercial infrastructure, and pulling through those 14 time points of testing over the first five years post-definitive treatment for those patients. And that's what we're going to be focused on. And that's really the core competencies that make this deal work. and why Nevera selected, quite frankly, CarityX as their partner going forward.

• Q: John, it'd be great to get your kind of macro view on the transplant procedure environment right now. I mean, volume growth is still pretty sluggish here. You know, curious how much longer you can keep growing your own testing volumes at double digits, and if this type of environment persists. And to what degree at all does your guidance assume that, you know, procedure volumes pick up as we move through the year?

  A: Yeah, it's hard to predict. As you know, Brandon, it seems like in the transplant market, the procedure volumes accelerate and then fall back and accelerate and fall back. And we saw some acceleration at the end of the first quarter, particularly in kidney. But we're monitoring that closely. And as you're aware, we're coming toward the end of the first reporting period in the IOTA program. And we keep hearing, you know, chatter in the market about a focus on increasing transplant volumes as a result of that program, but we're not seeing it nationwide in terms of total volume growth. It's in select centers. So we're very focused on supporting those centers that are in the IOTA program around hitting their goals as they move into this first reporting cycle. As we... test patients, our patient population of unique patients we're testing is growing as a result of year over year. Once you get a transplant, you're followed for years in getting testing. So even if the underlying transplant volume is flat, the growth rate's going to be significantly higher in surveillance testing.

• Q: Congrats on the acquisition of Nevaris. I wanted to ask a couple on that deal. The first one is, where is the GYN cancer indication in terms of development? How quickly do you think that could launch? The second one is, I understand there's 100 employees at the company. How many are in commercial? And did I hear you right that you don't expect to expand their commercial? And then the third one is on the reimbursement. I think the reimbursement rate is $1,800 per test under an ADLP. When do you think that might reset, if ever? And is that lost for the end of this year? And how are you thinking about that going forward?

  A: Hey, Mark. Thanks for the questions. The GYN indication is still in development. There's a greater heterogeneity of HPV-driven proteins in GYN than in the other indications, and so that's a development program within the company that will continue. We don't have a specific timeline around today. From a commercial channel perspective, what I was saying in the response to Brandon's question is that the channel exists today. Or I'm sorry, Lauren's question. There is a channel today. We certainly anticipate supporting expanding that channel, right? Driving growth requires more reach and frequency with providers and building belief. And so we will do that. But that's part of our model here. And we think it's very doable to maintain the profile, the financial profile that we anticipate with the asset. The 1800 ADLT, as you know, ADLT status, you report data every year. And that reimbursement rate has been consistent for the company. So we're not expecting any change in that rate.

• Q: What is your latest thinking around the timing of the LCD for transplant from the Moldex group? Is that perhaps mid-26th? I know we're approaching mid-26th, so how are you thinking about that?

  A: Yeah, it still continues to be mid-26th, given that the draft issuance date was July 15th, and CMS generally holds themselves to... publishing a final or retiring the draft within one year of the draft issuance. So we still anticipate we could see the LCD here sometime at the end of the second quarter or early third quarter.

• Q: I also wanted to ask on the virus. So certainly, you know, it checks a lot of the boxes that you outlined with respect to the specialty markets that you're concentrating on, both organically and with potential M&A. But can you maybe just sort of unpack the operational learnings from the transplant business that you can apply here? You know, you talk about driving the repeat ordering, driving the epic integration, but I guess what specifically are the operational learnings that you've sort of found over the last few years here that you can apply to this business?

  A: Yeah, thanks for the question, Andrew. And, you know, and I'll ask Jeff to jump in here as well, I think, because it's not just It's not just operational. It's also around provider education, right, and awareness of the data, the use of the products. Do you want to share a little bit? Yeah, I mean, I think as people get more familiar and more comfortable with using these non-invasive tests rather than their typical invasive tests or even radiographic tests, you'll see the utility of this because a lot of times patients go to physicians and it's hard to diagnose these recurrences by physical exam and the radiology can be equivocal, particularly right after treatment. when you have things like PET CT scans lighting up because there's so much metabolic activity from a recent surgery. So there's lots of really good uses for this test. I think people, as they start to use it, will start to see more and more utility. And operationally? Operationally, I think, you know, just they're not of scale. So their ability to, you know, buy things at scale the way we're able to do that, deploy automation, have engineers and things like that. So You know, we do believe there's potentially up to a third of the cost per test you can do by automation and just price negotiations and things like that. We have line aside that we looked at during the diligence and things like that. And then on Epic, you know, obviously it's too small of a company on their own to invest in something like that. But adding that to our Epic incense and turbocharger is something that we can do quite easily without incremental cost. So, you know, we're excited about that opportunity supported by the commercial initiatives and the go-to-market strategy. Yeah, and I talked a little bit about our customer service team and the CareDx Cares team and really supporting workflow within a specialty practice or subspecialty practice because oftentimes, you know, these practices are just rate limited by the amount of labor that they have, the amount of support staff, and it becomes overwhelming sometimes. And so ordering a diagnostic test is not top of mind because they've got, you know, a slew of patients waiting in the waiting room to get in and see the clinician. And so, you know, ensuring that there is very streamlined workflow and we're supporting them and we're engaging patients after the order has been set and pulling through access to the blood is really critical. And these are things that we have built expertise on at CareDx, and we think we can port over to the Nevaris business.

• Q: Could you provide a bit more detail on the financials of Navaris? What was the 2025 growth rate off of 2024? Maybe how it ramped throughout the year. And then on that 30 to 40% growth rate going forward, how much of that is volume driven versus ASP?

  A: I think Mason, obviously, there's a mix of ASP and volume growth, but volume has been the key driver here for the company, given that it's relatively early in the adoption cycle in the market. I would say that We feel very comfortable with the 30% to 40% growth rate going forward, and that's why we provided commentary that we anticipate that to persist over the next three years. Mason, the growth from 24% to 25% was 75% top-line growth.

• Q: Maybe where you think market penetration stands today for cell DNA testing and transplant. Maybe your estimate across organ types and I guess how much growth runway remains ahead of you here.

  A: Yeah, I think that the growth runway remains significant, right? There are still, as with many of these markets, you know, factions that don't use molecular testing at all. And as an organization, you know, dating back to mid-24, we started to focus on reinstituting surveillance testing in kidney. Over the past several quarters, we've also been focused on for-cause indications in kidney because there are many. And as I shared in my prepared remarks, we're now seeing roughly 50% of that volume before cause today. And so we still think there's substantial runway in kidney. We continue to see growth in heart care, and in particular, Alimap as a product growing sequentially quarter over quarter, even after being on the market for over 20 years now, which is incredibly impressive. And I think indicative of the strength of the evidence and data and utility of the product. And then in lung, we feel like we're still early days in adoption. And so we are eager to see data from Alamo published such that we can continue to drive adoption even in its limited levels that we see in lung transplant centers today and have that grow into sustained utilization. So we've got a lot of work still to do in this space, and we think there's a lot of runway still to go in solid organ transplant.

• Q: As you think about any potential needs of a broader portfolio as you go into that channel, I guess, one, do you believe that you need to have that? And two, if so, how do you get there?

  A: That's a great question. I think, you know, today we feel really confident in the portfolio that the company has, and it is the market leader in both head and neck and anal cancers. And certainly you could foresee having a service that augmented for non-HPV driven cancers, but that's not our focus today. And so I think as we go through the close process, we integrate the business, we continue to execute on the large opportunity ahead of the company, We'll come back and update you if we have different thinking around broadening the portfolio.

• Q: Just I wanted to focus on transplant, specifically the ASP improvements that you're clearly seeing. And so I think, Keith, you mentioned, I guess, ASP is moving towards 1450, 1460 by the end of this year. And just wanted to understand how much of that is driven by, I guess, better claims submissions or less rejections versus, I guess, you know, the push towards getting 50% of volume through Epic Aura?

  A: Yeah, so we don't have any Epic Aura submissions. uplift built into our guide and our cash collections per test are exceeding our revenue per test and as we laid out in july of last year we started transitioning to you know shrinking the look back period in our rev rec policies and what you know as our as we were you know improving you know automation and workflows and revenue cycle management and obviously that's driving you know, significant cash, which quarterly is exceeding our expectations. So we're really excited about that. But you're going to see that flow into revenue per test as the year goes on. So you'll see out of period revenue, revenue that comes in reflected of exceeding our AR at the beginning of that quarter. And you'll see that start to flow into AR or into REBREC and AR so that that levels out. And that's why I'm giving你 out-of-period revenue sort of forward-looking views so that you know how I'm transitioning that. And obviously, that's up higher than it was last quarter because our out-of-period revenue was so high this quarter. And it continues in April.

• Q: In hematological malignancies or blood cancer MRDs, with alloheem and potentially allocell. I think the existing plan had been to leverage existing transplant center relationships given stem cell transplants and other. Is that still the current plan or does the addition of the varus change that, I guess, sales rep strategy?

  A: Yeah, thanks for the question, Tom. The acquisition of Navaris doesn't change that strategy. I think that we have a very focused strategy around Elohim, given that it's not yet Medicare covered. And so 2027 is going to be very focused on clinical education around the product and early adoption and building toward Medicare coverage for the product.