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spk10: Greetings and welcome to the CareDx Incorporated third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ian Cooney, Vice President of Investor Relations, Thank you. You may begin.
spk05: Thank you. Good afternoon and thank you for joining us today. Earlier today, CareDx released financial results for the quarter-ended September 30th, 2021. The release is currently available on the company's website at www.caredx.com. Reg Cito, President and Chief Executive Officer, and Ankur Dhingra, Chief Financial Officer, will host this afternoon's calls. 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 security 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 and 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, October 28, 2021. 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 Reg.
spk07: Thanks, Ian. Good afternoon, everyone, and thank you for joining us for KDX's third quarter 2021 earnings conference call. During today's call, I'd like to focus on our plans to extend our partnership in transplant. Specific topics to cover today include delivering another record revenue quarter, connecting the patient journey, progressing multi-modality across our solid organ portfolio, launching AlloShore Lung, leading with long-term data generation, and developing new areas of partnership. During Q3, we delivered record revenues of $75.6 million with growth of 42% over the prior year quarter. Notably, our Q3 testing services volumes grew 86% as compared to the year-ago quarter. This result was achieved despite facing multiple headwinds.
spk10: Ladies and gentlemen, thank you for your patience. Please stand by. while we get the speakers back on the line. Thank you. you Ladies and gentlemen, thank you for your patience. I do have a speaker line connected back in.
spk08: Hello, everyone. Apologies for the telecommunication issues here. So we will start right where Reg had to start off.
spk07: Great. Thanks. During Q3, we delivered record revenues of 75.6 million with growth of 42% over the prior year. Notably, our Q3 testing services volume grew 86% as compared to the year-ago quarter. This result was achieved despite facing multiple headwinds in the form of Delta surge and hurricanes. Transplant volumes and office visits in August were particularly impacted, but we've seen a return to a more normalized run rate in September and into October. The primary driver of revenue growth was from our testing services, which increased 46% to 66.5 million. CareDx provided approximately 40,000 Allishaw and Ellimat patient results, growing 86% from the prior year quarter. In addition, revenue from our products business increased 21% to 6.5 million, and digital and other revenues contributed 2.6 million to the top line. Gap net loss for the third quarter was 11.9 million, and adjusted EBITDA was positive 4.7 million. For kidney testing, we continue with our winning formula of protocol adoption and adding new centers. As of the end of September, more than 70 kidney transplant centers in the United States have now adopted regular AlloShore testing, and more than 320 kidney centers and community practices are using AlloShore and mobile pulmonary as a percent of volume maintained approximately at 40%. For heart testing services, the heart care attachment rate was 90%. highlighting the value of driving clinical utility through multimodal innovation. This was achieved in less than 12 months and underscores the importance of robust clinical data in driving adoption. Generating data through multicenter prospective studies continues to be an integral part of how we develop data that can be relied upon by physicians in a real-world setting. For example, the foundational heart care study Dior published in AJT captured 740 patients across 27 centers. Others seeking to enter the space are not investing this magnitude of data generation and are focused on retrospective samples and one to two center studies as an opportunity entry point. What we've seen with HeartCamp is the strong physician appreciation of data sets generated prospectively and across many centers. As of the end of September, greater than 130 heart centers and practices were using our offerings. We're executing on our 2021 theme of also connecting the patient on that transplantation journey. Combining our patient care managers with our digital offerings such as Allocare and TxHero has helped increase engagement and improve adherence. Specifically, we continue to see robust updates of our Allocare app, which is now available in both the Apple and Android stores. In addition, TxAccess, previously called TxConnect, added $9,000 of patient referrals to centers, and we now manage more than 38,000 patient referrals from over 1,000 dialysis practices. Now on to multimodal innovation. Driven by the success of HeartCare, we continue to progress multimodal approaches throughout our portfolio. We've invested over the last 48 months to build a portfolio of assets to enable physicians to deliver incremental utilities. Beyond HeartCare, Our organ care portfolio includes kidney care, lung care, and liver care. For kidney care, we're rapidly progressing development, highlighted by the recent peer-reviewed publication showcasing the clinical validation of Alimap kidney in the journal Kidney360. This 14-center study validated the ability of Alimap to differentiate between rejection and immune biases. Notably, it also showed that Alimap is complementary to AlloShore, delivering a combined area under the curve and AUC of 0.89. Together, these biomarkers offer a comprehensive assessment of kidney health compared to the current standard pair. Looking forward, we expect completion of enrollment in the OCRA study before the year end and plan clear lab validation. For liver care, we're now supporting the second largest cohort of patients after kidney. We continue to enroll patients in MAPLE, the molecular assessment and profiling of liver transplant recipients. The first study used the five modalities, including donor-derived sulfrin A with AlloShore, tissue and gene expression with histamab and Allomab respectively, infection with AlloID, and artificial oncology. MAPLE began enrolling earlier this year, and we look forward to updating investors in our progress in 2022. For lung care, the upcoming Allomo study, is our long-term multi-center prospective study of multimodality in lung transplant patients. Speaking about Alishaw Lung, we're proud to be addressing the significant unmet need in monitoring lung transplant patients. Supporting lung transplant patients is absolutely critical, as organ graft survival rates are the lowest among these transplant patients, with one in two lung transplant patients failing within five years. It was an exciting step forward for KDX's company on October 12th when we announced the commercial launch of Allishaw Lung, marking our next step into being a pan-organ transplant services company. Regarding reimbursement, the team has been working very hard, and we're working with payers to obtain coverage for Allishaw Lung. We're pleased that Allishaw Lung is already covered by multiple private payers and address the key unmet need for these lung transplant patients. During the third quarter, we continue to demonstrate our global leadership in transplantation through peer-reviewed publications and by participating in and showcasing our latest clinical data. AlloShore Kidney is the only donorized sulfonate platform that has demonstrated long-term data. These benefits were recently highlighted with a better one-year outcome in the CAEL study shared earlier this year at ATC. The ADMIL study abstracts also presented throughout the year have highlighted the ability to predict de novo DSA and EGFR decline. With upcoming publications, we're excited to provide further scientific evidence simply differentiating allochal kinase from the data of other donorized sulfonate tests. For products, we presented two leading transplant conferences where we had a combined 14 abstract piloting for more innovation. At the 47th annual meeting at the American Society for Fistula Convertibility and Immunogenetics, otherwise known as ASHI, we presented our latest data on LCTKCC and LCTX17. And at the annual European Society for Organ Transplantation, also known as ESOT, We announced the launch of our Allocix Sophridinae clinical and research service. We're excited to expand our offerings and support continued innovation and growth in Europe, especially after the launch of our HLA typing service, which we announced in quarter two of this year. We continue to engage with innovators and leaders across our business lines as we explore partnerships. Most recently, we announced an exciting biopharma collaboration with Eladon Pharmaceuticals. where they will use AlloShore to help assess the efficacy of their lead asset AT1501 in the prevention of rejection in the upcoming clinical studies. We are thrilled to create a new market opportunity for AlloShore, where we will support the next generation of transplant therapeutics. On supporting innovation, I'd like to invite you to our Transplant Innovation Day during Kidney Week on November 5th. Presentations will include DA Gross, CEO of Elladon, Dr. Bob Montgomery, who completed the first Pig Kidney Translated to Human, Dr. Enver Akhlan on Alamance Kidney Validation, and Dr. Titus Trinovas on OrganX's largest independent validation of Alashore. Before turning the call over to Ankur to discuss the financials, I'd like to welcome Art Torres to our board. Art has a long history of advocating for underserved populations both during his career and more recently as a board member for multiple impactful organizations. We're really excited to add someone of Art's depth of experience and breadth of perspective to our board as we work towards building the future success of KDX. I will now turn the call over to Ankur, who will review our third quarter financials.
spk08: Thank you, Reg. We are very pleased with the business performance and our financial results for the third quarter of fiscal year 2021. Let me provide you more details. Turning first to the income statement. Total revenue for the third quarter of 2021 increased 42% year-over-year to $75.6 million. We see continued strong adoption for our testing services and products. Testing services revenues grew 46% year-over-year to $66.5 million for the quarter, driven by strong volume growth of 86%, with both heart and kidney contributing meaningfully to this strong growth. As Reg mentioned, and especially in August, we saw a reduction in both transplant volumes and testing volumes due to impact of hurricanes and the surge in COVID Delta variant. These impacts proved transitory as testing volumes recovered in September. We also continue to see a higher growth in non-Medicare business. Overall, our business model of market penetration through addition of centers and patients continues to drive strong performance of our testing services business. Product revenues increased 21% year-over-year to $6.5 million, driven by strong demand for our NGS products across all three regions. NGS now accounts for 55% of products revenue. Digital business revenues were $2.6 million, growing 6% year-over-year. Moving to gross margins, For the third quarter of 2021, GAAP gross margin was 67% compared to GAAP gross margin of 68% in the same period of 2020. The non-GAAP gross margin for the period was 70% compared to 70% in the prior year's third quarter. We continue to see strong volume growth in our testing services offerings and are investing to scale our capacity for higher volumes across all organs. Non-GAAP operating expenses for the quarter were $49 million, up $3 million sequentially from last quarter. Our focus of increased investments is on expanding our R&D pipeline of new services for transplant patients, clinical trials to provide data on clinical outcomes, continuing to build our commercial capabilities, and scale our infrastructure commensurate with the size of our business. For the third quarter, GAAP net loss was $11.9 million, compared to a net loss of $2.8 million in the same period of 2020. Net loss per share was $0.23 for the quarter, compared to a net loss per share of $0.06 in the third quarter of 2020. Non-GAAP net income for the quarter was $4 million, compared to non-GAAP net income of $5.1 million in the same period of 2020. A basic and diluted non-GAAP earnings per share in the third quarter of 2021 was $0.08 and $0.07 respectively. compared to a basic and diluted non-GAAP earnings per share of 10 cents in the same period of 2020. As mentioned, we continue to invest across R&D, clinical, commercial, and infrastructure as we scale our business for upcoming larger pipelines as well as higher volumes of tests. As a reminder, we define adjusted EBITDA as non-GAAP net income before interest, income tax, depreciation, amortization, and other expense. For the third quarter of 2021, we recorded positive adjusted EBITDA of $4.7 million, or 6% of revenue, compared to adjusted EBITDA of $5.6 million in the third quarter of 2020. Cash, cash equivalents, and marketable securities at the end of the quarter of $363 million. Operating cash flows were neutral for the quarter. With a strong balance sheet position, our cash deployment focus remains on adding portfolio products and services across the transplant patient journey investing into this future is critical as we execute against our multi-year growth plan turning to guidance we are raising our 2021 revenue expectations to reflect our third quarter results and continued strong demand for our testing services as of today we anticipate a revenue in the range of 290 million dollars to $293 million for the year. The guidance assumes the impact of sequentially, seasonally less working days in Q4 and projects continued market penetration of our products and services. We are building a pan-organ transplant services business that connects the entire transplant patient journey. Our services and offerings are very well received by caregivers and patients. As the transplant partner of choice, We have a tremendous opportunity in front of us to provide innovative clinical and digital offerings across the patient-consultant journey. We remain focused on realizing that opportunity. With that, I'll open the call for questions.
spk10: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Matt Sykes with Goldman Sachs. Please proceed with your question.
spk06: Hi. Good afternoon, Reg. Congrats on the quarter. Maybe just for my first, hey, just for the first question, just on the guide, Ankur, I think if I look at the high end of the 293 implies sort of sequentially flat in Q4, I think you mentioned, I might have missed something in your comments about some seasonality there, but just wondering, you know, is there continued uncertainty? Because typically Q4 has been, we've seen a sequential increase in prior years, or just what your thoughts are on Q4?
spk08: Yeah, sure. Let me lay out the range and the entire guidance. So at the midpoint of the guidance, about $75 million, roughly flat to what our Q3 results were. The way we're looking at Q4 is that there are two main impacts. One, seasonally, certainly a lower number of workdays in Q4, potentially impacting some of the testing volumes. But we expect all of that to be offset by our core business model of continuing to add centers as well as transplant patients into our business. At the midpoint, we're projecting that that would be an offset. Historically, especially if you, last year was an odd year because of COVID. But prior to that, we've typically seen that kind of a seasonality. So that's one. The high end of the guidance, The high end of the guidance presumes that our business model will more than outstrip any impact from the lower number of working days in Q4, while the low end is the reverse of it.
spk06: Got it. That's very helpful. Thank you. And then just on the remote track, Regin, you mentioned that 40% utilization rate, which I think is where you were last quarter. Just given the Delta variant, Regin, Did you just see more people getting used to sort of the COVID environment and going back in, or how did you sense the remote track uptake in this quarter with Delta impacting that?
spk07: Yeah, with remote track, we've sort of stated it'd be around the 40% range, and I think we've said that over the last four quarters. But what we see is a mix in the actual geographical locations where this takes place. As with the rest of the United States, we see variations where there's more patients actually going back into centers and where there's more concern over the Delta variant. So that's sort of played out in the overall mix. I think the impact of the Delta variant, but also some of the other natural disasters we saw during the course of this tier three also led to a change in some of the actual days where there were patients going into some locations. So we know the southeast will particularly impact it during the period. But the overall remote practice length that we see as a core offering continues to do well, but the mix and balance of where it takes place geographically will change. But we're looking at about 40% for the last four quarters.
spk06: Got it. And just one more from me. Just on the multimodality, you know, that you've been pushing and the data that you've shown, you know, with the Kidney360 article and peer-reviewed study and and everything that you've been showing. I'm just curious, as you speak to the transplant centers and the various decision makers in the ecosystem, how is that resonating? I would think with all this data that you're putting out that it's only increasing in value and that value proposition for multimodality going forward.
spk07: Yeah, absolutely, Matt. I mean, the future of our field is multimodality, and we've driven that sort of innovation. I think what you're seeing with heart care is an incredible 90% attachment rate in less than 10 months. I mean, you don't see that in any other sector or industry, and I think it's been driven by the fact that we do really good data generation. It's easy to try to come into space, but it's hard to actually bring meaningful value to positions and practices, and that's why this multimodal has resonated so well. I mean, it's resonated well in market research, but more importantly, it's resonated in real-world experience. What we saw, for example, as something tangible with the OCRA enrollment is we've always said that we would finish enrollment before the end of this year because the excitement behind this multimodal has been very clear. You know, if centers had competing enrollment sites, they wanted to, you know, do Oprah first because it was just driving new innovation. Some of these other studies were seen being brought by other competitors, sort of me-too offerings. But Oprah and Multimodality really has sort of brought the excitement. And as we've sort of mentioned in the script, we now see this same sort of excitement in liver and also lung.
spk06: Got it. Thanks very much. You're welcome.
spk10: Thank you. Our next questions come from the line of Alex Nowak with Craig Hallam. Please proceed with your questions.
spk04: Great. Good afternoon, everyone. To start, can I comment on the lower ASPs? Hey, good afternoon. Can you comment on the lower ASPs in the quarter? If you take the testing revenue over volume, the price per test looks like it came down versus Q2, and the difference was pretty pronounced this quarter. So just curious, are you seeing any changes in Medicare billing practices, or what else would really influence that test price lower?
spk08: Yeah, sure. So a couple aspects of that. One good observation, good question there. So a couple observations there. One, our overall mix of business, as we see higher adoption, we're seeing much higher mix of growth in the non-Medicare part of the business. So that's by far the largest impact. A lot of that is driven by you're seeing higher tax rates, say, on the Allishore side, where our mix of coverage is much lower than the traditional kidney business, say. So that's one of the big contributors. To your specific question, any change in the billing practices? No, no change. We haven't observed anything on the Medicaid billing practices. It's primarily the business mix, where the volume growth is exceptionally strong, but the mix continues to evolve away from the core Medicaid business.
spk07: Yeah, Alex, what I might add is that I was Yeah, I think one other way to position this or think about it is that we've seen, you know, really strong, you know, margins with both kidney and LMA part and that's built off, you know, what we've had previously communicated with great commercial coverage both on the heart side and on the kidney side. So what we're doing now is as we've launched into new areas, particularly our shore heart and our shore lung, this provides, you know, it's going to be a different pay mix as we see as a result of that. But at the same time, it's important for us to drive, you know, leadership in this area and that's why You're seeing this excellent volume growth, but at the same time, there's a bit of a change in the pay mix, which Ankur has shared and alluded to as well.
spk08: Yeah, certainly an opportunity for, as we've talked about, commercial pay as a multi-year opportunity that we have plans and focus around that continues to remain an attractive opportunity for us.
spk04: Okay, that's helpful. Appreciate it. And then what's the latest with Medicare reimbursement on Alistair Lung? Seems like Moldex is certainly seeing some backlogs there. And then how are you thinking about the revenue opportunity next year from Lung?
spk08: Yeah, so we remain in touch with Moldex on this and continue to work with them, both in terms of the pace as well as the information that they're looking for. So it'll evolve. We will give you an update when we have an update kind of thing. In terms of 22, we'll speak about the specific guidance in due cadence, but we're certainly anticipating revenue from lung in our year 22.
spk07: Go ahead, Raj. No, I think the only thing I'd add to Ankur's comments is we look at the mix, particularly in some of the lung and also in heart liver where there's greater commercial coverage there is more of a focus for us as well to build up that commercial pay strategy as well so i just wanted to reinforce that and that that also reflects in the pay mix discussion so clearly the goal is to have leadership in all these different organ spaces that we've just described but you know they have different payments so that's why it's important to have different strategies as we go along those but handing back to you sorry alex no i was just going to say on the 2022 side i mean the company's been putting up some really strong performance it's got
spk04: a number of pipeline projects coming. So I'm just curious, as you're starting to think about the guidance going into 22, and again, I'm not looking for specifics, but how are you thinking about putting some of the puts and takes in there? Are you focused on just giving the core business growth? Are you going to be adding in lung and anything additional on multimodality and just trying to frame up what 2022 could look like for the streets?
spk08: Yeah, let me frame that for you. And I think you're touching, you're well aware of the stories, you're touching on some of the key points there. We've had tremendous success in AlloShore Kidney, Allomap Heart, and also AlloShore Heart this year, and getting close to getting reimbursement for lung. As we think about 2022, there are two distinct parts of that story. The core business, which is in the heart care and the core kidney business, We expect our business model to continue to drive adoption both across centers as well as in case of kidney, the nephrology settings. So that core business, we believe, can continue to drive meaningful double-digit growth. On top of that, a couple additional catalysts would be around lung becoming an additional contributor, and then at some point, kidney becoming an additional contributor. Now, persistent with our typical cadence has been is that we typically provide estimates on our products and graveneers when we get closer to the actual approvals and validations, et cetera. In case of kidney care, that would be sometime in 22. So certainly a catalyst there coming in pretty soon.
spk07: But what I would say to echo that point is, and Alex, you're spot on with inflection points and calories. We saw that with the heart care approval, Alex, your heart in Q4 of 20 and how that's driven you know meaningful revenue contribution in the course of 2021 i think as you look out in the outer years 2022 plus that's why we've had this focus on you know the organ care type of approach where i think as long as you bring clinical utility i think that's that's the one point distinction i'd like to make you have to bring clinical value and i think it's so often easy to try to come in this space but the question is can you make a something that's meaningful physician in terms of that kind of utility and now the good thing is we've looked at the entire landscape and we've sort of We're sort of setting and shaping how we want to evolve that story and narrative in both heart and now in kidney and lung and liver. So we have a very specific approach of continuing that clinical utility story. It's so important to do that because in that way, you can keep on shaping what the reference standards are and also what true meaningful innovation is. We've had the benefit of conducting multiple inputs, advisory boards, micro research over the last couple of years. So we sort of have a good direct multimodal approach.
spk08: Yeah, and one thing I would add to that is we also view this as a multi-year journey, right, not just 2022. The core business, given where the current market penetration are, there's certainly a lot of runway in front of us for the next several years, not just 2022.
spk04: Thanks for framing that up. Really appreciate it. Thank you.
spk10: Thank you. Our next questions come from the line of Mark Massaro with BTIG. Please proceed with your questions.
spk11: Hey, guys. Congrats on a good quarter. Thanks for taking my question. Thanks, Mark. You know, yeah, hey, looking back over the years, you know, you guys have typically beaten, or I should say going from Q3 to Q4, you've typically come in about $2 million up sequentially from Q3 to Q4. Obviously, last year was different. I have to imagine you did better last year. I imagine a lot of that might have been related to some pent-up demand and maybe the rollout of RemoTrack in Q4. But I guess I could use a little more clarity as to why the guidance came in probably a little bit lighter than I would have expected with this beat here in Q3. I mean, I guess I haven't calculated the number of business days in Q4, but if you could maybe clarify what that is. relative to the prior year. And then you talked about volumes recovering in September as well as October. In your guidance, are you expecting any increase in COVID pressures in November and December? Or what other factors should we think about when we're updating our models here for Q4?
spk08: Yeah, sure. Let me add some color there relative to the previous comments I made. Nothing's changing in the business model itself. Our core business model, our driving market penetration through additional patients, additional centers, that's progressing quite well. And specifically your question, no new additional COVID, newer headwinds relative to Q3 have been built into the model. Now, as a background, we've now raised guidance three times this year. Each quarter we've had a beat and we've raised guidance As you get towards the end of the year, both the range narrows and the business beat begins to get built into the run rate and the expectations. I'm remaining cognizant of the fact that we've raised our guidance through the year by over $30 million now from where we started. And then that last $1 million is probably within the arrow range. Not trying to be too precise myself here to get into a very specific, but nothing as such is changing in the business model.
spk11: Yeah, that makes sense. I guess, you know, building off of Alex's question, you know, you guys did, you know, your revenue per test certainly declined what looks like, let's talk about 5% sequentially. As we think about that going forward, I mean, where do you think that levels out? I mean, I would imagine that this may continue to decline sequentially for a little while, you know, as you're trying to get commercial pairs on board. But when we're thinking about our model for next year, I had a 1% decline for next year on pricing, revenue per test. Do you think it'll look closer to the Q3 sequential decrease, or do you think it's flatter than that?
spk08: Yeah, I'll probably give you a very more clear color when we get to the actual cadence of guidance. I can tell you for the purpose of my Q4 guidance, I'm embedding a business mix which is similar to Q3 right now, so I'm kind of carrying that forward into Q4. Now to step back, our expectation is when we launch newer tests, like Alishore Heart has an impact, and then Alishore Lung, albeit at a smaller volume than the other markets, will have an impact because we'll start with a much lower coverage on that too. So every time we launch a new test, it will have a period until we cover up on the commercial coverage. Until we go back to our core, right, in case of, say, allosher kidney, in case of allomab heart, where over a period of time we've been adding coverage and have driven margins above 75% already. So these newer tests take a few years to get there. But for the purpose of Q4 guidance, I'm assuming similar makes us Q3 right now.
spk11: Okay, and if I can sneak one last one in, you know, you guys have talked about being active on the M&A side. You know, obviously, you know, you could double down in diagnostics. You could expand in products and digital health and services, but you could also potentially explore therapeutics or even devices. I guess if you could help us think about what areas you're looking in and, you know, just your appetite for for doing smaller things or maybe some bigger things?
spk07: Yeah, thanks, Mark. I mean, I think in the, anything that's on the transplant patient continuum is where we look at. So I think the pre, peri, post, and in some cases, re-entry. But that entire patient journey, as you've seen, at the start of this year, we made a foray, for example, into more the, you know, digital connection space with TX, access previously called TX Connect. And there we've, you know, now connecting you know, close to 10% of all dialysis patients in the United States. And we didn't have this offering, you know, at the start of the year. So as you think of the appetite, one is it's in transplant, two is it's on the patient journey. And I just gave an example of the digital type of connection. I think if you go into the partnership we described with Eladon, that's one where, you know, we feel that's a natural way of extension of, you know, how do we get involved in thinking of new therapeutics coming into space, but it's with leveraging our current platforms as well. You've also seen, you know, what we think is not just solid organs, but stem cell and cell therapies that, you know, the transplant continuum. But if you look at M&A overall or if you look at partnering and licensing or if you look at sort of, you know, creative types of collaborations, it's anywhere along that pre-peri-post continuum and it would involve, you know, whether it's therapeutics or whether it's, you know, med tech or whether it's, you know, digital or whether it's you know, other diagnostics, but essentially our goal is to connect all these patients, right? I mean, I think, you know, our mission is so simple, right? How do we improve outcomes with innovative solutions? And then how do we become the leading transplant ecosystem? So these are our core imperatives. So I think anything along those lines is sort of fair game.
spk11: Excellent. Thank you very much. Thanks again for the questions.
spk10: Thank you. Our next questions come from the line of Andrew Cooper with Raymond James. Please proceed with your questions.
spk12: Hey, everybody. Thanks for the questions. Maybe first, just on loan, when we think about maybe this process taking a little bit longer than some of us had thought or than some other processes we've seen under kind of the universal LCDs, is there anything in particular that Moldy X is asking for or is this just, hey, they're kind of backed up as we've had a lot of things coming through the system. And then is there any impact to any of that in terms of how we should think about, you know, lung and I'm sorry liver and kind of additional organs coming through. Kind of on a go forward basis and what the timelines might be from the tech assessment side of things.
spk08: Yeah, I would, as we've said, this is the first time now we're going through the new LCD process and out and work with Moldex. At this point, yeah, I wouldn't project any of that to the upcoming products that we would take through Moldex, whether it is upcoming kidney care or otherwise. We are in touch with them right now, and it's generally understood as to where they're at and providing any information that they're looking for. Having said that, I'm probably repeating that at this point we know nothing to do that would impact any of our future submissions. We'll go through this process and when we file the next one, we'll probably set the expectations at that time.
spk07: Yeah, and the only caveat I'd give is that when we submitted all the materials, it was under the old system. So I think then that all the future submissions would be under the new system. So I think we'd have clarity on the guidelines and expectations.
spk12: Great. Okay, that's helpful. I just wanted to make sure. And then maybe one last one sort of on price and mix. But when we think about the adoption of Alloshare Heart, you know, we've always sort of talked about 25, 30% of that market being Medicare, the remainder, you know, largely commercial. Are you seeing more ordering from the commercial side of things? And maybe that's part of what's playing into things relative to that 25 to 30%. Or is there anything maybe on the accounting side? Is it cash accounting versus accrual? Just anything else to consider in that ASP dynamic?
spk08: So the ordering side is always from the center, right? When the actual order or the patient is submitting an order or the doctor is submitting an order, it doesn't matter to them whether it is a Medicare or other insurance. So we can't specifically point to a front-end system driving the change in the mix. It's just that the kind of tests and the volumes that we see happen to be more on patients that have different coverage than Medicare. Our revenue recognition process does take into account the collectability, the contracts, and all of that, and assumes a higher risk, and hence taking a slightly lower revenue on non-Medicare business. So there are computations there based on our assessment of the collectability, et cetera. So once the commercial mix goes higher, it does lead to lower revenue per test.
spk07: Okay. One of the challenges for a successful anchor that, you know, the Alishaw part and the attachment rate has gone up, you know, quite well in a very short period, which we sort of highlighted. And I think that is a true testament of clinical utility. So I do think the team's actively working on that commercial coverage, but if we go back to where we were, you know, in Q3 last year, before our short part, now we look at where we are today, it's been significant, you know, change in the mix. Yes, we've changed the mix, just given the success we've had, and I think it's sort of, in some ways, the success we've had in driving the attachment rate to 90% in less than 10 months is sort of incredible in many ways, right?
spk08: No, we have dedicated teams that we are adding more capabilities and continue to focus in our discussions with commercial pairs to get the contracts, continue to publish additional clinical utility data to be able to drive those negotiations. That is the opportunity for us.
spk12: Okay, very helpful. It's always, I just want to make sure it's traction and some things that are early, not anything else going on. And then this last one for me, just when it comes to some of the areas you felt had headwinds from Delta and hurricanes, was there any products that were impacted more than others? Do you have any sense for that? Or pretty evenly throughout sort of the U.S. and largely on the testing services side, pretty evenly? Just want to make sure if there's any dynamics there.
spk07: Yeah, it was definitely on the testing services side. And I think where we saw both testing services impacts know both heart and kidney impacted from particularly the month of august um you know the comparison in you know the the second quarter we didn't see any you know business days impacted by what we call natural disasters but certainly in the in q3 and also in q1 we've seen some as well but probably you know q3 was particularly sniffing in the month of august great i'll stop there appreciate the questions thanks
spk10: Thank you. Our next questions come from the line of Matt Stanton with Jefferies. Please proceed with your questions. Hey, Matt.
spk03: Hey, thanks for taking my question. Just to stick with that theme there, is there any way you guys can help us quantify the impact of both Delta and weather to revenues in 3Q? And then just to confirm, did you pick up or catch up any of this at any point in September, or are you expecting to pick up or catch up that here in 4Q?
spk08: Well, it's hard to quantify that very specifically. It was kind of regionally focused. We did see a trend shift, but harder to specify that. In terms of it's a transplant test, so our view is generally the business gets pushed out. So if a patient had to go through a test in August and ended up going in September, then the whole sequence of tests gets pushed out. It doesn't create a bump. per se is our thinking like that.
spk03: Okay, that's helpful. And then can you just clarify what heart care testing volume was in 3Q? I think you'd given that number in 1Q and 2Q, and sorry if I missed it here for 3Q. Thanks.
spk08: Yeah, we provide, I think we started providing that data when we launched the test originally, and the thinking was to give it for a few quarters until a grant rate is understood. But then for competitive reasons, we wouldn't be disclosing that specifically or spreading it out in that level of detail.
spk03: Makes sense. Thank you. Thanks.
spk10: Thank you. Our next questions come from the line of Yi Chen with HC Wainwright. Please proceed with your questions.
spk02: Thank you for taking my questions. My first question is, was the competitor's cell-free DNA lung test launched recently? How do you plan to better position Ellashore Lung in the marketplace? And can we expect to see some head-to-head comparison data in the future?
spk07: Yeah, I mean, with Ellashore Lung, you know, we're excited because, you know, we've had this in the marketplace, you know, starting in 2019. It's an area where between 2020 we saw the significant unmet need. particularly during code, where centers actually reached out to us to create the reference standard. In addition to that, working with what's called the graph consortium, how do we now define the different protocols as part of that sort of adoption? So I think, you know, as the leader in this space, we were reached out to and were asked to help create this sort of reference standard. And it was really exciting and privileged to be part of that sort of equation. You know, as we mentioned, part of our goal is to be the leader in the transplant industry. that's really important for us. And as we look now moving forward onto different studies, you know, historically studies have been done that we do get real clinical scientific data and we'd be looking at ways of real-world evidence. I think historically what we've seen others do is what we call this retrospective single-center studies. Again, that's not something we advocate. It's not something that we do because we know from our experience, you know, you know, nine out of 100 doctors want to get a multicenter prospective study. Very few people want this, you know, single center approach or actually just looking at retrospective samples. So I think what we've seen from others is a retrospective analysis, again, so from a single center, I believe.
spk02: Okay. My next question is, what percentage of the testing volume is based on new transplant patients?
spk07: Yeah, I think what we've, yeah, we have not shared that, but what we've looked at new starts, how many of the new starts do we get? So I think we've always said that, you know, one in two new heart transplant patients started a cardiac softening, and one in three patients in the kidney side started cardiac softening.
spk02: Okay, last question. Do you have any information on how many transplant procedures have to be rescheduled or canceled among transplant centers that are clients of KRDX due to the center's COVID vaccine mandate for the recipient and the donor?
spk08: Yeah, I'm not sure we can specifically speak to the volumes tied to transplant recipient and donor, but in aggregate, we can tell you that if you look at the overall transplant volume this year, first half was very strong coming up in your growth perspective. And then Q3 was sequentially down about 5% from Q2, just the overall transplant volumes.
spk02: All right. Thank you. Thanks.
spk10: Thank you. There are no further questions at this time. I would like to turn the call back over to Reg Cito for any closing remarks.
spk07: Yeah, thanks again for all the folks on the phone. I mean, I think without a doubt, you know, this is really a strong quarter and one where I think, you know, we're really pleased to be able to talk about what we do for transplant patients. And, you know, as we look forward to a strong, you know, again, another strong to the end of the year. One thing I would say is hope everyone has a happy Halloween. My kids often remind me that that's one thing I should say, you know, because it's another milestone in life. So everyone, make sure if you have kids, you go out with them and have a great Halloween. Thanks again.
spk10: Thank you for your participation this does conclude today's teleconference you may disconnect your lines at this time have a great day.
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