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Operator
Good day, ladies and gentlemen, and welcome to the CareDX Incorporated third quarter 2022 earnings conference call. At this time, we are gathering additional participants and should begin in a couple minutes. We appreciate your patience and ask that you please remain online.
spk03
© transcript Emily Beynon Thank you.
Operator
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'd like to turn the conference over to Ian Cooney. Please go ahead.
Ian Cooney
Good afternoon, and thank you for joining us today. Earlier today, CareDX released financial results for the quarter-ended September 30, 2022. The release is currently available on the company's website at www.CareDX.com. Reg Cito, 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 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, November 3, 2022. CARES DX 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.
Reg Cito
Thanks, Dean. Good afternoon, everyone, and thank you for joining us for KDX's third quarter 2022 earnings conference call. Today, I'd like to focus my discussion on the following three topics. The first is our differentiated financial profile and Q3 results. The second is our growth platform over the next 18 months, which we call the three Cs, catalysts in the pipeline, collections, improvement, and coverage expansion. The third is building on our vision of leadership in the transparent ecosystem. Moving to the first topic, during 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've meaningfully improved our adjusted EBITDA losses in Q3 versus Q2. This is a trend break we liked, 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 improving sustainable business especially in this current economic environment. We plan to deliver on our profitability goals, 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 KDX when compared to others in our space. As highlights in our financial position, we, one, retain an excellent cash position with $291 million in cash and marketable securities on the balance sheet. Two, We maintained our high gross margins, highlighted by 73% gap and 74% non-gap in our testing services. Three, we achieved 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 sequentially to 79.4 million, primarily driven by testing services, With lower market growth than we projected, Pfizer anticipated a shift in payer mix to more commercial payers, resulting in an increase in non-reimbursed tests. Three, an incremental 1% sequestration reduction for Medicare tests, and one off with the impact of hurricane Ian in the last week of patient testing. There was also a lot of growth in our product business from the impact of foreign currency and ongoing staffing shortages in HLA laboratories that has slowed new installations. Despite these, we were able to improve our adjusted EBITDA versus Q2 2022, and we were on track to achieve adjusted EBITDA profitability in the first half of 2023. Now, in transplant volumes, the year-over-year growth for Q3 2022 was mid-single digits. Based on the early signs of a stronger recovery we saw in Q2, we expected higher sequential growth versus what transpired in Q3. it has taken 18 months for transplant volumes to finally reach the same baseline levels we've last saw in Q2 of 2021. Transplant center staffing shortages and decreased living donor kidney transplants remain two of the biggest challenges to market growth. Our testing services remain the strength, with leadership across kidney, heart, and lung. With kidney, we remain focused in executing on our long-term strategy with now more than 100 transplant center and community nephrology practice following Allishaw kidney protocols. Today, we have more than 75% usage across kidney transplant centers, and we saw an increase in commercial market share in these transplant centers. The entry into community nephrology has been an outstanding success and is now approaching 10% of our overall kidney volumes. We have more than 200 practices use Allishaw kidney in Q3 due to our community nephrology expansion. This represents a significant potential as the majority of transplant patients are managed in the community setting. Although the community patients have a lower coverage level, we have an ongoing commitment to support all patients regardless of pay coverage. With heart, the attachment rate for heart care remains above 95%. This demand continues to reflect the value of multimodality. As a reminder, We're the only Medicaid-covered gene expression and donor-derived test in heart and the only test with multimodal coverage through Medicare. Today, more than 90% of heart transplant centers in the United States use a cardiac softening. Now it's lung. Our short lung addresses a significant unmet need by providing a non-invasive option in the highest-risk transplant patient population, where one in two lung transplant patients will fail within five years. The use of Allishore Lung has exceeded its striped benchmark, and we already achieved a greater than 60% penetration in transplant centers within 12 months of commercial launch. This uptake in lung reflects the incredible demand in the lung transplant community with greater than 2,000 tests ordered in Q3. Now, moving on to the second topic. As we're working towards this sustainable, profitable model, we're excited by the future opportunities to accelerate revenue growth. We are focusing our efforts over the next 18 months on three priorities called the three Cs. Catalyst in the Pipeline, Collections Improvement, and Coverage Expansion. Now onto the first seat, Catalyst in the Pipeline. I am pleased to announce the following. First, we can share that Allomap Kidney is currently under Moldex review. And secondly, we're completing clear implementation work on Euromap in preparation for a future Moldex mission. We look forward to bringing these latest innovations to clinical use to improve patient care. Now on Allomap Kidney, This really delivers on the market need for a quantitative immunoacquiescence test. Allomap kidney is built upon our leading FDA-cleared gene expression test, Allomap Heart. Allomap kidney is being built specifically for kidney transplant patients. Euromap has now completed analytical and clinical validation, and we are finalizing implementation in our ClearLab. The breadth and quality of data for Euromap are best in class and defined in multiple New England Journal of Medicine publications. It's a gene signature that can assess both the probability of rejection and the probability of BK virus nephropathy. Now onto the second C, collections improvement. We continue to ramp up infrastructure and we'll share a new metric which looks at the ASP on reimbursed tests. Notably, our ASP on paid tests has not changed over the last seven quarters. Abhishek will cover this in more detail. During the last six months, We've ramped up our internal infrastructure and third-party support to address the increased workload across the different pay stages with pre-submission, submission, and appeals. We're starting to see signs of improvements in our cash collection, with improved collections in Q3 versus the prior quarter and year-over-year. However, the reality of longer collection cycles for Medicare Advantage and commercial plans means that visible progress will show up with a lag. Now onto the third C, coverage. the number of non-reimbursed tests continues to increase with our intentional strategy to launch a new organ such as lung and to move into communicology, where coverage is lower. However, this volume growth creates a long-term opportunity. In the meantime, we are working towards obtaining payer coverage to get these tests covered and reimbursed by private payers. Coverage represents our biggest P&L lever. For example, using 2021 volume numbers, we would have collected over $100 million in incremental adjusted EBITDA if our current commercial test enjoyed the same broad coverage as LMAP Heart, the gold standard at about 70%. Now, as a reminder, Alloshore kidney is at above 70%. Alloshore Heart is between 25% and 30% coverage, and Alloshore Lung is less than 5%. We're now targeting two specific milestones that are expected to expand our coverage in Alloshore Heart and Alloshore Lung. On Alloshore Heart, we're encouraged by the inclusion of dendroisophrenate in the proposed guideline updates at the April International Society of Heart and Lung Transplant meeting. As a reminder, LMR part is part of the ISHC guidelines ready, which was pivotal in expanding pay coverage. On Alishaw Lung, we are working with Moldex to achieve a determination of coverage by Medicare. There is clear demand in the lung transplant community with over 2,000 patients that have used Alishaw since the launch. Notably, there are only 2,500 lung patients transplanted each year, and 15,000 patients in the community. Now moving on to the third section, our vision and strategy. Our vision is to be leading the transplant ecosystem, and it's one of the few companies 100% dedicated, 100% dedicated to transplant. CareDx has emerged as a market leader across the transplant patient journey, and built an incredibly deep moat within the transplant centers. Today, we're number one in post-transplant biomarkers in kidney, heart, and lung. We're number one in transplant medication coverage, discharge with greater than 100 transplant centers. We're number one in transplant quality monitoring with greater than 40 centers. And we're number one in transplant-specific apps with more than 55,000 downloads through our app, Allocare. And we're number one in next-generation sequencing-based HLA typing. As a reflective milestone, Unifest recently announced that there has been now more than a million patients transplanted to the U.S. with 500,000 or half of those in the last 15 years. We are proud that more than 100,000 transplant patients have used the CareDx offering over those last 15 years, representing 20% of transplant patients in the U.S. during this time. Moving to guidance, as you saw in our press release, we lowered our guidance and now expect four-year revenues to be in the range of 320 to 325 million. This guide is driven by the lower Q3 revenues and higher-than-anticipated shift to commercial payers. Abhishek will cover this in more detail in his section. In closing, We are committed to delivering on our path to profitability in the first half of 2023. And there's a summary. One, we demonstrated our ability to improve our adjusted EBITDA despite a lower revenue quarter. And two, we've highlighted a rich set of potential revenue growth drivers to accelerate growth through the three Cs. Catalyst in the pipeline with the anticipated commercial launches, Alamak, Kitty, and Euromap, collections improvements through increased infrastructure, including engagement with third parties, and coverage expansion through Alishua Lang reimbursements and the potential inclusion of donor-derived software like OurShore in the ISH guidelines. We look forward to the next 18 months as we continue to execute on our strategy. With that, I'll turn it over to Kaur and Abhishek to discuss our third quarter financials.
Dean
Thank you, Reg. We are pleased to report that we are making progress on the commitment we made last quarter on returning to our just-reduced 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 model. 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 our path to adjusted EBITDA profitability. Number four, the strength and the consistency of our ASP on reimbursed debt. I want to start by highlighting our financial strength. We ended the quarter with $291 million in cash, cash equivalent and marketable security and no debt. We continue to invest our portfolio in line with our goals of preserving principal 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. It's 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 distal solutions revenue increased 185% year-over-year to $7.4 million. Our revenues in Q3-22 were impacted by slower-than-anticipated market volume growth, a high mix of non-covered tests, final and second part of sequestration cuts, a one-off with Hurricane Ian, and FX headwinds on our product business. Although the market growth was lower in Q3 as compared to Q2, we were pleased to finally see total transplant volumes return to the same level as they were more than 18 months ago. It has taken longer than expected. For the quarter, our testing volumes grew by 15% year-over-year to over 46,500 tests. we saw sequential volume growth in all organs. The non-GAAP gross margin for the quarter was 67% compared to 70% in the third quarter of last year and 69% in Q2. The change in gross margin versus the last quarter is primarily driven by our product business returning to its normal gross margin. We continue to maintain healthy gross margin of 74% in our testing services business. despite the continued increase in the mix of unpaid debt. We are very pleased with the durability of our growth margin profile and proud of our lab and the supply chain team as they continue to drive efficiency. Non-GAAP operating expenses for the third quarter were $57 million, down $5 million sequentially from Q2 2022. We are extremely pleased to see this trend change, given our committed goal of achieving positive adjusted EBITDA in the first half of 2023. This was achieved by focusing on three factors. Number one, financial discipline across the organization. Number two, operating efficiency driven by process improvement. Number three, increasing effectiveness in strategic areas of driving growth and improving collections and expanding coverage. Notably, despite the reduction in OPEX, we continue to invest in clinical development with studies across solid organ and stem cell transplant. For the third quarter of 22, we recorded negative adjusted EBITDA of 2.5 million compared to negative adjusted EBITDA of 5.7 million in the previous quarter. We made a lot of ground on our commitment and are pleased with the progress towards our goal of delivering positive adjusted EBITDA in the first half of 23. and our confidence in our ability to continue to drive profitable growth. Now let me turn to ASP. In order to provide further clarity on our ASP, this quarter we are beginning to disclose the ASP for test where we receive reimbursement. Our ASP for reimbursed test has been essentially flat and above $2,500 since Q1 of 21. The overall ASP started to change in Q1 21, which was the first full quarter impact of Yellow Shore Heart. As a reminder, during 2020, our overall coverage in testing services was above 70%, but the addition of Yellow Shore Heart was only covered at 25%. Our focus is on expanding coverage versus the overall changes in ASP as these include non-covered tests. To reflect this point, ASP-owned paid tests were slightly above $2,500 in Q1-21 and has remained above $2,500 in this most recent quarter. This is in contrast to our overall ASP, which includes non-covered tests. We want to highlight this metric to emphasize that we're not seeing any price degradation for our tests. And the change in total ASP, which includes non-paid tests, is driven by our strategy to number one, grow market share in community astrology. Number two, increase penetration in new areas, such as lungs, where we are yet to receive broad reimbursement coverage. And number three, launch in areas that drive innovation, such as multimodality in heart. As with LOMAP Heart, coverage is an area that will expand over time. As a reminder, our non-GAAP gross margin of 74% has been achieved with greater than 70% coverage for LOMAP heart and LHO kidney, a 25% to 30% coverage for LHO heart, and a less than 5% coverage for LHO lung. Our goal is to expand coverage to above 70% across our testing services portfolio, using LOMAP heart as the gold standard for coverage and reimbursement. As discussed in our previous calls, our strategy of gaining market share and helping patients improve long-term outcomes coupled with market dynamics, has resulted in an increased percentage of non-reimbursed tests. The durability of our adjusted growth margin has allowed us to offset these incremental non-reimbursed tests while providing us an opportunity through expanded coverage and improved collections over time that we are vigorously addressing. Regarding the information requests from the government, we do not have any material updates to report. We continue to cooperate and are moving expeditiously in responding to the request. Turning to guidance, we are revising our full year guidance in the range of $320 million to $325 million from $325 million to $335 million previously. This change in midpoint is driven by lower Q3 revenues and hard and anticipated shift to commercial pairs. Specifically, for Q4, in setting the guide, we have assumed that there are no further sequestration cuts. We do not plan for one-off impacts such as Hurricane Ian. C, we have built on lower market growth in our range. And lastly, we have assumed a higher commercial pay mix across the range. To close, we have an unviable financial position, heavily adjusted growth margins, strong cash position, and solid volume growth. We have demonstrated our commitment to return to positive adjusted EBITDA in first half of 2023 by staying prudent on operating expenses while ensuring that we continue to invest in areas that will drive future growth. With that, I'll open the call for questions.
Operator
Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing star 1 on your telephone keypad. Star 1 for questions. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment.
Brandon
Star 1 for questions. We'll pause a moment to assemble the phone queue. We'll take our first question from Brandon Colliard with Jefferies. Please go ahead.
Brandon Colliard
Hey, thanks. Good afternoon, guys. Maybe just starting with the guidance for the year and implied for the fourth quarter, you've been running kind of around $80 million in revenue. the first two quarters of the year, I would apply a step up of four or five million sequentially into the fourth quarter. Just library on level of confidence in that and how we should be modeling the realized ASP trends sequentially. Is there another kind of five, six, seven percent step down again in 4Q?
Reg Cito
Hi, thanks, Brandon. It's Reggie, and I'll hand over to Shake to take some more questions, comments, and Yeah, for us, you know, we have a strong run rate going to that 320 is what you just sort of described and where we think, you know, 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 guide Abhishek has outlined will go through step-by-step for you as well now.
Dean
Yeah, sounds good. So, Brendan, the way the change in the guidance of the midpoint from 330 to 322 and a half 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 have made on the market growth and the paid mix assumptions based on the Q3 results. So those are the two factors that are changing at midpoint from 330 to the 322.5. Now, what 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 middle, and slightly above. And that's what we are assuming, that our testing services volume growth will stay in line or slightly above the market growth. We have made sure that our mix will continue to shift towards the commercial pairs. and there will not be any sequestration cut. So those are two 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.
Brandon Colliard
You may not be in a position to talk too much about 2023 yet, but how should we think about the ASP trend as we model out next year in degree of further erosion? Any parameters you can maybe give us to sort of think about that line as you move into next year?
Reg Cito
Yeah, Brent, I'll take the question and I'll hand it over to you. I think, wasn't that clear, but I think you're talking about ASP trends by understood. And I think for us, what we want to get to is, and you heard sort of our catalyst. I mean, this really is about coverage. It's not about ASP per se for us. And I think, you know, you saw that we've shown a slide now, which for the last seven quarters where we get reimbursed tests, we have, you know, achieved an excess of 2,500. And the key here is, How do we now focus on getting the additional coverage or focus on additional collections in these areas, which will then overall benefit that inflection point with ASPs? So we've delivered a series of catalysts, which go through launches, which goes through coverage, and which goes through looking at different collections to improve that overall profile. But I think, you know, we've often talked about, and we've seen this over the last few quarters at ASPs, it's trying to show the transparency here that really there is, when we get reimbursed, we're reimbursed at a pretty constant rate. When we're not reimbursed, that's what we have to work on. We have to work on how do we get coverage, and then we have to work on how do we collect. They're the key pieces, which is why we focus so much on talking about the three Cs. This is the area we're building our infrastructure around. We've demonstrated during this quarter we have to pass the profitability. That's the key metric we put out for next year in our last earnings poll. How do we get the profitability? Can we demonstrate? And that's why we said the first half of next year. The OPEX, I think we have a good handle on demonstrating that. The second thing is we've now laid out this 18-month 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 specifics if it's required on the ASP. But just to manage the expectations, this is where we're pivoting towards.
Dean
No, I think, Raj, 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 multimodality for heart. And we spend a lot of time in our prepared remarks on that one. And the key point there, Brandon, says that our ASP for the 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 tests? 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.
Brandon
That's the last one.
Brandon Colliard
What next steps in terms of the timeline for kidney care, and how do you think about the timing of the potential commercial launch next year?
Reg Cito
Yeah, 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 Alameda Kidney and now that we've submitted to Moldevex for review. And for us, you know, we know that there's demand for this test because we saw that through the, you know, the OCOR enrollment where this was really the study that people wanted to do and really understand more about this multimodality approach. They weren't really interested in doing another donor isoprene test. And we really see that, you know, 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 tests. And so for us, the market prep is, you know, the team are prepared. We've, you know, prepared for our marketing materials. The organization infrastructure is ready in place. I think we've obviously had some nice publications as a result of this. So, you know, in terms of the offering itself has been defined. And so, again, we look forward to, you know, exciting period and review process when we have those discussions. But clearly this is a a key catalyst for us, which is we've put in the pipeline, and along with Euromap as well.
Brandon
Brandon, this is the operator. You may be muted. Did you have any other follow-ups?
Operator
Hearing no response, we'll take our next question from Alex Nowak with Craig-Hellingham Capital Group. Please go ahead.
Alex Nowak
Great. Good afternoon, everyone. This is Connor. I'm for Alex. I guess first, you know, MoldyX is holding a contractor advisory committee meeting in mid-November to kind of discuss the coverage of transplant tests. I mean, what's going to be discussed at this meeting? Is CareDX invited to present? You know, kind of just some color from you guys would be helpful there.
Reg Cito
Yeah, no, thanks, Connor. I mean, I think what has been laid out there is that it's an innovation event. People can obviously attend, and we'll be attending as part of that. But it's really being run by subject matter experts, and it's a meeting that's being run by Neridian and Palmetto. So, you know, we're showing how far we've come as a field that Transbank gets an additional meeting looking at this process. And, you know, we think we've done a lot to bring Transbank 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 approvals through at this time point. There was in the past some CAC committees that were held, for example, infectious diseases. There was one held in 2021, and I think about 14, 15 months later, there was an update in terms of an LCD, which actually became a broader LCD. 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 by Noridian as well as Palmetto. It's being held over two days, one above the diaphragm, one below the diaphragm, and we look forward to learning more about that at the meetings.
Alex Nowak
Got it. Okay. That all makes sense. And then just a couple questions to dig a little deeper on the pricing side. I mean, I know you mentioned you're having some success in appeals 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 ASPs stop their decline? And then just kind of is the impact ASPs still roughly 25% Medicare, 75% commercial, or kind of how are we thinking about that right now?
Reg Cito
Yeah, I'll make some comments and I'll hand over to Tarb. Again, as we mentioned with Brandon as well, I mean, the way you want to think about it is coverage. We've shared the ASP on reimbursed tests. There was a set of slides attaching with this webcast. And I think when tests are reimbursed, they're pretty much reimbursed above $2,500 across the portfolio. And I think that's an 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 and we need to 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, Connor, the notion is, you know, you need coverage and collections. Talking about this ASP has been a bit of a red herring, because here you're talking about, there has been no price tag, but actually look at the slides we've presented as well over the last seven quarters. So when we get reimbursed, we get reimbursed well. Yeah.
Dean
No, I think you have covered it well, Raj. I would only add to that, that On the collections infrastructure, when we talk about, there's a pre-submission, submission, and the post-submission side of it. 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 the submission and the post-submission on the appeal side. In fact, we are now contracting with the third-party agencies. Again, we have doubled our capacity there. Now, how soon we are going to be seeing the results? A lot of these payers are basically, as you know, the Medicare Advantage or 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 to see the results. So this will definitely, to Reg's point, it will come, and those are the pieces that we are trying to work on.
Alex Nowak
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 all the acts, what are they saying? Things like that.
Reg Cito
Yeah. As I mentioned, there's an existing pathway, which is the universal city, which has been in place since June of 2021. You know, we don't believe we'll be caught in any changes. The key here is that there is an existing process. We submitted, we have good ongoing discussions with mold X. And so we look forward to continue those discussions. Again, this is really just a, you know, subject matter experts, you know, there is no agenda that's been set. We should talk about CAC meeting as well. The only, you know, if we took a precedence where we saw that with infectious disease, they actually went in and actually brought in the LCD in that sense. So, again, we don't know the agenda. It hasn't been set. It also says it on the website. But, again, we do look forward to me hearing more about it. But we've submitted under the current process, which is the existing process.
Brandon
Yeah. All right. Got it. Thank you for the questions. We'll take our next question from Matthew Sykes with Goldman Sachs. Please go ahead.
Matthew Sykes
Hey, this is Prashant on for 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?
Reg Cito
Yeah, I'll comment about the overall transplant volumes and I'll let Abhishek get into specifics of the guide. But for us, if you look at, and I think this is also covered in this slide in the webcast, where it's taken 18 months to get transplant volumes 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, you know, in probably the single digits again this quarter. Longer term and midterm, you know, it really is an exciting opportunity. There are multiple levers that will increase, you know, 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, you know, improvements for fusion, the advent of, you know, more living donors, which has been impacted the most during this time period. We also know there are government initiatives, you know, increasing the number of donation and transplantation rates that are taking place here as well. And, you know, really there's There's a lot of different, you know, places where organ donation can go up. But, you know, at this stage, I think, you know, we haven't sort of seen that full rebound. We saw that impacted again this quarter with not hitting that high projection that we had as well. So, Abhishek, I'll talk about the market growth in terms of the guide. Yeah. Thanks, Raj.
Dean
So, when I started to look at the market growth, actually the Q3 transplant volume growth was lower than Q2. Now, when I start to look back to the last three quarters where we had seen the transfer volume to recover from a high single-digit decline since the third quarter of 21 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 in the 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.
Matthew Sykes
Got it. Thanks. That's really helpful. And then one last question. Could you talk about how you see the longer-term opportunity for self-transplant Is the timeline to realize this opportunity further out, or do you see any factors that could accelerate the development of this opportunity?
Reg Cito
You know, for us, cell therapy is really an exciting area. And I think, you know, for us, it's really predicated on, you know, cell therapies making it onto markets. And as of this stage, there hasn't been ones on the solid organ side that have made it through. And I think that's sort of the key. And as we've built out, I think, our different strategic steps you know, 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 self-therapy side. However, that said, we have, you know, increasing the number of partnerships we've held. We're really excited by the progress we're making here. It is a really, you know, exciting stage of, you know, development. And for us, it's one that, you know, for us as a company that's, you know, fully dedicated to transplant, it gives us multiple options. We've been focused on sold organs, now expanding different organs as part of that. You're seeing 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 nearer term opportunity than cell therapy. And then longer term beyond five years is cell therapy. But again, anything transplant is open for business from our side. So thanks for the question.
Brandon
Great. Thank you so much.
Operator
We'll take our next question from Mason Caricho with Stevens. Please go ahead.
Stevens
Hey guys, thanks for taking the question. This is Jacob on for Mason. So just following up here on the Allomap kidney submission to MoldyX. Now that it's been submitted, I know it's largely out of your guys' hands, but just kind of wondering what maybe your guys' internal timeline or expectation is to get Medicare coverage for that test. Is the fourth quarter of 2023 still a possibility or is that largely off the table at this point?
Reg Cito
Yeah, I mean, we've submitted the application. Typically, there's like a 60-day 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 built a pretty robust package with the publications 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, but dependent on others. We just respond and provide answers or ask questions as part of that process.
Stevens
Yeah, understood. So in terms of the launch there, once you do get positive coverage, do you anticipate focusing the initial launch within transplant centers, or do you plan on driving adoption in both transplant centers as well as patients in the 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?
Reg Cito
Yeah, I mean, I think there's two very different stages, right? I mean, I think you have, you know, transplant centers where we're in more than 75%. We're 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 Alishaw last quarter and you know, 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, you know, there's still more education that has to be done on the community side about, you know, usage of, you know, Alishor or other donor isoprene and its utility. I think it's important not to just try to push something out, but to provide the right education supported by strong clinical data with multi-center prospective studies and transplant-specific tests. But as we look at Alimap Kidney, I think it's probably more geared towards probably where there's existing adoption of AlloSure and using that as a basis, because then they'll understand the utility of multimodality. Again, it all depends on the data. We think we have strong data, and I think we have good experience with what we've seen in heart care as well.
Stevens
Okay, got it.
Brandon
Thanks. That's it for me. No, thanks for the question. We'll take our next question from Yaixin with HC Wainwright. Please go ahead. Hey, this is Chet on behalf of Yi Chen.
Chet
We just have a couple of quick questions. The first one being, and I'm sorry I missed it during your prepared remarks, but what are 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 timeline that relates to you?
Reg Cito
both of your upcoming catalysts thank you yeah i'll take the catalyst questions and i'll hand over to uh i mean for us it's you know there's a set um requirement of what one has to submit and we've done that for our opinion you're met with the preparation for that as as we mentioned prepared remarks um and then it's actually a back and forth um after the submission and normally there's there's ongoing dialogue with the uh with the agencies that take place so It's hard for us. That 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, you know, the scientific robustness of the packages we have delivered on LMAP-PTN+. We'll deliver for Euromap. And, again, just the quality of data. I mean, Euromap, for example, you know, New England Journal of Medicine publications, you know, apart from LMAP, I don't think others have gone and been submitted with, you know, such robust data. So, again, we feel really good by the approach we're taking. The timelines may be remiss, but the organization is 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.
Dean
Yeah. 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 – And when I started 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 and the paid 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 drop. The other drop came in because the market growth, the way we were anticipating the market growth actually came in at the lower end of our range. So that was the other, in fact, the one-third of the drop. And the third piece of the puzzle is basically your pair mix. We anticipated a pair mix, and the actual pair mix came in slightly higher than that. So that was the other third part. So those were the three pieces.
Brandon
Excellent. Thank you so much.
Operator
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.
Reg Cito
Yeah, hi. Red Cedar again. Thanks for all the folks all listening in and thanks for the great questions from the different analysts. We have a real incredible mission here at KDX, which is how do we improve patient outcomes, organ outcomes for a very subset of special patients in the transplant community along that patient journey. For us, this is all we do day in, day out. We thank you for taking time to listen to this call and supporting us at CareDX for all we do as well. Thanks again. Have a great day.
Operator
Ladies and gentlemen, this concludes today's conference.
Reg Cito
We appreciate your participation.
Operator
You may now disconnect.
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