CareDx, Inc.

Greetings and welcome to the CARE DX Incorporated Second Quarter 2023 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. As a reminder, this conference is being recorded Tuesday, August 8, 2023. It is now my pleasure to turn the conference over to Greg from the Gilmartin Group. Please go ahead.

Thank you, Rocco. Good afternoon, and thank you for joining us today. Earlier today, CareDx released financial results for the quarter ending June 30th, 2023. The release is currently available on the company's website at www.caredx.com. Rhett Cito, Chief Financial Officer, Abhishek Jain, Chief Financial Officer, and Robert Woodward, Senior Vice President of R&D, will host this afternoon's call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of the federal securities law, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, are examination of historical operating trends expectations regarding coverage decisions, pricing enrollment matters, and our 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 description 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, August 8, 2023. CARE-DX disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections, or 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 the generally accepted accounting principles. Reconciliations to the most directly comparable GAAP financial measure may be found in today's earnings release filed with the SEC. I will now turn the call over to Reg.

Thanks, Greg. Good afternoon, everyone, and thank you for joining us for CARE-DX's second quarter 2023 earnings conference call. Our second quarter was focused on the following. One, continued execution of our 2023 strategic plan with the three Cs. Two, operational adjustments implemented as a result of the billing article. And three, maintaining our strong financial discipline and structure. Overall, it was a successful operational quarter. Firstly, we delivered against our 2023 plan across the three Cs. with key highlights since our last reporting being on coverage, we confirmed Moldex coverage with heart care. Next, on catalysts, we received Alishaw Lung Moldex approval. Next, on collections, we collected 110% of Q2 testing services revenues. Secondly, in response to the billing article, we achieved our adoption target of 80% plus for completed test requisition forms two quarters earlier than planned. This was achieved in the month of June versus the end of Q4 target. Thirdly, we kept a strong cash position at $283 million and debt-free, which has enabled us to continue strategic acquisitions and restarting the share buyback. Given the above, we were able to issue updated 2023 revenue guidance. Now looking into the three Cs in more detail, we made excellent progress. On coverage, We're starting to build momentum and replicate what we've done with the other C collections. Since Q1, we've added coverage across both Medicare and commercial plans. We're excited for lung and heart patients with Medicare coverage approved for both Allishaw lung and heart care. We're especially pleased to see heart care Moldex coverage confirmed. As noted in a press release last week, we received specific coverage for heart care use in the heart transplant surveillance setting. As a reminder, heart care was approved by Maldix in 2020, and the billing article came into effect March 31st of this year, which changed coverage for two tests performed at the same encounter. This specific heart care coverage now establishes the path for multimodality reimbursement and is a major milestone in heart transplant care. In addition, it removes any doubt on this topic of multimodality. I also want to share some more detail on our commercial payer coverage efforts since the ISHC guidelines and billing article were announced. We've expanded and added regional coverage across all organs. As examples, in kidney, we've recently gained coverage from a national lab benefit manager. As a result, we've added approximately 5 million covered lives in kidney in the second quarter. In heart, the focus has been on expanding Alimab heart commercial coverage from one year post-transplant to earlier use starting at two months and early in Q3. A national payer has begun covering our heart testing earlier in year one. As a result, we've expanded coverage for Alimab heart in year one for 25 million covered lives. Now on to pipeline catalysts. We have one of the broadest pipeline portfolios in transplant. We're proud to invest at 100% in transplant innovation and to be the first and only Moldex approval in lung to donor-derived Sulfurin A with AlloShore Lung. We also submitted Allomap Kidney and Euromap as standalone tests and will later submit for multimodal testing once we have generated multimodal data as we did with heart care. We are particularly excited about Euromap, which offers a unique opportunity with a new modality in urine to provide insights into kidney transplant rejection. These approvals will take time, but as the leader in transplant innovation, we have introduced most of the current offerings in the market and understand the process to obtain approvals. As an example with Moldex approvals, we were the first and only to receive gene expression profiling approval for heart with Alimab, the first to receive donorized sulfonate coverage for kidney with AlloShore Kidney, the first and only to receive multimodal coverage for heart care through AlloShore Heart, the first and only to receive donorized sulfonamide coverage for lung with Alishor Lung, and again, the only company to receive multimodal confirmation with heart care as a specific single testing service that combines two tests. Lastly, now onto collections. We delivered our third consecutive quarter of testing services collections exceeding testing services revenues. In the last three quarters, we have now collected an incremental $20 million since Q4 2022, with 110% of cash collected over testing services revenues. We had a plan, we built it, and continue to implement and execute against this plan. In addition to the success of the three Cs, we have made excellent progress with adjustments necessary due to the March billing article. I am pleased to report that the education and implementation efforts of a cross-functional team have led to increased adoption of our new TRS during Q2. We started in April at 50%, we ended May at 70%, and in June we ended at over 80%. As a result, we delivered our Q4 target earlier by two quarters in achieving a greater than 80% adoption rate with our new TRS. Of the forms that are not complete, we started the process of obtaining additional information. Using the example that if more than 80% of TRS are completed, then under 20% are not. The team has been able to successfully collect information on over 40% of these latter tests. The net impact of these efforts on using one, new forms, and then two, addressing incomplete forms, is that we ended June with approximately 90% of all Medicare tests submitted for reimbursement. With that said, I could not be proud of the organization, which has been faced with so many challenges since the start of March 2023 when the billing article was introduced. The team has had to work nonstop across multiple work streams to implement these changes with the need to educate physicians and centers to make operational changes with IT systems and with the business response given the financial impact of the billing article. I continue to be impressed by the resilience of our people during this time of change. Given the successful implementation of the original 2023 plan and by delivering on the operational TRF adjustments two quarters earlier than planned, we now have more visibility with the testing services business and are issuing updated revenue guidance for 2023 with a range of 240 to 260 million. I'll briefly review the second quarter financial results, but Abhishek will be providing more details on Q2 and guidance in his section. For the second quarter, we recorded revenues of 70.3 million, of which approximately 7.8 million was attributed to the March Alishaw kidney test that was submitted to Medicare during the second quarter. For the second quarter, we reported a gap loss of 25 million and a non-gap loss of 9.9 million and adjusted EBITDA loss of 10.4 million. We ended the quarter with an excellent cash position of 283 million, driven by our financial discipline and focus on collections. Now back to the testing services revenue, which was 53.4 million for the quarter, down 14% sequentially and 20% year-over-year. This expected decrease was driven by the impact of the billing article, where we expected a low point in testing services volume during Q2. The testing services volume appeared to be reaching an eight-year. The issue is we need to continue the process of education given the multiple updates that have come from Moldex. Changes require internal and transplant center updates to systems and processes. As a reminder, there was a billing article released March 2nd, a second on May 4th, followed by a heart care approval update on August 2nd, and our MAC has not yet adopted either billing article from Moldex. In parallel, it should be noted that we have stated publicly the company believes the changes introduced in the billing article this year are impermissible and introduce changes to the existing and prior coverage policies and prior public responses made by Neridian and Moldex. As previously stated, we're concerned about the implications of these revisions to transplant patients. While we've seen progress in heart, we believe the restrictions imposed on transplant surveillance monitoring for kidney transplant patients is worrisome. Surveillance biopsy protocols to which the use of non-invasive tests is tied are often not in place due to the invasive nature of biopsies, and now Assure has a demonstrated ability to discriminate subclinical rejection that is earlier than it would have been otherwise identified. Now moving to non-testing services business, we saw strong contributions which accounted for approximately 30% of revenues this quarter once we exclude the March test submitted in Q2. Our patient and digital solutions business delivered strong growth for the quarter and reported revenues of $9 million, representing a 33% increase year over year and a sequential increase of 4.6%. As a reminder, this business was built de novo from strategic acquisitions and subsequent organic growth over the last four years. The recently announced acquisition of MediGo continues that strategy. We acquired the number one player in the OPO organ tracking space with close to 40% of the organ procurement organizations under contract. This acquisition continues the strategic vision of being the leader in the TransLand ecosystem. This is an exciting opportunity and time to start working with the OPOs to create linkages with TransLand centers and to position our leading set of digital services. This is an area undergoing rapid and real-time change, such as at UNOS, and provides us a unique opportunity to be sitting as this space evolves and to capitalize on new opportunities. Our products business represents our global strategy. There are significant ex-U.S. opportunities that we can achieve in the products business, especially as we expand our product offerings, which were hampered as they were launched during COVID. For the quarter, we reported product revenues of 7.9 million, representing a 17% increase year-over-year and an increase of 15% sequentially. Offsetting some of this launch growth is the reduction in the mature parts of the product portfolio, which declined quarter-over-quarter. I believe a sustainable, successful company has to have, one, a strong mission, two, a clear vision, and three, a well-thought-out strategy. The benefit of this approach has never been clearer, as we faced a lot of change, chaos, and challenges during 2023 with the billing article. We have always had a consistent strategy, and with heart care, we saw a key validation of that strategy, which is the focus on delivering meaningful innovation to transplant patients. As a summary of where we are and reflections with this approach, one, We have a 2023 plan and have kept to it. The strategic plan has been successfully executed and delivered on with the three Cs. This plan continues into the second half of 2023. Two, we deal immediately with market events. The unplanned changes rising with the billing article were addressed with a cross-functional leadership approach, including sharing talent from other parts of the organization to help adjust to this change. Three, we continue to build out the company strategy. The recent Medi-Go acquisition continues our stated vision to be the lead in the transplant ecosystem. Four, we continue to execute on our two-decade mission with a commitment to improve the long-term outcomes of patients by providing innovative solutions along that patient journey. The recent Moldex approvals for heart care and alloshore lung reflect that commitment. There were times when some investors and analysts asked if we should exit lung and exit multimodality. Staying true to our mission, we're now the only company to achieve these major MODX milestones of lung and multimodal heart care approval. It's a high bar to be the first. And five, we're building a sustainable company, maintaining a financially strong company that allows us the flexibility to build our long-term strategy. We have a strong cash position, and our long-term goal for being adjusted EBITDA profitable has not changed as we operate with financial discipline. In closing, I believe that CareDx is now an even stronger, more determined company as a result of these challenges. I want to thank patients, caregivers, physicians, and associations that expressed interest to support transplant innovation and access to care during this time. I also want to particularly thank the HeartCare Workstream team who provided the submission to Moldex. We always believe that heart care represents a stepwise improvement for heart transplant patients. Now turning it over to Abhishek.