CareDx, Inc. [CDNA] Filings

10-Q 1 cdna-20230930.htm 10-Q cdna-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________________________

FORM 10-Q

__________________________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-36536

__________________________________________________

CAREDX, INC.

(Exact name of registrant as specified in its charter)

__________________________________________________


Delaware						94-3316839
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

8000 Marina Boulevard, 4th Floor

Brisbane, California 94005

(Address of principal executive offices and zip code)

(415) 287-2300

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

__________________________________________________

Securities registered pursuant to Section 12(b) of the Act


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	CDNA	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

There were 54,098,378 shares of the registrant’s Common Stock issued and outstanding as of November 6, 2023.

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CareDx, Inc.

TABLE OF CONTENTS


			Page No.
PART I. FINANCIAL INFORMATION			3
Item 1. Unaudited Condensed Consolidated Financial Statements			3
Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022			3
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022			4
Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2023 and 2022			5
Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022			6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022			8
Notes to Unaudited Condensed Consolidated Financial Statements			9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35
Item 3. Quantitative and Qualitative Disclosures About Market Risk			55
Item 4. Controls and Procedures			55

PART II. OTHER INFORMATION			57
Item 1. Legal Proceedings			57
Item 1A. Risk Factors			57
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			73
Item 3. Defaults Upon Senior Securities			74
Item 4. Mine Safety Disclosures			74
Item 5. Other Information			74
Item 6. Exhibits			75
Signatures			77

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PART I. FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CareDx, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share data)


	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	75,980	$	89,921
Marketable securities	192,204		203,168
Accounts receivable	51,694		66,312
Inventory	17,978		19,232
Prepaid and other current assets	7,310		9,216
Total current assets	345,166		387,849
Property and equipment, net	35,355		35,529
Operating leases right-of-use assets	30,973		34,689
Intangible assets, net	46,455		43,051
Goodwill	40,208		37,523
Restricted cash	582		522
Other assets	2,441		3,828
Total assets	$	501,180	$	542,991
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	8,972	$	9,942
Accrued compensation	16,664		16,902
Accrued and other liabilities	47,038		49,131

Total current liabilities	72,674		75,975
Deferred tax liability	140		—
Common stock warrant liability	—		32
Deferred payments for intangible assets	4,735		2,418
Operating lease liability, less current portion	29,252		33,406
Other liabilities	245		249
Total liabilities	107,046		112,080
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock: $0.001 par value; 10,000,000 shares authorized at September 30, 2023 and December 31, 2022; no shares issued and outstanding at September 30, 2023 and December 31, 2022	—		—
Common stock: $0.001 par value; 100,000,000 shares authorized at September 30, 2023 and December 31, 2022; 54,153,496 shares issued and outstanding at September 30, 2023; 53,583,301 shares issued and 53,533,250 shares outstanding at December 31, 2022	52		52
Additional paid-in capital	936,954		898,806
Accumulated other comprehensive loss	(8,670)		(7,503)
Accumulated deficit	(534,202)		(460,444)
Total stockholders’ equity	394,134		430,911
Total liabilities and stockholders’ equity	$	501,180	$	542,991

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CareDx, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue:
Testing services revenue	$	47,784	$	64,751	$	162,982	$	198,330
Product revenue	9,536		7,194		24,273		20,696
Patient and digital solutions revenue	9,872		7,414		27,500		20,383
Total revenue	67,192		79,359		214,755		239,409
Operating expenses:
Cost of testing services	13,217		17,771		43,837		53,629
Cost of product	4,750		4,736		12,742		13,022
Cost of patient and digital solutions	6,566		5,794		19,807		16,071
Research and development	19,000		22,306		63,590		66,818
Sales and marketing	18,474		22,261		63,335		72,359
General and administrative	33,968		23,830		91,327		75,621
Restructuring costs	—		—		848		—
Total operating expenses	95,975		96,698		295,486		297,520
Loss from operations	(28,783)		(17,339)		(80,731)		(58,111)
Other income (expense):
Interest income, net	3,171		1,225		8,708		1,892
Change in estimated fair value of common stock warrant liability	—		14		10		89
Other income (expense), net	2,047		(572)		(198)		(1,948)
Total other income	5,218		667		8,520		33
Loss before income taxes	(23,565)		(16,672)		(72,211)		(58,078)
Income tax benefit (expense)	80		(267)		24		(206)
Net loss	$	(23,485)	$	(16,939)	$	(72,187)	$	(58,284)
Net loss per share (Note 3):
Basic	$	(0.43)	$	(0.32)	$	(1.34)	$	(1.09)
Diluted	$	(0.43)	$	(0.32)	$	(1.34)	$	(1.09)
Weighted-average shares used to compute net loss per share:
Basic	54,178,759		53,489,418		53,891,374		53,253,210
Diluted	54,178,759		53,489,418		53,891,374		53,253,210

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CareDx, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net loss	$	(23,485)	$	(16,939)	$	(72,187)	$	(58,284)
Other comprehensive loss:
Foreign currency translation adjustments, net of tax	(220)		(1,627)		(1,167)		(4,139)
Net comprehensive loss	$	(23,705)	$	(18,566)	$	(73,354)	$	(62,423)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CareDx, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share data)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2022	53,533,250	$	52	$	898,806	$	(7,503)	$	(460,444)	$	430,911

Issuance of common stock under employee stock purchase plan	47,025	—		456		—		—		456
Repurchase and retirement of common stock	(59,472)	—		—		—		(690)		(690)
RSU settlements, net of shares withheld	123,910	—		(785)		—		—		(785)
Issuance of common stock for services	7,649	—		93		—		—		93
Issuance of common stock for cash upon exercise of stock options	820	—		2		—		—		2

Employee stock-based compensation expense	—	—		13,719		—		—		13,719
Foreign currency translation adjustment	—	—		—		64		—		64
Net loss	—	—		—		—		(23,749)		(23,749)
Balance at March 31, 2023	53,653,182	52		912,291		(7,439)		(484,883)		420,021

Repurchase and retirement of common stock	(12,000)	—		—		—		(67)		(67)
RSU settlements, net of shares withheld	362,710	—		(1,508)		—		—		(1,508)
Issuance of common stock for services	3,647	—		36		—		—		36
Issuance of common stock for cash upon exercise of stock options	2,930	—		6		—		—		6
Issuance of common stock for cash upon exercise of warrants	3,132	—		26		—		—		26
Employee stock-based compensation expense	—	—		12,663		—		—		12,663
Foreign currency translation adjustment	—	—		—		(1,011)		—		(1,011)
Net loss	—	—		—		—		(24,953)		(24,953)
Balance at June 30, 2023	54,013,601	52		923,514		(8,450)		(509,903)		405,213
Issuance of common stock under employee stock purchase plan	143,816	—		1,039		—		—		1,039
Repurchase and retirement of common stock	(92,766)	—		—		—		(814)		(814)
RSU settlements, net of shares withheld	64,879	—		(355)		—		—		(355)
Issuance of common stock for services	4,513	—		37		—		—		37
Issuance of common stock for cash upon exercise of stock options	19,453	—		99		—		—		99

Employee stock-based compensation expense	—	—		12,620		—		—		12,620
Foreign currency translation adjustment	—	—		—		(220)		—		(220)
Net loss	—	—		—		—		(23,485)		(23,485)
Balance at September 30, 2023	54,153,496	$	52	$	936,954	$	(8,670)	$	(534,202)	$	394,134

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CareDx, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share data)


	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2021	52,923,360	$	52	$	853,683	$	(4,670)	$	(383,189)	$	465,876
Issuance of common stock under employee stock purchase plan	25,852	—		999		—		—		999
RSU settlements, net of shares withheld	64,819	—		(1,482)		—		—		(1,482)
Issuance of common stock for services	1,249	—		58		—		—		58
Issuance of common stock for cash upon exercise of stock options	69,993	—		1,598		—		—		1,598

Employee stock-based compensation expense	—	—		10,563		—		—		10,563
Foreign currency translation adjustment	—	—		—		(420)		—		(420)
Net loss	—	—		—		—		(19,648)		(19,648)
Balance at March 31, 2022	53,085,273	52		865,419		(5,090)		(402,837)		457,544

RSU settlements, net of shares withheld	216,950	—		(3,211)		—		—		(3,211)
Issuance of common stock for services	2,156	—		79		—		—		79
Issuance of common stock for cash upon exercise of stock options	19,333	—		413		—		—		413

Employee stock-based compensation expense	—	—		12,513		—		—		12,513
Foreign currency translation adjustment	—	—		—		(2,092)		—		(2,092)
Net loss	—	—		—		—		(21,697)		(21,697)
Balance at June 30, 2022	53,323,712	52		875,213		(7,182)		(424,534)		443,549
Issuance of common stock under employee stock purchase plan	67,570	—		1,231		—		—		1,231
RSU settlements, net of shares withheld	119,429	—		(850)		—		—		(850)
Issuance of common stock for services	3,545	—		79		—		—		79
Issuance of common stock for cash upon exercise of stock options	9,197	—		139		—		—		139

Employee stock-based compensation expense	—	—		11,097		—		—		11,097
Foreign currency translation adjustment	—	—		—		(1,627)		—		(1,627)
Net loss	—	—		—		—		(16,939)		(16,939)
Balance at September 30, 2022	53,523,453	$	52	$	886,909	$	(8,809)	$	(441,473)	$	436,679

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CareDx, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Nine Months Ended September 30,
	2023		2022
Operating activities:
Net loss	$	(72,187)	$	(58,284)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation	39,125		34,427
Depreciation and amortization	10,755		8,389
Asset impairments and write-downs	1,000		840
Amortization of right-of-use assets	4,020		3,120
Unrealized loss on long-term marketable equity securities	1,185		215
Revaluation of contingent consideration to estimated fair value	1,731		830
Loss on disposal of asset	37		—
Gain on settlement of obligation and recovery of written-off investment	(2,109)		—
Accretion of discount and amortization of premium on short-term marketable securities, net	(3,410)		993
Revaluation of common stock warrant liability to estimated fair value	(10)		(89)
Changes in operating assets and liabilities:
Accounts receivable	15,351		(10,838)
Inventory	758		(2,258)
Prepaid and other assets	2,542		(397)
Operating leases liabilities, net	(4,088)		(2,390)
Accounts payable	(990)		(1,697)
Accrued compensation	(336)		(11,610)
Accrued and other liabilities	(3,462)		6,482
Change in deferred taxes	81		(157)
Net cash used in operating activities	(10,007)		(32,424)
Investing activities:
Acquisitions of business, net of cash acquired	(6,682)		(610)
Acquisitions of intangible assets	(896)		(3,100)
Purchases of short-term marketable securities	(192,131)		(283,442)
Maturities of short-term marketable securities	206,503		74,132
Purchase of corporate equity securities	(965)		—
Additions of capital expenditures	(6,750)		(17,957)
Net cash used in investing activities	(921)		(230,977)
Financing activities:



Proceeds from issuance of common stock under employee stock purchase plan	1,495		2,231
Taxes paid related to net share settlement of restricted stock units	(2,514)		(5,543)
Proceeds from exercise of warrants	4		—
Proceeds from exercise of stock options	107		2,149

Payment of contingent consideration	(250)		(1,000)
Repurchase and retirement of common stock	(1,571)		—
Net cash used in financing activities	(2,729)		(2,163)
Effect of exchange rate changes on cash and cash equivalents	(224)		25
Net decrease in cash, cash equivalents and restricted cash	(13,881)		(265,539)
Cash, cash equivalents and restricted cash at beginning of period	90,443		348,696
Cash, cash equivalents and restricted cash at end of period	$	76,562	$	83,157

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CareDx, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

CareDx, Inc. (“CareDx” or the “Company”), together with its subsidiaries, is a leading precision medicine company focused on the discovery, development and commercialization of clinically differentiated, high-value diagnostic solutions for transplant patients and caregivers. The Company’s headquarters are in Brisbane, California. The primary operations are in Brisbane, California; Omaha, Nebraska; Fremantle, Australia; and Stockholm, Sweden.

The Company’s commercially available testing services consist of AlloSure® Kidney, a donor-derived cell-free DNA (“dd-cfDNA”) solution for kidney transplant patients, AlloMap® Heart, a gene expression solution for heart transplant patients, AlloSure® Heart, a dd-cfDNA solution for heart transplant patients, and AlloSure® Lung, a dd-cfDNA solution for lung transplant patients. The Company has initiated several clinical studies to generate data on its existing and planned future testing services. In April 2020, the Company announced its first biopharma research partnership for AlloCell, a surveillance solution that monitors the level of engraftment and persistence of allogeneic cells for patients who have received cell therapy transplants. The Company also offers high-quality products that increase the chance of successful transplants by facilitating a better match between a donor and a recipient of stem cells and organs. The Company also provides digital solutions to transplant centers following the acquisitions of Ottr Complete Transplant Management (“Ottr”) and XynManagement, Inc. (“XynManagement”), as well as the acquisitions of TransChart LLC (“TransChart”), MedActionPlan.com, LLC (“MedActionPlan”) and The Transplant Pharmacy, LLC (“TTP”) in 2021, HLA Data Systems, LLC (“HLA Data Systems”) in January 2023 and MediGO, Inc. (“MediGO”) in July 2023.

Testing Services

AlloSure Kidney has been a covered service for Medicare beneficiaries since October 2017 through a Local Coverage Determination (“LCD”) first issued by Palmetto MolDX (“MolDX”), which was formed to identify and establish coverage and reimbursement for molecular diagnostics tests, and then adopted by Noridian Healthcare Solutions, the Company’s Medicare Administrative Contractor (“Noridian”). The Medicare reimbursement rate for AlloSure Kidney is currently $2,841. AlloMap Heart has been a covered service for Medicare beneficiaries since January 2006. The Medicare reimbursement rate for AlloMap Heart is currently $3,240. In October 2020, the Company received a final MolDX Medicare coverage decision for AlloSure Heart. Noridian issued a parallel coverage policy granting coverage for AlloSure Heart when used in conjunction with AlloMap Heart, which became effective in December 2020. In 2021, Palmetto and Noridian issued coverage policies written by MolDX to replace the former product-specific policies. The common policy LCD is titled “MolDX: Molecular Testing for Solid Organ Allograft Rejection” and the associated LCD numbers are L38568 (MolDX) and L38629 (Noridian). The Medicare reimbursement rate for AlloSure Heart is currently $2,753. Effective May 9, 2023, AlloSure Lung is covered for Medicare beneficiaries through the same MolDX LCD (Noridian L38629). The Medicare reimbursement rate for AlloSure Lung is $2,753. Effective April 1, 2023, HeartCare, a multimodality testing service that includes both AlloMap Heart and AlloSure Heart provided in a single patient encounter for heart transplant surveillance, is covered, subject to certain limitations, for Medicare beneficiaries through the same MolDX LCD (Noridian L38629). The Medicare reimbursement rate for HeartCare is $5,993.

On March 2, 2023, MolDX issued a new billing article, with an effective date of March 31, 2023, related to the LCD entitled Molecular Testing for Solid Organ Allograft Rejection (the “Billing Article”). Prior to the Billing Article’s effective date, MolDX informed the affected parties, including CareDx, that enforcement of the revised billing practices outlined in the Billing Article would not be implemented until June 30, 2023. MolDX informed CareDx that its automatic adjudication process would remain in place until June 30, 2023, though claims submitted prior to that date must comply with the applicable LCDs. On May 4, 2023, MolDX issued a revised new billing article with an effective date of March 31, 2023 (the “Revised Billing Article” and together with the Billing Article, the “Billing Articles”). The Revised Billing Article impacts Medicare coverage for AlloSure Kidney, AlloSure Heart and AlloMap Heart and requires certain companies, including CareDx, to implement new processes to address the requirements related to Medicare claim submissions. MolDX has stated that it views the Billing Article as clarifying existing coverage, especially as it relates to when tests are covered in the for-cause and surveillance contexts. MolDX has acknowledged, however, that the Billing Article is a change as it relates to billing more than one test during a single patient encounter. Noridian adopted the Revised Billing Article on August 17, 2023, with a retroactive effective date of March 31, 2023.

Although the Company believes the Billing Articles are inconsistent with the LCDs, Noridian’s and MolDX’s responses to public comments explaining the intended scope of various LCDs, and medical necessity, the Company determined to pause its Medicare reimbursement submissions for AlloSure Kidney commencing on March 7, 2023 to allow the Company further time to evaluate the implications of the Billing Article and update its billing processes for AlloSure Kidney tests by educating clinicians and working with centers to update CareDx’s test order forms to capture the new information required under the Billing Article. Accordingly, the Company did not submit claims for approximately 3,200 AlloSure Kidney tests for Medicare

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reimbursement for the period from March 7, 2023 through March 31, 2023 and did not recognize revenue on these claims in the first quarter of 2023 aggregating to approximately $8.9 million (the “Impacted March Tests”).

On May 18, 2023, the Company submitted a letter to Noridian explaining, among other things, (i) the Company’s belief that the Billing Articles impose new restrictions on Medicare coverage for the CareDx tests from those contained in the existing LCDs, (ii) that the Company planned to submit claims for reimbursement for the Impacted March Tests for which the Company has not obtained additional information from the ordering physicians to be able to specifically determine whether these tests meet the new coverage restrictions contained in the Billing Articles, and (iii) that AlloSure Kidney orders with a date of service on or after March 31, 2023 for other indications outside the parameters of the Revised Billing Article, or where the reason for testing is not specified by the ordering physician, will either not be billed pending the receipt of additional information regarding whether the orders meet the coverage restrictions contained in the Revised Billing Article or be submitted with a test description that is intended to identify those tests as falling outside the parameters of the Revised Billing Article. Following the submission of this letter to Noridian on May 18, 2023, the Company submitted claims for reimbursement for the Impacted March Tests for which the Company subsequently received payment from Noridian and recognized revenue totaling approximately $7.8 million in the second quarter of 2023.

The Company has certain unbilled AlloSure Kidney claims with a service date after March 31, 2023, where the reason for testing is not specified by the ordering physician. The Company is in the process of supplementation for these tests. If these AlloSure Kidney tests are within the parameters of the Revised Billing Article, the Company will bill and would expect to recognize revenue in the quarter that the supplementation is completed.

CareDx continued the Medicare reimbursement submissions for AlloMap Heart or AlloSure Heart following the issuance of the Billing Articles. In addition, CareDx informed Noridian on May 18, 2023 that until Noridian adopted the Revised Billing Article, CareDx would continue to submit AlloSure Heart tests for reimbursement only when used in conjunction with AlloMap Heart according to requirements of the Billing Article currently effective at Noridian. The Company also informed Noridian on May 18, 2023 that (i) until June 30, 2023, it planned to submit claims for reimbursement for AlloMap Heart and AlloSure Heart tests for which the Company has not obtained additional information from the ordering physicians to be able to specifically determine whether these tests meet the new coverage restrictions contained in the Billing Articles, and (ii) AlloSure Heart and AlloMap Heart orders placed on or after June 30, 2023 for other indications outside the surveillance and for-cause parameters of the Revised Billing Article, or where the reason for testing is not specified by the ordering physician, will either not be billed pending the receipt of additional information regarding whether the orders meet the coverage restrictions contained in the Revised Billing Article or be submitted with a test description that is intended to identify those tests as falling outside the parameters of the Revised Billing Article.

On August 28, 2023, the Company submitted a subsequent letter to Noridian regarding its AlloSure Heart and AlloMap Heart testing submissions, explaining, among other things, that (i) prior to August 17, 2023, the Company submitted claims as outlined in its prior communications, including submitting AlloSure Heart and AlloMap Heart claims that were in compliance with the billing article in effect for Noridian (but that were not necessarily in compliance with the Revised Billing Article that had not yet been adopted by Noridian); (ii) for claims with dates of service of August 17, 2023 or later, the Company is submitting AlloSure Heart and AlloMap Heart testing claims in compliance with the Revised Billing Article, including submitting AlloSure Heart claims when not used in conjunction with AlloMap Heart, and submitting HeartCare (AlloSure Heart and AlloMap Heart used together in a single patient encounter) claims for surveillance testing in lieu of a biopsy from 55 days to 370 days post-transplant; and (iii) for AlloSure Heart and AlloMap Heart tests performed on or after August 17, 2023 that are outside the parameters of the Revised Billing Article, certain billing codes will be used to enable any additional review deemed appropriate by Noridian and potential appeal by the Company of the denied claims.

On August 10, 2023, MolDX and Noridian released a draft proposed revision to the LCD (DL38568, Palmetto; DL38629, Noridian) that, if adopted, would revise the existing foundational LCD, MolDX: Molecular Testing for Solid Organ Allograft Rejection (L38568 and L38629). On August 14, 2023, MolDX released a draft billing article (DA58019) to accompany the proposed draft LCD, which generally reflected the changes in coverage included in the Revised Billing Article. The comment period end date for this proposed LCD was September 23, 2023. The Company presented at public meetings regarding the proposed draft LCD held on September 18, 2023 and September 20, 2023, with MolDX and Noridian, respectively. The Company also submitted written comments on the proposed draft LCD.

AlloSure Kidney has received positive coverage decisions from several commercial payers, and is reimbursed by other private payers on a case-by-case basis. AlloMap Heart has also received positive coverage decisions for reimbursement from many of the largest U.S. private payers.

In May 2021 and March 2023, the Company purchased a minority investment of common stock in the biotechnology company Miromatrix Medical, Inc. (“Miromatrix”), for an aggregate amount of $5.1 million, and the investment is marked to market. Miromatrix works to eliminate the need for an organ transplant waiting list through the development of implantable engineered biological organs.

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Clinical Studies

In January 2018, the Company initiated the Kidney Allograft Outcomes AlloSure Kidney Registry study (“K-OAR”) to develop additional data on the clinical utility of AlloSure Kidney for surveillance of kidney transplant recipients. K-OAR is a multicenter, non-blinded, prospective observational cohort study which has enrolled more than 1,700 renal transplant patients who will receive AlloSure Kidney long-term surveillance.

In September 2018, the Company initiated the Surveillance HeartCare™ Outcomes Registry (“SHORE”). SHORE is a prospective, multi-center, observational registry of patients receiving HeartCare for surveillance. HeartCare combines the gene expression profiling technology of AlloMap Heart with the dd-cfDNA analysis of AlloSure® Heart in one surveillance solution.

In September 2019, the Company announced the commencement of the Outcomes of KidneyCare on Renal Allografts (“OKRA”) study, which is an extension of K-OAR. OKRA is a prospective, multi-center, observational, registry of patients receiving KidneyCare for surveillance. KidneyCare combines the dd-cfDNA analysis of AlloSure Kidney with the gene expression profiling technology of AlloMap Kidney and the predictive artificial intelligence technology of iBox for a multimodality surveillance solution. The Company has not yet made any applications to private payers for reimbursement coverage of AlloMap Kidney or KidneyCare.

Products

The Company’s suite of AlloSeq products are commercial next generation sequencing (“NGS”)-based kitted solutions. These products include: AlloSeq™ Tx, a high-resolution Human Leukocyte Antigen (“HLA”) typing solution, AlloSeq™ cfDNA, a surveillance solution designed to measure dd-cfDNA in blood to detect active rejection in transplant recipients, and AlloSeq™ HCT, a solution for chimerism testing for stem cell transplant recipients.

The Company’s other HLA typing products include: Olerup SSP®, based on the sequence specific primer (“SSP”) technology; and QTYPE®, which uses real-time polymerase chain reaction (“PCR”) methodology, to perform HLA typing.

In March 2021, the Company acquired certain assets of BFS Molecular S.R.L. (“BFS Molecular”), a software company focused on NGS-based patient testing solutions. BFS Molecular brings extensive software and algorithm development capabilities for NGS transplant surveillance products.

Patient and Digital Solutions

Following the acquisitions of both Ottr and XynManagement, the Company is a leading provider of transplant patient management software (“Ottr software”), as well as of transplant quality tracking and waitlist management solutions. Ottr software provides comprehensive solutions for transplant patient management and enables integration with electronic medical record (“EMR”) systems providing patient surveillance management tools and outcomes data to transplant centers. XynManagement provides two unique solutions, XynQAPI software (“XynQAPI”) and XynCare. XynQAPI simplifies transplant quality tracking and Scientific Registry of Transplant Recipients reporting. XynCare includes a team of transplant assistants who maintain regular contact with patients on the waitlist to help prepare for their transplant and maintain eligibility.

In September 2020, the Company launched AlloCare, a mobile app that provides a patient-centric resource for transplant recipients to manage medication adherence, coordinate with Patient Care Managers for AlloSure scheduling and measure health metrics.

In January 2021, the Company acquired TransChart. TransChart provides EMR software to hospitals throughout the U.S. to care for patients who have or may need an organ transplant. As part of the Company’s acquisition of TransChart in January 2021, the Company acquired TxAccess, a cloud-based service that allows nephrologists and dialysis centers to electronically submit referrals to transplant programs and closely follow and assist patients through the transplant waitlist process and, ultimately, through transplantation.

In June 2021, the Company acquired the Transplant Hero patient application. The application helps patients manage their medications through alarms and interactive logging of medication events.

Also in June 2021, the Company entered into a strategic agreement with OrganX, which was amended in April 2022, to develop clinical decision support tools across the transplant patient journey. Together, the Company and OrganX will develop advanced analytics that integrate AlloSure, the first transplant-specific dd-cfDNA assay, with large transplant databases to provide clinical data solutions. This partnership delivers the next level of innovation beyond multi-modality by incorporating a variety of clinical inputs to create a universal composite scoring system. The Company has agreed to potential future milestone payments.

In November 2021, the Company acquired MedActionPlan, a New Jersey-based provider of medication safety, medication adherence and patient education. MedActionPlan is a leader in patient medication management for transplant patients and beyond.

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In December 2021, the Company acquired TTP, a transplant-focused pharmacy located in Mississippi. TTP provides individualized transplant pharmacy services for patients at multiple transplant centers located throughout the U.S.

In January 2023, the Company acquired HLA Data Systems, a Texas-based company that provides software and interoperability solutions for the histocompatibility and immunogenetics community. HLA Data Systems is a leader in the laboratory information management industry for human leukocyte antigen laboratories.

Liquidity and Capital Resources

The Company has incurred significant losses and negative cash flows from operations since its inception and had an accumulated deficit of $534.2 million at September 30, 2023. As of September 30, 2023, the Company had cash, cash equivalents and marketable securities of $268.2 million and no debt outstanding.

Shelf Registration Statement

On May 10, 2023, the Company filed a universal shelf registration statement (File No. 333-271814) (the “Registration Statement”), whereby the Company can sell from time to time shares of its common stock, preferred stock, debt securities, warrants, units or rights comprised of any combination of these securities, for the Company’s own account in one or more offerings under the Registration Statement. The terms of any offering under the Registration Statement will be established at the time of such offering and will be described in a prospectus supplement to the Registration Statement filed with the Securities and Exchange Commission (the “SEC”) prior to the completion of any such offering.

Stock Repurchase Program

On December 3, 2022, the Company’s Board of Directors approved a stock repurchase program (the “Repurchase Program”), whereby the Company may purchase up to $50 million of shares of its common stock over a period of up to two years, commencing on December 8, 2022. The Repurchase Program may be carried out at the discretion of a committee of the Company’s Board of Directors through open market purchases, one or more Rule 10b5-1 trading plans and block trades and in privately negotiated transactions. During the three and nine months ended September 30, 2023, the Company purchased an aggregate of 92,766 shares and 164,238 shares of its common stock, respectively, under the Repurchase Program for an aggregate purchase price of $0.8 million and $1.6 million, respectively. As of September 30, 2023, $47.7 million remained available for future share repurchase under the Repurchase Program.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2022, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 27, 2023. Material changes to the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 are reflected below.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”), and follow the requirements of the SEC for interim reporting. As permitted under those rules, certain notes and other financial information that are normally required by U.S. GAAP can be condensed or omitted. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of the Company’s financial information. The condensed consolidated balance sheet as of December 31, 2022 has been derived from audited consolidated financial statements as of that date but does not include all of the financial information required by U.S. GAAP for complete financial statements. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses in the unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to transaction price

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estimates used for testing services revenue; standalone fair value of patient and digital solutions revenue performance obligations; accrued expenses for clinical studies; inventory valuation; the fair value of issued common stock warrants and embedded derivatives; the fair value of assets and liabilities acquired in a business combination or an assets acquisition (including identifiable intangible assets acquired); the fair value of contingent consideration recorded in connection with a business combination or an asset acquisition; the grant date fair value assumptions used to estimate stock-based compensation expense; income taxes; impairment of long-lived assets and indefinite-lived assets (including goodwill); and legal contingencies. Actual results could differ from those estimates.

Concentrations of Credit Risk and Other Risks and Uncertainties

For the three months ended September 30, 2023 and 2022, approximately 36% and 53%, respectively, of total revenue was derived from Medicare. For the nine months ended September 30, 2023 and 2022, approximately 41% and 54%, respectively, of total revenue was derived from Medicare.

As of September 30, 2023 and December 31, 2022, approximately 36% and 27%, respectively, of accounts receivable was due from Medicare. No other payer or customer represented more than 10% of accounts receivable at either September 30, 2023 or December 31, 2022.

Marketable Securities

The Company considers all highly liquid investments in securities with a maturity of greater than three months at the time of purchase to be marketable securities. As of September 30, 2023, the Company’s short-term marketable securities consisted of corporate debt securities with maturities of greater than three months but less than twelve months at the time of purchase, which were classified as current assets on the condensed consolidated balance sheet.

The Company classifies its short-term marketable securities as held-to-maturity at the time of purchase and reevaluates such designation at each balance sheet date. The Company has the positive intent and ability to hold these marketable securities to maturity. Short-term marketable securities are carried at amortized cost and are adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income (expense), net on the condensed consolidated statements of operations. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on short-term marketable securities are included in interest income (expense), net. The cost of securities sold will be determined using specific identification.

The Company considers investments in securities with remaining maturities of over one year as long-term investments. As of September 30, 2023, the Company’s long-term marketable securities consisted of corporate equity securities and corporate debt securities. These long-term marketable securities are classified as other assets on the condensed consolidated balance sheet.

The Company classifies its long-term marketable debt securities as available-for-sale and reevaluates such designation at each balance sheet date. Unrealized gains and losses from the reevaluation of the long-term marketable debt securities, if any, are included in other comprehensive gain (loss) in the condensed consolidated statement of comprehensive income (loss). Realized gains and losses and declines in value judged to be other-than-temporary, if any, on long-term marketable securities are included in interest income (expense), net.

The Company records its long-term marketable equity securities at fair market value. Unrealized gains and losses from the remeasurement of the long-term marketable equity securities to fair value are included in other income (expense), net, in the condensed consolidated statements of operations.

Leases

The Company adopted Accounting Standard Codification (“ASC”) Topic 842, Leases, and determines if an arrangement is or contains a lease at contract inception. A right-of-use (“ROU”) asset, representing the underlying asset during the lease term, and a lease liability, representing the payment obligation arising from the lease, are recognized on the condensed consolidated balance sheet at lease commencement based on the present value of the payment obligation. For operating leases, expense is recognized on a straight-line basis over the lease term. For finance leases, interest expense on the lease liability is recognized using the effective interest method and amortization of the ROU asset is recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. The Company also has lease arrangements with lease and non-lease components. The Company elected the practical expedient not to separate non-lease components from lease components for the Company’s facility leases. The Company also elected to apply the short-term lease measurement and recognition exemption in which ROU assets and lease liabilities are not recognized for leases with an initial term of 12 months or less.

The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its incremental borrowing rate. The incremental borrowing rate is determined by using the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment.

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As of September 30, 2023, the Company’s leases had remaining terms of 0.17 years to 9.35 years, some of which include options to extend the lease term.

Revenue

The Company recognizes revenue from testing services, product sales and patient and digital solutions revenue in the amount that reflects the consideration that it expects to be entitled in exchange for goods or services as it transfers control to its customers. Revenue is recorded considering a five-step revenue recognition model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations and recognizing revenue when, or as, an entity satisfies a performance obligation.

Testing Services Revenue

AlloSure Kidney, AlloMap Heart, AlloSure Heart and AlloSure Lung patient tests are ordered by healthcare providers. The Company receives a test requisition form with payer information along with a collected patient blood sample. The Company considers the patient to be its customer and the test requisition form to be the contract. Testing services are performed in the Company’s laboratory. Testing services represent one performance obligation in a contract and are performed when results of the test are provided to the healthcare provider, at a point in time.

The healthcare providers that order the tests and on whose behalf the Company provides testing services are generally not responsible for the payment of these services. The first and second revenue recognition criteria are satisfied when the Company receives a test requisition form with payer information from the healthcare provider. Generally, the Company bills third-party payers upon delivery of an AlloSure Kidney, AlloMap Heart, AlloSure Heart or AlloSure Lung test result to the healthcare provider. Amounts received may vary amongst payers based on coverage practices and policies of the payer. The Company has used the portfolio approach under ASC Topic 606, Revenue from Contracts with Customers, to identify financial classes of payers. Revenue recognized for Medicare and other contracted payers is based on the agreed current reimbursement rate per test, adjusted for historical collection trends where applicable. The Company estimates revenue for non-contracted payers and self-payers using transaction prices determined for each financial class of payers using history of reimbursements. This includes analysis of an average reimbursement per test and a percentage of tests reimbursed. This estimate requires significant judgment.

The Company monitors revenue estimates at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required. Changes in transaction price estimates are updated quarterly based on actual cash collected or changes made to contracted rates.

On March 2, 2023, MolDX issued a new Billing Article, with an effective date of March 31, 2023. The Billing Article impacts Medicare coverage for AlloSure Kidney, AlloSure Heart and AlloMap Heart and requires the Company to implement new processes to address requirements related to Medicare claim submissions. ASC 606-10-25-1 requires the Company to assess whether it is probable that it will collect substantially all of the consideration to which it will be entitled when determining if a contract with a customer exists. Based upon the Company’s review of the Billing Article, it was determined to pause Medicare reimbursement submissions for AlloSure Kidney commencing on March 7, 2023 that created uncertainty around the collection of the claims. Accordingly, the Company did not submit claims for approximately 3,200 AlloSure Kidney tests for Medicare reimbursement for the period from March 7, 2023 through March 31, 2023 and did not recognize revenue on these claims in the first quarter of 2023 aggregating to approximately $8.9 million.

On May 18, 2023, the Company submitted a letter to Noridian explaining, among other things, (i) the Company’s belief that the Billing Articles imposed new restrictions on Medicare coverage for the CareDx tests from those contained in the existing LCDs, (ii) that the Company planned to submit claims for reimbursement for the Impacted March Tests for which the Company has not obtained additional information from the ordering physicians to be able to specifically determine whether these tests meet the new coverage restrictions contained in the Billing Articles, and (iii) that AlloSure Kidney orders with a date of service on or after March 31, 2023 for other indications outside the parameters of the Revised Billing Article, or where the reason for testing is not specified by the ordering physician, will either not be billed pending the receipt of additional information regarding whether the orders meet the coverage restrictions contained in the Revised Billing Article or be submitted with a test description that is intended to identify those tests as falling outside the parameters of the Revised Billing Article. Following the submission of this letter to Noridian, on May 18, 2023, the Company submitted claims for reimbursement for the Impacted March Tests, for which the Company subsequently received payment from Noridian and recognized revenue totaling approximately $7.8 million in the second quarter of 2023.

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The Company continues its Medicare reimbursement submissions for AlloMap Heart or AlloSure Heart following the issuance of the Billing Articles. In addition, the Company informed Noridian on May 18, 2023 that until Noridian adopted the Revised Billing Article, the Company would continue to submit AlloSure Heart tests for reimbursement only when used in conjunction with AlloMap Heart. The Company also informed Noridian on May 18, 2023 that (i) until June 30, 2023, it planned to submit claims for reimbursement for AlloMap Heart and AlloSure Heart tests for which the Company has not obtained additional information from the ordering physicians to be able to specifically determine whether these tests meet the new coverage restrictions contained in the Billing Articles, and (ii) AlloSure Heart and AlloMap Heart orders placed on or after June 30, 2023 for other indications outside the surveillance and for-cause parameters of the Revised Billing Article, or where the reason for testing is not specified by the ordering physician, will either not be billed pending the receipt of additional information regarding whether the orders meet the coverage restrictions contained in the Revised Billing Article or be submitted with a test description that is intended to identify those tests as falling outside the parameters of the Revised Billing Article.

Product Revenue

Product revenue is recognized from the sale of products to end-users, distributors and strategic partners when all revenue recognition criteria are satisfied. The Company generally has a contract or a purchase order from a customer with the specified required terms of order, including the number of products ordered. Transaction prices are determinable and products are delivered and the risk of loss is passed to the customer upon either shipping or delivery, as per the terms of the agreement.

Patient and Digital Solutions Revenue

Patient and digital solutions revenue is mainly derived from a combination of software as a service (“SaaS”) and perpetual software license agreements entered into with various transplant centers, which are the Company’s customers for this class of revenue. The main performance obligations in connection with the Company’s SaaS and perpetual software license agreements are the following: (i) implementation services and delivery of the perpetual software license, which are considered a single performance obligation, and (ii) post contract support. The Company allocates the transaction price to each performance obligation based on relative stand-alone selling prices of each distinct performance obligation. Digital revenue in connection with perpetual software license agreements is recognized over time based on the Company’s satisfaction of each distinct performance obligation in each agreement.

Perpetual software license agreements typically require advance payments from customers upon the achievement of certain milestones. The Company records deferred revenue in relation to these agreements when cash payments are received or invoices are issued in advance of the Company’s performance, and generally recognizes revenue over the contractual term, as performance obligations are fulfilled.

In addition, the Company derives patient and digital solutions revenue from software subscriptions and medication sales. The Company generally bills software subscription fees in advance. Revenue from software subscriptions is deferred and recognized ratably over the subscription term. The medication sales revenue is recognized based on the negotiated contract price with the governmental, commercial and non-commercial payers with any applicable patient co-pay. The Company recognizes revenue from medication sales when prescriptions are delivered.

Recent Accounting Pronouncements

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There were no recently adopted accounting standards which would have a material effect on the Company’s condensed consolidated financial statements and accompanying disclosures, and no recently issued accounting standards that are expected to have a material impact on the Company’s condensed consolidated financial statements and accompanying disclosures.

3. NET LOSS PER SHARE

Basic and diluted net loss per share have been computed by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration of common share equivalents as their effect would have been antidilutive.

The following tables set forth the computation of the Company’s basic and diluted net loss per share (in thousands, except shares and per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator:
Net loss used to compute basic and diluted net loss per share	$	(23,485)	$	(16,939)	$	(72,187)	$	(58,284)
Denominator:
Weighted-average shares used to compute basic and diluted net loss per share	54,178,759		53,489,418		53,891,374		53,253,210
Net loss per share:
Basic and diluted	$	(0.43)	$	(0.32)	$	(1.34)	$	(1.09)

The following potentially dilutive securities have been excluded from diluted net loss per share as of September 30, 2023 and 2022 because their effect would be antidilutive:


	Three and Nine Months Ended September 30,
	2023	2022
Shares of common stock subject to outstanding options	3,167,977	3,116,421
Shares of common stock subject to outstanding common stock warrants	—	3,132

Restricted stock units	4,977,616	3,077,633
Total common stock equivalents	8,145,593	6,197,186

4. FAIR VALUE MEASUREMENTS

The Company records its financial assets and liabilities at fair value. The carrying amounts of certain financial instruments of the Company, including cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

•Level 1: Inputs that include quoted prices in active markets for identical assets and liabilities.

•Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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The following tables set forth the Company’s financial assets and liabilities, measured at fair value on a recurring basis, as of September 30, 2023 and December 31, 2022 (in thousands):


	September 30, 2023
	Fair Value Measured Using
	(Level 1)		(Level 2)		(Level 3)		Total Balance
Assets
Cash equivalents:
Money market funds	$	54,405	$	—	$	—	$	54,405
Long-term marketable securities:
Corporate equity securities	992		—		—		992

Total	$	55,397	$	—	$	—	$	55,397
Liabilities
Short-term liabilities:
Contingent consideration	$	—	$	—	$	2,083	$	2,083
Long-term liabilities:
Contingent consideration	—		—		4,735		4,735

Total	$	—	$	—	$	6,818	$	6,818


	December 31, 2022
	Fair Value Measured Using
	(Level 1)		(Level 2)		(Level 3)		Total Balance
Assets
Cash equivalents:
Money market funds	$	66,594	$	—	$	—	$	66,594
Long-term marketable securities:
Corporate equity securities	2,076		—		—		2,076
Total	$	68,670	$	—	$	—	$	68,670
Liabilities
Short-term liabilities:
Contingent consideration	$	—	$	—	$	1,025	$	1,025
Long-term liabilities:
Contingent consideration	—		—		2,418		2,418
Common stock warrant liability	—		—		32		32
Total	$	—	$	—	$	3,475	$	3,475

The following table presents the issuances, exercises, changes in fair value and reclassifications of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis (in thousands):


	(Level 3)
Common Stock Warrant Liability and Contingent Consideration
Balance as of December 31, 2022	$	3,475
Exercise of warrants	(22)
Change in estimated fair value of common stock warrant liability	(10)

Change in estimated fair value of contingent consideration	1,731
Addition of estimated fair value of contingent consideration	2,269
Payments related to contingent consideration	(625)
Balance as of September 30, 2023	$	6,818

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During March 2023, the Company wrote off $1.0 million of its investment in convertible preferred shares of Cibiltech SAS (“Cibiltech”), which was carried at cost. Cibiltech’s operations have been liquidated. The fair value of this investment was based on Level 3 inputs.

In July 2023, the Company entered into a Securities Holders’ Agreement (the “Agreement”) with a private entity based in France. The private entity was established to continue Cibiltech's activity, which consists of designing, developing, publishing, promoting, distributing, and marketing of software related to predictive solutions, to monitoring and/or to remote monitoring in the field of human organ allotrasplantation, allografting, and chronic organ diseases. The private entity retained all assets of Cibiltech, including its licenses. Pursuant to the Agreement, the Company agreed to invest a certain amount in the private entity, in order to continue the commercialization of the iBox technology. The Company's investment is in the form of ordinary and Class B shares carried at cost. This investment is not considered material to the Company's condensed consolidated financial statements.

In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. The valuation methodologies used for the Company’s instruments measured at fair value and their classification in the valuation hierarchy are summarized below:

•Money market funds – Investments in money market funds are classified within Level 1. Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. At September 30, 2023 and December 31, 2022, money market funds were included as cash and cash equivalents in the condensed consolidated balance sheets.

•Long-term marketable equity and debt securities – Investments in long-term marketable equity securities are classified within Level 1. The securities are recorded at fair value based on readily available quoted market prices in active markets. Investments in long-term marketable debt securities are classified within Level 2. The securities are recorded at fair value based on observable inputs for quoted prices for identical or similar assets in markets that are not active. Long-term marketable securities are located within other assets on the condensed consolidated balance sheets.

•Contingent consideration – Contingent consideration is classified within Level 3. Contingent consideration relates to asset acquisitions and business combinations. The Company recorded the estimate of the fair value of the contingent consideration based on its evaluation of the probability of the achievement of the contractual conditions that would result in the payment of the contingent consideration. Contingent consideration was estimated using the fair value of the milestones to be paid if the contingency is met based on management’s estimate of the probability of success and projected revenues for revenue-based considerations at discounted rates ranging from 7% to 12% at September 30, 2023 and 12% at December 31, 2022. The significant input in the Level 3 measurement that is not supported by market activity is the Company’s probability assessment of the achievement of the milestones. The value of the liability is subsequently remeasured to fair value at each reporting date, and the change in estimated fair value is recorded as income or expense within operating expenses in the consolidated statements of operations until the milestones are paid, expire or are no longer achievable. Increases or decreases in the estimation of the probability percentage result in a directionally similar impact to the fair value measurement of the contingent consideration liability. The carrying amount of the contingent consideration liability represents its fair value.

•Common stock warrant liability – Common stock warrant liability is classified within Level 3. The Company utilizes intrinsic value to estimate the fair value of the warrants. The intrinsic value is computed as the difference between the fair value of the Company’s common stock on the valuation date and the exercise price of the warrants. Increases (decreases) in the Company’s stock price discussed above result in a directionally similar impact to the fair value of the common stock warrant liability.

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5. CASH AND MARKETABLE SECURITIES

Cash, Cash Equivalents and Restricted Cash

A reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets to the amount reported within the condensed consolidated statements of cash flows is shown in the table below (in thousands):


	September 30, 2023		September 30, 2022
Cash and cash equivalents	$	75,980	$	82,959
Restricted cash	582		198
Total cash, cash equivalents and restricted cash at the end of the period	$	76,562	$	83,157

Marketable Securities

All short-term marketable securities were considered held-to-maturity at September 30, 2023. At September 30, 2023, some of the Company’s short-term marketable securities were in an unrealized loss position. The Company determined that it had the positive intent and ability to hold until maturity all short-term marketable securities that have been in a continuous loss position, thus there was no recognition of any other-than-temporary impairment as of September 30, 2023. All short-term marketable securities with unrealized losses as of the balance sheet date have been in a loss position for less than twelve months. Contractual maturities of the short-term marketable securities were within one year or less.

The long-term marketable equity securities were recorded at fair market value with changes in the fair value recognized in earnings at September 30, 2023 and December 31, 2022. The long-term marketable debt securities were considered available-for-sale at September 30, 2023 and December 31, 2022. The contractual maturities of the long-term marketable debt securities are between one and three years.

The amortized cost, gross unrealized holding gains (losses) and fair value of the Company’s marketable securities by major security type at each balance sheet date are summarized in the tables below (in thousands):


	September 30, 2023
	Amortized Cost		Unrealized Holding Gains (Losses)		Fair Value
Short-term marketable securities:
U.S. agency securities	$	100,306	$	1,991	$	102,297
Corporate debt securities	91,898		584		92,482
Total short-term marketable securities	192,204		2,575		194,779
Long-term marketable securities:
Corporate equity securities	5,100		(4,108)		992

Total long-term marketable securities	5,100		(4,108)		992
Total	$	197,304	$	(1,533)	$	195,771


	December 31, 2022
	Amortized Cost		Unrealized Holding Gains (Losses)		Fair Value
Short-term marketable securities:
U.S. agency securities	$	79,347	$	452	$	79,799
Corporate debt securities	123,821		(220)		123,601
Total short-term marketable securities	203,168		232		203,400
Long-term marketable securities:
Corporate equity securities	5,000		(2,924)		2,076
Total long-term marketable securities	5,000		(2,924)		2,076
Total	$	208,168	$	(2,692)	$	205,476

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6. BUSINESS COMBINATIONS AND ASSET ACQUISITION

Business Combinations

HLA Data Systems

In January 2023, the Company acquired HLA Data Systems, a Texas-based company that provides software and interoperability solutions for the histocompatibility and immunogenetics community. The Company acquired HLA Data Systems with a combination of cash consideration paid upfront and contingent consideration with a fair value of $1.3 million.

The Company accounted for the transaction as a business combination using the acquisition method of accounting. Acquisition-related costs of $0.4 million associated with the acquisition were expensed as incurred, and classified as part of general and administrative expenses in the condensed consolidated statement of operations.

Goodwill of $2.1 million arising from the acquisition primarily consists of synergies from integrating HLA Data Systems’ technology with the current testing and digital solutions offered by the Company. The acquisition of HLA Data Systems will provide a robust and comprehensive Laboratory Information Management System and support the laboratory workflows. None of the goodwill is expected to be deductible for income tax purposes. All of the goodwill has been assigned to the Company’s existing operating segment.

The following table summarizes the fair values of the intangible assets acquired as of the acquisition date ($ in thousands):


	Estimated Fair Value		Estimated Useful Lives (Years)
Customer relationships	$	3,010	13
Developed technology	770		11
Trademarks	320		17
Total	$	4,100

Customer relationships acquired by the Company represent the fair value of future projected revenue that is expected to be derived from sales of HLA Data Systems’ products to existing customers. The customer relationships’ fair value has been estimated utilizing a multi-period excess earnings method under the income approach, which reflects the present value of the projected cash flows that are expected to be generated by the customer relationships, less charges representing the contribution of other assets to those cash flows that use projected cash flows with and without the intangible asset in place. The economic useful life was determined based on the distribution of the present value of the cash flows attributable to the intangible asset.

The acquired developed technology represents the fair value of HLA Data Systems’ proprietary software. The trademark acquired consists primarily of the HLA Data Systems brand and markings. The fair value of both the developed technology and the trademark were determined using the relief-from-royalty method under the income approach. This method considers the value of the asset to be the value of the royalty payments from which the Company is relieved due to its ownership of the asset. The royalty rates of 10% and 2% were used to estimate the fair value of the developed technology and the trademark, respectively.

A discount rate of 24% was utilized in estimating the fair value of these three intangible assets.

The pro forma impact of the HLA Data Systems acquisition is not material, and the results of operations of the acquisition have been included in the Company’s condensed consolidated statements of operations from the respective acquisition date.

MediGO

In July 2023, the Company acquired MediGO, an organ transplant supply chain and logistics company. MediGO provides access to donated organs by digitally transforming donation and transplantation workflows to increase organ utilization. The Company acquired MediGO with a combination of cash consideration paid upfront and contingent consideration with a fair value of $0.3 million.

The Company accounted for the transaction as a business combination using the acquisition method of accounting. Acquisition-related costs of $0.3 million associated with the acquisition were expensed as incurred, and classified as part of general and administrative expenses in the condensed consolidated statement of operations.

Goodwill of $0.6 million arising from the acquisition primarily consists of synergies from integrating MediGO’s technology with the current testing and digital solutions offered by the Company. The acquisition of MediGO will provide a comprehensive software platform that optimizes complex logistics from referral to recovery and during the critical movement of organs and teams and gives organ procurement organizations and transplant centers the ability to unify decentralized stakeholders, coordinate resources and make vital decisions with the goal of increasing organ utilization and improving equity and access to

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transplantation. None of the goodwill is expected to be deductible for income tax purposes. All of the goodwill has been assigned to the Company’s existing operating segment.

The following table summarizes the fair values of the intangible assets acquired as of the acquisition date ($ in thousands):


	Estimated Fair Value		Estimated Useful Lives (Years)
Customer relationships	$	810	17
Developed technology	850		12
Trademarks	360		17
Total	$	2,020

Customer relationships acquired by the Company represent the fair value of future projected revenue that is expected to be derived from sales of MediGO’s products to existing customers. The customer relationships’ fair value has been estimated utilizing a multi-period excess earnings method under the income approach, which reflects the present value of the projected cash flows that are expected to be generated by the customer relationships, less charges representing the contribution of other assets to those cash flows that use projected cash flows with and without the intangible asset in place. The economic useful life was determined based on the distribution of the present value of the cash flows attributable to the intangible asset.

The acquired developed technology represents the fair value of MediGO’s proprietary software. The trademark acquired consists primarily of the MediGO brand and markings. The fair value of both the developed technology and the trademark were determined using the relief-from-royalty method under the income approach. This method considers the value of the asset to be the value of the royalty payments from which the Company is relieved due to its ownership of the asset. The royalty rates of 10% and 2% were used to estimate the fair value of the developed technology and the trademark, respectively.

A discount rate of 25% was utilized in estimating the fair value of these three intangible assets.

The pro forma impact of the MediGO acquisition is not material, and the results of operations of the acquisition have been included in the Company’s condensed consolidated statements of operations from the respective acquisition date.

Combined Consideration Paid

The following table summarizes the consideration paid for HLA Data Systems and MediGO and the provisional amounts of the assets acquired and liabilities assumed recognized at their estimated fair value at the acquisition date (in thousands):


	Total
Consideration
Cash	$	6,682
Total consideration	$	6,682

Recognized amounts of identifiable assets acquired and liabilities assumed
Current assets	$	1,413
Identifiable intangible assets	6,120
Current liabilities	(1,060)
Other current liabilities	(810)
Contingent considerations	(1,620)
Other liabilities	(7)
Total identifiable net assets acquired	4,036
Goodwill	2,646
Total consideration	$	6,682

The preliminary allocation of the purchase price to assets acquired and liabilities assumed was based on the fair value of such assets and liabilities as of the acquisition date.

Asset Acquisition

Effective as of August 9, 2023, the Company purchased an asset from a private entity. The asset consists of a licensing agreement with a university institution. See also Note 9.

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The purchased asset did not meet the definition of a business under ASC Topic 805, Business Combinations, and therefore the Company accounted for the transaction as an asset acquisition. In an asset acquisition, goodwill is not recognized, but rather, any excess consideration transferred over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable assets acquired.

Acquisition costs relating to the asset acquired were $2.6 million, comprised of base consideration of $1.8 million, contingent consideration at fair value of $0.5 million and associated transaction costs of $0.3 million. There was only one asset acquired and the entire cost is assigned to the licensing agreement, which is recorded under Intangible assets, net, in the condensed consolidated balance sheets and under the intangible assets with indefinite lives category.

7. GOODWILL AND INTANGIBLE ASSETS

Goodwill

Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible assets acquired.

Goodwill is tested annually for impairment at the reporting unit level during the fourth quarter or upon the occurrence of certain events or substantive changes in circumstances. The Company identified an indicator of goodwill impairment in the three and nine months ended September 30, 2023. The balance of the Company’s goodwill was $40.2 million as of September 30, 2023 and $37.5 million as of December 31, 2022.

Goodwill Impairment

The Company assessed the current and future economic outlook as of September 30, 2023 for its single reporting unit and the Company experienced a sustained decrease in its share price, an indicator for impairment of goodwill. The evaluation began with a qualitative assessment to determine if it was more likely than not that the fair value of the reporting unit was less than its carrying value. The qualitative assessment did not indicate that it was more likely than not that the fair value exceeded the carrying value, which led to a quantitative assessment.

The Company estimated the fair value of its reporting unit using a combination of the income and market approaches. In performing the goodwill impairment test, the Company used an exit multiple given the development phase of the Company and a discount rate of 16.4% in its estimation of fair value. The evaluation performed resulted in no impairment as of September 30, 2023.

Intangible Assets

The following table presents details of the Company’s intangible assets as of September 30, 2023 ($ in thousands):


	September 30, 2023
	Gross Carrying Amount		Accumulated Amortization		Foreign Currency Translation		Net Carrying Amount		Weighted Average Remaining Useful Life (In Years)
Intangible assets with finite lives:
Acquired and developed technology	$	37,367	$	(17,529)	$	(2,560)	$	17,278	7.4
Customer relationships	25,718		(8,663)		(2,334)		14,721		9.5
Commercialization rights	11,578		(4,180)		—		7,398		5.8
Trademarks and tradenames	5,220		(1,617)		(356)		3,247		9.6

Total intangible assets with finite lives	79,883		(31,989)		(5,250)		42,644
Intangible assets with indefinite lives:
Acquired in-process technology	1,250		—		—		1,250
Favorable license agreement	2,561		—		—		2,561
Total intangible assets with indefinite lives	3,811		—		—		3,811
Total intangible assets	$	83,694	$	(31,989)	$	(5,250)	$	46,455

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The following table presents details of the Company’s intangible assets as of December 31, 2022 ($ in thousands):


	December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Foreign Currency Translation		Net Carrying Amount		Weighted Average Remaining Useful Life (In Years)
Intangible assets with finite lives:
Acquired and developed technology	$	35,747	$	(15,138)	$	(2,369)	$	18,240	7.5
Customer relationships	21,898		(7,459)		(2,104)		12,335		9.0
Commercialization rights	11,579		(3,233)		—		8,346		6.6
Trademarks and tradenames	4,540		(1,345)		(315)		2,880		8.5

Total intangible assets with finite lives	73,764		(27,175)		(4,788)		41,801
Acquired in-process technology	1,250		—		—		1,250
Total intangible assets	$	75,014	$	(27,175)	$	(4,788)	$	43,051

Acquisition of Intangible Assets

In January 2023 and July 2023, the Company acquired the intangible assets of HLA Data Systems and MediGO, respectively. The intangible assets are included in Acquired and developed technology, Customer relationships and Trademarks and tradenames as of September 30, 2023.

Amortization of Intangible Assets

Intangible assets are carried at cost less accumulated amortization. Amortization expenses are recorded to cost of testing services, cost of product, cost of patient and digital solutions, and sales and marketing expenses in the condensed consolidated statements of operations.

The following table summarizes the Company’s amortization expense of intangible assets (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cost of testing services	$	329	$	329	$	987	$	987
Cost of product	408		415		1,242		1,305
Cost of patient and digital solutions	265		237		768		709
Sales and marketing	616		554		1,817		1,702
Total	$	1,618	$	1,535	$	4,814	$	4,703

The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of September 30, 2023 (in thousands):


Years Ending December 31,	Cost of Testing Services		Cost of Product		Cost of Patient and Digital Solutions		Sales and Marketing		Total
Remainder of 2023	$	329	$	405	$	271	$	634	$	1,639
2024	1,316		1,621		850		2,494		6,281
2025	1,316		1,621		681		2,494		6,112
2026	1,316		732		681		2,492		5,221
2027	1,316		732		681		2,478		5,207
Thereafter	2,825		3,260		2,142		9,957		18,184
Total future amortization expense	$	8,418	$	8,371	$	5,306	$	20,549	$	42,644

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8. BALANCE SHEET COMPONENTS

Inventory

Inventory consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Finished goods	$	3,173	$	2,962
Work in progress	4,939		4,306
Raw materials	9,866		11,964
Total inventory	$	17,978	$	19,232

Accrued and Other Liabilities

Accrued and other liabilities consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Clinical studies	$	14,677	$	14,816
Professional fees	11,134		6,115
Short-term lease liability	5,958		5,591
Deferred revenue	5,766		5,342
Laboratory processing fees and materials	2,241		2,189
Contingent consideration	2,083		1,025
Accrued royalty	1,793		4,633
Deferred payments for intangible assets	920		2,062
Accrued shipping expenses	370		489
License and other collaboration fees	212		1,000
Capital expenditures	—		1,316
Other accrued expenses	1,884		4,553
Total accrued and other liabilities	$	47,038	$	49,131

9. COMMITMENTS AND CONTINGENCIES

Leases

The Company leases its operating and office facilities for various terms under long-term, non-cancelable operating lease agreements in Brisbane, California; Columbus, Ohio; West Chester, Pennsylvania; Flowood, Mississippi; Gaithersburg, Maryland; Fremantle, Australia; and Stockholm, Sweden.

The Company’s facility leases expire at various dates through 2033. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties.

As of September 30, 2023, the carrying value of the ROU asset was $31.0 million. The related current and non-current liabilities as of September 30, 2023 were $6.0 million and $29.3 million, respectively. The current and non-current lease liabilities are included in accrued and other current liabilities and operating lease liability, less current portion, respectively, in the condensed consolidated balance sheets.

The following table summarizes the lease cost for the three and nine months ended September 30, 2023 and 2022 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating lease cost	$	1,981	$	1,955	$	5,936	$	4,740

Total lease cost	$	1,981	$	1,955	$	5,936	$	4,740

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	September 30, 2023		December 31, 2022
Other information:
Weighted-average remaining lease term (in years)	5.63		6.26

Weighted-average discount rate (%)	7.1	%	7.1	%

CareDx, Inc. [CDNA] Filings
10-Q	[2023-11-08]
10-Q	[2023-08-08]
10-Q	[2023-05-10]
10-K	[2023-02-27]
10-Q	[2022-11-03]
10-Q	[2022-08-04]
10-Q	[2022-05-05]
10-K	[2022-02-24]
10-Q	[2021-10-28]
10-Q	[2021-07-29]
10-Q	[2021-05-05]
10-K	[2021-02-24]
10-Q	[2020-10-29]
10-Q	[2020-08-04]
10-Q	[2020-04-30]
10-K	[2020-02-28]
10-Q	[2019-10-31]
10-Q	[2019-08-01]
10-Q	[2019-05-08]
10-K	[2019-03-06]
10-Q	[2018-11-08]
10-Q	[2018-08-09]
10-Q	[2018-05-10]
10-K	[2018-03-22]
10-Q	[2017-11-09]
S-1	[2017-09-01]
S-1	[2017-08-25]
10-Q	[2017-08-11]
10-Q	[2017-06-09]
S-1	[2017-04-26]
10-K	[2017-04-21]
10-Q	[2016-11-14]
10-Q	[2016-08-22]
10-Q	[2016-05-16]
10-K	[2016-03-29]
10-Q	[2015-11-13]
10-Q	[2015-08-12]
10-Q	[2015-05-14]
10-K	[2015-03-31]
10-Q	[2014-11-14]
10-Q	[2014-08-28]
S-1	[2014-06-03]