Earnings Call Transcript - CDNA Q1 2020

Operator, Operator

Good day and welcome to the CareDx Incorporated First Quarter Earnings Conference Call. All participants will be in listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Greg Chodaczek. Please go ahead.

Greg Chodaczek, Host

Thank you. Good afternoon and thank you for joining us today. Earlier today, CareDx released financial results for the quarter ending March 31, 2020. The release is currently available on the company’s website at www.caredx.com. Peter Maag, Chief Executive Officer; and Michael Bell, Chief Financial Officer, will host this afternoon’s call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of the Federal Securities Laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical fact should be deemed to be forward-looking statements. All forward-looking statements including without limitation, our examination of historical operating trends, expectations regarding coverage decisions, pricing and enrollment matters, and our future financial expectation and results are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and descriptions of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission. The information provided in this conference call speaks only to the live broadcast today, April 30, 2020. CareDx disclaims any intention or obligation except as required by law to update or revise any information, financial projections or other forward-looking statements whether because of new information, future events or otherwise. This call will also include a discussion of certain financial measures that are not calculated in accordance with Generally Accepted Accounting Principles. Reconciliation to the most directly comparable GAAP financial measure may be found in today’s earnings release filed with the SEC. I will now turn the call over to Peter.

Peter Maag, CEO

Thanks, Greg, and good afternoon, everyone. I’m pleased to welcome you to the CareDx call to review our results for the first quarter of 2020. Before we discuss our results, I wanted to take a moment to thank all of the healthcare workers across the globe. CareDx is part of a community of essential healthcare businesses. We have the utmost respect for those working on the front line and do the best ourselves to support them wherever possible. Back in January, we chose Transplant Proud as our theme for 2020, and I could not be more proud of how our team has come together in response to the COVID crisis. Now, turning to the results, in the first quarter of 2020, we reported revenue of $38.4 million, an increase of 48% compared with the first quarter of 2019. Growth primarily came from our testing services that we provided just over 15,000 patient results, an increase of 50% year-over-year. Product revenue for the quarter was $4.7 million and digital revenue added $2.2 million to the top line. For the seventh straight quarter, we posted a positive adjusted EBITDA. We have always focused on building a profitable, sustainable precision medicine business and believe that our robust platform has enabled us to quickly pivot and adjust in response to this unprecedented crisis. The arrival of COVID-19 in the U.S. has affected everyone and everything. The healthcare sector is no exception as hospitals have become the frontline of this battle. With hospitals increasingly caring for COVID-19 patients, hospital administrators have chosen to limit or even defer non-emergency visits and procedures. Immunosuppressed transplant patients either decided on their own or were asked to avoid transplant centers and caregiver visits. With transplant surveillance visits down, we did experience a slowdown in testing services volume in the final week of the quarter. Considering this backdrop, our results this quarter were particularly strong. Up until the impact of COVID-19, we were well on track to exceed $40 million in total revenue for the first quarter. Our pledge to support our patients remains our focus. As part of our efforts on March 17, we announced the launch of RemoTraC, our solution for enabling home-based monitoring for transplant patients. Importantly, we created RemoTraC in response to hearing that patients were missing their check-in appointments and blood draws as a result of the COVID crisis. This home-based blood draw solution using mobile phlebotomy reduces the necessary visits to labs and hospitals for immunosuppressed transplant patients. Notably to date, more than 150 transplant centers are leaning in and offering RemoTraC to their patients. Approximately 2,000 kidney, heart, and lung transplant patients have already enrolled. Based on existing and new relationships with partners, we have expanded our nationwide network from 1,000 to more than 10,000 mobile phlebotomists. This has being an enormous undertaking as the need is greatest in areas where there are the most infections. As always with complex workflows, the devil is in the details, and we are learning every day. Mobile phlebotomy has increased from 10% of our daily volume 8 weeks ago to now comprising over 50%. With the tremendous leadership of Reg Seeto, our President and Chief Business Officer, CareDx has pivoted extremely quickly. Transplant Proud. As RemoTraC starts to take effect and as some transplant centers begin to return to normal operating capacity, I’m very pleased to share that in the last week, we have almost returned to pre-COVID volume of AlloSure and AlloMap. It remains to be seen if this will continue and whether we can return to linear growth anytime soon. But for the moment, we are pleased with the progress over the last week. Another COVID-19 related initiative that we are very proud of is our partnership with an international consortium including the National Institute of Health to create and manage a global COVID-19 transplant registry. Initial mortality rates of transplant patients with COVID-19 infections are alarming. With this non-competitive registry, we are supporting the need for better data on the impact COVID-19 is having on immunosuppressed transplant patients. C19TxR.org was built in record time and is powered by OttrCare, our transplant-specific electronic medical record software. The site is free to use, is open access and is web-based with a real-time analytics dashboard. Already 400 COVID infections are captured in the registry, so this might be the largest COVID-19 transplant registry in the world. The other care team in Omaha has done an incredible job. Now turning to our operations. In response to the COVID crisis, we have established internal operating plans based on three C’s: compassion, common sense, and confidence. We have implemented multiple solutions to protect our employees and their families by continuing our commitment to supporting patients. Besides the talented Marissa Dixon, our Head of HR, we have an experienced and skilled management team in place supported by a seasoned and resourceful board. I’m glad to report that our operations continue without interruption. As part of our efforts with RemoTraC, C19TxR.org, and our operational update, I would like to comment on our very successful pivot to virtual meetings. We are now engaging with the transplant community more than ever via virtual advisory boards, bringing together transplant nephrologists and cardiologists, community nephrologists, transplant coordinators and administrators, transplant patients, PharmDs, and HLA lab directors. We are deeply indebted to the incredible feedback, advice, and insights that we have received from leaders in the transplant community. Lastly, some might have scratched their heads last year when we acquired OttrCare and XynManagement to form a digital backbone for CareDx. While we could not have foreseen a crisis like COVID-19, the trend towards precision medicine and the adoption of new interactive platforms based on clinical data was always there. Now, telehealth has become a reality overnight. With these digital capabilities, CareDx is well positioned to lead this new era in patient engagement, clinical decision making, and transplant care. As we announced a few weeks ago, we have withdrawn our 2020 revenue guidance. While volumes have almost come back to normal, we will undoubtedly see an adverse revenue impact in Q2. As I’m thinking about year-end, I’m asking three questions. First, at the macro level, will COVID-19 and shelter-in-place orders have a lasting impact? For example, will there be another wave? Second, how successful will we be in continuing to rollout RemoTraC mitigating or potentially overcompensating for the COVID impact? And third, when will transplant centers reopen for surveillance visits and when will their transplant volumes get back to pre-COVID levels? We are applying our three C’s. We have tremendous compassion, especially for patients and frontline caregivers. We lean in and apply common sense as we respond to the crisis and the path to recovery, and we are confident as we have built a great platform in transplant care. So I feel optimistic about the remainder of 2020 and look forward to providing updates on the progress in future communication. Now, I’ll hand over to Mike to discuss our financials. CareDx could not have a better-suited CFO than Mike Bell in this time of crisis. He is doing a phenomenal job. Mike?

Michael Bell, CFO

Thank you, Peter. Turning first to the income statement, total revenue for the first quarter was $38.4 million, a year-over-year growth of 48%. The growth in revenue was primarily driven by AlloSure Kidney and AlloMap Heart as well as continued adoption and center penetration of AlloSure Kidney. AlloMap Heart has also experienced accelerated growth over the past few quarters due to increased interest in HeartCare by transplant centers. As a result of the strong performance of both AlloSure and AlloMap, testing services revenue in the first quarter increased 46% year-over-year to $31.4 million. Our first quarter product revenue increased 6% year-over-year to $4.7 million and our digital revenue was $2.2 million. Moving to our gross margins. For the first quarter of 2020, the gross margin was 68%, compared to a gross margin of 63% in the same period of 2019. On a sequential basis, gross margins were up approximately 300 basis points compared to the fourth quarter of 2019. The non-GAAP gross margin for the quarter was 71% compared to 67% in the prior year quarter. We do expect to see some impacts on our future gross margins because of the spend on RemoTraC as the cost of a mobile phlebotomy draw is approximately $100 more expensive than a lab draw, although the full impact of margins will ultimately depend on the mix between RemoTraC blood draws and draws done at labs. For the first quarter of 2020, net loss was $5.8 million compared to a net loss of $7.5 million in the same period of 2019. Our net loss per share was $0.14 for the quarter, compared to a net loss per share of $0.18 in the first quarter of 2019. Non-GAAP net income was $0.2 million in the first quarter of 2020 compared to a non-GAAP net income of $2.2 million in the same period of 2019. Our non-GAAP net income per share in the first quarter of 2020 was approximately $0.00 compared to a non-GAAP net income of $0.05 in the same period of 2019. As a reminder, we define adjusted EBITDA as non-GAAP net income before interest, income tax, depreciation, amortization, and other income and expense. For the first quarter of 2020, we recorded a positive adjusted EBITDA of $0.2 million compared to an adjusted EBITDA of $1.8 million in the first quarter of 2019. Despite the impact of COVID-19 on our first quarter revenues, this is our seventh consecutive quarter of positive adjusted EBITDA. In the first quarter of 2020, our operating expenses were more or less in line with our plan, although there was a reduction in travel expenses in March. We expect to see our operating expenditure in Q2 to stay flat to Q1 due to the impact of less travel and the switch of industry conferences from in-person to virtual. Regarding our cash position and liquidity, cash and cash equivalents on March 31, 2020, were $32.2 million. Net operating cash flow was negative $3.1 million in the first quarter of 2020. The operating cash outflow in the quarter was due to the annual incentive compensation payments for 2019 performance that were paid in Q1. Excluding these payments, our first quarter operating cash flow was positive. Over the past few weeks, we have added $49 million to our cash balance, and currently, our cash and cash equivalents are approximately $18 million. The increase in cash has come from three areas. Firstly, we used our at-the-market program to issue and sell exactly 1 million shares, which generated net proceeds of $23.5 million. Secondly, we received $20.5 million from CMS through its expanded Accelerated and Advanced Payment Program. The $20.5 million will be recouped by CMS between August and November this year. We also received an initial distribution of $4.8 million from the CARES Act Provider Relief Fund to support healthcare-related expenses and loss revenue attributable to COVID-19. Note that we did not participate in the Federal Paycheck Protection Program, also known as PPP. Based on our current improved cash position and our cash flow forecast, we feel CareDx continues to be well-positioned for the foreseeable future. Turning to guidance, as we stated in our press release earlier this month, due to the uncertainty surrounding the impact of COVID-19, we will not currently be providing revenue guidance for the full year 2020. Now I’ll hand back over to Peter.

Peter Maag, CEO

Thank you, Mike. In closing, I want to thank all of our employees for their hard work and dedication during this unprecedented time. One of our most significant themes is that it takes a village. Throughout this challenging time, our CareDx village has come together to support each other while remaining steadfast in our dedication and passion to transplant patient care. Thank you all for joining the call and I will open the call for questions.

Operator, Operator

We will now begin the question-and-answer session. The first question comes from Brandon Couillard from Jefferies. Please go ahead.

Brandon Couillard, Analyst

Hey, good afternoon. Peter, maybe just starting with RemoTraC, I’m surprised to hear it’s already 50% of volumes. Is this just the new operating model for the business now? I mean, why go back to the old way? And as we think about the unit economics, are there some other positive offsets, spending avoidance that you might be able to realize such as lower requirements on your backend compliance and call centers that might help you offset some of the $100 added for the mobile phlebotomy?

Peter Maag, CEO

Thank you, Brandon. Excellent question. I think there are really two types of feedback. One is patients absolutely love it. Patients don’t need to drive in for an hour or two, or maybe even three, since they live remotely from the transplant center, then be in a waiting room, wait for their blood work, have maybe only 5 to 10 minute interactions with a nurse, and everything is good, and then travel back home. So, patients love the mobile phlebotomy, especially for those that are doing well. Clinicians, I would say they’re probably half-half. They love to see patients face to face, and they think there is a significant value in having the patient visiting the center. But they also — the other half is completely convinced that telehealth is here to stay. What does that mean for RemoTraC? I think we continue to be flexible. It’s very clear that in a COVID crisis center, like New York, most of these patients are going mobile, while in other transplant centers, there might be a stronger mix. What it tells me is that CareDx is actually excellently prepared to respond to these individual solutions. As we have always applied a center-by-center strategy, sometimes this is now a patient-by-patient strategy even. To your point about offsetting, one thing that will definitely be true is that RemoTraC allows us to have direct-to-patient communication that we have always been seeking and allows us to monitor and apply the surveillance schedule. You might recall that we have updated that; we’re losing sometimes a few surveillance visits along the way. The closer we get to the patient, and the more interactions we have, and the better we can actually help schedule these visits, the more fulfillment of their regular surveillance schedule will become true. So we see actually that there is a bit of an upside for us in terms of volume, making sure that these patients stick to their surveillance visits and get all their blood draws.

Brandon Couillard, Analyst

Maybe from a high level, as best you are aware, maybe just talk a little bit about what your sense is in terms of what transplant activity is today. How far off of normal it might be? And what the timeline might look like and whether you expect some lag effects from the delay and those new transplant procedures maybe show up in your business as a headwind in a few months? What do you sort of think of that?

Peter Maag, CEO

Excellent question, Brandon. I think first of all this is — we are still very early in the penetration of all patients. Maybe we are 5% penetrated against the overall opportunity. So there is not going to be a shortage of patients anywhere near in terms of our ability to convert into AlloSure patients. Secondly, yes, that might be short term. Especially living donations are down right now. If you have an organ from a friend or family member, these transplantations probably are not occurring in many transplant centers right now in the country. But maybe overall volume is down by 30% to 40%, in some centers by 50%. But I think that will swing back. We hear actually that the transplant centers, since they are a key driver for many of these medical centers, also for profitability, will probably be one of the first units to open back up. There are some that are actually anticipating a bit of a surge the moment we are coming back to normal in these centers. My guess is that this will not happen all at once at all centers at the same time, but we will see regional differences. So I would see that we are some months out to complete normalcy, but we will actually see a number of centers coming back online relatively quickly.

Brandon Couillard, Analyst

Okay. Lastly, you did mention in your remarks, but curious if you could just maybe touch on the AlloCell product, which you disclosed a few weeks ago? Could you share with us a little bit more about how your offering serves in the surveillance of patients who are receiving those therapies? And if you could maybe talk about who the biopharma partner is that you noted in the press release?

Peter Maag, CEO

I think there are a number of companies and partners that we talk to. We wanted to announce the first one because I think that’s a meaningful step as our pharma services. The original model is truly to develop this, co-develop this and make it available through clinical trials, with pharma partners, establishing the concept. We see this as moving the company from a heart transplant focus to a kidney focus, now into a cell therapy. These engineered cell transplants are nothing else than a transplant. We, with our technology, can detect these non-own cells. In a way, you’ll hear us talk about Allo transplantation in the future a lot more. I think this is an exciting new opportunity. This is not going to be short-term tremendously revenue relevant from a testing service perspective, but more so from a relationship and pharma research and development perspective. So bear with me, we’ll be communicating more on that as we progress through the year.

Operator, Operator

The next question comes from Steven Mah from Piper Sandler. Please go ahead.

Steven Mah, Analyst

Hi, Peter. Hi, guys. How are you doing?

Peter Maag, CEO

Steven, thank you very much. Welcome to the analysts’ team. So this must be the first time that we hear you in this capacity.

Steven Mah, Analyst

Yeah. That’s right. Yeah. You’re the first one, yeah. We appreciate the warm welcome.

Peter Maag, CEO

Congratulations.

Steven Mah, Analyst

Yeah, yeah. Congratulations for your post-transplant volumes returning to normal. So that’s really great news. And, yeah, I wanted to get maybe a little bit more color on that and kind of square away your comments that you said earlier in your prepared remarks where you said that physicians and patients are either by choice or just as things are closed that they’re avoiding transplant centers. But I would expect that the post-transplantation test to be seen more as an essential test rather than an elective procedure. So maybe you can give us some sense of how doctors and patients are viewing post-transplant?

Peter Maag, CEO

Yeah, I think we had initially in the last couple of weeks of March, a bit of a shell-shock response from transplant centers, saying, well, every patient that’s doing well do not come in and don’t have your surveillance visit. So that led to a drop in volume of surveillance visits in March. But you are absolutely right that both patients and caregivers want to maintain surveillance visits for these patients; that’s why RemoTraC is so important. I did comment that we’re almost back to pre-COVID levels, which probably is in part because of that; it’s not elective after transplantation— you need to be constantly monitored for a rejection episode. That’s why our value is now seen more than ever. It’s also true that right now having this liquid biopsy concept—that a simple blood test is giving you a lot of information—means taking in the patient now for an invasive procedure like a biopsy, spending significant time at a transplant center. The balance is really tipping in our favor very clearly on this liquid biopsy. So in terms of our value proposition, it has never been stronger and more clearly articulated. I would agree with you that we will see transplantations come back to transplant centers very quickly.

Steven Mah, Analyst

Okay, great. And just a follow-up question on RemoTraC. Do you think transplant centers are going to integrate it into their protocols, given that COVID-19 is relatively uncertain? Yes. There’s going to be a second wave or every flu season. We’re going to go through the same thing. Do you…

Peter Maag, CEO

I’d like to let Reg Seeto, who’s on the call, comment on that. But I would see that we will probably see flare-ups of COVID-19 in the country in different locations over the year. I don’t think that this will be entirely going away. But then we will have very local and regional responses to COVID-19. So I would say we will stay flexible and this will be a center-by-center approach. But maybe, Reg, over to you talking about RemoTraC and our ability to pivot?

Reginald Seeto, President and Chief Business Officer

Yeah, thanks, Peter. I mean, we’ve seen more than 150 centers express interest in RemoTraC. And with that, we have a lot of protocols and surveillance processes being used. So, I think with RemoTraC being incorporated as part of that with the current offering, I think in the future, we will, as Peter mentioned, start seeing more of this adoption potentially even on a protocol basis.

Steven Mah, Analyst

Okay, great. That’s helpful. And real quick, if I have time, one for Mike. Can you give us a sense of the clinical trials? Do you expect enrollments and timing to slow down and how should we think about R&D expense this year?

Michael Bell, CFO

Yeah, Steve, I think—obviously, patient enrollment on OKRA and SHORE are going to slow down in the near term. Probably on OKRA as well, as we’re ramping up the centers, that center enrollment is probably going to slow down. I think we will see a slight slowdown in that R&D expense until those volumes pick back up. In the remarks before, I mentioned that in Q2, we expect our operating expense to remain relatively in line with Q1 because there will be savings on travel costs, on the conference costs, and the clinical study costs will also be one of those savings if you will in Q2.

Peter Maag, CEO

But it also gives me — Steven, it gives me — like just our medical team has done a great job. We would probably report — have reported a number of 25 OKRA sites up and running in Q1; we chose not to stress this in the prepared remarks, because many of these centers are not actively enrolling because of that. But as soon as they open, we anticipate that OKRA will be at full steam. We’re actually proud to have 25 up and running.

Steven Mah, Analyst

Great. All right. Thanks very much.

Operator, Operator

The next question comes from Alexander Nowak from Craig-Hallum. Please go ahead.

Alexander Nowak, Analyst

Great. Good afternoon, everyone, and congrats on the Q1 in spite of COVID here. And congrats on seeing the testing levels return to the previous highs. I wanted to go back on a comment you made, Peter, about biopsy. I mean, biopsy is obviously the gold standard here. You recently hosted a virtual conference. There’s a lot of talk about centers adjusting their protocols for social distancing guidelines and largely getting rid of biopsy. So I’ve got to imagine this is a big boost for CareDx. But is there any way to quantify just how beneficial this shift away from biopsies almost completely could be for CareDx, both in the near- and long-term?

Peter Maag, CEO

Well, I think, this would — I would say this is organ-specific a little bit. On the heart, the opportunity is very significant. Heart transplant patients receive 12 to 18 biopsies in the first 1 to 2 years after transplantation. So think about this as we’re rolling out HeartCare; there’s ample opportunity for us to grow on the heart franchise. On the kidney transplant side, there are many transplant centers that actually do not use kidney biopsies because of the invasiveness and the risk-reward ratios might not be as high. So we only see 25% of transplant centers doing routine protocol biopsies. I would say those protocol biopsies right now; we would probably see many transplant centers replacing them because this routine biopsy, where you’re basically just checking if everything is okay, has very, very low yields. We know about 10% to 15% of these biopsies show something to follow up on. So there, the risk-reward ratio doesn’t seem to be strong. But I think on the heart side, there’s significant opportunity. The kidney — maybe a little bit less, but still, also on the biopsy for cause, where a lot of — assume creatinine goes up and then you do a biopsy and still find no yield. Many transplant centers might now first do an AlloSure before bringing the patient in to do a biopsy. So I think clearly, the value proposition is significant, and we just see that as the total confirmation of our approach to blood-based testing.

Alexander Nowak, Analyst

Understood. And Peter, how are you positioning the sales force now to sell in this post-COVID world, where access to the transplant centers could be really limited? And on the flip side, do you think these restrictions will actually make your business even more sticky against potential competition?

Peter Maag, CEO

Well, I will tell you that on our products business, right now, it’s probably not the best time to launch product. Access is limited. This is — right now minds are preoccupied. So doing something new and different in your daily routine is probably not the best time to do. Yes, I think we have really another quarter where CareDx can build out its first-mover advantage. I think we are extremely well positioned there. On the transplant account managers or the individuals that are out in the field, I think our business model has shifted; I mean, there’s not a day going by where we don’t have significant hours spent in front of video conferences. Our team is pivoting, and we have a lot of video calls and video interactions. Our webinars are now substantial for distributing information and sharing education. Right now, our office looks more like a virtual telemarketing type of office than a traditional diagnostics company. We have been pivoting really quickly, and so has our field force. But let’s face it, I think for us right now, it’s all leaning in, making sure that every patient that needs AlloSure, AlloMap gets access to our technology. I’d just applaud the entire field team for being on the ready.

Alexander Nowak, Analyst

Absolutely, understood. That’s good to hear. And then, Mike, can you just elaborate on the $20 million advance payment program with CMS? Just what is that program? And really, how does it work?

Michael Bell, CFO

Yeah, Alex. The program is that Medicare providers can request an advance of up to 3 months’ worth of expected payments from CMS. That was provided to us. That amount is $20.5 million. CMS, per their current projections, would start to recoup that back around August — between August and November during this year. So every time we would do a medical test in that period, they would not pay us; they would just recoup the money, the advance that they’ve paid us.

Alexander Nowak, Analyst

Got it. So I assume that sits on the balance sheet as a prepaid revenue item?

Michael Bell, CFO

It won’t be as revenue, but it will just sit on the balance sheet as cash, and then that will just get withdrawn down over time.

Alexander Nowak, Analyst

Got it. Okay, understood. Well, thank you again, and good luck to everyone here.

Peter Maag, CEO

Thank you, Alex.

Operator, Operator

The next question comes from Andrew Cooper from Raymond James. Please go ahead.

Andrew Cooper, Analyst

Hey, guys, thanks for the questions. A lot’s been covered, so I’ll keep them kind of quick. I was wondering if maybe you could give a little bit of color on RemoTraC? Is there any level of difference between kind of what patients are adopting it or whether it’s the folks that are in protocols or new transplant patients that are more likely or anything like that? Is there any difference between who says this is what I want to do versus not?

Peter Maag, CEO

Yeah, I think our response has been that many patients are worried. They’re worried about leaving the house. They’re also worried about going into a transplant center. But I’d like to hand over to Reg Seeto to answer your question more specifically.

Reginald Seeto, President and Chief Business Officer

Yeah, thanks. I mean, we’ve seen the majority of patients from one segment being those on surveillance today; but we have also seen a new segment of patients who are currently on surveillance, but where, as we’ve talked about, have the greater need to model these patients who are now being brought into RemoTraC. So, there’s been two specific segments.

Andrew Cooper, Analyst

Okay, that’s helpful. And then, maybe just kind of tying RemoTraC to something you said, Peter, around telehealth. Given what you’ve done on the digital side and what you’ve now added with RemoTraC and your comment that some physicians still want to have the face-to-face conversation, is there an opportunity there to sort of tie in, whether it’s developed yourself or partnering with a telehealth provider to add to the capabilities from that perspective? And what would that opportunity potentially look like?

Peter Maag, CEO

Well, I think the opportunity is relatively simple. The doctor, when he sees the patient, also receives this information on AlloSure, plus the entire blood workup. Having that at his fingertips when he makes decisions about that patient continuum and that patient journey, I think would be ideal. Unfortunately, what sounds relatively simple is incredibly difficult in terms of a workflow at a transplant center to make sure that the patient — that the clinician actually has all that information at the time of decision-making. That has to do with the integration of diagnostics into the electronic medical record and that has to do with making sure that the patient can turn on the button on the video call. So there are a lot of things in the workflow, but I think we are really in a new era. This will become the standard. I think clinicians will have that information available. Maybe with our smart algorithms and predictive tools, we can even help clinicians decide which patients they want to see on a tele-visit or which patients they need to bring in to the center. Some patients might be seen only by the nurse and some others will need to have the specialists attending. With our smart solutions, we started that with i-BOX and the integration into our OttrCare program, we can really support clinical decision-making down the line. We are very early on this, but I think e-health has become a — has gotten a boost through COVID-19. This is here to stay. So having a more integrated approach to CareDx is offering potentially provides a competitive advantage in the future as we build our mode in transplantation.

Andrew Cooper, Analyst

Great, thanks. I’ll leave it there.

Operator, Operator

The next question comes from Yi Chen from HC Wainwright. Please go ahead.

Yi Chen, Analyst

Thank you for taking my question. My first question is what is the volume capacity of testing RemoTraC in support if COVID-19 persists throughout the year?

Peter Maag, CEO

That’s an excellent question. I think we’re unlimited in the sense of being able to manage blood draws coming into our lab. I would say we’re probably having more capacity doing blood draws than we would have capacity on testing them. But we have always scaled our lab alongside volume. So don’t think of CareDx being capacity constrained in any form or fashion.

Yi Chen, Analyst

Okay. And then, what evidence do you need to have to reinstate revenue guidance?

Peter Maag, CEO

That’s a really good question. Yi Chen, I was anticipating that question; that’s why I gave a bit of how I’m thinking about it. First of all, who knows if there’s going to be a second wave? I personally anticipate that there will be second waves in different places in the United States, and it’s incredibly difficult to forecast where those will be. If they were to be in locations where there’s significant transplant volume, CareDx would be more impacted than in others. The second one is really RemoTraC has been a phenomenal success in the first few weeks, and the team has done a phenomenal job. But the devil is in the detail; how successful can we roll that out across the United States in all centers for all patients? That’s to be seen. I’d be happy to update you on that. And the last one is really around the opportunity for us to capture in the transplant centers that are going back to normal. I just heard yesterday that Cleveland Clinic is actually getting a transplant from Detroit and down from Michigan, where there are significant COVID cases. They are actually now doing more transplants than before. The question will be how do individual transplant centers come back online and when are we back to overall transplant volume? That’s incredibly difficult to forecast. After all, saying that, I think it’s prudent for us to withdraw guidance right now. But we’ll let you know as soon as we can to think about guidance again.

Yi Chen, Analyst

Got it. Last question is, digital and other revenue had significant quarter-over-quarter growth in the first quarter. Could you provide more color on the potential of this revenue stream?

Michael Bell, CFO

Well, Yi Chen, the reason why quarter-over-quarter is because that revenue comes from the acquisitions that we made last year. So the OTTR acquisition was in May, and the Xyn acquisition was in August. So there was no like-for-like revenue in the first quarter of…

Yi Chen, Analyst

No, I mean, compared to the fourth quarter of last year, not the first quarter.

Michael Bell, CFO

Oh, the fourth quarter. I mean, well, some of that’s coming from new contracts that we’re getting from both the OTTR business and the Xyn business. I think before the COVID crisis, when we had revenue guidance out there, we said we expected revenue for the digital business to be around $8 million for the year. So the first quarter was in line with that. Whether or not in the remaining quarters there would be a slowdown of that because maybe some centers get slower at making decisions to adopt a new platform could have an impact. So the first quarter was very good, and we were really pleased with that. But we’ll have to see what happens for the remainder of the year.

Yi Chen, Analyst

Okay, got it. Thank you.

Operator, Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Peter Maag for any closing remarks.

Peter Maag, CEO

Well, thank you so much for joining us for the first quarter call. I’m looking very much forward to continuing to update you on our progress. I’ll end with a shout out to Transplant Proud. Thank you so much for being part of the community that allows us to do what we’re doing. We’re focusing on transplantations every day. Thank you very much and goodbye.

Operator, Operator

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.