Earnings Call Transcript - CDNA Q1 2022

Operator, Operator

Good day, and welcome to the CareDx First Quarter 2022 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 Ian Cooney, Vice President, Investor Relations. Please go ahead.

Ian Cooney, Vice President, Investor Relations

Good afternoon, and thank you for joining us today. Earlier today, CareDx released financial results for the quarter ended March 31, 2022. The release is currently available on the Company's website at www.caredx.com. Reg Seeto, Chief Executive Officer, and Ankur Dhingra, Chief Financial Officer, will host this afternoon's call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of Federal Securities Laws, which are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward-looking statements. All forward-looking statements, included without limitation, are examination of historical operating trends, expectations regarding coverage decisions, pricing and enrollment matters, and our future financial expectations and results are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and descriptions of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission. The information provided in this conference call speaks only to the live broadcast today, May 5, 2022. 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 the Generally Accepted Accounting Principles. Reconciliation to the most directly comparable GAAP financial measure may be found in today's earnings release filed with the SEC. I will now turn the call over to Reg.

Reg Seeto, CEO

Thanks, Ian. Good afternoon, everyone, and thank you for joining us for CareDx's first quarter 2022 earnings call. The first quarter was a tale of contrast, where January was the lowest month in transplant volumes since April 2020, while March was our highest-ever month in patient test results in Testing Services. With that in mind, I'd like to provide the following highlights for the quarter. Number one, delivery of a strong revenue quarter achieved in spite of the slow start to the year for the testing services and the products business line. Number two, accelerating performance in patient and digital solutions, driven by our recent acquisitions. Number three, extending our scientific leadership with real-world multicenter prospective and long-term data generation. Four, help ensure that the transplant community receives accurate information about our tests after a jury found that Natera's superiority claims to be false and awarded CareDx $44.9 million in damages. And five, leading with innovation in artificial intelligence and Xenotransplantation, and taking responsibility as a transplant company to increase equity in transplant. Now on to performance. We recorded our highest ever revenue quarter in spite of a slow start. Q1 marked the third consecutive quarter of flat to negative sequential transplant volumes, with January and early February most notably impacted by Omicron, followed by a strong rebound in March. With no sequential transplant volume growth for three straight quarters, we hope transplant volume declines have reached their nadir, and Q2 will reverse this volume trend. Note, our transplant volume numbers are based on the full month of Xeno's data versus weekly data, which is directional until the full month of data becomes available. Now for Kidney Testing Services, we continued our winning formula of adding AlloSure named protocols, adding new centers, and expanding further into kidney nephrology. As of the end of March, we have more than 80 AlloSure Kidney protocols in commercial use. Offsetting the pure transplants being done, we had our second highest quarter with AlloSure volume in community practices. The peak Omicron wave had an acute impact on our Kidney Testing Services, including staff shortages in transplant centers. Everyone is pleased to report that in March, we set a record for Testing Services volume. On the pipeline side, we're excited about progressing the next wave of innovation in the kidney space. For AlloMap Kidney, another recent publication confirmed the clinical validation of AlloMap Kidney using data generated in the validated workflow from samples in the OKRA study. For Heart and Lung Testing Services, the HeartCare attachment rate was over 95%, continuing to highlight the value of multimodality to physicians. We're also pleased to report over 900 AlloSure Lung tests in its second quarter since launch. At ISHLT, the largest Heart and Lung Transplant conference in the world, the full force of CareDx was on display, with the highest number of industry presentations and with my appointment as a corporate chair for the ISHLT Foundation, and with our Board member Dr. Hannah Valantine being awarded the prestigious Lifetime Achievement Award. Under the second topic, we accelerated performance in our patient and digital solutions with first-quarter revenues of $6.2 million, driven by our recent acquisitions of Med Action Plan and the transplant pharmacy. Our AlloCare app now has more than 17,000 users and serves as the foundation for digitally connecting patients across the transplant journey. We have expanded this functionality by incorporating TX Access into this AlloCare app to help pre-transplant patients navigate the waitlist process as we digitally connect patients across the patient journey. We are thrilled to build this De Novo Digital business over the last three years and have started to scale with revenues that are now comparable to our products business line, which achieved $6.8 million in revenue in Q1. On the third topic, we further extended our scientific leadership during Q1, with real-world data generation across Kidney with ADMIRAL, Heart, with AlloMap, and Lung with our multi-center lung study. In Kidney, now the annual publication showed AlloSure is the first and only non-invasive cell-free DNA test with demonstrated long-term utility in both surveillance and for course testing. AlloSure also demonstrated a greater than 60% improvement over creatinine in the accuracy of identifying rejection, while our competitors have not been able to come close to showing this magnitude of improvement over standard care. In Heart, our multimodal registry with our FDA-cleared AlloMap and our leading donor-derived cell-free DNA test AlloSure has shown higher one-year survival compared to unit statistics. This is the largest heart transplant dataset, which has shown increased clinical utility, showcased at this year's ISHLT. HeartCare helps improve clinical decision-making and we're excited to hear that the new ISHLT draft guidelines are considering including donor-derived cell-free DNA in addition to AlloMap. As a reminder, we are the only covered multimodal transplant approach covered by Medicare. In Lung, our multi-center AlloSure Lung clinical utility study was published in JHLT. This real-world experience in partnership with NIH was conducted during the COVID pandemic. This AlloSure Lung surveillance resulted in an 83% reduction in invasive bronchoscopies compared to a surveillance from bronchoscopies program. Importantly, AlloSure identified subclinical graft injury in patients where there was no clinical suspicion. Number four, moving on to the false advertising case against Natera. We received a positive jury award in our favor of $44.9 million, including $21.2 million in compensatory damages and $23.7 million in punitive damages. While post-trial motion practice is ongoing, our counsel believes this is to be one of the largest damages awards in a false advertising case in our space. We believe this speaks for itself. While new opportunity entrants focused on short-term paths to profits have been aggressive with their approaches and misrepresented our tests, we believe it's important to build and maintain trust by investing in science and proper studies. As a leader in this space, it is our obligation to call out companies that intensely mislead the transplant community. Under the fifth topic, as the transplant field evolves, CareDx remains at the forefront of driving innovation. We believe the future is multimodality and artificial intelligence, or AI, is a core part of that innovation. In kidney, we invested in algorithms, including iBox, with prognostic data published in the leading journal BMJ. In Heart, we just announced last week at ISHLT our partnership with OrganX developing AI algorithms, including identifying cardiac allograft vasculopathy trajectories, also known as CAV, with prognostic data published in the leading journal Circulation. In xenotransplantation, we are proud to be partnering with the University of Maryland School of Medicine on the world's first successful pig to human heart transplant. We are now providing XenoSure and XenoMap biomarkers in support of xenotransplantation research and development. In cell therapy and stem cell, we continue to make progress with full presentations of new data at the recent Tandem Meetings of transplantation and Cell Therapy Meetings of ASTCT and CIBMTR, covering AlloCell, AlloHeme and related studies. Finally, as a transplant company, we are focused on equity in transplant. We have national assets with the Minority Organ Tissue Transplant Program, also known as MOTTEP, and regional initiatives, the most recent being the Pluralist initiative when we partnered with UC Davis Health to improve awareness and education about organ transplant in underserved communities throughout California. I want to summarize that our core focus is Testing Services. We have a robust base business, as we have now three consecutive quarters of negative to flat transplant volume growth. We hope we’ve hit the nadir, with transplant volume declines. As transplant volumes improved in February-March, we saw our strongest testing service results for heart and kidney in the month of March. We have a focused strategy and over the last 18 months, we've been pleased with the continued introduction of new catalysts from AlloSure Heart to AlloSure Lung and our latest focus is AlloMap Kidney, which is in late development. We're also pleased with the expansion within kidney nephrology and the creation of dedicated abdominal and cardiothoracic teams. Now outside Testing Services, we continue to scale in both the products and digital businesses and see growth built by new launches with the AlloSeq franchise and now executing on the recent acquisitions for patient digital solutions. Beyond our current commercial business lines, we are building the long-term future by investing in areas of disruptive innovation with the development of offerings in artificial intelligence, as part of multi-modality, stem cell, and cell therapy with AlloHeme, AlloCell, and xenotransplantation with XenoSure and XenoMap. We look forward to building this incredible company, focused on the transplant patient and community. With that, I will turn the call over to Ankur to discuss our first quarter financials.

Ankur Dhingra, CFO

Thank you, Reg. Hello, everyone. We are pleased to deliver another strong business and financial performance, despite the backdrop of continued difficult market conditions during the first half of Q1 2022. Let me provide you the details. We recorded total revenues of $79.4 million, up 18% compared to $67.4 million in the first quarter of 2021. Testing Services revenue increased 12% year-over-year to $66.4 million. Testing volumes grew by 29% to approximately 42,600 tests, including approximately 900 lung tests. We saw sequential declines in testing volumes in January and early parts of February, before strongly rebounding in March. March was our highest month ever for testing volumes for heart and kidney. We continue to see strong adoption of our newly launched tests, AlloSure Lung and AlloSure Heart, with HeartCare at greater than 95% attachment rate and AlloSure Lung approaching use in one in two transplant centers in less than six months of launch. Our Testing Services volume growth has and will continue to exceed our revenue growth, as we are in the process of new launches with AlloSure Heart and AlloSure Lung. We are in the process of increasing the coverage to levels we have achieved in AlloMap and AlloSure Kidney. This provides a significant opportunity for future revenue upside as we build out our commercial coverage in these new launches. Today AlloSure Lung is only at less than 5% coverage and AlloSure Heart at approximately 25% coverage. Although we look at ASP by test offering, we understand some investors may look at revenues divided by total tests. This aggregate average price declined by about 4.9% versus the last quarter of 2021. This decline came from three factors: higher growth in patients with commercial insurance across all organs, where we have lower coverage today; changing volume mix between organs with strong success of AlloSure Heart and AlloSure Lung, where we have lower coverage today; and continued increase in Medicare Advantage patients in our Kidney Services. Specific to kidney, although the majority of patients are under Medicare, we have seen an increase in the number of patients outside Medicare, which is specifically impacting AlloSure Kidney realized prices. This mix shift has come from two areas: first, execution of our strategic plan to focus on community nephrology over the last 12 months, which has increased the number of patients on commercial coverage; this is expected to continue as a core part of our growth strategy. The second has been industry shift from Medicare to Medicare Advantage plans, driven by the 21st Century Cures Act. As a reminder, it takes longer to collect from Medicare Advantage plans and requires additional administrative steps, including prior authorizations. All these represent upside opportunities for us. Overall, our go-forward plan is, first, increasing payer coverage in current offerings, including the new launches to positively impact our revenues. Notably, for AlloSure Heart, cell-free DNA is under consideration for inclusion in ISHLT guidelines. We are excited by this potential inclusion in guidelines, reflecting the excellent data the team has generated. We're also excited about our upcoming OKRA data readout at ATC next month. Second, investing in infrastructure and capabilities to improve collections, especially from Medicare Advantage plans. Moving onto products, our first-quarter product revenue increased 17% year-over-year to $6.8 million, driven by continued strength of our NGS portfolio, partially offset by headwinds from Omicron in the earlier part of the quarter. Our Digital and Patient Solutions revenue was $6.2 million, up 164% year-over-year. We saw very strong performance from our newly acquired Medication Adherence businesses of Med Action Plan and the transplant pharmacy. We're excited about this early success, as we scale our digital business through organic and M&A investments. The non-GAAP gross margins for the quarter were 67.9%, compared to 70.2% in the first quarter of last year. Non-GAAP gross margins declined, primarily in our patient and digital solutions business, with the addition of newly acquired businesses. The Transplant Pharmacy business has a different business model with lower gross margins but has positive EBITDA, hence accretive to both top-line and bottom line. Non-GAAP operating expenses for the first quarter were $60.5 million, up approximately $4 million sequentially from Q4 of '21. This increase in expenses was driven by investments in R&D and commercial resources, with added resources in our clinical and research teams, as well as commercial resources with dedicated cardiothoracic and abdominal teams. Our legal expenses increased, tied to the false advertising trial, where we received a positive jury award in our favor up over $44 million. As mentioned in our last earnings call, we expect legal expenses to remain elevated this year. For the first quarter of 2022, we recorded negative adjusted EBITDA of $5.6 million, compared to adjusted EBITDA of $7.6 million in the first quarter of 2021. Adjusted for the elevated legal expenses I mentioned, our business generates near breakeven to positive EBITDA. Turning to cash flows, our net cash outflows for the quarter were $29 million, ending the quarter with cash, cash equivalents and marketable securities of $319 million. In Q1, we typically pay out our annual cash bonus to employees, which results in net operating cash outflows. In addition, we are nearing completion of the expansion of our CLIA lab in Brisbane, which provides additional capacity for current tests, as well as those in the pipeline like AlloMap Kidney. Regarding the information requests from the government, we do not have any material updates to report. We are cooperating and moving expeditiously in responding to the requests. Turning to guidance, we are reiterating our full year guidance of $330 million to $350 million of revenue. As you recall, the lower end of the guidance reflects continued disruptions in transplant volumes, as we saw in the early part of this quarter. This low end also reflects potential increase in the pace of shift of patients to Medicare Advantage plans. The high end reflects continued market penetration built on increased adoption and protocols and a strong rebound in transplant procedure volumes after three quarters of sequential declines. Overall, I'm pleased with our performance, despite the COVID-induced weaknesses in the early part of the quarter and three consecutive quarters of declines in transplant volumes. Our tests are on a strong adoption curve. In addition, we have a very strong business model, margin profile, and balance sheet position, excluding elevated legal spend; the business generates positive EBITDA. We also have a large opportunity for commercial coverage and are excited about discussions related to inclusion of cfDNA in guidelines, and our new acquisitions are making strong contributions. We are very excited about our future. With that, I will open the call for questions.

Operator, Operator

The first question comes from Brandon Couillard with Jefferies. Please go ahead.

Unidentified Analyst, Analyst

This is Matt on for Brandon. Thanks for taking the question. I guess, first I want to appreciate the comments in the prepared remarks, but it's been a little over a month since you won the false advertising lawsuit against one of your key competitors. Curious if you could just expand a little bit on any shift in dialogue since then, what's kind of been the response there in the market? And if you're seeing any shifts from a commercial perspective? Thanks.

Reg Seeto, CEO

Yes, I think for us, we've built an excellent reputation with the transplant community over the last two decades, which is built on really excellent scientific data and how we work with different centers. I think when this jury verdict came out, it was really a reaffirmation of what we represent as an organization to the transplant community. And I think that the damages themselves speak to the implications. It was pretty clear-cut from that perspective.

Unidentified Analyst, Analyst

Great. And then you commented on the March trends being the highest for both heart and kidney. Any comments you can give as we move through April here? And I guess, what kind of gets transplant volumes back to normal after three straight quarters here of flat to down growth, now that hopefully, the COVID waves are behind us?

Reg Seeto, CEO

Yes, I think it has been tough three sequential quarters, and it was good to see some improvements. We hope it's the idea of what we've seen in the transplant space. The first four weeks is still relatively early, but given how low January was, it's much better than January. If you look at the month of April. But we continue to monitor this trend, what we can say is that March was certainly our strongest month on record for both heart and kidney.

Unidentified Analyst, Analyst

Great. And then last one. Just a smaller piece of the business, but the Digital Solutions $6 million or so in Q1. If I can annualize that to get to $25 million. What's the right number we should be penciling in for that business for 2022 with some of the newer acquisitions being layered? And thank you.

Reg Seeto, CEO

Yes. We're excited over the last three years; we've built a De Novo business pretty much from scratch and it's been very strategic for us. We've seen progressive traction, and I think we've had some good numbers this quarter in Patient Digital Solutions. We'll continue to assess how that progresses during the course of the year. I don't know if there are any comments that you want to make, Ankur?

Ankur Dhingra, CFO

Yes, we were super pleased about the performance here, and we just want to see it sustain over a period of time before we can provide you with guidance.

Operator, Operator

The next question comes from Alex Nowak with Craig-Hallum Capital. Please go ahead.

Alex Nowak, Analyst

Good afternoon, everyone. It was another big deterioration in price this quarter. We know there's going to be some major advantages and changes ahead of flush through, but I would say that a pretty significant change quarter-over-quarter. So, what particularly new happened in Q1 to reduce that accruals for tests? And I guess, when do we reach a point where the ASP declines are going to stabilize and we can start to see them reverse?

Reg Seeto, CEO

Yes, I'll make some comments, Alex, and then I'll pass it to Ankur. I think as we look at this shift in payer mix, there are a couple of areas that we see versus the highest increasing number of commercial patients across the organs has been the change for us. The second is the new launches, thinking now Lung coming on board as well. And the third, we've talked a bit about the shift to Medicare Advantage, which Ankur will go into more detail on. But these have been the three primary drivers of the change. I'll hand over to Ankur.

Ankur Dhingra, CFO

Yes. So, Reg summarized the three main drivers there. As we've seen in the latter part of last year, and also in this part now. The general thinking, as we had said during our previous earnings call at the end of the year, is that we are anticipating this decline to continue through this year, specifically more acute in the first half as more and more patients continue to shift. There are secular changes happening both in the market, as well as, our business with more and more patients shifting towards either commercial or MA plans. In terms of our go-forward plan, there are two changes: one is to continue to work with the private payers on commercial coverage; and the second is to continue to build the infrastructure of improving the collection rates with our Medicare Advantage plans. Our thinking is that we will take this year to work through this infrastructure and want to see some results until the latter part of the year, specifically for the Medicare Advantage plans. You may have also noticed the more recent public news on the Medicare Advantage plans and the challenges that the industry is facing. So, we're working through that in building our piece of the infrastructure there.

Alex Nowak, Analyst

And I just want to make it clear that when you are getting paid, you are still getting paid a similar rate as you would have last year or the year before on the volume. And I guess, will the Company ever provide a volume number of tests that are currently being paid, just so we can have a more apples-to-apples comparison?

Reg Seeto, CEO

Yes. When we sign agreements with our partners, we do sign those contracts to ensure payments at or above what our agreements stipulate. Just to clarify, we do not discount our pricing and always sign contracts at or above the Medicare rates. In terms of the second part of your question, yes, we've considered some information we shared during our Investor Day, and we'll provide more detail on how the mix of our commercial volume has been increasing over the last few years.

Alex Nowak, Analyst

Okay, that's helpful. And then the Company has always had very strong earnings leverage potential, given the focus on the transplant centers and also the community piece, but we haven't necessarily seen it turning to a profit. We've been close, but never quite got there. So, I'm curious, when do we get to that point, where we can turn the switch and start to let some of those volumes turn into profit? And why won't the legal spend actually roll down now that the jury trial is finished?

Reg Seeto, CEO

So, I might just make a quick comment on the profitability piece. If we stay just with AlloSure Kidney or with AlloMap, we have really strong margins greater than 75% and operating margins in the high-20s. The difference here is that we've moved into other organs where we have lower coverage. This is part of our investment in growth. We are not just focused on one area; we need to be a company that expands and has future scale moving into Lung, moving into Liver, and also considering future pipeline opportunities in areas of disruptive innovation such as xenotransplantation and cell therapy. But I will leave the rest of the questions for Ankur.

Ankur Dhingra, CFO

Yes, from a business model perspective, that's the main thing: the tests that have scale within that business model are nicely profitable. We continue to build on our strong market position to keep expanding into other organs. You see that reflected in our increased R&D spend and continued investment in the commercial side. Certainly, commercial coverage will drive strong operating leverage as we proceed. In terms of the second part of your question regarding legal spend, we still do have several matters remaining open for the year, even though the trial has completed. So, for at least the current year, and we don't guide for future years yet, but for 2022, we anticipate elevated levels to continue.

Alex Nowak, Analyst

Okay. And then just lastly, what was the acquisition benefit for revenue in the quarter?

Ankur Dhingra, CFO

As we mentioned, if you look at our patient digital business, which was up 164%, a big part of that contribution came from the acquisitions.

Operator, Operator

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

Andrew Cooper, Analyst

Sorry, I left myself on mute there for a second. I appreciate the questions. Maybe first, just one on the P&L. We talk about the pricing dynamics. We talk about not necessarily having scale in some of these organs yet. When we look at the testing services gross margin, it actually ticked up about 100 bps sequentially. So, just maybe give me a sense for what you're doing there to help offset some of these things, especially in a market where it feels like everybody else is talking about labor headwinds and cost of goods headwinds. What's working for you on the gross margin front?

Ankur Dhingra, CFO

Yes, thanks for noticing that, Andrew. Even though the headline gross margin number could be the other way, the testing services grew because we have two things going on there. On one side, we are adding capacity; we had a new facility that will go live potentially here in Q2, but we have strong operating effectiveness programs in place for the laboratory. We've been working on automating our laboratory production and movement of our test services, which has been driving very good operating leverage within the lab. Both in terms of our current volumes and also in preparation for the newer tests, like Lung, and potentially AlloMap Kidney. Our investment in automation procedures there has helped us counter some of the inflationary pressures and maintain a healthy margin profile for that business.

Andrew Cooper, Analyst

Okay, great. And then just on the current business, can you give a sense for when we think about Omicron what the impacts were? Obviously, we can see that on transplant volumes, but also on more recent transplant recipients coming in versus maybe folks who were further removed from their transplant. Was there any discrepancies you could see on kind of who is showing up to clinics? And how should we think about that recovery hopefully as overall volumes of transplants are coming back as well?

Reg Seeto, CEO

Yes, probably, I think it's first, the Omicron impact had the first on transplant volumes which has been quite evident, with the lowest in January. The second issue is the labor shortage across centers. We've spoken to centers throughout the United States, and they all had staffing issues, which impacted their ability to support us. In terms of patient access, we've always been around 40% for mobile phlebotomy, so we've had good access even during the peak of Omicron. As we see this recovery, probably the disproportionate piece will be with living donors on the kidney side. As you know, 25% to 30% of kidney volume comes from living donors, which gets impacted the most, particularly when they have donor chains, etc. and are deemed to be elective procedures. So, you can see more of an uptick in that area, and as staff come back, we hope procedures will replicate what had been done in the past.

Andrew Cooper, Analyst

Great. Okay, helpful. And then maybe just to sneak one last one in. Even though it's not exactly a small question, but just what's the latest? We saw the validation data you announced earlier this morning. What’s the latest timeline you can give us for AlloMap Kidney potentially getting to MolDX and for consideration for coverage?

Reg Seeto, CEO

Yes, I'll make some comments, and I'll see what Ankur wants to say. We're really thrilled with AlloMap Kidney. As you know, we've established this multimodal approach with Heart and we're the only company with multimodal approval. Demonstrating increased clinical utility is key, and we think that starting this process on the Kidney side has been essential. We've been generating clinical validation papers, which is an important part of moving forward. I think we're making good progress in late development, but I want to see if Ankur wants to add anything.

Ankur Dhingra, CFO

That's good context there. Well covered.

Andrew Cooper, Analyst

Great. I'll stop there. Thanks again.

Operator, Operator

The next question comes from Matt Sykes of Goldman Sachs. Please go ahead.

Unidentified Analyst, Analyst

Hi, this is Nick on for Matt. Maybe just kind of a follow-up to the last question. Any commentary on payer feedback receptivity to some of the recent data, some of the OKRA datasets you guys have published?

Reg Seeto, CEO

Yes, I think when you talk about the recent data; I don't think we've covered it extensively. On the kidney side, we've published the ADMIRAL data and talked about the long-term data on kidney. The data we reported shows increased outcomes and survival versus unit statistics. Particularly regarding what payers are interested in: we have AlloMap on the international guidelines, and we were at ISHLT last week. The data we are generating in collaboration with extensive centers has opened new discussions about inclusion into the guidelines. This could significantly impact payer coverage in this sector.

Unidentified Analyst, Analyst

Got it. Thank you. And then you guys have talked about some of the investments you're making, whether it's in AI or some other related fields. Could you just maybe comment a bit more on the SG&A ramp that we're seeing? What are the impacts that you guys are having from that investment?

Reg Seeto, CEO

Yes. I think as we scale and build the organization, it's crucial to have an innovation hub, which involves R&D. On the commercial side, we are investing in dedicated sales and marketing teams. On the R&D side, we're focused on developing our pipeline. This is about building for the future; even in a successful market, it would be unwise to rely solely on a handful of successful offerings. We're expanding our pipeline in disruptive areas. AI will be a core part of that. I'll pass it to Ankur to comment on specifics regarding the SG&A changes.

Ankur Dhingra, CFO

Yes. That's well covered. In terms of G&A, the increase is largely due to elevated legal spending and scaling our core infrastructure of the company to ensure we have systems and procedures suitable for our size and anticipated growth over the next few years.

Operator, Operator

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

Unidentified Analyst, Analyst

And this is Chate on behalf of Yi Chen. You have addressed all of our questions. I was wondering if you could summarize all the upcoming catalysts for this year and any specific events we should watch for. My second question is about AlloCell and AlloHeme; do you have any specific plans for this year along with your Digital Solutions offerings? Thank you.

Reg Seeto, CEO

Yes, I got you. I think if I understood correctly, you asked for a summary of upcoming catalysts, correct? I didn't catch the full second question.

Unidentified Analyst, Analyst

Particularly on AlloCell and AlloHeme, as well as your Digital Solutions, any short-term, long-term plans that we should be aware of?

Reg Seeto, CEO

Absolutely. We're truly invested in developing disruptive innovation, whether it's AlloCell or AlloHeme. We presented at the recent Tandem Meetings, showcasing clinical validation for both. We've also been enrolling for the Acrobat study for AlloHeme. In terms of upcoming catalysts, we expect positive announcements related to Kern, procedures, and trials moving forward. The months ahead will highlight significant development regarding innovation and AI as well. Thank you for your inquiry.

Operator, Operator

The next question comes from Mason Carrico with Stephens Inc. Please go ahead.

Mason Carrico, Analyst

Maybe just two quick ones for me here. I know AlloMap Kidney is a ways off, but in terms of thinking about the initial attachment rate for that test, what are some key differences that should be taken into account? And for maybe why it would be different than where AlloSure Heart attachment rate currently sits?

Reg Seeto, CEO

I think that's about clinical utility. When you look at attachment rates, as long as you can demonstrate clinical utility, it helps drive an uptick. I don’t know of any other benchmarks showcasing the success of HeartCare as well. Given the similarities in technology design, understanding what truly matters to physicians will be crucial. We have now included iBox, our prognostic algorithm as part of the AlloMap Kidney development.

Mason Carrico, Analyst

Got it. And then any updated thoughts on potential commercial payer wins for AlloSure Kidney, maybe this year and in 2023? Do you have the studies and evidence that you need to begin pushing on these payers, specifically for AlloSure Kidney?

Reg Seeto, CEO

Yes, I'll make a comment and hand it off to Ankur as well. As previously mentioned, generating the right datasets is important. The ADMIRAL study has provided us with long-term data on AlloSure Kidney, which has been incredibly helpful in demonstrating benefits for both full calls and surveillance. We have a plan to engage a broad list of payers throughout the rest of the year and into early 2023.

Ankur Dhingra, CFO

We've been having very productive discussions with peers around the ADMIRAL data, which constitutes the first long-term data on AlloSure Kidney. Our focus on payer engagement remains at the forefront as we push through the year.

Operator, Operator

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

Reg Seeto, CEO

Yes, thanks very much. At CareDx, we're building a really special company, one that is 100% focused on the transplant patient. We've been doing this for more than two decades. Our unique ability to lead in this space has garnered attention, not only from the transplant community but also the patients we serve daily. To all the investors on the line, thank you for your interest in this space. It really makes a difference to the transplant community knowing that this is centered on their needs. Thank you and have a great day.

Operator, Operator

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