CareDx, Inc (CDNA) on Q3 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to the CareDx, Incorporated Third Quarter 2021 Earnings Conference Call. As a reminder, this conference is being recorded. And it is now my pleasure to introduce Ian Cooney, Vice President of Investor Relations. Thank you. You may begin.
Ian Cooney: Thank you. Good afternoon, and thank you for joining us today. Earlier today, CareDx released financial results for the quarter ended September 30, 2021. The release is currently available on the company's website at www.caredx.com. Reg Seeto, President and 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, including, without limitation, our 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, October 28, 2021. 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 Reg.
Reg Seeto: Thanks, Ian. Good afternoon, everyone, and thank you for joining us for CareDx's third quarter 2021 earnings conference call. During today’s call, I would like to focus on partnership in transplant. Specific topics that cover today include delivering another record revenue quarter, connecting the patient journey, progressing multi-modality across our solid organ portfolio, launching AlloSure Lung, leading with long-term data generation and developing new areas of partnership. During Q3, we delivered record revenues of $75.6 million with growth of 42% over the prior year quarter. Notably, our Q3 testing services volumes grew 86%, as compared to the year-ago quarter. This was -- that was achieved despite facing multiple headwinds …
Ian Cooney: Hello, everyone. Apologies for the telecommunication issues here. So we will start right where Reg had to start off.
Reg Seeto: Great. Thanks. During Q3, we delivered record revenues of $75.6 million with growth of 42% over the prior year. Notably, our Q3 testing services volume grew 86% as compared to the year-ago quarter. This was all achieved despite facing multiple headwinds in the form of delta search and hurricane. Transplant volumes in office visits in August were particularly impacted. So we've seen a return to more normalized run rates in September and into October. The primary driver of revenue growth was from our testing services, which increased 46% to $66.5 million. CareDx provided approximately 40,000 AlloSure and AlloMap patient results growing 86% from the prior year quarter. In addition, revenue from our products business increased 21% to $6.5 million and digital and other revenues contributed $2.6 million to the top line. GAAP net loss for the third quarter was $11.9 million and adjusted EBITDA was positive $4.7 million. The kidney testing, we continue with our winning formula of protocol adoption and adding new centers. As of the end of September, more than 70 kidney transplant centers in United States have now adopted regular AlloSure testing. And more than 320 kidney centers and community practices were using AlloSure. And as a percent of volume maintained approximately at 40%. For Heart testing services, the HeartCare attachment rate was 90%, highlighting the value of driving clinical utility through multi-modal innovation. This was achieved in less than 12 months, and underscores the importance of robust clinical data in driving adoption. Generating data through multicenter prospective studies continues to be an integral part of how do we develop data that can be relied upon by physicians in a real world setting. For example, the foundational HeartCare study deal published in AJT, that’s 740 patients across 27 centers. Others seeking to enter the space and not invest in this magnitude of data generation and have focused on retrospective samples and one to two Senate studies as an opportunity entry point. What we've seen with HeartCare, it's a strong position appreciated. Data thus generated prospectively and across many centers. As of the end of September, reading 130 hard tenants and practices were using our offerings. we're executing on our 2021 theme of also connecting the patient on their transplantation journey. Combining our patient care managers with our digital offerings such as AlloCare and TX Hero has helped increase engagement and improve adherence. Specifically, we continue to see robust uptake of our AlloCare app, which is now available in both the Apple and the Android stores. In addition TX Axis, previously called TX Connect, added $9,000 of patient referrals to centers, and we now manage more than 38,000 patient referrals from over 1,000 dialysis practices. Now on to multi-modal innovation, driven by the success of HeartCare, we continue progress multi-modal approaches throughout our portfolio. We've invested over the last the 8 months to go to portfolio of assets to an deliver incremental utility. Beyond HeartCare, our organ care portfolio includes KidneyCare, LungCare and LiverCare. The KidneyCare were rapidly progressing development, highlighted by the recent peer reviewed publication, showcasing the clinical validation of elements in the Journal Kidney360. This 14 center study validated AlloMap to differentiate between rejection and immune classes. Notably, it also showed that AlloMap is complementary to AlloSure, delivering a combined area under the curve and AUC of .89. Together, these biomarkers offer a comprehensive assessment of kidney health compared to the incentive care. Looking forward, we expect completion enrollment in the Okra study before the year-end and plan Clear Lab Validation. For LiverCare, we're now supporting the second largest cohort of patients after kidney. We continue to enroll patients in Maple. The molecular assessment and profiling of liver transplant recipients. The first study is the five modalities including donor-derived cell-free DNA with AlloSure. Tissue and gene expression with HistoMap and AlloMap, respectively. Infection with LOID and artificial intelligence. Men who began enrolling earlier this year, and we look forward to updating investors now our progress in 2022. For LungCare, the upcoming element study is a long-term multicenter prospective study of multi-modality in lung transplantation. Thinking about AlloSure Lung, we're proud to be addressing the snippet unmet need in one single transplant patient. Supporting lung transplantation its absolutely critical, as survival rates are the lowest among the transplant patients with wanting to lung transplant patients failing within 5 years. It was an exciting step forward for CareDx company in October 12 when we announced the commercial launch of AlloSure lung. Marking our next step into being a pan organ transplant services company. Regarding reimbursement, the team has been working very hard and we're working with payers to pay coverage for AlloSure lung. We're pleased that AlloSure lung is already covered by multiple private payers and address the key unmet need for these lung transplant patients. During the third quarter, we continue to demonstrate our global leadership in transplantation through peer reviewed publications and by participating in and showcasing our latest clinical data. AlloSure kidneys only done a platform that has demonstrated long-term data. These benefits were recently highlighted with a set of one year outcomes in the tail study shared early this year at ATC. The animal study aspects also presented throughout the year have highlighted ability to predict the novel DSA and EGFR decline. Without coming complications, we excited further scientific evidence, simply differentiating AlloSure kidney from the data of other . The products, we presented two leading transplant conferences where we had a combined 14 abstract highly more innovation. At the 47th Annual Meeting of The American Society for Histocompatibility and Immunogenetics, otherwise that is actually we presented our latest data on AlloSeq HCT and AlloSeq Tx17. And at the Annual European Society of Organ Transplantation, also known as ESOT, we announced the launch of our AlloSeq cfDNA clinical and research service. We're excited to expand our offerings and support continued innovation and growth in Europe, especially as the launch of our HLA Typing Service, which we announced in quarter 2 of this year. We continue to engage with innovators and leaders across our business lines as we explore partnerships. Most recently, we announced that an exciting biopharma collaboration with Eledon Pharmaceuticals, where they will use AlloSure to help assess the efficacy of their lead asset AT-1501 in the prevention of rejection in upcoming clinical studies. We are thrilled to create a new market opportunity for AlloSure, where we will support the next generation of transplant therapeutics. On supporting innovation, I'd like to invite you to our Transplant Innovation Day during week, on November 5. Presentations will include DA Gros CEO of Eledon; Dr. Bob Montgomery, who completed the first pig kidney transplant to human; doctor validation and Dr. Titte Srinivas on organ X's largest independent validation of our show. Before turning the call over to Ankur to discuss the financials, I'd like to welcome Art Torres to our Board. Art has a long history of advocating for underserved populations during his career, and more recently as a Board member for organization. We're really excited to add someone of Art's depth and experience and breadth of perspective to our Board as we work towards building the future success of CareDx. I will now turn the call over to Ankur, who will review our third quarter financials.
Ankur Dhingra: Thank you, Reg. We are very pleased with the business performance and our financial results for the third quarter of fiscal year 2021. Let me provide you more details. Turning first to the income statement. Total revenue for the third quarter of 2021 increased 42% year-over-year to $75.6 million. We see continued strong adoption for our testing services and products. Testing Services revenues grew 46% year-over-year to $66.5 million for the quarter, driven by strong volume growth of 86% with both heart and kidney contributing meaningfully to this strong growth. As Reg mentioned, and especially in August, we saw a reduction in both transplant volumes and testing volumes due to impact of hurricanes and the surge in COVID Delta variant. These impacts through transitory assessing volumes recovered in September. We also continue to see a higher growth in non Medicare business. Overall, our business model of market penetration through addition of centers and patients continues to drive strong performance of our testing services business. Product revenues increased 21% year-over-year to $6.5 million driven by strong demand for our NGS products across all three regions. NGS now accounts for 55% products revenue. Digital Business revenues were $2.6 million growing 6% year-over-year. Moving to gross margins. For the third quarter of 2021, GAAP gross margin was 67% compared to GAAP gross margin of 68% in the same period of 2020. The non-GAAP gross margin for the period was 70% compared to 70% in the prior years third quarter. We continue to see strong volume growth in our testing services offerings and are investing to scale our capacity for the higher volumes across all organs. Non-GAAP operating expenses for the quarter were $49 million, up $3 million sequentially from last quarter. Our focus of increased investments is on expanding our R&D pipeline of new services for transplantations, clinical trials to provide data on clinical outcomes, continuing to build our commercial capabilities and scale our infrastructure commensurate with the size of our business. For the third quarter, GAAP net loss was $11.9 million, compared to a net loss of $2.8 million in the same period of 2020. Net loss per share was $0.23 for the quarter, compared to a net loss per share of $0.06 in the third quarter of 2020. Non-GAAP net income for the quarter was $4 billion, compared to non-GAAP net income of $5.1 million in the same period of 2020. Our basic and diluted non-GAAP earnings per share in the third quarter of 2021 was $0.08 and $0.07, respectively compared to a basic and diluted non-GAAP earnings per share of $0.10 in the same period of 2020. As mentioned, we continue to invest across R&D, clinical, commercial and infrastructure as we scale out big business for upcoming larger pipeline as well as higher volumes of test. As a reminder, we define adjusted EBITDA as non-GAAP net income before interest, income tax, depreciation, amortization and other expense. For the third quarter of 2021, we recorded positive adjusted EBITDA of $4.7 million, or 6% of revenue, compared to adjusted EBITDA of $5.6 million in the third quarter of 2020, Cash, cash equivalents and marketable securities at the end of the quarter of $363 million. Operating cash flows were neutral for the quarter. That's strong balance sheet position, cash deployment focus remains on adding portfolio products and services across the transplantation journey. Investing into the future is critical as we execute against our multiyear growth plan. Turning to guidance. We are raising our 2021 revenue expectations to reflect our third quarter results and continued strong demand for our testing services. As of today, we anticipate a revenue in the range of $290 million to $293 million for the year. The guidance assumes the impact of sequentially, seasonally less working days in Q4 and projects continued market for integration of our products and services. We are building a pan organ transplant services business that connects the entire transplant patient journey. Our services and offerings are very well received by caregivers and patients. As the transplant partner of choice, we have a tremendous opportunity in front of us to provide innovative clinical and digital offerings across the patient transplant journey. We remain focused on realizing that opportunity. With that, I'll open the call for questions.
Operator: Our first question come from the line of Matt Sykes with Goldman Sachs. Please proceed with your question.
Matt Sykes: Hi, good afternoon, Reg . Congrats on the quarter. Maybe just for my -- hey, just for the first question just on the guide, Ankur.. I think if I looked at the high-end of the 293 implies sort of sequentially flat in Q4. I think you mentioned I might have missed something in your comments about some seasonality there. But just wondering, is there continued uncertainty because typically Q4 has been we've seen a sequential increase in prior years, or just what your thoughts are in Q4.
Reg Seeto: Yes, sure. Let me lay out the range and the entire guidance. So at the midpoint of the guidance, $75 million, roughly flat to what our Q3 results were. The way we're looking at Q4 is that the two main impacts one seasonally, certainly a lord number of workdays in Q4, potentially impacting some of the testing volumes. But that we expect all of that to be offset by our core business model of continuing to add centers as well as transplant patients into our business. At the midpoint we are projecting that that would be an offset. Historically, especially if you -- last year was an odd year because of COVID. But prior to that we've typically seen that kind of a seasonality. So that's one. The high end of the guidance. The high end of the guidance presumes that our business model will more than outstrip any impact from the number of working days in Q4, while the low end is the reverse of it.
Matt Sykes: Got it. That's very helpful. Thank you. And then just on the RemoTraC, Reg, you mentioned that 40% utilization ratio I think where you were last quarter, just given the Delta variant. Did you just see more people getting used to sort of the COVID environment and going back in or, how did you sense the RemoTraC uptake in this quarter with Delta impacting that?
Reg Seeto: It was pretty much want to say to be around the 40% range. I think we said that over the last four quarters. But what we see is a mix in the actual geographical locations where this takes place. So as with the rest of the United States, we see variation to where there's more patients actually going back into centers and where there's more concern over the adult variants. So that's sort of played out in the overall mix, I think the impact of the dollar variants and also some of the other natural disasters we saw during the course of this two, three also led to a change in some of the actual days where there were patients going into certain locations. So we know the southeast who are particularly impacted during the period, but the overall RemoTraC satisfying that we see the core often continues to do well, but the mix and balance of where it takes place geographically will change, but we are looking at about 40%, four quarters.
Matt Sykes: Got it. And just one more for me, just on the multi-modality, that you've been pushing in the data that you've shown with the kidney 360. Article and peer reviewed study and everything that you've been showing, I'm just curious, as you speak to the transplant centers and various decision makers in the ecosystem, how is it resonating? I would think with all this data, that you're putting out, this only increasing in value in the value proposition from multi-modality going forward.
Reg Seeto: Yes, the future of our field is multimode modality and we've driven that sort of innovation, I think what you're seeing with HeartCare is incredible. Notice an attachment right, in less than 10 months. We don't see that in any other sector or industry. I think it's been driven by the fact that we do really good day generation, it's easy to try to come in the space, but it's hard to actually bring meaningful value to physician to practices. And that's why this multi-modal has resonated so well. I mean, it's resonated well in my research. But more important is resonated in real world experience. What we saw, for example, as something tangible with the raw materials, we -- we've always said that we would finish enrollment before the end of this year, because the excitement behind this multi-modal has been very clear, because if centers had competing enrollment sites, they wanted to, do first because it was just driving you innovation. Some of these other studies we've seen, being brought by the offerings, but Okra multi-modality really has sort of both the excitement. And as we've sort of mentioned, same sort of excitement in liver and also in Lung
Matt Sykes: Got it. Thanks very much.
Ankur Dhingra: You're welcome.
Operator: Thank you. Our next question come from the line of Alex Nowak with Craig-Hallum. Please proceed with your questions.
Alex Nowak: Great. Good afternoon, everyone. To start comment on the lower -- hey, good afternoon. Can you comment on the lower ASPs in the quarter. If you take the testing revenue over volume, the price per test looks like it came down versus Q2 and that the difference is, it was pretty pronounced this quarter. So just curious, are you seeing any changes in Medicare billing practices? Or what else would really influence that test price lower?
Ankur Dhingra: Yes, sure. So a couple aspects of that. One, good observation. Good question there. The -- so couple of observations there. One, the overall mix of business as we see higher adoption, we're seeing much higher mix of growth in the non Medicare part of the business. So that's by far the largest impact. A lot of that is driven by you're seeing higher tax rates in AlloSure side where our mix of coverage is much lower than the traditional kidney business. So that's one of the big contributors. To your specific question, any change in medic -- in the billing practices? No, no change. We haven't observed anything on the Medicare billing practices. Its primarily the business mix, where the volume growth is exceptionally strong, but the mix continues to evolve away from the core medical business.
Alex Nowak: All right. That’s helpful.
Reg Seeto: Yes, Alex, what I would -- yes, I think one other way to position this we'll think about is that we're seeing really strong margins with both kidney and and that's built off what we've had previously community with Craig commercial coverage, both on the heart side and on the kidney side. So what we're doing now is, as we've launched into new areas quickly, AlloSure heart and AlloSure lungs, this provides -- it's going to be a different time mix as we see as a result of that. But at the same time, it's important for us to drive leadership in this area. And that's why you're seeing this excellent volume growth. But at the same time, there's a bit of a change in the pay mix, which Ankur shared and alluded to as well.
Ankur Dhingra: Yes, certainly an opportunity for -- as we've talked about commercial payers as a multiyear opportunity that we have plans and focus around that continues to remain opportunity for us.
Alex Nowak: Okay, that's helpful. Appreciate it. And then what's the latest with Medicare reimbursement with AlloSure Lung. It seems like MolDx is certainly seeing some backlogs there. And then how you think about the revenue opportunity next year from lung?
Ankur Dhingra: Yes, so we remain in touch with MolDx on this and continue to work with them both in terms of the pace as well as the information that they're looking for. So it'll evolve. I don't -- we will give you an update when we have an update kind of thing. In terms of '22, we'll speak about the specific guidance in due cadence. But you’re certainly anticipating revenue from lung in our -- year '22.
Alex Nowak: Go ahead, Reg.
Reg Seeto: Well, I think the only thing I just comment as we look at the mix, particularly in some of the lung and also in heart, liver which is greater commercial coverage. There is more of a focus for us as well to build out that commercial pay strategy as well. So just wanted to reinforce that and that also reflects on the payer mix discussion. So clearly, the goal is to have leadership in all these different organ spaces that we've just described that have different payment systems. So that's why it's important to have different strategies as we go along those, but turning back to you sorry, Alex.
Alex Nowak: No, I was just going to say on the 2022 same, the company's been putting up some really sharp performance. It's got a number of pipeline projects coming. So I'm just curious, as you're starting to think about the guidance going into '22, again, I'm not looking for specifics, but how are you thinking about putting some of the puts and takes in there. Are you focus on just given the core business growth? Are you going to be adding in lung and anything additional on multi-modality? Just trying to frame up what 2022 could look like for the Street?
Reg Seeto: Yes, let me frame that for you. And I think you're touching -- you're well aware of the stories you're touching them from the key points there. Our tremendous success in AlloSure Kidney, AlloMap and also AlloSure Heart this year, and getting close to getting reimbursement for lung. As we think about 2022 there are two distinct parts of that story. The core business, which is in the heart care and the core kidney, we expect our business model to continue to drive adoption both across centers as well as in case of kidney, the nephrology settings. So that core business we believe can continue to drive meaningful double-digit growth. On top of that, couple additional analysts would be -- the catalysts would be around lung becoming an additional contributor. And then at some point, kidney becoming an additional contributor. Now, persistent with our typical cadence has been is that we typically provide estimates on our products and revenues, when we get closer to the actual approvals and validations, etcetera. In case of kidney care, that'd be sometime in '22. So I'm certainly a catalyst there coming in pretty soon. But what I would say is …
Alex Nowak: All right.
Reg Seeto: … to the point is, and Alex, you're spot on with inflection points in , we saw that with the heart care approval, AlloSure heart in Q4 of '20, and how that's driven meaningful revenue contribution, of course in 2021. I think, as you look out in the outer years 2022 plus, that's why we've had this focus on the organ care type of approach where I think as long as you bring clinical utility, I think that's the one point things that make you have to bring clinical value, and I think, it's so often easy to try to come in this space. But the question is, can you make something that's meaningful position in terms of that kind of utility. The good thing is we've looked at the entire landscape, and we've sort of -- sort of setting and shaping how we want to evolve that story narrative in both heart and now in kidney and lung and liver. So we have a very specific approach of continuing that clinical utility story. It's so important to do that because in that way you can keep on shaping what the reference standards are and also what true meaningful innovation is. We've the benefit of conducting multiple input advisory boards, market research over the last couple of years. So we sort of have a good multi-modal approach.
Ankur Dhingra: Yes. And the one thing I would add to that is, we also view this as a multiyear journey, right, not just 2022. The core business, given where the current market penetration are, there's certainly a lot of runway in front of us for next several years, not just 2022.
Alex Nowak: Thanks for framing up. Really appreciate it. Thank you.
Operator: Thank you. Our next question come from the line of Mark Massaro with BTIG. Please proceed with your question.
Mark Massaro: Hey, guys, congrats on a good quarter. Thanks for taking my question.
Reg Seeto: Thanks, Mark.
Mark Massaro: Yes, hey. Looking back over the years, you guys have typically beaten or I should say, going from Q3 to Q4 you've typically come in about $2 million, up sequentially from Q3 to Q4. Obviously, last year was different. I have to imagine you did better last year. I imagine a lot of that might have been related to some pent up demand, and maybe the rollout of RemoTraC in Q4. But I guess I could use a little more clarity as to why the guidance came in, probably a little bit lighter than I would have expected with this beat here in Q3. I mean, I guess I haven't calculated the number of business days in Q4. But if you could maybe clarify what that is, relative to the prior year. And then, you talked about volumes recovering in September as well as October. In your guidance, are you expecting any increase in COVID pressures in November and December? Or what other factors should we think about when we're updating our models here for Q4?
Reg Seeto: Yes, sure. Let me add some color there, relative to the previous comments I made. First, nothing's changing in the business model itself, right. Our core business model of driving market penetration through additional patients, additional centers, that's progressing quite well. And specifically your question on new additional COVID, newer headwinds relative to Q3 have been baked into the model. Now, as a fact around, we've now raised guidance three times this year, each quarter we've had a beat and replaced raised guidance. As you get towards the end of the year, both the range matters. And the business beat begins to get built into the run rate and the expectation from remaining cognizant of the fact that we've raised our guidance through the year by over $30 million now from where we started. And then that last $1 million is probably within the error range to not trying to be too precise, myself to get into very specific, but nothing as such is changing in the business model.
Mark Massaro: Yes, that makes sense. I guess, building off of Alex's question, you guys did -- your revenue per test certainly declined. What looks like …
Reg Seeto: Yes.
Mark Massaro: … we take about 5% sequentially. As we think about that going forward, I mean, where do you think that level is out? I mean, I would imagine that this may continue to decline sequentially for a little while, as you're trying to get commercial payers on board. But when we're thinking about our model for next year, I had a 1% decline for next year on pricing revenue per test. Do you think it'll look closer to the Q3 sequential decrease? Or do you think it's flatter than that?
Ankur Dhingra: Yes, I'll probably give you a very more clear color when we get to the actual cadence of guidance. I can tell you for the purpose of my Q4 guidance, I'm embedding a business mix, which is similar to Q3 right now. So I'm kind of carrying that forward into Q4. Now to step back, our expectation is, when we launch newer tests, like AlloSure Heart has an impact and then AlloSure Lung, albeit at a smaller volume than the other market will have an impact, this will start with a much lower coverage on that too. So every time we launch a new test, it will have a period until we color up on the commercial coverage, until we go back to our core, right in case of the AlloSure Kidney, in case of AlloMap Heart, where over a period of time we've been adding coverage and have driven margins above 75% already. So these newer tests, take a few years to get there. But for the purpose of Q4 guidance, I'm assuming similar mix as Q3 right now.
Mark Massaro: Okay. And if I can sneak one last one in, you guys have talked about being active on the M&A side. Obviously, you could double down in diagnostics, you could expand in products and digital health and services. But you could also potentially explore therapeutics or even devices. I guess, if you could help us think about what areas you're looking in, and just your appetite for doing smaller things, or maybe some bigger things.
Reg Seeto: Yes, thanks. I mean, I think in the -- anything that's on the transplant patients that so I think a pre post, in some cases reentry, but heart patient journeys you've seen at the start of this year, we made a foray, for example, into more the digital connection space with TX and there we're now connecting close to 10% of all dialysis patients in United States. And we didn't have this offering at the start of the year. So, as you think of the one is it's in transplant tube, it's on the patient journey, and I just gave an example the digital type of connection. I think if you go into the partnership we described with Eledon, that's one where we feel that a natural way of extension of how do we get involved in thinking of new therapeutics from the space that's with leveraging our current platforms as well. You've also seen what we think is not just sold organs, but stem cell and cell therapies that the transplant continuum. But if you look at M&A role, or look at partnering or licensing, or look at sort of creative types of collaboration, it's anywhere along that pre post continuum, and it would involve, whether it's therapeutics or whether it's med tech, or whether it's digital or whether it's other diagnostics. But essentially our goal is to connect these patients, right. I mean, I think, now, our mission is so simple, right? How do we improve outcomes with innovative solutions. And then how do we become the leader in transplant ecosystem. So these are our core imperatives. So I think anything along those lines is sort of a gain.
Mark Massaro: Excellent. Thank you very much.
Reg Seeto: Thanks again for questions.
Operator: Thank you. Our next question come from the line of Andrew Cooper with Raymond James. Please proceed with your questions.
Andrew Cooper: Hey, everybody, thanks for the questions. Maybe first, just on lung. When we think about -- maybe this process taking a little bit longer than some of us had thought, or then some other prophecies we've seen under kind of the universal LCDs. Is there anything in particular that MolDx is asking for? Or is this just hey, they're kind of backed up as we've had a glut of things coming through the system? And then is there any impact to any of that in terms of how we should think about lung -- and I'm sorry, liver and kind of additional organs coming through kind of on a go-forward basis and what the timelines might be from the tech assessment side of things?
Ankur Dhingra: Yes, as we've said, this would be the first time now we're going through the new LCD process and other modes with MolDx. At this point, yes, I wouldn't project any of that to the upcoming products that we will take through MolDx, whether it is coming kidney care, or otherwise. We are in touch with them, right, and it's generally understood as to where they are at, and providing any information that they are looking for. Having said that, probably repeating that at this point, we know nothing that would impact any of our future submissions. We will go through this process and when we file the next one, we'll probably set the expectations at that time.
Reg Seeto: Yes, the only caveat I'd give is that, when we submitted all the materials is under the old system, I think, then that all the future submissions new systems. So I think there's -- we'd have clarity on the guidelines and expectations there.
Andrew Cooper: Right. Okay. That's helpful. I just wanted to make sure. And then maybe one last one sort of on price and mix. But when we think about the adoption of AlloSure Heart, we've always sort of talked about 25%, 30% of that market being Medicare, the remainder largely commercial, are you seeing more ordering from the commercial side of things? And maybe that's part of what's playing into things relative to that 25% to 30%? Or is there anything maybe on the accounting side, cash accounting versus accrual, just anything else to consider in that ASP dynamic?
Ankur Dhingra: The -- so the auditing site is always from the center, right. When the actual order -- that the patient is submitting an order, or the doctor is submitting an order, it doesn't matter to them what the -- whether it is a Medicare or other insurance, right. So we can't specifically point to a front end system driving the change in the mix, it's just that the kind of tests and the volume that we see happen to be more on patients that have different coverage than Medicare. The -- our revenue recognition process does take into account the collectability, the contracts and all of that and assumed a higher risk, and hence taking a slightly lower revenue on non Medicare business. So there are -- there are computations there based on our assessment of the collectability etcetera. So once the high commercial mix goes higher, it does lead to lower revenue per test.
Andrew Cooper: Okay. Helpful. And then …
Reg Seeto: One of the successful the AlloSure Heart test rate has gone up quite well in very short period, which we sort of highlight I think that is a true testament of clinical utility. So do you think the team is actively working on a commercial coverage, but if we go back to where we were, in Q3 last year before AlloSure Heart never look where we are today as being significant 10th in the mix. Even change the mix, just given the success we've had, and I think it's sort of, in some ways the success you've had in driving the attachment rates to 90% in less than 10 months is sort of incredible in many ways right.
Ankur Dhingra: We have dedicated teams that we're adding more capabilities and continue to focus in our discussions with commercial payers to get the contracts, continue to publish additional clinical utility data to be able to drive those negotiations. So that is the opportunity for us.
Andrew Cooper: Okay, very helpful as always. I just want to make sure it's traction and some things that are early, not anything else going on. And then just last one for me, just when it comes to some of the areas you felt headwinds from Delta and hurricanes, was there any products that were impacted more than others? Do you have any sense for that or pretty evenly throughout sort of the U.S and largely on the testing services side pretty evenly? Just want to make sure if there's any dynamics there?
Ankur Dhingra: Yes, definitely on the testing services side, I think where we saw both testing services, both heart and kidney impacted from -- typically the month of August. As comparison in the second quarter, we didn't see any business that’s impacted by what we call natural disasters, but certainly in Q3 and also in Q1, we've seen some as well, but probably Q3 was to be month of August.
Andrew Cooper: Great. I'll stop there. Appreciate the questions.
Ankur Dhingra: Thanks.
Operator: Thank you. Our next question come from the line of Matt with Jefferies. Please proceed with your questions.
Reg Seeto: Hey, Matt.
Unidentified Analyst: Hey, guys. thanks. Hey, thanks for taking my question. Just to stick with that theme there. Is there any way you guys can help us quantify the impact of both delta and whether to revenues in 3Q? And then just to confirm, did you pick up or catch up any of this at any point in September? Or are you expecting to pick up or catch up that here in 4Q?
Reg Seeto: Well, it's hard to quantify that. Very specifically, it was kind of regionally focused. We did see a trend shift, but harder to specify. In terms of -- it's a transplant test. So our view is generally the business gets pushed out. So if a patient had to go through a test in August, and they ended up going in September, then the whole sequence of tests get pushed out, right, it doesn't create a per se, is I'm thinking like that.
Unidentified Analyst: Okay, that's helpful. And then can you just clarify what HeartCare testing volume was in 3Q? I think you'd given that number in 1Q and 2Q. I’m sorry, if I missed it here for 3Q. Thanks.
Ankur Dhingra: Yes, we provide I think the -- we started providing that data when we launched the test originally and the thinking was to give it for a few quarters until the run rate is understood. But then for competitive reasons, we will be discussing that specifically, or spitting it out in that level of detail.
Unidentified Analyst: Makes sense. Thank you.
Ankur Dhingra: Thanks.
Operator: Thank you. Our next question come from the line of Yi Chen with H.C. Wainwright. Please proceed with your questions.
Yi Chen: Thank you for taking my questions. My first question is, was the competitors sell for DNA lung test launched recently? How do you plan to better position AlloSure Lung in the marketplace? And can we expect to see some head-to-head comparison data in the future?
Reg Seeto: Yes, I mean, with AlloSure Lung, we're excited because we've had in the marketplace, starting in 2019. It's an area where 15, 20, 20 weeks old snipping unmet need to be doing code with centers actually reached out to us to create the reference standard. In addition to that, working with , how do we now define the different protocols as part of that sort of adoption. So I think, as the leader in this space, we were reached out to, and were asked to help create this sort of reference standard. And it was really exciting and privileged to be part of that sort of equation. As we mentioned, most of our goal is to be the leader in the transplant ecosystem, that's really important for us. And if we look now, moving forward on to different studies, studies have been done we do get real clinical scientific data and we'll be looking at ways of real world evidence. I think it's trying to what we've seen others do is, we call is retrospective, single center study. Again, that's not something we advocate, it's something that we do, because we know from our experience, 9 out of 100 doctors want to get a multicenter prospective study, very, very few people want this in a single center approach, or actually just looking at retrospective samples. So, I think what we've seen from others is a retrospective analysis again from a single center, I believe.
Yi Chen: Okay. My next question is what percentage of the testing volume is based on new transplant patients?
Reg Seeto: Yes, I think what we -- yes, we have not shared that. But what we look at new start telling you the new stats we get. So I think we've always said that one in two new heart transplant patients that are and one in three patients in the kidney side .
Yi Chen: Okay, last question. Do you have any information on how many transplant procedures have to be rescheduled or cancelled among transplant centers that our clients have due to the centers COVID vaccine mandate for the recipient and the donor?
Reg Seeto: Yes, that’s where we can specifically speak to the volumes tied to transplant , but in aggregate, we can tell you that if you look at the overall transplant volumes this year, first half was very strong from a year-over-year growth perspective. And the Q3 was sequentially down about 5% from Q2, just to go over our transplant volumes.
Yi Chen: All right, thank you.
Reg Seeto: Thanks.
Operator: Thank you. There are no further questions at this time. I would like to turn the call back over to Reg Seeto, for any closing remarks.
Reg Seeto: Thanks again, for all the folks who have signed. I mean, I think without a doubt this is really a strong quarter and one where I think we're really pleased to be able to talk about what we do for transplantations, and as we look forward to a strong, again another strong to the end of the year. One thing I'd say is hope everyone has a happy Halloween. My kids often remind me that's one thing I should say, because it's another milestone in life. So everyone, make sure you give kids you got with them and have a great Halloween. Thanks again.
Operator: Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.
