CareDx, Inc. (CDNA) Earnings Call Transcript & Summary

Great. All right. First, I'd like to say, I'd like to welcome everyone to the CareDx 2024 Annual Investor Day. My name is Anna Czene, Vice President of Corporate Communications. With me today, you can see we have members of our executive leadership team here sitting at the front of the room. We've got our office of the CEO, Michael Goldberg, Alex Johnson and Abhishek. In addition to that, we have our Chief Scientific Officer, Robert Woodward. We have Marica Grskovic, Chief Operations Officer. We have Kashif Rathore, Chief of Patient & Digital Solutions. GS, unfortunately could not be here today for personal reasons. We have Stacey Follon, who is our Senior Vice President and Head of Human Resources; and Jeff Novack, our General Counsel. We have a full agenda today, and you're going to hear from many of our leaders, and we really look forward to providing you with an overview. We have our safe harbor statement. You can find copies of this presentation on our Investor Relations website. And notably, these slides and the accompanying oral presentation contain forward-looking statements. All right. So without further ado, I'd like to turn it over to Michael Goldberg, who is our Board Chairperson at CareDx.

Hi. Welcome, everyone. Many of you, we had a chance to see over the course of the last couple of days in San Francisco. For those of you who we didn't, we look forward to engaging around the exciting vision that CareDx has and will continue to have. Next slide, please. So we've been operating since November 1 as an office of the CEO. And it is more of a partnership structure than it is a hierarchical structure. So Abhishek, Alex and I interact multiple times on a daily basis, 7 days a week, and it's actually been inspiring for me to reach in, roll my sleeves up and be as involved as they have allowed me to be in the business. The Board has tremendous confidence in the senior leadership team, which have seated here and in the bench strength that exists below them, in part, that's evidenced by the strong business performance over the last 2 quarters, which we have every confidence will continue to extend in the sequential nature. I am the Chair of a Search Committee of the Board, which consists of 3 of my colleagues, the Chair of the Finance and Audit Committee, the Chair of the Human Capital and Compensation Committee and our former CEO and Chair, Peter Maag. Next slide, please. The search is in its early innings. We're using Russell Reynolds as our international consultants on this. They've begun sourcing candidates. We've begun interviewing them. Let me review with you the ideal candidate profile that we're seeking. First is somebody with deep background in molecular diagnostics so that they understand the innovation and product development cycle, and they understand how to obtain and sustain high-value reimbursement for our products. Second is a valuable operating record, ideally over the growth interval that we would anticipate over the next 5 years, which would be from $300 million vectoring towards $1 billion. Third would be experience as a public company CEO so that they have familiarity. We're dealing with our most important customers, our investors. Our patients are the mission that animates us but our shareholders are the people for who we are responsible to serve as well. And we want a CEO who understands that and can relate well to you and to your community. Importantly, we're also interested in somebody who has a valuable track record in M&A and business development to add inorganic growth as a driver to our strong organic growth opportunity. And finally, with respect to a leadership style, somebody who is patient, mission-focused, because that's the culture of the organization, someone who is consensual in their decision-making and management style and somebody who is a true team builder. In terms of expectations, this is likely to take 6 to 9 months to fill the position. So you can expect this team to be delivering our Q4 results and our Q1 results. So with that, let me turn it over to my colleague, Alex Johnson, who will speak to our transplant vision.

Thanks, Michael. Great. Thanks, and good morning. Our vision remains intact. We are looking to be the leading partner in transplant centers, and it's good for patients, it's good business. As part of this, we have a large opportunity, many here today are very familiar with the large transplant market opportunity. These are some of the highest need patients, most expensive patients in health care in the U.S. today, and they have to manage the rest of their lives. And we're very focused on creating solutions that extend long-term allograft survival. High clinical value solutions. This is a good business. We've been very successful for many years, and it is our focus area. And one of the ways we get there is to go deep. Focus is one of the keys to life, and we continue to focus on transplant. And that really helps us in many ways, some of which will go into a little bit more today. Today, on the stage, you see some of the team members who have been here for a long time. We've built this company over the last decade, and we're going to be the company that continues to bring innovation to the transplant clinic for the next generation. The other part of highlight is that we're taking a very sharp pencil on our business. We're making sure that we allocate capital well and in the businesses that matter and produce good returns. There is a mix. We have a large diverse base of businesses, but our testing service business, make no mistake, it is a very strong business with very strong gross margins and our ability to grow remains intact. You've heard about the unmet need and some of these statistics are probably well known to many of you around this patient population. What has not changed is the fact that these patients need to be managed the rest of their lives, and this is constant balance to struggle between immunosuppression and infection, right? Too much immunosuppression, too little, right? And in many cases, these patients lose that battle and they lose their kidney, they lose their heart or they lose their lung. And this is a challenge that will continue for many years. Because simply, the population that has these end-stage renal disease are going on to dialysis and have these morbidities is significant. Right now, you know some of the statistics around CKD. But one highlight I'll mention is that the economics of transplant is very successfully matched against dialysis. So it costs about $45,000 a year for CMS to pay for a patient who has had a kidney transplant. It's almost $100,000 a year to manage that same patient on dialysis. So the economics are very strong in transplant in general, the tailwinds. And we have the ability to create management solutions that can help patient management and really creating these standards for long-term longitudinal patient management. And we're going to talk a little today about our strategy in terms of our innovation, but also making sure that -- you know that over the next years, we're going to be the company that continues to bring these innovations. It's about going deep. It's about focus. It's about understanding the unmet need, working with clinicians. And you can see our acceleration of innovations has been significant over the last 5, 6 years. And we have this ability to now understand the market. And when you talk about innovations like xeno, when you talk about multi-modality, we're going to be able to continue to bring those solutions, those high-value solutions to the marketplace. Scale is important. There's a large patient population, but it is concentrated. And this lets us continue to innovate and really, again, go deep into these transplant centers and with these clinicians to understand where the opportunities are. We looked at the TAM, the billing article has obviously changed some dynamics for some -- a certain population of our patients in surveillance and kidney, but the TAM remains very large and significant. And part of the opportunity here is that it's growing. We think the market is growing mid-single digits. You understand the prevalence, you see the incidents. But what's happening now is that you've got this tailwind of about mid-single-digit transplant. And you've got a huge population on top of that of this 400,000 patients, the majority of which have never been managed using molecular tools. So the adoption curve is intact and growing. And the upsides are interesting. You can talk about recovery and living donors. This is something we've highlighted in the past in terms of -- during the pandemic, living donors decreased. In fact, you had quarter-over-quarter decrease in living donation and kidney. And a lot of that was patients didn't want to travel, potential donors didn't want to travel. And you're starting to see that come back. Actually, the last couple of quarters, we've seen an increase now in, in living donation. And if that continues rather than be a headwind, that will be a tailwind to kidney donation, growth rates. Another interesting part of the long-term value is looking at the growth from utilization, and this is interesting. About 18 months ago, there were some significant changes around allocation. And what happened was is, now it's become much more of a market-driven approach for these transplant centers to take an organ. In the past, they were really linked to the OPO, and they had to have a decision very quickly. And if that local transplant center didn't want to take the organ, they wouldn't take it, and then sometimes it got picked up by other centers. Today, that radius has now expanded to 250 miles around the OPO, which is the Organ Procurement Organization. So now you've got a bit of market forces in place. And if you're a transplant center, and you don't want to take an organ well, somebody else will, and they'll take it just about immediately. And so now you have an incentive to either take these organs, which before you might have passed on. Today, you're taking those organs. So those are a little bit -- the organs [indiscernible] anymore. They may be higher risk organs. So you're taking more organ, so your utilization goes up. But the other piece is, if you have a higher risk organ, how do you manage that patient? You watch them more closely, you monitor them more closely, and you use innovations and tools like AlloSure and AlloMap to make sure that organ extends and that allograft survives for as long as possible. So there's actually a bit of a double tailwind for the utilization. And then, of course, we have longer-term trends that are really in the background. Perfusion, TransMedics certainly has a tremendous successful story. And when you start to see some of these devices, this is a significant tailwind on the business longer term. And of course, xeno-engineered organs, when they appear, we're certainly working on for R&D purposes, will be there as well. Our testing service strategy really has 4 pillars. As we go through the pillars, the partner of choice status is something we think we have today and we want to continue to have. It not just allows us to have scale, but it allows us to be deep within these transplant centers across multi offerings. And when transplant centers want to innovate, we're the ones they want to partner with. And that lets us have this valuable flywheel that's kind of well ahead of innovation coming to CareDx that lets us innovate and ensure that next generation of technologies and innovation is our CareDx innovations. Finally or next, we have our core business of AlloMap and AlloSure, really the meat of our business here. About 3/4 of our business roughly is testing services, and we're going to continue to invest and reinvest in our core. This is a very strong business, and we want to increase adoption, both in AlloMap and AlloSure. And we're doing that in kidney. We're expanding heart care with extensive data, and now we're moving into lung. So that core business is certainly an over-index focus of ours. We want to get paid. We want to get paid for the innovation we produce. We want to get paid for the patient results that we've generated. And today, and Abhishek will talk more about this later this morning, as to how we've really looked at the opportunity and again, over-indexing for that part of our strategy to ensure that we have the ability now to collect more for these patient results that today, many of which are not becoming reimbursed, certainly not being reimbursed on the commercial side. And we have a large multifaceted strategy to execute on that, including really generating the clinical data that we've used for adoption in the past, to reposition it and reanalyze and position it for commercial payers to ensure that we can get paid. And that's a focus that we've accelerated over the last 6 months, and Robert will talk a bit more about some of the clinical studies we have coming out that will let us enhance reimbursement. And finally, innovation. Innovation is our core blood, and we will continue to generate the multi-modality approach of our portfolio. We think it's good science. We think it's good medicine. We think it's good business. Clinicians have clearly responded to multi-modality in heart, whereas roughly 90% of our heart patients who are tested, receive HeartCare, both multi-modality AlloMap and AlloSure. And we think that's the extension of the clinical paradigm that clinicians want to see. They've told us this, and we're continuing to innovate within that model. And not only clinicians, but Medicare has told us that this model works. So earlier this summer, we had HeartCare, Medicare approved or Medicare reimbursed. And so really have that multi-modality validated, not just clinically and from a business standpoint, but from reimbursement as well. And finally, we have new innovation opportunities like cell therapy. We're continuing to talk about that. And we're continuing to make sure we take a sharp pencil and make sure these opportunities remain intact, while still focusing on the businesses that really generate the outsized returns today. Let me talk a little about the impact of our -- the billing article on our business and where it stands today. So the headline is we've really set a baseline in Q3. We've told you this. And now we we've returned to growth. We grew 4.1% from volume sequentially versus the third quarter of this year. So we're back to a growth trajectory. In the meantime, we've updated most of our systems centered clinical education, our internal systems, our operating expenses now, primarily in the third quarter continued into the fourth quarter as well. And we're planning to live within what is now this new billing article reimbursement model. So while there's significant opportunity for the billing article to get overturned for the LCD to become more [indiscernible] for access, that's not what we're planning for, not in our financial model anyway. We certainly are planning for lots of ways to look at the billing article to be overturned and you'll hear about that a little later. But today, we are making sure that we are having a cost expense model that makes sense for what we know today. We are continuing to fight for patient access. And this is the exciting part and a part that now over the last 8 weeks has taken a new momentum groundswell. What we've seen over the last 6 months is that professional societies like ISHLT and AST have written letters to congressional leaders and to CMS, saying this rollback for patients against surveillance or kidney patients against multi-modality testing is wrong. It needs to be rolled back. And what we see now is that patients have now raised their voices as well over the last month and all it's coming to a large and significant head. What's happened in December is there was a large Capitol Hill Advocacy Day, hundreds of patients were on Capitol Hill, talking to congressional leaders and actually having significant dialogue. And one of the interesting parts of this is now this has become an equity issue. Black and Hispanic patients are underrepresented for the number of transplants they get versus their proportion of the population. This is a big deal. And about 2 weeks ago, the Congressional Black Caucus wrote a letter to HHS and CMS, demanding that the billing article be rescinded and that no more changes be made until congressional leaders are consulted. It is actually for those in person today, there's a copy of the letter back on our back table and certainly it is available publicly as well on websites and such. So it's a very impactful letter, and I encourage you all to read it. For more updates, Honor the Gift coalition is really the patient advocacy organization that is consolidating a lot of activities. There's a website and there's a link actually we put on the Slide. If you want real-time updates on what's going on with these advocacy efforts, I encourage you to go to their media page and you can sign up for updates. So with that, let me give a small snippet of actually some of the activities that we saw earlier in December that are advocating for patient care. So we've got a short video for you right now. [Presentation]

It was really inspirational to be there as part of that event with all of those patients as a guest of the Honor the Gift coalition. And as Alex mentioned, hundreds of patients visiting with their congressional leaders, which has had the impact of these letters from Congress to CMS. And yes, I do recommend, as he suggests, to go to the Honor the Gift website for real-time updates. So I'm now going to go through a little bit of an overview of where we are on some of our clinical studies and pipeline. Just as a reminder, Alex put the time line in the beginning of this presentation about our 20 years of development that has led to the tests we have, but it's not just development of tests, it's also generating the evidence. Ongoing multicenter study data is what's necessary, not just to build a good quality test, but also to add data to the armamentarium of what clinicians see as understanding the value of the tests and how the different ways that they can use the test. It has led to there being society guidelines that recommend the use of AlloMap and AlloSure. And these are the types of studies, these multicenter, large-scale studies that can bring data forth that will lead to payer coverage. And this has been something that we have started focusing on the analysis of these for payer coverage for further private payers and potentially Medicare as well. And then I'll also talk a little bit about where we are on some of our future launches from the pipeline. Over on the right side of this slide, you'll recognize some of our multicenter studies, K-OAR, OKRA, et cetera. They're also, in addition to those single center publications, there's national registries. All of this is a good source of data that we can use for additional surveillance evidence and expanded for cause uses in kidney. Things that we discussed with our clinicians, things we work with them on publications but ways that we work with them to understand, the value that they have defined in using these in their patients over the past several years. And just not only in kidney but also in heart. In heart, especially with multi-modality, where they've been using HeartCare. And as Alex mentioned, 90% of the time it's HeartCare. That has generated a lot of data, and this is where we've seen single-center publications that have really moved the needle for our payer coverage. Lung is earlier in its adoption cycle, but of course, that leads to what we see early on, which is initial publications that are independent of CareDx that repeat the clinical utility that demonstrate what they're seeing. And I think in the lung community, we'll also see a lot about surveillance value when they have repeated testing and watching the tests over time. These same studies, and we've repeated the chart here that shows the size of these studies and the number of centers are important for the evidence for payer coverage. The studies and the data from those as well as the clinical guidelines are key things that private payers look at. And they're looking for outcomes, both short-term outcomes and long-term outcomes, can we demonstrate that there is an improvement in patient outcomes when managed with AlloSure or HeartCare, et cetera. We can also gain from these studies benefit. What are the benefits of looking earlier, looking later and expand that coverage. For instance, this year with the ISHLT Guidelines, going from starting at 6 months to starting at 2 months, we've seen private payers that have expanded their coverage down from 6 months to starting at 2 months, capturing all of those early tests in the first year. Ultimately, this is leading to precision care that is driven by the decisions from these tests, and those are key things that we capture in these studies. Moving on to the pipeline. I've divided that into 2 slides. One is the complementary test that you've heard about probably before the first UroMap which differentiates in that it's urine test, it is something that can maybe based on the data, provide an earlier look. It allows differentiation of T cell mediated rejection from BK viral nephropathy and has the potential to help differentiate among types of rejection. AlloMap kidney, the blood gene expression profiling also does the same in that it has that same multi-modality that we see in heart, where it adds a mechanism where we're looking at quiescence of the immune system or lack thereof, if it becomes activated. And that paired with the use of AlloSure to identify injury, provides a powerful way to look non-invasively as what's going on in the kidney. And of course, HistoMap, gene expression in the tissue. It's not one of our noninvasive solutions but provides a quantifiable view of rejection and our evaluation of rejection that has shown in our studies and those of others to actually correlate much better even though they were both trained on pathology, the noninvasive tests and the HistoMap are much more highly correlated. And all of these I have here in the 2024 outlook column are in various stages of working with CMS on coverage as well as additional publications that are underway from either individual centers or from our studies. And then finally, the added value to our existing products of having the digital solutions. We've talked about iBox in the past, which is a prognostic algorithm. More recently AlloView, a predictive algorithm that in combination with AlloSure and other multiple inputs that are critical to kidney decision-making further can educate and inform on the risk of rejection. And then in heart, the AI-CAV solution, diagnosis for cardiac allograft vasculopathy, using, again, several factors, but into an AI-derived algorithm that adds value for understanding the risk of CAV. And again, these during 2024, are going to be in various stages of implementation as well as publication key in the middle, I think under AlloView, that will transition to wide availability upon a key publication that we expect to see this year. And so I will turn it over to Kashif, who will go through a large part of our -- the digital part of our organization and maybe finish off a little bit on the implementation of these tools. Thanks.

Thank you, Robert. AI is a great segue into our software and digital patient products in that business line. As we've continued to evolve the AI components coordinated with our testing services, especially for AlloSure in that area, for kidney patients, in heart patients, we're going to continue to focus those -- focus on those in 2024 as well. So let me share some digital and patient business updates with you. We have significant interest from clinicians in our digital portfolio, primarily because the data-driven solutions and the AI-based technologies are really useful in their clinical day-to-day decisions and how to take care of the patients. As we made investments in the last few years into this digital and software component, we continue to see a great growth, about 29% year-over-year from last year and primarily due to our SaaS type of software solutions that's mostly driven by that. Our thought process is to really have a connected, integrated portfolio of products that includes our testing services as well as some of the software products, that the doctors, the patients and that care coordinators can actually collaborate and navigate through the same sort of ecosystem. In our patient and digital services, the inception for that business line was really to provide a moat and keep a strong presence in the transplant centers, so where we become sort of one company, one-stop shop for these transplant centers to have kind of one partner that they collaborate with. And then, of course, in 2024, we're going to continue to grow the focus on strengthening that mode, continue to service our patients with the post-transplant and pre-transplant patient care that we provide as well as with the digital portfolio. Look, the growth component, we have a great pathway to that, that we're penetrated about in 70% of the transplant centers that are solid organ transplant centers. In -- that's about 175 or so odd number out of the 250 centers in the country with our testing services and digital products. So that leads us with a great opportunity to actually accelerate business by cross-selling into that 70% of the centers, but also not to ignore that 30% of the remainder centers where we could find penetration. So it gives us a great white space and great opportunity to continue to actually reinforce some of our products and bring those customers into the CareDx fold. The product portfolio, as we went through for the last couple of years, we've acquired multiple businesses in different digital products. The idea always has been all in all to actually create a patient journey across the transplant kind of patient ecosystem and connect that patient journey for more data-driven, insightful sort of decision-making for these clinicians. Our integrated care solutions from one company kind of put that back into the mix that we want to be one transplant partner for the centers. It provides portfolios integrated as logistical support, the patient management aspects, the quality improvement aspects, operational support and laboratory management. So if you look at the intention, it's really to create and provide an integrated product portfolio that transplant centers can interact with. In the digital paired with the testing services tests that we provide, there's a huge amount of data that we can utilize, with Robert's group and innovations to create the next set of products and solutions. Of course, when you buy different software products, there's the disconnectedness and different workflows that the patients and the providers have to interact. And if I kind of give you a little bit of sense of what we've been working on, this is an introduction to a new platform or a new sort of idea that all transplant centers will have access to, which is called CareDx Pro, and I have another slide where I can share some visuals with you after this. But if you look at the ecosystem, if we're providing different solutions to our transplant centers, it's a very disconnected sort of disparate effort that we have to go one product at a time and implement one product sort of in 2 months, 3 months or so time frame, takes a long time. What we have done is actually created this one single unique interface to have a connected ecosystem called CareDx Pro, kind of like Microsoft Pro, I don't know if there is Microsoft or Apple [indiscernible], but the idea is that with one portfolio, one screen, you'll be able to interact with different offerings that CareDx provides. So you're not looking at disparate implementations and spending the time and effort for these centers. So single framework, plug-and-play and unified experience. And the way it looks in the fold -- so imagine this is the screen where it is Epic or Cerner or any other major EHR. What we have done is actually incubated all the products into that one single experience where a user can click on that one button within their EHR and get into the CareDx sort of play-the-product environment. And here, I would like to actually call out in some of the more, more strengthening efforts with this application, which is probably small for you to visualize, but box around it, it's called CarePortal. It is our own developed utility that we launched last year and happy to report all customers have been transitioned to that. And this is how we're able to respond to the evolution in market changes and needs around those tests and where providers can go and place an AlloSure or AlloMap test from that workflow and then receive the results from right into their workflow. So which makes us kind of live into that Epic and Cerner ecosystem going forward in a very seamless, collaborated and connected way. So I wanted to share these updates with you. Now I'll pass the microphone to Abhishek, who will provide us the financials as well as operational updates.

Thank you, Kashif, and thank you, everyone, for being with us today. So let me start with our preliminary Q4 and FY '23 financial highlights. So again, very pleased with the results because our revenue came in at above the guidance that we provided last quarter, which was $274 million to $278 million. And we're expecting our FY '23 revenue to be between $279 million and $280 million approximately. And this beat to the guidance has been driven by the patient test results that we saw in Q4, as Alex pointed out that we are very pleased to see that we have now set the baseline on the revenues, and we're seeing our volume growth for the second consecutive quarter there. Thirdly, our testing services revenue came in slightly higher as compared to what we were expecting, given the fact that in Q3, our revenues were slightly higher because of the onetime events. But equally, happy to see that our non-testing services businesses, both patient and digital solutions and products growing nicely to be able to mitigate some of the impact of the billing article on our testing services revenue. Last but not the least, we continue to maintain a very strong balance sheet, and we have a cash position of $235 million at the end of last year. And this is despite the fact that we used $26 million in cash to buy back shares, 2.8 million, under our share buyback program. So with that, let me start to provide a little bit more color on some of these areas. Starting with the revenues, keeping it pretty high level that, as I said, revenues are going to be $279 million to $280 million approximately. And we continue to see that our products business and the patient and digital solutions that grew year-over-year pretty nicely, and that basically helped us kind of reduce the impact of the billing article on our testing services revenues. The volume story, I think the takeaway here on this particular slide is that we were impacted significantly with the introduction of the billing article in the second quarter. As I called out previously, our second quarter volumes dropped by almost like $25 million, and majority of that came from the kidney testing services. But the good news is that we have now set the base here and we are back to growth. And to be honest, I cannot be more proud of the company how we responded during this time, especially Q2 and Q3 as we kind of educated the transplant centers, and we went about the operational implementation of the billing article. And good to see that now the baseline has been set, and we are back into the growth territory. So this has been one of the newer slides that we're presenting this time. The billing article has impacted the product mix. If you have a look at our cardiothoracic, which includes lungs, it is -- from the volume standpoint, it's closer to 60% now. Prior to billing article, the volumes were primarily from the kidney services, which was above 50%. So there has been a shift from the volume standpoint in our product mix. When you also look at our revenues, you will start to see that revenue is also shifting where our cardiothoracic franchise is making more than 50% of our revenues, pretty much in line with the volume mix that we see for this particular mix. And this is another slide around the payer mix between the Medicare and the commercial. What I would want to highlight here is that Medicare makes up about 30% of our volume in the post-billing article scenario and makes up about 50% of our revenues. Now this includes some of the coverage restrictions that we have seen post the billing article that we did not have in the past. I think the second takeaway on this particular slide is the opportunity that Alex discussed previously and how Robert was articulating on how do we get the payer coverage. Now on the commercial side of the house, the 70% of the volume makes up only 50% of our revenues, which basically is -- we can do the extrapolation and we can find how big that opportunity is, but fairly large. And -- of course, this stays one of our focus areas as we look into investing into the right studies to be able to get the right additional evidence to be able to get payer coverage as well as investing in the health economic studies to be able to drive the commercial payers in terms of helping us get the coverage in this area. Building onto the same theme. Since the payer coverage stays one of the important areas for us, I would want to highlight some of the coverage successes that we have seen in last year. And particularly, when we look at the expansion of our coverage in the heart franchise where, as Robert mentioned, that after the ISHLT Guidelines, we are now covered post 2 months instead of the post 6 months, so there's an earlier use in the guidelines, and we have been working extensively in that particular area to be able to expand our coverage, and there have been quite a few successes in the last one year. Cash collections continues to stay strong. And I know that this is one area that where we focused last year pretty heavily. We built the scale towards the end of '22, and we started to see the results, and this is the fifth consecutive quarter where we are now seeing that our revenues -- our collections are higher than the revenues. We have added approximately like $17 million more in our cash, and it definitely has been one key source to reduce our cash burn, and we are really pleased with this outcome here. And we continue to keep this as one of our focus areas as we move into the FY '24. Turning over to the billing article impact and the mitigating actions. Starting with the billing article. So of course, the billing article impact on our bottom line has been close to $100 million at a very high level, right? The company basically took swift action in Q2 and Q3. And we have made significant progress in the last 2 quarters. We have made up like more than 50% of the impact that was there -- that has been there due to the billing article. Now there's more ground that we need to cover as a company, and I will be providing more information in the Q4 earnings call as to how we plan to bridge that gap. But what I can offer to you right now that in Q4, as we started to see the results on our volumes and everything else, we've started to take further actions, and we went through another workforce reduction in Q4. And we are also focusing on some of the other areas that we feel are the rightful areas. And probably the second takeaway here is that we have been very thoughtful as to how we would want to basically cover this gap. Instead of going too fast and making the mistakes and putting our long-term growth at stake, we have been thoughtful as to how we basically take a phased approach and cover this particular ground and make sure that our long-term growth is not impacted. In summary, I would say that CareDx has a very differentiated financial phenotype. We have a large market, which is growing. Our volumes are now stable, and they have started to grow. And of course, if I start to go down on the P&L, when we start to look at the gross margins, testing services still produces strong gross margins of 68% to 70% roughly. And we have, of course, our goal set to continue to improve the gross margins in that area. When you start to look at the gross margins for the products business and the digital and the solutions business, as I've discussed in the past in my earnings calls is that we have seen a fairly sizable expansion of the gross margins in both of our business lines. And we are not done there as yet. And this stays one of the focus areas as we move into 2024. Cash position, I think I've already spoken about the cash position that this continues to stay one of the very differentiated factor for CareDx because we do not anticipate raising cash. We do not have any debt, and this stays a core area. And the share buyback of $26 million is probably another example how confident we feel about our position in this particular area. Last but not the least, we have a path to return to profitability and the positive operating cash flow, and we'll be providing more color on the same in our Q4 earnings call. With that, let me ask Jeff, who is our General Counsel, to provide a quick update on the legal and the regulatory framework.

Thanks, Abhishek. I'm just going to provide a brief update on our legal and regulatory landscape. And for further information, you can refer to our filings. On SEC and DOJ, we were pleased that the SEC issued a declination letter in September, and we continue to cooperate with the DOJ. With respect to TPE, we have had success in a number of TPE claims on the appeals process, and that appeals process is ongoing. On Natera's patent infringement suit against CareDx, trial is scheduled for later this month. And we were pleased to report that the judge invalidated one of the 3 patents asserted against CareDx. We are appealing the court's decision in the false advertising matter with Natera, in which the court threw out a jury's verdict of $44.9 million. That process is ongoing. And last, we have moved for dismissal of the securities class action filed against CareDx, and we're awaiting a decision from the court there. Thank you.

Thank you very much, Jeff. And before I turn it over to Anna for the Q&A, I'll summarize by saying that we are the transplant company. We are the ones who are driving the innovation in this space. The market -- we are serving a large TAM and the market is growing. We have the right financial phenotype and the right gunpowder to be able to continue to push the growth and make the investments in the rightful areas. And with that, let me have Anna facilitate the Q&A. Thank you.

Thank you, Abhishek. And why don't we start with the first question from one of our virtual attendees. So we have a question from Alex Nowak from Craig-Hallum. The first question begins with good afternoon. Q4 volume was strong, yet ASPs did decline versus Q3. Can the team expand on the ASP dynamics seen this quarter? And when ASPs testing services revenue volume stabilizes? Abhishek, would you like to take that question?

Yes, absolutely, yes. Can you hear me okay? All right. Hey, Alex, good to have a question from you. I missed the opportunity to talk one-on-one with you. But on the ASP side, when we look at the Q3 ASP, I did call out in the earnings call a couple of onetime factors there. And I called out those onetime factors that was approximately $4 million or so. So if we were to take out those couple of factors in Q3 and then if we were to kind of compare the ASPs between Q3 and Q4, you will not see that decline. I would also add that there have been a lot of disturbance in this particular space, given the billing article. Starting with Q1, where we did not recognize the $8.9 million. And then in Q2, some of that revenue was recognized. But then in Q2, there were like [indiscernible] these tests that we had to supplement. And then in Q3, there were more factors on the Medicare coverage. My sense is that Q4 is a much cleaner quarter to be able to set our basis on the ASP. Back to you, Anna.

All right. Thank you, Abhishek. The next question comes again from Alex Nowak. It was mentioned the Board is looking for a CEO with M&A experience. What sort of M&A makes sense here? Additional tests, more in the digital product area of transplant, ex vivo perfusion, transplant logistics? So I will turn that call -- that question over to Michael Goldberg.

Yes. Thanks, Alex. I think we have not made a determination. We'll be having a strategy review in the spring, which is our normal cycle for the Board to make kind of scoring assessments and prioritization of various acquisition targets. I think we'll also wait until we have a new CEO in and deliver a few more quarters of organic growth with the existing operating model before you'll see anything kind of transformative.

Okay. All right. The next question, we'll take a couple of additional remote inquiries, and then I'll turn it over to the group here. From [indiscernible], thank you for the update. Of the testing strategies you have noted, where do you see the current bottlenecks? And how are you specifically looking to overcome that? Alex Johnson, would you like to take that question?

Sure. So the fog of the billing article is generally behind us, but certainly not for all centers, even if centers now can operationally order AlloMap or AlloSure HeartCare, there's still an understanding of what are the boundaries and the guardrails around Medicare reimbursement. What's the right protocol for the center. How do clinicians want to manage their patients within those protocols, sometimes there's discretion. And so that education process does continue, and it's not just a CareDx effort, it's at these hospitals as well. When you look at -- when you hear the word bottleneck, I think it also implies that there's a withholding of care. And I think partially the biggest withholding of care, of course, in the last 9 months has been this Medicare billing article that is really restricted access. And the biggest area of change, of course, would be to pull back that billing article or have the LCD pushed in a way and put out in a way in a permanent methodology that would increase patient access for those surveillance patients. So both of those are focus areas of ours. And finally, there's this natural adoption curve that we are helping to engender with better data at the centers to understand how these patients can be managed using our molecular testing tools in the -- between the guardrails of this billing article, specifically around special populations, high-risk populations, right? Some patients that were actually for cause, may actually still be for cause, but some patients who were actually monitored as surveillance, may actually have some clinical underlying reasons why they were surveilled and monitored longitudinally. So it's a bit of definitional understanding. Clinicians are getting much more comfortable now with understanding how they can manage patients. And so you're seeing center by centers, they'll start to come back, and we're starting to see those definitive metrics, and we track those very closely at the center and the clinician level.

Thank you, Alex. Next question comes from Andrew Cooper from Raymond James. Can you give a better sense for the source of additional cost saving initiatives executed in Q4? After multiple rounds of cuts already, should we assume the remainder needed to offset the billing article impact needs to come revenue growth as opposed to cost savings? Or is there potentially more room on the cost side? Abhishek?

Yes. Sure, Andrew. So in the fourth quarter, the actions that we took, they basically were around, number one, the workforce reduction, we took another look at our headcount, and we made some choices there. The second piece was around the whole clinical trials, and we have decided to prioritize certain studies that we feel are most important for us as a company to be delivering to get the payer coverage, so on and so forth. And then the third piece is that we are continuously looking at our legal spend as to what needs to be get done there. But there are things that we are doing as a company, again, we need to be able to make sure that we are able to kind of cover the gap, which has been created by the billing article. And as I said, that we have to be thoughtful as to how much of that gap can be covered through our organic growth, which basically we are definitely kind of contemplating in our discussions and other models, but also continuously seeing at our cost savings as to how much more gap that we need to cover through the cost savings. So this is a question of more like prioritization on some of our cost actions based on how we are kind of seeing the numbers panning out. And we'll continue to kind of make sure that we are able to make those choices going forward to be able to return to profitability.

All right. Thank you, Abhishek. Thank you, our virtual attendees for submitting your questions. Now we'll take some questions from the audience. So the first person, if you'd like to raise your hand. If you could please state your name and affiliation. We'll start there, there and there. And [indiscernible] has the microphone.

This is Mason Carrico with Stephens. So -- could you give us some color around the time lines of your expectations for coverage for AlloMap kidney as well as UroMap. I think you guys had said that these submissions were for the stand-alone test, I believe, and then multimodal data would come after?

Yes. So it's hard to give time lines as we know we have the back and forth with CMS on Medicare coverage for those, but they continue to be in process, and we don't see any major impediments. It's just that we need to work through the details.

Got it. And then one last one here. Any incremental detail you can give us around your thoughts on burn as we progress into 2024?

Yes. So -- let me provide you a very high-level calculation here, right? I'm not providing the '24 guide as of right now. That will, of course, come with the Q4 earnings call. But if, for example, we were to look at the Q3 cash, which was $268 million, and we ended the current quarter at about $235 million. That's where we used about $33 million in cash. And of the $33 million, of course, we used $26 million for the share buyback. Now we use $7 million. There are puts and takes through the working capital, some of the stuff that you will basically have in the CapEx. We'll provide all of those details, but that's the cash that we used in the current quarter. And that probably we can start to kind of hypothesize and extrapolate as to what that range in Q4 is going to be based on the fact that there is going to be organic growth, number one. And number two, we are not planning to increase our expenses, right? So you will basically use the range of the cash burn and start to say that if there's a profitable growth, organic growth, then where that cash burn is going to land. And that will basically also provide you the information that why we feel very comfortable with the $235 million that we have in the bag.

Okay. The next question -- we'll have 2 questions here and then one over here, okay? There are 2 questions there. But let's finish this up and then we'll move over here.

Okay. Mark Massaro, BTIG. Thanks for putting on this presentation today. The question is around HeartCare because I believe if I have this correct that the utilization is limited to year 1 of testing. So can you talk about the demand for testing beyond year 1 and the opportunity? I guess what are we waiting on? I think there's a data, a particular study that will read out. Can you talk about the timing of that and your expectations around expanding that to years beyond 12 months?

I can talk about the study first and then pass it over to Alex. Certainly, we are analyzing data from SHORE that we anticipate should cover additional years beyond year 1. And so we anticipate that publication this year for sure, that would inform on that.

And then just a quick update on Kidney Care. Where are we on in multi-modality beyond heart?

Both -- so Kidney Care, obviously, was being studied in OKRA and that is being studied in OKRA. And so the first step as was already suggested is that coverage for AlloMap Kidney. And then as we move beyond that, analyzing the data from the OKRA study and determining whether that's going to suffice as intended now that we have the model set with HeartCare as what's necessary.

And timing-wise on OKRA readout? Are you hoping it later this year?

Probably not that soon.

Okay. One last question for me. Palmetto MolDX had an open meeting, I think was it August or September. Can you just clarify if they have a year to issue the final? And just what some of your expectations might be as we think about any potential changes to the billing article that we saw last March?

I believe their policy is that they have to finish their LCD, any changes and come out with a final [indiscernible] the date of when they release the draft, which was early August sometime. So that's, I think the only thing that sets a time line. I'd say it's really hard to predict what they're going to do. We've done what we can to provide them opportunities to find ways to provide patient access on their side.