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CareDx 10-K investor call, 2/28/2024
Speaker 1 0:03
quarter 2023 earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Greg Howe to check manager, Managing Director of investor relations. Thank you, sir, you may begin.
Speaker 2 0:32
Good afternoon and thank you for joining us today. Earlier today. KERDI. X release financial results for the quarter and full year ended December 31 2023. The release is currently available on the company's website at WWW dot KERDI x.com. Joining the call today is Alex Johnson, president of care dx is patient and Testing Services Office check Jain, Chief Financial Officer and Robert Woodward chief scientific officer. Also joining the call today is Michael Goldberg, chairman of the board. 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 meeting of the federal securities laws, which are made pursuant to the safe harbor provisions of the private securities litigation Reform Act of 1995. Any statements contained in this call, that are not statements of historical facts will be deemed to be forward looking statements. All forward looking statements including without limitation or examination of historic operation, operating trends expectation regarding coverage decisions, pricing and enrollment matters. And our 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 the forward looking statements. Accordingly, you should not place undue reliance on these statements, or listen description 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 Paul speaks only to the live broadcast today, February 28 2024 30x disclaims any intention or obligation 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. Just call it 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 with the SEC. I will now turn the call to Alex. Thank you, Greg.
Speaker 3 2:48
Good afternoon, everyone and welcome to cared X's fourth quarter and full year 2023 earnings conference call 30x ended 2023 in a solid growth and market leadership position after a challenging start to the year. Our team spent the last year addressing the complexities associated with the billing article, reconfiguring the company to adjust to the Medicare changes to coverage and fighting to restore patient access to transplant innovation. Before we move into the details of the quarter and the year, let me step back for a moment and offer a bit of perspective. We are still in the early stages of a $6 billion market opportunity to health care for some of the highest need patients in the US healthcare system. transplant patients in the US are experiencing incrementally improve short term outcomes that are still far away from having their newly transplanted kidney heart or lung lasts as long as it should. We continue to believe that effective care means truly understanding transplant patient management. And this requires focus from our entire team working closely with some of the world's best clinicians, researchers and transplant centers. Our ability to successfully lead and execute in this growing market in the face of complexities associated with the billing article revisions is reflected in our results. Last year, we executed deliberately, quickly and with high impact and demonstrated by our performance has reduced our cost structure and stabilized our revenue base. Consistent with our pre announcement, we reported full year revenue of 280 million exceeding the high end of our updated guidance. We have regained our growth footing and our testing services business was with patient test volumes up 4% quarter over quarter increase for the second sequential quarter in a row. We delivered about 40,000 tests in the fourth quarter and patient testing services volume was approximately 165,000 patient results for the full year. We continue to make progress in driving our innovations into clinical practice. This year, we witnessed strong support from leading medical societies and from patients advocating for access to transplant molecular testing including Alisher an LM AP, underscoring the pivotal role our innovations play in improving transplant patient care.
Unknown Speaker 5:08
In 2023, two new
Speaker 3 5:10
Medicare coverage approvals supported the clinical value and market opportunity of our innovation pipeline. Alistair lung was a first donor derived cell free DNA approved for coverage by Medicare for lung transplant patients. With the approval of heartcare. In August 2023, our clinical approach of multimodality testing was confirmed by CMS. This approval defines a reimbursement pathway for our differentiated product portfolio, one that can leverage our rich pipeline of innovation to help improve patient outcomes. On the commercial payer side, we saw good progress. We ended the year with an additional 15 million covered lives. We expanded existing coverage for 31 point 5 million lives in our cardiothoracic business, primarily by adding coverage in the first six months post transplant for LM AP hearts. Looking at our other businesses, we are pleased with a double digit growth in both our patient and digital solutions, and lab products business lines, representing year over year growth of 29% and 15% respectively. Before moving on to 2024. I will touch on our recent patent litigation news. As we mentioned in our statement following a jury verdict in late January 30x was assessed damages of approximately 96 million. We intend to seek judicial review of the jury decision and monetary damages. We expect there to be active briefing on this matter at least through q3 2024. In the District Court. The matter would then be subject to appeal to the Federal Circuit. The precise timing would be speculative, but we would expect any resolution for the patent litigation the multi year multi step process.
Speaker 2 6:51
Looking forward to 2024. In our testing services business,
Speaker 3 6:55
the focus is on strategic profitable growth, continuing to grow pace and testing volumes and market penetration for Allah map and Allah ashore. While expanding reimbursement and coverage. There is a significant opportunity to gain coverage for non reimburse tests. This year, we will continue to invest in multicenter purpose driven studies to help secure additional reimbursement coverage. As mentioned last quarter KR our kidney allograft outcomes registry completed the last patient clinical visits, and we are now finalizing our data collection and monitoring. Kara was designed to demonstrate the clinical utility of Allah sharp in a variety of outcomes. And we continue to expect the publication this year. We also have other unique opportunities to publish evidence that can influence payer coverage policies. By working with leading researchers who have had extensive experience with Alisher kidney, and heart we anticipate an interim readout for our ongoing surveillance hard care outcomes registry or shore. Data from patient encounters in the early years of short have been collected in monitor. We are now working towards publication of interim readout with the twin goals of supporting the utility of multimodality testing and our care coverage beyond year one. We expect publication in 2024. These studies are expected to generate the evidence that along with the build out of our revenue cycle management infrastructure such as commercial payer coverage and billing appeals process will support an improved rate of reimbursement. In our patient and digital solutions business we aim to further increase adoption our portfolio offerings in 2024. Over 70% of transplant centers in the US use one or more of our digital solutions. As we first shared last month, we have now started to roll out a new platform, which enables greater uptake of cardiac services. The platform called KT X Pro is embedded within a transplant centers electronic medical record workflow. This allows clinicians and administrators to have a single interface to access our digital health and SAS solutions, as well as for clinicians to seamlessly order and view test results for Alisha alamat and heartcare. Our growing lab products businesses global, we have a strong portfolio and we will continue to expand the business to a new transplant laboratories worldwide with best in class added products using NGS and qPCR technologies. Our market leadership for NGS HLA typing through our LC TX line and broad geographical footprint allows us to benefit from scale leverage as our products business grows further. From an operational perspective, we'll remain focused on thoughtfully managing our cost structure and investments. You heard this during our annual investor day last month and it is worth repeating. This commitment underscores the dedication of our leadership team to driving growth and value for investors. We have taken multiple actions to reduce costs including a recent q4 action you streamline even further, you'll see us continue to take steps to manage our near term costs and cogs as we drive towards profitability. Projects are taking a disciplined approach to investments that support our clinicians, patients and employees and deliver shareholder value. Finally, I would like to touch on our advocacy efforts on behalf of transplant patients. We and our coalition partners continue to be actively engaged in discussions with HHS and CMS. While we support patient advocacy efforts to restore full access for Medicare beneficiaries to transplant community has made substantial progress. Some of you may have seen the honor the gift efforts in Washington DC in early December, where hundreds of transplant patients, physicians and advocates made a public plea on Capitol Hill to stop the recent rollback in Medicare coverage. Notable speakers of the press conference included Senator Gillibrand, former Speaker of the House, Newt Gingrich, and Reverend Al Sharpton, which shows the wide ranging bipartisan nature of the concerns here. We and the broad transplant community will continue to fight for access to transplant innovation in 2024 and beyond. In fact, as recently last Friday, the Wall Street Journal published their fourth powerful editorial since September, highlighting the patient access issue for transplant tests and the coverage disparities for Medicare patients. We are encouraged by our momentum as we enter 2024. Our team is laser focused and executing our plan. We are building on the testing services revenue baseline set in the second half of 23, expanding patient access to our innovative portfolio across all three businesses and expediting our journey back to profitability. With that I will ask Abhishek to share more details on our results for 2023 and our outlook for 24. From there, and we will go to Michael Goldberg, our board chair for an update our CEO search before moving into the q&a.
Unknown Speaker 11:53
Abishek. Thank you, Alex. In
Speaker 4 11:58
my remarks today, I will focus on our fourth quarter and full year 23 reserves before turning to 24 guidance. Unless otherwise noted. My remarks will focus on non GAAP results. Please refer to GAAP to non GAAP reconciliations in our press release today for further information. I'll start with the financial highlights. Number one reported fully at 23 revenue of 280 point 3 million exceeding the high end of our updated guidance. Number two delivered over 165,000 patient test results in 23. Patients as volumes grew 4% in the fourth quarter to approximately 39,900 tests as compared to the third quarter second consecutive quarter of sequential growth. Number three reported fully at 23. Testing Services revenue of 209 point 7,000,004th Quarter testing services revenue of 46 point 7 million came in better than expected primarily driven by volume growth. Number four, reported patient and digital solutions revenue of 37 point 1 million in 23. Up 29% year over year, and product revenue of 33 point 5 million up 15% year over year. Number five maintained a strong cash position of 235 point 4 million at the end of December and no debt and we bought 2.9 million shares for approximately 27 point 5 million in cash in 23. Moving to the details, starting with testing services. Testing Services revenue for the fourth quarter was 46 point 7 million down 2% as compared to the third quarter of 23. As discussed in our q3 earnings call. Fourth quarter revenue was expected to be lowered due to the fourth quarter impact of heart care tests that were outside of the new coverage criteria from all the ads as well as the exclusion of one time settlement to the large Medicare Advantage pair. As mentioned earlier, testing services volume increased by 4% sequentially and we are pleased to see both kidney and heart franchisee grow for the second consecutive quarter. As Alex alluded earlier, we stay focused on executing not testing services strategy to increase market penetration and drive volume growth or non GAAP testing services gross margin was 72% in the fourth quarter as compared to 74% a quarter ago. We are pleased with the efforts of our lab operations team in keeping the gross margin above 70%. Despite a significant top line impact from billing article revisions our operations team continues to execute on reducing the shipping and specimen processing costs. Improvements and inventory management has scrapped production and optimization of collection kits usage. Moving toward digital and patient solutions and lab products businesses are patient and Business Solutions. Sales recorded revenue of 9.6 million in the fourth quarter, up 14% year over year, and 37 point 1 million for the full year 23 Up 29% as compared to 22. On top line results were driven by both organic growth and our acquisitions of HLA data systems and medical. Our patient and research solutions business. Non GAAP gross margin for the fourth quarter was 42% as compared to 34% a year before for the full year 23. Non GAAP gross margin improved by 600 basis points to 37% as compared to 31% in 22. The gross margin expansion was driven by the top line growth cost savings initiatives, our transition to a recurring SaaS based model and the high gross margin profile of our newer acquisitions. Our products business recorded revenue of 9.2 million in the fourth quarter, up 8% year over year, and 33 point 5 million for the full year 23 up a solid 15% year over year. Growth in the products business was driven by our higher margin NGS offering products business non GAAP gross margin for the fourth quarter was 46% as compared to 54% A year ago, primarily due to a one time inventory charge associated with end of life for one of our products in this personal products business non GAAP gross margin for the full year 23 grew an impressive 500 basis points to 54% as compared to 49% in 22. And it was driven by organic growth cost efficiencies from supply chain optimization with ongoing manufacturing sites consolidation and the continued shift to NGS offerings in our revenue mix. Our team is focused on improving gross margins further as the drive for efficiencies and complete the plant size consolidation in 2024. Moving down the PnL non GAAP operating expenses for the fourth quarter were 54 point 2 million down approximately 3.5 million sequentially from q3. So the sales and marketing spend increased 1.6 million primarily related to our targeted policy efforts to restore Medicare coverage, D and expenses came down 4.4 million as a result of our focus on reducing legal expenses, or distributor losses in q4 were 10 point 3 million as compared to 10 point 9 million in q3. We've also accrued 96 point 3 million for damages awarded by a jury in the IP litigation case in the fourth quarter of 23. As Alex mentioned earlier, we intend to seek judicial review of the verdict and believe that we have good and substantial defenses against the claim Aleste in the suit and we will vigorously defend ourselves. For further disclosures on this matter, please refer to our recently filed 10k. Turning to cash. We continue to maintain a strong balance sheet with 235 million in cash cash equivalents and marketable securities with no debt. Cash used in operations for the full year 23 was 18 point 4 million down 27% as compared to 25 point 2 million in 22. Despite the operational and financial challenges introduced by the building article revisions, the improvement in Cash used in operations in 23 is a testament to the outstanding efforts of the entire kdss team. The cash use and operations was positively impacted by our RCM initiative that delivered a fifth consecutive quarter of collections over testing services revenue and added $17 million to cash in 23. Finally, I would also like to note that we earned 3.2 million in interest income in the fourth quarter and 11 point 9 million in 2023. Based on our current cash position and anticipated cash usage in operations, we continue to believe that we do not need to raise cash in the foreseeable future. Finally turning to guidance, we expect fully at 24 revenue to be in the range of 216,000,270 4 million. The midpoint of our 24 guidance assumes number one too low to mid single digit testing services revenue growth based on annualized actual testing services revenue for the fourth quarter of 23. Number two, Medicare reimbursement remains as currently implemented. No incremental revenue assumed from new coverage decisions from either Medicare or large commercial payers. Number three mid single digit growth for both products and patient and digital solution businesses year over year. We're expecting our gross margin to be approximately 63 to 65% with Testing Services gross margin slightly above 70% product business gross margin in the mid 50s, and distal inpatient solutions gross margin in the high 30s. We expect our non GAAP operating expenses to be between 207 million to 215 million down from an annualized fourth quarter run rate basis, while absorbing for merit increases, benefits reset and inflation effect or distributor losses to be between 20 million to 30 million in 24. With quarterly improvements in adjusted EBIT our losses throughout the year. Before we open the line for questions, I would like to turn the call over to Michael to discuss the ongoing CEO
Speaker 2 20:42
search, Michael, thank you Abba Shaq, we would like to briefly touch on the CEO search well underway, the board is leading an exhaustive search process created by the search firm of Russell Reynolds. As communicated previously, we remain on track to announce a new CEO within the originally projected six to nine month timeframe. During the initiation of the search in November, the Office of the CEO comprising of Alex Abba Shaq and myself continues to successfully drive the business forward. For over two decades KERDI X has been dedicated to improving transplantation outcomes and extending long term our graph survival. We look forward to a strong 2024. With that, I'll hand it over to the moderator to open the line for questions.
Speaker 1 21:41
Thank you. We will now be conducting a question and answer session. If you would like to ask a question please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions. Our first question comes from Andrew Cooper with Raymond James, please proceed with your question.
Speaker 5 22:17
Hey, everybody, thanks for the questions. Maybe just to start, you know, super high level obviously a lot of noise a lot that's happened through the course of 2323. It feels like this 40 result really kind of getting back to stability and the base to grow from but did anything stand out when you think about sort of ordering patterns, you know, the cohorts of patients that you're seeing those orders for or anything like that, I guess across both kidney and heart in the fourth quarter, just any surprises, any changes? Any any commentary there on sort of what you're really seeing in the end market would be would be great. You know, I
Speaker 3 22:53
think thanks for those nice comments. And I think it is back to stability. It's back to growth. And I think, you know, we're excited to continue to serve more patients. And I think q4 was a terrific baseline to grow on. And before that, we grew on to three. And so I'll add, I'll ask Abhishek to add some commentary. But I think the headline here is that, you know, we feel very good about consistent patterns that we've seen going forward for patient mix.
Speaker 4 23:18
Thank you, Alex, I think you have covered it pretty well, that we are very happy to see the second consecutive quarter of our testing services volume growth. And that gives us a lot more confidence as to how the business is progressing. As well as the growth is coming from both of our heart and the kidney franchises. So that gives us all the more comfort that we are basically kind of growing in the areas where we need to the good news is that we are seeing the market growth in the heart side the transplant volume growth to be less double digit last year. So definitely a lot more promise there as we enter into 2024.
Speaker 5 24:00
Okay, helpful, and then maybe just sticking to testing services, the gross margin side of things, you know, like I said, obviously some some lumpiness through the course of 23. But, you know, I think you said low 70s are slightly above 70 for the year just pretty quickly takes there and then as it pertains to the ongoing sort of legal dispute, you know, maybe talk about your ability to if you had to digest some form of royalty, how you would think about that in terms of, you know, 70 plus percent margin with, frankly, not a very large proportion of your tests actually being paid for at all in the first place.
Speaker 4 24:41
Yeah, so I think on the testing services, gross margin having like above 70%, that in itself is like very, very healthy. How we use we usually have been in the low 70s, mid 70s. Now the gross margin range, and with a billing article revisions if I were to Take the noise out, we basically kind of dropped to mid 60s, High 60s, kind of gross margin range. And that's the reason I was happy to see that we came in slightly above 70%. Because I remember calling out that testing services gross margin without that noise is close to 60 to 70%, in our previous calls. So from that standpoint, we started to definitely see the improvement there. And we're going to work through as to how do we drop most of our revenue incrementals to the gross margin, because we are not going to be increasing our spend other than the variable costs that we need to spend on the tests that we need to run. So that's the first part. And the second piece, I think, to your question that a lot of our tests are not being paid. You're absolutely right. And I did kind of articulate that that's a significant opportunity that we have in front of ourselves, I took the example of Q for 40,000 tests, maybe you should be booking $100 million revenue, but we put 47. So there's a large opportunity. And that's the piece that we continue to work on through, like spending a lot of time and effort in generating the data that we need to and then going off to the coverage. And finally, through our RCM initiative, getting that whole coverage that we've gained, coming through the collections to our revenue and the p&l with the overall process of I still feel that continue to do that test and having that ability to gain that. The opportunity that basically is the right thing to do as compared to worrying too much about the tests that are not paid today, because we will get there.
Speaker 5 26:42
Okay, helpful. And then maybe just one last one, if I can sneak in and just, you know, you've you've pulled a lot of costs out of the system. It's been impressive from from that perspective, as we think about the commentary on not needing to access markets not needing a tax raise. How do you think about the past that break even as you sit today? Is there more cost you can pull out? Is it more a function of hey, we've got to get the top line higher than where we are today is how do we think about that trajectory to get to EBIT da and cash flow breakeven longer
Unknown Speaker 27:11
term? Now,
Speaker 4 27:14
that's a great question Andrew and the way I kind of see about the adjustment to beta losses, if you look at the guide, we are guiding about 20 to $30 million have adjusted greater losses for the next year. Now, in my mind, we will have basically the first half to be more front loaded with our losses. And you can kind of model it based on a low double digit or just fit better losses. As we begin the 2024. And hopefully get to a low single digit kind of adjusted beta losses by the time we get to the 2024. And that will basically set us up pretty solid, to get back towards the street a bit of profitability and generating cash flow from operations in 2025. I'm not guiding for the 2025. But that's at least my thinking is that we are looking for improving the administrative burden losses throughout the year. Great, maybe I can go ahead, I can fully take the second part of your question on the cash flow. And that basically is also the reason that we have $235 million in cash, I can draw a quick parallel toward cash usage in operations in 23, which I pulled out at about $18 million. So looking at the adjusted beta losses in 24, my sense is that the cash usage and operations would be very similar to those are just repeat losses, without kind of thinking about any over collections, or the improvement to the awesome initiative. So from that standpoint, if you're talking about a $25 million at the midpoint cash usage, with $235 million in cash, and basically having basically having a foundation by the end of 24 to get back to an adjusted bit of profitability in the next year, then you probably don't need to raise cash. So that's how we are kind of thinking from the management standpoint. Great.
Speaker 1 29:14
Our next question comes from Matt Sykes with Goldman Sachs, please proceed with your question.
Speaker 6 29:19
Hey, guys, congrats on the quarter. This is Prashant on for Matt,
Unknown Speaker 29:23
can you hear me? Yes, we can hear you very well. Okay,
Speaker 6 29:28
great. So are you so first off, Are you still seeing any lingering impacts of the billing article across your business segments? Sure,
Speaker 3 29:39
certainly, we are. I mean, our revenue revenue and volumes and testing services are still you know, significantly below what they were when the billing article was introduced in March. So we're still I mean, that is that is that is just a numerical fact of our performance. What we are seeing though, is certainly clinicians and centers is getting much more comfortable with the billing article rules and coverage for the Medicare beneficiaries and for all their patients. And so what we're really seeing now is new protocols being put in place at the centers. And we're seeing that we saw that in q4 and kidney, multiple senators putting in protocols that now allow them to manage patients in kidney with without ashore in a way that's consistent with the Medicare billing article.
Speaker 6 30:32
Got it? And then could you just elaborate on the path to launching a multi modality product and obtaining reimbursement? How long does that typically take? And specifically for kidney? Are you required to obtain Medicare coverage? And then private payer coverage for Allah map kidney before proceeding with kidney care? Sure, so
Speaker 3 30:52
there's a couple of things to unpack there. And I think the pathway to multimodality reimbursement is a, you know, a multi step conversation. And we can certainly give you some highlights of that. You know, I think the headline is that we've done this now with heart care, it was a multi year process, we were able to produce the evidence and data for Medicare to do that. And that's not a trivial exercise. And as we go into kidney, if we know the playbook, we know where the minefields are, so to speak, and data analysis, it was a challenging effort, one that was ultimately extremely successful with Medicare. And now as, as we've talked about, our park care, still consistently as an attach rate of well over 90%, for Alisha and alamat being used together for patients. For a little more context, I'll turn it to Robert, to add some more on the process itself, which is I think, part of your question as well.
Speaker 7 31:51
I think when you one thing you asked was the, you know, coverage for one test, but for both tests before multi modality, that's not necessarily a requirement. But it's certainly something that we'll look at when we're looking at the data from our okra study, where we use both Alisher and element kidney. And we're where we see that going next. I think you asked, you know, how long or what time I think it's more about the data than the time and so as we assess that and look towards the future, we'll start to put together that plan.
Speaker 6 32:24
Thank you, that's really helpful. And then my last question is, do you see Euro map cannibalizing, alamat kidneys eventual sales at all? And how do these two tests complement each other in the kidney transplant space?
Speaker 7 32:40
They're really, you know, you're, they come from different directions in that element, kidney, the mechanism of looking at immune status, and whether there's activation of the immune system or whether it's quiescent. And in urine, the Euro map has a very different approach of being everything there can be about evaluating cellular mediated rejection, and especially the whether or not there's an influence of BK virus. And so as we're bringing these two and, you know, defining their paths and where they'll be used in the market, and we work with clinicians, there's really unique opportunities for each of them. So I think we'll see them in parallel, and now they're not in each other's way.
Speaker 1 33:26
Our next question comes from Brandon cool yard with Jefferies. Please proceed with your question. Thanks. This
Speaker 8 33:33
is Matt on for Brad, and maybe going back to the guide to help us a bit more in terms of the cadence as we move through 24. You know, I think, historically seen a bit of a step up in one two, do you expect that this year? And then, you know, is there is it kind of 66 67 million a quarter evenly spread out or there may be some initiatives or other items that kick in the back half that would make that a bit more waited for the year? Any color that would be appreciated?
Speaker 4 34:02
Sure, Matt, and let me break this down by the business because of the billing article. revisions. Last year, things have been ups and downs, up and down throughout the year. So starting with the testing services, business, what I would suggest start with the q4, actual revenue baseline there. And then based on the overall yearly guidance, I would basically suggest that you should make in a sequential growth quarter over quarter for that particular business. And for the other two businesses since they are a little bit more, I will say seasonal, specifically our products business, you should be looking at the year over year growth starting in q1 24. And you should basically model for the non testing services business slightly differently. And that will basically give you the cadence as to how the quarterly revenue number should look like.
Unknown Speaker 34:54
Okay, that's helpful and then
Speaker 8 34:56
going back to capital allocation or no debt to another fund million dollars of cash exit in the year. There's the potential litigation payout, which is sizable, but as you talked about the prepared remarks could be a multi year process. You repurchase about $25 million of shares during 23. How should we think about your capital allocation plans going forward? Is more of the buyback on the table? Just how you're thinking about Cassie using tear in 24? And beyond? Thanks?
Speaker 4 35:24
No, absolutely. And from the context standpoint, you you picked it picked it up pretty well that we bought actually 2.9 million shares for like 27 million bucks, in in 2003. And most of those purchases were actually in the fourth quarter. So we were like pretty confident with $235 million in cash. And based on the fact that we have taken a lot of cost out of our system. And based on the needs that we were projecting for cash, we felt very comfortable and actually pursuing the share buyback program. But with this IP litigation, Jury Award, even if there are like multiple steps that we have to go through, starting with the district court, and then possible appeals, multi multi step multi year process. We are taking a stance here to pause the share buyback program for now. And we will assess as to how some of these other pieces will play out. And at that time, we will bring the discussion or the decision on the share buyback program back into back onto the table.
Speaker 1 36:34
Thank you. Our next question comes from Alex noacs. Craig Hallum. Please proceed with your question. Okay,
Speaker 2 36:44
Greg. Good afternoon, everyone. If you look at the normal revenue for 2023. And basically taking what you did in q4 here and analyzing it, the guide for 2024 comes in at basically about 4% growth, give or take a little bit. I guess the question is, what level of growth can the company ultimately achieve in 2025 2026, pick a time point the future without necessarily more reimbursement.
Speaker 4 37:13
So I would basically say that there are multiple paths for the testing services to grow. And of course, there's a secular market growth, where shall we are seeing good momentum in our transplant volumes. Specifically, if you look at the heart side there have been growing on a low double digit basis in the last year, and also kidneys kind of growing at a high single digit. My sense is that if you continue to see that kind of growth patterns, the secular secular organic growth, that's basically the first piece. And then we heard from some of our shop, same space company like transmitting all the things that they are doing in this particular space to be able to kind of grow the usage of the organ, so on and so for, so we feel very good, that this particular space can actually grow in high single digit to a low double digit kind of scenario. But absolutely, like we have Alex kind of fat further, but my sense is that there's a lot of opportunity in this space to grow at a much more high rate.
Speaker 3 38:16
Yeah, Alex, as you mentioned, you know, without reimbursement, and obviously, that's a nice tailwind for us as well, because that'll apply to broad swaths of our of our business as different commercial payers Come on. And certainly, there's upside with the Medicare as well. I think Abby had covered it. Well, you know, one of the interesting data points that we look at heart and kidney, which is really the, the, you know, the bulwark of our transplant, testing services volume, right back in 2020, or 25,000, combined transplanted organs between heart and kidney. You know, last year it was 30,000. Right. So you're getting your aim is really significant growth, even during the pandemic, even when living donor volumes have basically flatlined for quite a while. And they're coming back. And I think you saw that you saw that last year. And when you look at utilization and other tailwinds here, you really start to see a model where when you when you have, you know, a percent transplant volume, just overall market growth in 2023. I think that's not wrong to think how long can that last for and when you look at all different avenues, whether it's not just better utilization, but also the the opportunity for living donation to increase, you really see that that tailwind on our business? So thanks for leaving out the reimbursement piece. I think it does. Let us take apart the story piece by piece because there are significant areas where our revenue can increase in in the long and middle term areas. Thanks for question outs.
Speaker 2 39:54
It makes sense if we're transplanting higher risk Oregon, they just need to be tough. So make your answer makes total sense there. I just want to be crystal clear around the moves with reimbursement again, so much has transpired over this last year. So as we entered right now, based on everything you're seeing with your conversations with with with CMS, and the like, is it fair to say we're, the reimbursement that sits today is pretty much set in stone. And the only view that you have is things can only go higher from here, like there's nothing as you're looking at records they have that could be another shoe to drop.
Speaker 3 40:33
I mean, I think, you know, set in stone is, is really, probably not the way we would look at it. You know, there's certainly a LCD process that's going on now, as well as significant public pressure and outcry to bring back coverage for for this, these Medicare patient transplant tests. So I think certainly there's there's a, an ongoing process that will play out, you know, certainly in the in 2024, that we'll see, we are currently in our base case, we're assuming that nothing does change, which would be very unfortunate for patients. But that's what that's what we'll live with. And that's what we'll execute on. If things don't change. But I think there is significant processes going on right now, that could potentially change. And I think, you know, as more data comes out, not just in 24, but in future years around surveillance, for example, for Medicare, which is really the area that that was pulled back on for for patients. That's something where we have our que or study that can help generate data that may in fact, be impactful evidence that can help bring back some of the coverage. So I think there's a number of shots on goal here for us to continue on growing it and making sure that coverage model evolves from where it is today.
Speaker 2 41:51
Can you just outline the scenarios here with the LCD if it does get finalized? As it stands at Medicare? I guess what, what could happen? In the middle? So just to clarify?
Speaker 3 42:06
Sure, maybe I asked Robert to answer that. But I think just to clarify your question, meaning what would change with our business? If it was solidified today? As as proposed? What's the maybe you can clarify the question, but that's absolutely
Speaker 2 42:20
scenarios on when this LCD does get finalized, because again, Medicare came out with the draft. And ideally, I guess, legally, they have to finalize that within a year if they're going to do so. So when it does get finalized, is that going to change, whether it be transplant centers interpretation of what they can get billed for, or what you can get billed for, and thus what tests they can run, I'm just trying to understand how this changes the scenarios out there.
Speaker 7 42:46
This is Robert. So the draft that they came out with very closely parallels and incorporates incorporates a lot of the language from the billing articles. And so it really seems to have been their response to a lot of pressure that there wasn't a public process. So they put in place a public process to get to the same place, even though they didn't call it what they had already done. So as as already been mentioned, you know, our base case for the businesses that it's going to be this way. And as is in the billing article, and, you know, if finalized in their draft form, if they didn't make any changes, or any substantive changes, then it would continue as currently for patients and businesses and providers, as far as finding ways to do the testing within the scope of what they're allowing.
Speaker 2 43:38
Got it make sense. Lastly, just any status on the the DOJ inquiry
Speaker 4 43:46
No, nothing material over there, like we have disclosed in the 10k whatever we had to bid on the DOJ side, nothing of substance.
Unknown Speaker 43:58
All right, appreciate the update. Thank you.
Speaker 1 44:05
Our next question comes from Yi Chen with HC Wainwright. Please proceed with your question.
Speaker 9 44:11
Thank you for taking my questions. Within the next 12 to 18 months. Do you expect there could be any potential upside regarding the reimbursement policies?
Speaker 3 44:24
Sure, and I think I lost the lat Yes. I think I lost the last piece your question. You're asking. Changes to reimbursement. And what was the last piece?
Speaker 9 44:34
You know, that that was the that was the question. Basically, your guidance, your 2024 guidance guidance is based on current reimbursement policy. Right. So I'm asking if there's any potential potential improvement, and we first met policy within the next 12 to 18 months? Yeah,
Speaker 3 44:55
that's a think opportunity for a catalyst you with potential, this finalization of the LCD, that can, as Robert mentioned, can happen before potentially before August. They have until August to finalize and so you know, what, what's in there if they if there is an opportunity to change, coverage, please Medicare patients, I think, would certainly be very impactful for for our business. On top of that, we have additional studies that we've have in publication, whether it's drafting or analysis, KR, ensure that that can provide additional data and evidence for payers to continue to add coverage for their patient populations. And those will happen as we mentioned, ashore and KR, certainly some publications in the next 12 months.
Speaker 9 45:51
And between different types of transplant, kidney, heart, lung, which type of transplant Do you see, do you expect to be to provide the largest growth driver for the top line revenue?
Speaker 3 46:07
Yeah, I think there's a there's a growth right now that is in heart that's significant. And certainly, you know, as as the billing article changed our mix a bit. Heart will continue to be a good growth driver. However, the ability for kidney to come back with living donors also will continue to push that mix. ever say anything else on?
Speaker 4 46:33
Yeah, I think from the opportunity standpoint, the way I see there are two different pieces. If the billing article coverage were to get changed, with some of our data publication or our policy efforts, then of course, there's a sizable opportunity on the kidney side, as well as when I talk for the studies on the QR. If that data turns out to be in the right manner, then of course, there's a significant opportunity there, based on what I previously called out that we have very limited commercial coverage there. So that can basically drive a fairly sizable upside. If you were to talk about the heart on the yellow show heart primarily, I think that's where the show comes in play. Can we get the coverage for surveillance back for greater than one year where we have limited coverage now for Medicare. So that is another piece that will play out from the opportunity standpoint. And last, but not the least, some of the health economic studies that we have been working on how those are gonna play out and some of the commercial coverage that we're trying to get on the yellow shore heart. So I would say again, there are multiple pieces that have been played. And to be honest, in my mind, they both are like, equally in play. I called out the revenues are pretty much 5050 Between her kidney and the heart franchises. So I see the opportunity lie in both areas.
Speaker 9 48:00
Thanks. And lastly, regarding the litigation expenses, is it going to be a recurring item every quarter going forward?
Speaker 4 48:12
No, I think I'm glad that you asked this question each time because this has been one of our key focus areas. And that's where we have been trying to eliminate the legal expenses. happy to report that if you look at our GNA expenses for the fourth quarter, it has come down by roughly four and a half million bucks. And I know that the team has been very focused in trying to figure out as to how to bring those expenses down with through like being more effective and efficient in some of the cases that you need to do. And to be honest, some of the legal cases that we have been kind of into, they have started to kind of taper off, for example, the SEC investigation is is has been decided in our favor on the TV or that there have been a lot of claims that have been actually adjudicated in our favor. And now we have a template there that we can use. So some of the legal spend is kind of coming down and we are looking for every single opportunity to be able to reduce them. But looking at the fourth quarter GNA, four and a half million dollars down primarily driven by the legal spend there. So that stays a priority. Thank you.
Speaker 1 49:25
Our next question comes from Mason carico. With Stevens, please proceed with your question. Hey, guys,
Speaker 10 49:33
this is Jacob bond for Mason, thanks for taking the questions. So just maybe a cleanup on the guide and apologies if this has been touched on and jumped on a little bit late. But Mickey said that you're wanting 24 revenue guidance as soon as low to single digit testing service revenue growth. Just wondering if maybe you could break that down a little bit further in terms of growth between you know different organ times kidney, heart, lung and are you baking in any ASP increases on there, that would be upside due to, you know, commercial wins or anything during the year.
Speaker 4 50:09
Sure. So on the testing services side, yes. So we are expecting a low to mid single digit revenue growth. And one of the important pieces there is that I'm making the same on fourth quarter revenue base for the testing services revenue. So just from the example standpoint, if you were to kind of have a testing services with revenue on the fourth quarter, annualized, you will basically get a lower revenue growth for the next year, because you're not taking it for the full year. But from the assumption standpoint, what I'm assuming is the testing services, volume growth would be very similar to the transplant volume growth that we're seeing, which is mid single digit. So that's the first part of the play. And then the second piece on the ESP, I'm kind of expecting about two to 4%, Edwin, and there could be different scenarios on the SP. But I'm not expecting SP headwinds to be similar to what we had seen in 2022. Based on our experience in the last few quarters, and based on all the collection efforts and the Ostium efforts, we have been collecting a lot more cash. So limited headwinds for the SPS, but they transplant volume growth of mid single digit driving the testing services volume growth in mid single digit lowered by ESP headwind a little bit that gives us a low to mid single digit growth for the testing services revenue,
Unknown Speaker 51:36
if that makes sense. Okay, got it.
Speaker 10 51:40
Thank you. That's, that's super helpful. And just maybe one follow up here on alamat kidney and again, sorry if this is already been touched on, just wondering what your expectations are around around when you could get a CMS decision on coverage for that test.
Unknown Speaker 51:54
ongoing process
Speaker 7 51:59
as far as seeking coverage and so you know, we don't have any specific expectation we want to get it as soon as we can.
Unknown Speaker 52:10
Okay, got it. Thanks, guys. Appreciate it.
Speaker 1 52:15
We have reached the end of our question and answer session. This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time.
Transcribed by https://otter.ai
