2023-12-27 13:00:46 ET
Summary
- CareDx, Inc is a small diagnostic firm that develops and commercializes diagnostic solutions for transplant patients and caregivers.
- The stock has soared over the past two months thanks to better than expected Q3 results, the overall rally in the market, and a favorable regulatory event.
- Can the rally continue or is the stock overdue for some profit taking? An updated analysis follows in the paragraphs below.
If you are out to describe the truth, leave elegance to the tailor ."? Albert Einstein.
Today, we are revisiting CareDx, Inc ( CDNA ) for the first time since our article on this small diagnostic firm in April of this year. We concluded that piece stated there was much uncertainty around the company, but we would circle back on CareDx in the near future. An updated analysis follows below.
Company Overview:
This San Francisco-headquartered small cap company develops and commercializes diagnostic solutions for transplant patients and caregivers. The equity currently trades for just under $13.00 a share and sports an approximate market capitalization of $670 million.
February Company Presentation
Testing services make up approximately 80% of CareDx's overall revenues. The company's products include AlloMap Heart, AlloSure Kidney, AlloSure Lung and Olerup SSP. CareDx is the leading provider of noninvasive surveillance tests to help identify injury and rule out transplant rejection. CareDx also offers a variety of software and apps that assist in patient tracking, monitoring, and other functionality.
Third Quarter Results:
CareDx posted its third quarter numbers on November 8th. The company had a non-GAAP loss of 18 cents a share, which was less than half the loss the analyst community was expecting. Sales fell just over 15% on a year-over-year basis to $67.2 million which was some $14 million above the consensus. Management also noted that Q3 revenue was:
" an increase of 7% over the second quarter of 2023, excluding approximately $7.8 million related to Medicare claims billing that were held over from the first quarter of 2023 and recognized in second quarter 2023 revenue ."
38,400 AlloSure and AlloMap testing results were provided in the third quarter. This was up 18% from the same period a year ago and an increase of two percent from 2Q2023.
The company's digital transplant solutions business grew 33% over 3Q2022 to $9.9 million, aided by some recent small acquisitions. CareDx's lab products business realized revenue of $9.5 million, also up 33% from the same period a year ago.
The company is still working through the challenges from changes to Centers for Medicare and Medicaid Services billing protocols that negatively impacted reimbursement for some molecular tests related to organ transplants. The company recently gathered a bipartisan group of 14 members of Congress to write to the CMS Administrator to challenge these changes.
Leadership guided FY2023 sales to be in the range of $274 to $278 million. This is far above the $328 million to $338 million guidance range the company began 2023 with it should be noted. The company also garnered Medicare coverage for HeartCare™ and AlloSure® Lung during the quarter.
Analyst Commentary & Balance Sheet:
Since third quarter results hit the wires, BTIG, Craig-Hallum and H.C. Wainwright have reissued Hold ratings on the stock. Stephens did assign a new Buy rating on the firm on November 9th. The analyst at Stephens noted several factors for the new rating. Among these were:
" improved visibility into the company's operations, a normalization of transplant volumes after the third quarter of 2023 as well as a large cash reserve on the company's balance sheet ."
He also believes " further operational improvements, expanding coverage, and cost reduction opportunities will gradually improve the cash burn situation ." It should be noted Stephen's price target at this call was $10 a share, which the stock has now far exceeded.
Just over six percent of the outstanding float is currently held short. A couple of insiders have sold some stock in the second of this year. However, collectively the selling amounts to just over $200,000 worth of shares. CareDx ended the third quarter with just under $270 million worth of cash and marketable securities on its balance sheet after posting a net loss of $9.6 million for the quarter. The company listed no long-term debt on its third quarter 10-Q .
Verdict:
The company lost 39 cents a share in FY2022 on just under $322 million in sales. The current analyst firm consensus has losses widening to 75 cents a share in FY2023 as revenues fall to $276 million. They project losses to fall slightly in FY2024 as sales fall an additional six percent. Like most diagnostic and testing concerns, CareDx was impacted by Covid. However, management sees significant growth opportunities in the transplant space over the next 5-10 years.
February Company Presentation
The stock is up better than 150% since its lows in late October. Part of this is due to the huge rally in the markets over that time. In addition, the SEC has concluded its inquiry around CareDx which was a source of uncertainly listed in our article in April. Further, the government agency does not intend to recommend any enforcement action against the company. In early November, the company also announced its current CEO would step down, and CareDx is currently conducting a leadership search.
Any good news from the SEC action seems fully priced into CareDx, Inc shares at this point, and the stock has benefited from the huge rise in the overall market over the past two months. The shares are now significantly above the price target from the one bullish analyst firm that has maintained a Buy rating since Q3 results were posted. The company has a solid balance sheet, but is printing losses and likely will continue to do so for the foreseeable future. Revenues are also set to decline in FY2023 and FY2024. Therefore, there seems little reason to own CDNA at these trading levels.
A man is never more truthful than when he acknowledges himself a liar ."? Mark Twain.
For further details see:
Circling Back On CareDx, Can The Rally Continue