CareDx, Inc (NASDAQ:CDNA) Q3 2020 Earnings Conference Call October 29, 2020 4:20 PM ET

Company Participants

Greg Chodaczek – Managing Director

Peter Maag – Chairman and Chief Executive Officer

Reginald Seeto – President and Chief Business Officer

Michael Bell – Chief Financial Officer

Conference Call Participants

Brandon Couillard – Jefferies

Steven Mah – Piper Sandler

Alex Nowak – Craig-Hallum Capital Group LLC

Andrew Cooper – Raymond James & Associates, Inc.

Sung-Ji Nam – BTIG

Yi Chen – HC Wainwright

Disclaimer: *NEW* We are providing this transcript version in a raw, machine-assisted format and it is unaudited. Please reference the audio for any questions on the content. A standard transcript will be available later on the site per our normal procedure. Please enjoy this timely version in the interim.

Operator

[00:00:02] Greetings and welcome to The Care, the third quarter of Twenty earnings conference call at this time, all participants are in listen only mode. The 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, I would like to turn the conference over to your host, Mr. Greg Chodaczek, management director. Please go ahead, sir.

Greg Chodaczek

[00:00:32] Thank you. Good afternoon and thank you for joining us today. Earlier today, KTXA released financial results for the quarter ending September 30th, twenty. The release is currently available on the company’s website at www.youtube.com Peterman’s Chief Executive Officer Reg Sisso, president and Chief Business Officer, and Michael Bell, Chief Financial Officer, will host this afternoon’s call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward looking statements within the meaning of 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 should be deemed to be forward looking statements. All forward looking statements, including without limitation or examination of historical operating trends, expectations regarding coverage, decisions, pricing and enrollment matters and other our and our future financial expectations and results are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements for a list and descriptions of the risks and uncertainties associated with our business. Please see our filings with the Securities and Exchange Commission. The information provided in this conference call speaks only to the live broadcast today, October 29th, 2020. Target disclaims any intention or obligation except as required by law to update or revise any information, financial projections or other forward looking statements, whether because of new information, future events or otherwise. This call will also include a discussion of certain financial measures that are not calculated in accordance with generally accepted accounting principles, reconciliation to the most directly comparable gap financial measure may be found in today’s earnings release filed with the FCC. I will now turn the call over to Peter.

Peter Maag

[00:02:42] Thanks, Greg, and good afternoon, everyone. I’m excited to talk to you today about our outstanding third quarter results and the great work our company is doing to improve the lives of transplant patients and caregivers. Before I get to our quarterly results, I would like to thank every member of the Kennedy team. Once again, we have asked a lot from our team during these trying times and they continue to bring their A game. Their tireless work and dedication to transplant patients is driving our company to record financial results. In the third quarter of Twenty twenty, we reported revenue of fifty three point four million, an increase of fifty eight fifty eight percent compared with the third quarter of 2019. Once again, our year over year growth primarily came from our testing services, with revenue of forty five point five million product revenue for the quarter of US five point four million and digital and other revenue added point 2.5 million to the top line. We have shown that because of our strategy to lean in and to expand our team here, Dayaks has never been stronger.

[00:03:53] And it is a pleasure to have seen Reg grow into the CEO position in this long planned transition, which we announced earlier today. You have seen us executing a successful business strategy to become a leader in precision medicine, combining patient impact, incredible growth and building a valuable, profitable company. The same has been true for our people strategy. Restaraunt the organization in 2018 and has worked closely with me, the board of directors and the management team to set the company’s strategic direction. Reg has also led the Commercial Clinical, Manufacturing and research and development organizations over the past two years, which has significantly and positively impacted the company’s performance. Reg has also been instrumental in cardiac arrest evolution and has successfully executed multiple major initiatives, most notably the acceleration of the penetration of Alisher in my new active role of executive chairman. I’m looking forward to working together with Reg in the years to come to continue to build Kodiak’s into an incredible powerhouse in transplant care and beyond as we accelerate the growth from our existing platform. Over to you, Reg.

Reginald Seeto

[00:05:13] Good afternoon, everyone. Firstly, I want to thank Peter for his dedication and leadership in building KTXA on its IPO to where it is today. It truly is a special place to help shape and build. Secondly, I’m deeply honored that the board has placed their faith and trust in me to lead Katie accepting this next chapter of growth and evolution. And thirdly, I’m extremely fortunate with Peter staying on as executive chair to be able to continue this journey together in a seamless fashion. As many of you know, he has been a mentor of mine for more than 20 years. With that said, this is such an exciting growth, basic idea. We’ve been very successful in our response to covid-19. We provided over twenty one thousand eight hundred for kidney and Alami pot patient results in the third quarter, an increase of 65 percent year over year when the number of covered cases began to accelerate. Here in the U.S., we made a strategic decision to go on the offensive and invest in areas that would drive growth and create new and long term shareholder value. As we mentioned during our second quarter call, we look to allocate our capital wisely, to position our company for robust growth. And some of these investments are already bearing fruit. The first of these investment areas is our direct to patient capabilities over the past several months. We have built around me nephrology outreach team as a reminder, community froggies provide care for transplant patients once they are safely discharged from the transplant center supervision through a newly formed group.

[00:06:36] We will encourage patients and their caregivers to continue to utilize Alisher to manage the health of their transplant. Also, as part of our outreach program, we recently launched our mobile app. This patient centric resource was designed to help transplant patients better manage their medication adherence, coordinate our scheduling with patient care messages and measure health metrics. We believe this comprehensive act will bring simplicity to the complex care regimen of maintaining long term health post transplant. Another area of investment continues now, Mobile, Alabama, offering is what we call remote track, remote track offers transplant patients the ability to have their blood drawn without the need to leave their homes. To date, approximately 150 transplant centers are offering Rhema track to their patients. And over 5000 kidney, heart and lung transplant patients have enrolled for the third quarter test, originating from mobile one made up between 30 to 40 percent of all test results. As expected, this rate was lower than the 40 percent plus level we experienced in the second quarter, as clinicians and patients are more aware of how to reduce their risk of acquiring or transmitting coronavirus. That being said, we believe Raymi track is a valuable service offering to transplant patients, their care givers. The third area of our strategic investment is a continuous development and communication of new clinical data and the support of peer reviewed publications.

[00:08:01] Earlier this month, we announced the publication of positive clinical data for Alisher Lung from the Multicenter Ligers Study. The study demonstrated that alcohol alone could identify patients with acute rejection, a critical need for long transplant patients whose only other option to detect rejection is an invasive bronchoscopy, with lung transplant patients having a lower survival rate of any solid organ transplant. We believe having a noninvasive surveillance tool like alcohol can be a game changer for improving the lives of lung transplant patients. We submit that dossier to MultiChoice this summer, which we recently updated with the newly published Lagat data. Regarding the communication of clinical data in a virtual world, we think it’s essential to develop innovative approaches to provide continuing education opportunities to the transplant community. We’re achieving this by attending virtual industry conferences, using new tools to communicate with clinicians and patients hosting virtual Kalven in early September at the Virtual International Congress of the Transplantation Society, we hosted for industry symposia, showcase six posters and sponsored the plenary session. Not to rest on our laurels, we continued our industry presence by conducting a token LCG examining and presenting nine posters on KTXA offerings at the American Society for Histocompatibility and Immunogenic conference. Last but certainly not least, those 10 publications pinned down to about KTXA Solutions in the third quarter, including two of the subjects of our recently announced pivotal Alisher lung data.

[00:09:32] Regarding an ongoing clinical studies, we saw an acceleration in our Oakhurst study enrollment during the third quarter compared to the second quarter. Barring a significant increase in hospitalizations due to covid-19 and fourth quarter, we expect okra to remain at the pace we experienced in this past quarter. For a short study, the utilization of Hodgy continues at a rate we saw in the second quarter as many transplant patients switched their biopsy protocols to assure. Well, we reported 28 percent year over year growth on our products business for the third quarter. This business is still negatively impacted by the global pandemic because hospitals and transplant laboratories across the U.S. and Europe continue to restrict access to their facilities for some non-essential personnel. It has been difficult for us to gain much traction for our best in class product solution. Finally, we’re very excited this month to receive final Medicaid coverage for Alice Shohat after a rigorous technical assessment by Moldings program to determine the noninvasive heart surveillance testing protocol is a valuable solution to managing transplant patient care. This decision also paves the way for Hotcake, the combination of Alice, Stewart and Allen that had to be made available to providers and patients. We expect to hear reimbursement news from Goldex before the local coverage becomes effective in mid-November. Now hand over to Mike, discuss our financial financials.

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Michael Bell

[00:10:53] Thank you, Reg.. Turning first to the income statement, total revenue for the third quarter was fifty three point four million a year over year, growth of 58 percent. Our top line growth was driven by other Fokine and out on my part we saw accelerated penetration this quarter. As a result, testing services revenue in the third quarter increased 61 percent year over year to forty five point five million. Our first quarter product revenue increase to five point four million and our digital and other revenue was 2.5 million movies of our gross margins. For the third quarter of Twenty twenty, the gross margin was 68 percent, compared to a gross margin of 66 percent in the same period of 2019. The Nunga gross margin for the quarter was 71 percent, compared to 69 percent in the third quarter of twenty nineteen on a sequential basis. The that gross margin recovered by approximately 300 basis points compared to the second quarter of Twenty twenty, primarily due to the significant increase in lab testing volume, supplemented by the slight decrease in the proportion of tests originating from remote remotivate another mobile phlebotomy services. For the third quarter of Twenty twenty, net loss was 2.8 million compared to a net loss of one point eight million in the same period of 2019, a net loss Bashar to six cents for the quarter compared to a net loss of four cents in the third quarter of 2019. non-Government net income was 5.1 million in the first quarter of Twenty twenty compared to Dungannon, I think of zero point nine million in the same period of 2090.

[00:12:28] Our net income per share in the third quarter was Twenty twenty was 10 percent compared to a non government net income Bashour, two cents in the same period of 2019. As a reminder, we define adjusted EBITDA non-GAAP net income before interest, income tax, depreciation and amortization and other income and expenses for the first quarter of Twenty twenty. We recorded positive adjusted EBITDA of five point six million, which is an adjusted EBITDA margin of 10 percent compared to adjusted EBITDA of zero point eight million and a margin of two percent in the third quarter of 2019. That’s operating cash flow was positive, 5.2 million in the third quarter, Twenty twenty. And we closed the third quarter with 240 million cash as a reminder, in April, 20, 25 million from CMF advance payment program based on recent CMF announcements, we now expect them to begin to recoup this payment in April 2021. We are extremely pleased that in the third quarter, we were able to get our gross margins back on track after the impacts of remote track in the second quarter and that we were able to deliver such strong adjusted EBITDA margin and positive operating cash flow despite the continued investments that we’ve made across our operating expense line. As mentioned, we are strategically invested in our future and have been on the offensive to drive growth. And ultimately, shareholder value will continue to allocate capital with a focus on top line growth by developing our pipeline and expanding our sales and marketing efforts beyond transplant centers by going direct to patients and community nephrologists.

[00:14:07] Turning to guidance what we have seen, many transplant centers return to some level of normality over the last couple of months. There is still much uncertainty surrounding the ongoing impacts of covid-19 on our business and as such, we will not currently be providing revenue guidance for the full year Twenty twenty are now back over to EPS to close out.

Peter Maag

[00:14:26] Thank you, Mike. In closing, the third quarter was another record quarter for Kodiak’s, despite covid-19 affecting all aspects of our employees life. We continue to develop and deliver new and unique solutions to improve the lives of transplant patients and their caregivers. Over the past several months, our company has shifted into a higher gear and we will continue to keep our foot on the accelerator here. He has built a platform in transplantation which may shape the future of this exciting therapeutic area in many ways.

[00:14:56] As an example, I would like to invite the investor community to a virtual meeting, innovation and transplantation on Thursday, November 5th, on one to two thirty p.m. Eastern.

[00:15:07] Finally, I would like to congratulate Reg on his appointment to CEO, and I look forward to working closely with him as well as the rest of the organization to continue to build security into a powerhouse in transplant care. Thank you all for joining. And we will now open the call for question.

Question-and-Answer Session

Operator

[00:15:25] Thank you. At this time, we’ll be conducting a question and answer session, if you’d like to ask a question, please press star one on your telephone keypad. A confirmation would indicate that your line is in the question queue in a fresh start to if you’d like to remove your question from the queue for participants using speaker equipment, it may be necessary to pick up the handset before pressing the market. Moment, please, while we call for questions. The first question is from Brandon Couillard. Please go ahead, sir.

Brandon Couillard

[00:16:01] Hey, thanks. Good afternoon. Good afternoon. Brandon here. Clearly, you’ve been at this a long time in the in the CEO position. Just curious to elaborate. Just, you know, why now is the right time for this transition. I would be curious to know if you have any, you know, potential changes in strategy or approach perhaps around the money that you might like to pursue. And, you know, Peter, do you think you’ll pursue other opportunities outside of Kodiak’s near term?

Peter Maag

[00:16:34] No rain, thank you so much for the question, you know, I was joking a little bit with the team I’m moving now from overtime to full time on this position. I’ll continue to focus on uncourteous. I’ll be working with vetch on the next phase for the company, which I think is incredibly exciting. Yes. Thanks, Peter.

[00:16:53] I mean, Peter and I worked very closely over the last few years on the strategy and the growth of the organization, and I’ve managed to cross all the business lines. I don’t expect there to be any seasonal changes in the in the strategy in terms of the, you know, corporate development. I’ve also been involved in all the different activities I’ve been doing over the last two years. So, again, that’s part of the normal course of what we’ve developed.

Brandon Couillard

[00:17:18] Thanks. And then question Breg or Peter. You hired a significant amount of additional patient care managers in the period. Curious just if you could perhaps quantify the initial impact from those new hires and really how you think about potential utilization of these rates or productivity either by tests or surveillance or centers as they sort of continue to mature, I guess, over the next few quarters.

Reginald Seeto

[00:17:52] Yeah, thanks. I mean, we see the patients Trelease as a strategic asset, which, you know, has played a key role, particularly during, you know, covered in our response to Grima Track. I think, you know, some of the key things to note is that when our patient care mangers actually schedule the patients, it’s actually a much higher adherence than when the centers do it themselves. I think at the same time we’re seeing, you know, benefit from them having a direct relationship with the patient because we now move to offerings such as alloca. So really has been a real strategic asset for the organization. I think we’re seeing the benefits of that as well. It should be noted that we have more than 5000 patients down the track. That’s also been part of the reason why we’ve expanded with with the EPS Ms.

Brandon Couillard

[00:18:39] I guess maybe one for you, Michael, any color you maybe share with as far as just kind of the investment plan or OpEx outlook is only just for the fourth quarter the helpful thing?

Michael Bell

[00:18:51] Yes, Brandon, you know, throughout throughout the year, you know, and I mentioned it on the scripted remarks, you know, we’ve continued to invest really on the research and development pipeline and also the sales and marketing, I would say, for Q4. I mean, you should expect us to, you know, continue that investment and continue the increase. You know what? I would expect sequentially our operating expense to to increase again in Q4, as it did in as it did in Q3.

Brandon Couillard

[00:19:21] Thank you.

Operator

[00:19:25] The next question is from Steven Mah Piper Sandler. Please go ahead, sir.

Steven Mah

[00:19:31] Great. Yes, good afternoon, everyone.

Peter Maag

[00:19:32] Stephen, good to have you on.

Steven Mah

[00:19:35] Yeah, yeah, congratulations, Peter. Yeah, it’s been it’s been a great run. Congratulations for all you’ve done to build X to where it is now. And I believe it’s in good hands with was Breg and well-deserved transition for you to take to go from overtime to just working full time. So, so well deserved.

Peter Maag

[00:20:01] Thank you very much, Stephen, and you’ve been following the story for a long time, and, you know, there’s so much opportunity yet as we were executing on this two billion dollar, two and a half billion dollars Tammin kidney.

[00:20:12] And we just in the beginning with heart and lung, with so many growth drivers on the company, I’m so I’m so excited of handing this over to Red.

Steven Mah

[00:20:21] Yeah, yeah, no, it seems like a good seems like a good timing and yeah, yeah, I think it’s I think it’s great. Yeah. So maybe just moving on to questions, I know you got the, you know, the heart care decision. Do you have any indication on the heart care pricing?

Michael Bell

[00:20:42] Hi, Stephen, it’s Mike. No, not yet. I think we mentioned again earlier in the call that we’re expecting to get the reimbursement news on the pricing by the mid middle of November, which is when when this would go effective. But as yet, we have no we’ve got no additional information.

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Steven Mah

[00:21:03] Ok, great. And then on kidney care, could you remind us again on the timelines and when you’re going to submit for Medicare reimbursement?

Peter Maag

[00:21:16] On until Kindercare for reimbursement, we’re still continuing on with Kindercare as part of Okura, so it’s part of an ongoing clinical study that we’re doing at this stage.

Steven Mah

[00:21:29] Ok, gotcha, OK. And then finally on a remote track, you know, I know it’s hard to predict what this steady state level is as a percentage of volume will be. And I know some senators have reopened. But, you know, could you give us a sense of what you think the steady state level will be going forward? Maybe and in maybe like a twenty twenty to sort of like a post post pandemic run rate?

Reginald Seeto

[00:22:00] Yeah, I think for for our steady state strategy, we expect to be around the 40 percent mark. I think it’s something that, you know, we’re seeing that’s a fairly, you know, relatively consistent number. And also with covid, you know, with this uncertainty, said that would certainly lead to more remote track usage as well.

Steven Mah

[00:22:19] Ok, gotcha. And the only thing can you give us a sense on how patient adherence has improved with with remote track and, you know, continue covid-19 pandemic issues and can just give us a sense of some color.

Reginald Seeto

[00:22:38] Yet what we’ve seen is we reschedule patients with nonromantic and recontract, and there has been actually an increase in hearings with the use of remote track and more importantly, when we actually schedule patients through outpatient care managers in this sleep, an increase versus what the centers do themselves. Patients, more importantly, they actually really like the offering, and I think that’s one thing, there’s been a bit of a call for them to actually do more of it. And that’s part of the drive, is the ability to be during this time to have a blood trail at home. It’s really been something that’s really compelling. I mean, more than nine in 10 patients really, you know, in the feedback and share that this saying they want to continue doing moving forward.

Steven Mah

[00:23:20] Yeah, and some getting as well. Yeah, yeah, I mean, that makes total compromise, so sorry.

Reginald Seeto

[00:23:28] Yeah, I think also with the launch of L.A., I think this enables an additional point of his direct patient contact as well. I think it’s a nice continuum. We have obviously our patient demand is calling up. These patients are transplants and are also calling them when they leave the transplant center. But we also have now, you know, a way of connecting patients through L.A. as well as our digital patient app. So it’s all part of the plan to continue this sort of interaction with the patient.

Steven Mah

[00:23:56] That makes a lot of sense and maybe you can squeeze one less in one more in four for Mike given remote track. You know, it’s going to be a significant part of the volumes going forward. I know the margins are impacted with the phlebotomy. Can you give us a sense of how you can get to your stated goal of 75 percent long term gross margins? Thank you.

Michael Bell

[00:24:20] Yeah, and, you know, obviously, this quarter and third quarter, you know, we recovered really nicely on on our gross margins back to where they were in the first quarter. So we sort of got over that remote track already. And that increased that improvement in in Q3 was down to the volume coming in into the lap. And I think as we look as we look going out, as the volume continues to increase, then that’s going to naturally drive improvement in the margins. But also, we’ve got a lot of efficiency and optimization projects coming on in the lab at the moment. So that will drive that.

[00:25:01] And then, of course, you know, on the topline and we’ve mentioned this before, as we get additional reimbursement and whether that’s for Alice, your heart or we get private payer reimbursement coming through for Alisher and Kidney as we drive the increase in average reimbursement, that’s also going to drop down to the to the gross margin improvement. So I think we’re feeling really comfortable that we can get to 75 percent gross margins.

Operator

[00:25:38] There’s a question from Alex Nowak, Craig-Hallum Capital Group. Please go ahead, sir.

Alex Nowak

[00:25:44] Great. Good afternoon, everyone, and congrats, Peter and Reg, on the transitions here. You’ve put up some really impressive growth during a tough quarter. And we touched on a bit during the call. You mentioned that this is a culmination of all of your investments. You have very much track more patient care managers out there to focus on protocols. You also have just a general push to go to liquid biopsy. But I was hoping you could kind of signal out for one of us is what is the most beneficial investment that you saw during Q3 generating the highest profile in the quarter? And how do you think about that benefit continuing into Q4 and beyond?

Reginald Seeto

[00:26:22] Yeah, I think the most things investment we made is, you know, the patient care mind as we continue our DGP strategy, I think it’s really important for us as we build that connectivity not only within the patient, within person, instead of moving out in back into communities that sort of last mile. And I think what we’ve seen is to be doing closer response to the response to Rhema. Traffic has been amazing and to the offering there. Like I think now we’re adding additional things as part of that suite to see that relationship that’s build their relationship with the patient. And clearly, that all starts with the patient care and way off of this premium like Lobsterfest.

Alex Nowak

[00:27:01] Got it, and to that point, are you starting to see the results of your investments within the community in this quarter, or is that all still to come?

Reginald Seeto

[00:27:14] Yes, we’ve we’ve built out our community urology team and we’re beginning to see some early benefits of that plan and strategy. We don’t break out those numbers, but what we can say is that we’re very pleased with the results that we’ve seen so far over the last three months.

Alex Nowak

[00:27:29] Ok, got it. And then given all the advances that Medicare is doing to drive more kidney transplants, what should be the underlying growth rate of that market for the next several years? And of all the programs that have been announced around kidney transplants and essentially moving people to perform a kidney transplant. You know what else needs to be done by either CNN or others to get to that doubling of kidney transplants in five years?

Reginald Seeto

[00:27:59] And that’s a great question, Alex, and, you know, that’s something that maybe I am happy to to take on a little bit, to understand that dynamic better, because, you know, there are very few industries where only 20 percent of the supply of the demand is actually met.

[00:28:14] But if you’re thinking about for every transplant that we do, there are five more that we could do if we had enough organs.

[00:28:23] And so there is this latent demand and increase of organs will tremendously accelerate life of patients and the entire industry and ultimately benefit curity as well. So, you know, doubling of the organs within five years, I think that is the stated goal. We probably had a bit of a curveball this covid-19, but we see transplant centers already back to full swing and many transplant centers are actually above the previous year. So so I have no doubt that there is a lot of opportunity that we can do. Now, the most important element is that No. One, people go and donate organs. Number two is that these opio with these organ procurement organizations are efficient and effective. And I think there’s a lot of room to grow in the future.

Alex Nowak

[00:29:14] That’s great, and then just last question for me, it looks like we’re entering what would be called the third way here in the U.S. for the Kobe cases with, you know, everyone’s eyes and ears activity focused on the transplant centers. What are you hearing about another wave regarding transplant volumes? Are they proceeding or shut down or slow down like April or May, or do they know how to better manage the virus? Now that transplant will continue.

Reginald Seeto

[00:29:42] Yes, things like that. I mean, what we’re seeing is a region by region, center by center response, and there’s even some variability within locations. And what we’ve found is they built that covering more than 150, you know, transplant centers across the United States with really good insights into what they need and want. And I think in response to, you know, covid remote track continues to an offering where we have seen, you know, continual increase of more than 250 transplant centers today. So I think that ability to respond, react to the needs has been really important for us to all different organs from kidney to heart and also lung.

Alex Nowak

[00:30:21] That’s great. I appreciate it. Thank you.

Reginald Seeto

[00:30:24] Thanks, Steve.

Operator

[00:30:25] Of course, we have a question for Randy Cooper, Raymond James, please go ahead.

Andrew Cooper

[00:30:31] Hey, guys, and congrats. Peter and Reg, a lot of kind of the chorusing coverage. So maybe I’ll take it this a little bit of a different direction into the product bucket, just as we think about, you know, obviously your access to centers, you know, and to potential customers being limited. When we think about the European markets and the competitive environment and your access there, you know, what’s the path or how should we be thinking about the past or particularly I was asked yesterday, as you try to maybe move, you know, more into that European market in the first transplantations based.

Reginald Seeto

[00:31:11] On the product side, I think, you know, if we look at the type of business, I might just covered that firstly that requires demos and demonstrations.

[00:31:18] I think what we’ve found there is we’ve shifted pretty much to what we’ve done in the US to virtual sort of a process. And I think that will be to see more of building the best in class virtual marketing, which has been recognized by many of our kids as well. So I think that’s from the parking business next us. I think in terms of Sophie DNA, we continue to have strong interest. And and I think this is an area where we continue to work with our children to see the benefit of having some correct infrastructure, particularly in Europe, has enabled us to do that. The other thing is we have many of other folks who are to communities and support us now who have actually been, you know, talking to their colleagues in Europe as well to make sure that this is a continuation of that information flow, as well as why there’s so much excitement about our show and now translating it to us, analyzing sort of bedini.

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Andrew Cooper

[00:32:15] Ok, great, that’s helpful. And then I know it was sort of brought up in a question already, but just as we think about, you know, kidney care, sorry about that. If you think about kidney hair, is there anything you know that you take away from the conversations you’ve had, whether it was with potential customers or anywhere through the pipelines, around heart care that have changed how we think about, you know, the potential for that for that product?

Reginald Seeto

[00:32:45] Yeah, I think that’s really about to lead into that, because I think what Hawke has been able to demonstrate is, you know, I think that we’ve been trying to push for further innovation. As many of you know, on the phone, you know, we’re the first to bring gene expression. Profiling to transplant were the first to bring Sophi DNA into transplant. I think as we look at, you know, the combination of the multimodality approach, it’s really, really important in terms of those that was the first, you know, approved three MultiChoice demonstration. And for us, that really validates our prescription that we continue to be a trailblazer. I mean, one thing that’s never lost in critics is drive innovation, saying that we do every day at the front of what we want to do as a company. So in that sense, translating that to care, we’ve taken the same approach. And I think in addition to the selfie DNA and the gene expression profiling, we’ve also added the ability of eyeballs, which is really, you know, evolve that algorithm in France. And so I think that we believe will make a meaningful difference. In addition, we’ve also got your map in Houston office and digital offerings that we’re working on as well. So, again, this Kanika Multimodality is really the foundational basis for the future and transplant.

Andrew Cooper

[00:33:55] Ok, great, and maybe just one more after the deputy race earlier in the year, as we think about you guys potentially being more more active in the M&A landscape. Any any comment on sort of what you’re seeing out there as has surfaced, perhaps, that some players financially where, you know, more is bubbling to the surface or anything we should think about in terms of where you may or may not be looking at any of the.

Reginald Seeto

[00:34:21] Yeah, I mean, the equity raise, it got us to be at a ratio similar to our peers, at least to the to the median. That’s the first point I’d like to make. Secondly, you know, we have multiple business lines, not just the testing services, but we also have the products and services. And there are multiple opportunities, you know, over the last two years that we continue to monitor and being discussed. So I think that is part of our normal course that we believe that there are meant to be attractive. And we’ll see what happens as we continue on to those.

Andrew Cooper

[00:34:52] I’ll stop there. Thanks.

Operator

[00:34:56] The next question is from Sung-Ji Nam, BTIG. Please go ahead.

Sung-Ji Nam

[00:35:03] Hi, thanks for taking the questions and congratulations to both Peter and Raj was was wondering about your lung. Could you remind us what the market opportunity there is in lung transplant? Just trying to get a sense of how many bronchoscopy procedures to patients undergo for rejection monitoring, you know, in the first year and then. Following the first year.

Reginald Seeto

[00:35:32] Yeah, I would think of alcohol one, as you know, similar size to to another about 3000 patients in terms of that opportunity now with lung transplant patients. This is sort of one of the, you know, high mortality conditions. And with that, there actually is a lot more testing in the first year. And so I think with the protocol frequency that we’re sort of establishing as originally initially the 744, but we believe that maybe with some of the feedback we’re getting, that there’s there’s there’s a need to continue this, you know, maybe even higher surveillance. Look at that.

Peter Maag

[00:36:12] And, you know, just to reiterate what Fred was saying, you know, Lung has one of the problems that these patients don’t live for the 10 to 15 years they’ve been seeing kidney and heart, but they probably, you know, have a five year, five year survival. So in terms of the tail, this is not not as a big opportunity, but it’s very exciting because the unmet need is so significant. And so the publications that Richard was talking about, we have now three major publications on on on Chalfie DNA or other saurian lung, which is very exciting. So, you know, I think he’ll be benefit of taking the existing platform go into this field, which is very adjacent and might be able to quickly, quickly accelerate on.

Sung-Ji Nam

[00:36:56] Great, that’s helpful. And the reason Medicare and the announcement, which obviously was largely a nonevent, but just kind of curious, is that something you guys might pursue in the future? Could there be any benefit from pursuing the A.D.s?

Reginald Seeto

[00:37:13] You know, I think that the reimbursement landscape in molecular diagnostics continues to evolve. I think the company in general has had a phenomenal run in making sure that, you know, our products are high value diagnostics products and are recognized as such. I think we are very comfortable with the current approach to Molex, which is a data driven approach and getting through reimbursement through moldings and then Meridien. But we were constantly evaluating other other roads. So, you know, maybe going dual track one day might be an opportunity with a combination between the FDA and the central office office approach.

[00:37:49] But right now, I think, you know, the heart care reimbursement is really a poster child on how we have thought through combining our multimodality offerings. And we’re very comfortable with the current approach.

Sung-Ji Nam

[00:38:03] Such a great and maybe a couple of quick ones for Mike, what was the Owasso revenue contribution this quarter and then would you be able to split the volume, you know, the sort of the report volume for Alan, that part versus Alan that I’m certainly sure could make this quarter or for your, I guess, year to date.

Michael Bell

[00:38:24] Well, first of all, on an hour or so, you know, similar to similar to the previous quarter, but less than 100000 dollars, so, you know, still early days yet for ourselves.

[00:38:40] And we hope to be announcing more on that, you know, as we move forward, spacing out the volumes. No. You know, now, I think the way that we look at testing services is in total commercial volume for both Alami and at our show.

[00:38:57] And so, you know, the volume is twenty one thousand eight hundred for the quarter, which was, you know, fantastic growth. But no, we’re not we’re not splitting that at.

Sung-Ji Nam

[00:39:07] Ok, sounds great. Thank you so much.

Peter Maag

[00:39:09] Thank you.

Operator

[00:39:14] As your reminder, if you wish to ask a question, star one on your phone, telephone the someone. Have a question, Yi Chen, H.C. Wainwright, please go ahead.

Yi Chen

[00:39:27] Thank you for taking my questions. First question is, which factor contributed more engrossing patient results this quarter? Is it penetration in transplant procedures at each transplant center or patients becoming more compliant with surveillance protocol with remote track?

Reginald Seeto

[00:39:49] Yes, both have been, you know, different levels for us, but I think, you know, the hallmark of our growth has been the driving the protocols and we continue with more than 50 protocols continue to grow each quarter. So it’s such a simple an opportunity for us as a center, you know, develops the Alisher specific Selfe DNA protocol.

Peter Maag

[00:40:09] And maybe to add to this, you know, we are so early so that there’s new patients coming onto the platform all the time. So, you know, we’re right now, depending on how you look at it, five to 10 percent penetrated. So the growth is primarily still driven by new patients coming onto the platform, while at the same time Rich was mentioning with our patient care managers, we might catch up on the compliance rate and the adherence. But right now, you know, our growth continues to be very dynamic by by new patients being added to the platform.

Yi Chen

[00:40:39] Don, thanks. Up next question is sales and marketing expenses have shown the decreasing trend as a percentage of total revenue for the first three quarters. Do you expect that trend to continue?

Peter Maag

[00:40:55] I think I think that will continue. But having said that, women will still be continue to invest in sales and marketing, you know, in that expense line, grew sequentially in Q3 because we’ve added all of the patient care managers and we’re still investing in that and we’re focusing on community nephrology. So I think it will still continue to grow, maybe not as fast as the as the revenue growth.

Yi Chen

[00:41:24] Got it. Thank you.

Operator

[00:41:31] Ladies and gentlemen, we have reached the end of the question and answer session that I can turn the call back over to Peter Maag for closing remarks.

Peter Maag

[00:41:40] Well, thank you very much for joining us. We are building a tremendous powerhouse in transplantation. Thank you very much. And I’m looking forward to future discussion. We’ll keep you updated. Thank you.

Operator

[00:41:52] This concludes today’s conference, you know, disconnect your lines at this time. Thank you for your participation.



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