{ "docId": "019dd923-622c-750b-8b98-0c85e40ec39b", "docSlug": "9b248b07037e", "documentTitle": "CareDx, Inc. (CDNA)", "authorId": "53_Kerrisdale_Capital", "authorName": "Kerrisdale Capital", "documentKindSlug": "research-note", "documentKindLabel": "Research note", "sourceTypeSlug": "short_seller", "sourceTypeLabel": "Short seller", "presentationDate": "2019-07-01 00:00:00", "orientation": "portrait", "aspectRatio": 0.77272725, "pageNumber": 20, "pageCount": 29, "prevPage": 19, "nextPage": 21, "slideType": "thesis_headline", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 3, "notes": "The slide uses a narrative structure to undermine the company's growth story by framing it as a 'house of cards'.", "elementsJson": [ "headline_text", "paragraph" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b98-0c85e40ec39b/20", "deckHref": "/decks/019dd923-622c-750b-8b98-0c85e40ec39b", "deckJsonHref": "/decks/019dd923-622c-750b-8b98-0c85e40ec39b.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b98-0c85e40ec39b#slide-20", "components": [ { "bbox": null, "kind": "callout", "text": "CareDx likes to boast that surveillance usage \"helps build the recurring revenue effect of AlloSure\" but we think that it's helped build an AlloSure house of cards.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-203e-77ad-a69e-4fa4c61ff0d4", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.76, "x": 0.12, "y": 0.58 }, "kind": "paragraph", "text": "CareDx was also aided by the unique status of diagnostic tests with regulatory bodies. As a Laboratory Developed Test (LDT), AlloSure didn't need FDA approval; and to obtain payor coverage, CareDx went through MolDX. The MolDX (Molecular Diagnostic Services) program was set up in 2011 to manage the growing number of genetic and molecular diagnostic LDTs and is run under the auspices of Palmetto GBA, a Medicare Administrative Contractor (MAC) in the Southeast. Most other MACs in the country have outsourced LDT coverage decisions to MolDX, so the program is effectively a gateway to national coverage and reimbursement for LDTs. To get a Local Coverage Determination (LCD) from MolDX, a test must pass a technical assessment and demonstrate \"analytical validity, clinical validity, and clinical utility.\"", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "1fb6e2fa-d702-49d0-8094-0e22b0f671e0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.05, "w": 0.76, "x": 0.12, "y": 0.19 }, "kind": "paragraph", "text": "Despite its fatal flaws, CareDx has been able to generate a lot of buzz regarding AlloSure, successfully steering the test to ~$45 million in annualized revenues as of the most recent fiscal quarter.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "4fce973f-2b5e-4cb1-a100-259ff40c85e3", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.09, "w": 0.76, "x": 0.12, "y": 0.74 }, "kind": "paragraph", "text": "MolDX will typically grant an LCD even with limited evidence of clinical utility, conditional upon further research that's expected to prove clinical utility. That's precisely the case with the LCD for AlloSure, finalized on October 2, 2017, which states that MolDX recognizes that the evidence of clinical utility for the use of AlloSure in its intended use population is promising at the current time. However, this contractor believes that", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "59e992c1-cc21-4c4f-b4ff-12e9f3dfc2ca", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.16, "w": 0.76, "x": 0.12, "y": 0.32 }, "kind": "paragraph", "text": "To put AlloSure's success in context, recall that cfDNA has been the subject of intense study and speculation in the transplant community for over 20 years. The Quake lab at Stanford lent cfDNA a Silicon Valley halo by publishing a small study of its potential in the heart transplant setting in early 2011, and hundreds of small scale studies followed over the years. Strangely, Quake and Snyder started a company called ImmuMetrix to commercialize cfDNA testing in transplants but sold it to CareDx in 2014 for $17 million in (then-privately-held) stock, apparently judging the opportunity not sufficiently exciting. A year after acquiring ImmuMetrix, CareDx began its DART clinical trial with a target enrollment of 200 patients, the (then) largest ever study of cfDNA in transplants.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "768ce30d-2785-41fc-b032-55d8269debcc", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.76, "x": 0.12, "y": 0.49 }, "kind": "paragraph", "text": "While much of the cfDNA research to that point had been in heart and lung transplants, CareDx focused the DART trial on kidneys because only kidney transplants offered the potential volumes that would make for a lucrative business. Kidneys are also unique in that medical care for 3 years post-transplant is entirely covered by Medicare, so broad payor coverage for a rejection test would essentially require only Medicare to assent.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "9069e357-0a9e-4d38-9eb7-7fa9e3cd6a7e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.07, "w": 0.76, "x": 0.12, "y": 0.24 }, "kind": "paragraph", "text": "But the foundation of AlloSure's success is surveillance usage in clinical studies like the ones taking place at Cedars-Sinai and the University of Colorado. CareDx likes to boast that surveillance usage \"helps build the recurring revenue effect of AlloSure\" but we think that it's helped build an AlloSure house of cards.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "c9297815-90ff-412e-ae2c-dca7596a2018", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "recognizes that the evidence of clinical utility for the use of AlloSure in its intended use population is promising at the current time. However, this contractor believes that — MolDX (LCD for AlloSure, October 2, 2017)", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-203e-77ad-a69e-52eb060f7349", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.08, "w": 0.76, "x": 0.12, "y": 0.09 }, "kind": "title", "text": "IV. AlloSure Revenues Overwhelmingly Come From Protocol Usage in Clinical Testing, Which is Suffering 20-30% Quarterly Attrition", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "97acd1e2-09a7-4b0d-8e7f-22a0628badb8", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [], "frameworks": [], "arcBeats": [ { "to": 21, "from": 20, "beatId": "3dee3f50-5569-4b10-9a72-f52aa22133b7", "arcName": "Problem-Agitate-Solution", "arcSlug": "problem-agitate-solution", "beatName": "Thesis Headline", "beatSlug": null, "evidence": "Slides 20-21 present the thesis on AlloSure's revenue and vulnerability", "position": 3, "confidence": 0.8, "parentBeatName": null, "parentBeatSlug": null } ], "loops": [ { "to": 26, "from": 4, "name": "Cost Of Inaction", "slug": "27-cost-of-inaction", "bestFor": "Urgent budget requests, compliance, risk mitigation", "matchId": "6ece1bb9-6dc2-4b36-a983-1e6b3a2a754d", "evidence": "The document emphasizes the risks of not acting on AlloSure's ineffectiveness", "position": 0, "objective": "Highlight the cost of inaction for investors", "structure": "The Status Quo -> The Hidden Costs Accumulating -> The Future State of Inaction -> The Tipping Point", "confidence": 0.7, "description": "Quantify what happens if the audience does nothing" }, { "to": 25, "from": 20, "name": "Quick Win Big Bet", "slug": "47-quick-win-big-bet", "bestFor": "Transformation planning, 100-day plans, resource allocation", "matchId": "53f4304d-8473-4710-ba17-ffce7b46b188", "evidence": "The document presents a big bet on AlloSure's vulnerability to competition and Medicare risk", "position": 1, "objective": "Present a big bet on AlloSure's vulnerability", "structure": "The Full List -> Quick Wins (Low effort, High impact) -> Big Bets (High effort, High impact) -> Sequenced Roadmap", "confidence": 0.6, "description": "Separate initiatives into immediate wins and longer-term strategic bets" } ], "imagePathAlt": null, "thumbSrc": null, "thumbSrcAlt": null, "locked": true }