{ "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": 21, "pageCount": 29, "prevPage": 20, "nextPage": 22, "slideType": "research-note", "function": "expose_contradiction", "density": "overcrowded", "nDataPoints": 4, "notes": "The slide argues that CareDx effectively monetized the research process itself, creating a conflict of interest and a circular revenue model.", "elementsJson": [ "paragraph", "footnote" ], "metadataConfidence": 0.95, "imagePath": null, "slideHref": "/slides/019dd923-622c-750b-8b98-0c85e40ec39b/21", "deckHref": "/decks/019dd923-622c-750b-8b98-0c85e40ec39b", "deckJsonHref": "/decks/019dd923-622c-750b-8b98-0c85e40ec39b.json", "deckAnchorHref": "/decks/019dd923-622c-750b-8b98-0c85e40ec39b#slide-21", "components": [ { "bbox": null, "kind": "callout", "text": "CareDx figured out a way to turn that on its head, commercializing the product first, and then generating revenue by studying whether it works.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd953-203e-77ad-a69f-0576d2caf3fb", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.06, "w": 0.76, "x": 0.12, "y": 0.09 }, "kind": "paragraph", "text": "forthcoming prospective clinical studies will demonstrate improved patient outcomes. Continued coverage for AlloSure testing is dependent on annual review by this contractor of such data and publications. [emphasis added]", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "2d62e5e1-20da-4f01-a739-1dd8acd2664e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.04, "w": 0.76, "x": 0.12, "y": 0.16 }, "kind": "paragraph", "text": "For the time being, though, AlloSure is covered and reimbursable for almost any kidney transplant recipient within 3 years of the transplant procedure.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "48910856-5ba4-4289-a351-8be4d6768b1d", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.76, "x": 0.12, "y": 0.7 }, "kind": "paragraph", "text": "In medicine, commercialization is usually preceded by evidence that the product actually works. CareDx figured out a way to turn that on its head, commercializing the product first, and then generating revenue by studying whether it works. Natera’s Chief Commercial Officer, in a conference call announcing a competing cfDNA test last year, declared that “we think the coverage-with-evidence-development process is very favorable because in fact you get paid while you're completing your clinical utility work.” Ironically, the results of the clinical utility work, as previously discussed, are not very good. We’re not the only ones to notice: based on management disclosures of patient counts since AlloSure testing began, we estimate the attrition rate of patients on an AlloSure surveillance regiment has been approximately 25% per", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "77863c62-05bd-4b5d-9186-bf5c88a68ea2", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.18, "w": 0.76, "x": 0.12, "y": 0.51 }, "kind": "paragraph", "text": "Of course, CareDx had already further stacked the odds in its favor by establishing research and consulting relationships with influential academic transplant physicians at many of the largest transplant clinics in the country. By our latest count, CareDx has financial relationships – research funding, consulting agreements, honoraria, and/or speaker fees – with transplant physicians in clinics comprising 23% of the total kidney transplant volume in the US. There’s nothing necessarily nefarious about this, but it certainly helps when you consider that CareDx’s business model is built on populating patient registries in order to study AlloSure as a surveillance mechanism. By CareDx’s admission (see the table below), over 90% of AlloSure revenue consistently comes from patients on an AlloSure surveillance protocol, and these are overwhelmingly within the framework of AlloSure studies.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "9633ec8f-8bf2-4e7e-81f9-b018f9a5f429", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.15, "w": 0.76, "x": 0.12, "y": 0.35 }, "kind": "paragraph", "text": "The company immediately began enrollment on a massive 1000-patient clinical trial, which it expected to “include approximately 10,000 reimbursed AlloSure tests over the next 3 years, thus representing incremental AlloSure volume as well as another revenue driver going forward.”24 Besides CareDx’s official clinical trial, AlloSure reimbursement allowed any transplant center interested in cfDNA research to conduct its own single-center study. Given a deep-rooted culture of such protocol studies in the transplant space, it’s not surprising that many transplant centers have launched AlloSure studies outside the confines of CareDx’s clinical trial.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "a83934df-73ef-4fcb-bf1a-ce9e03b3694f", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.13, "w": 0.76, "x": 0.12, "y": 0.21 }, "kind": "paragraph", "text": "With a decade’s worth of curiosity on cfDNA and comprehensive Medicare coverage, the ideal conditions were in place for CareDx to market AlloSure to transplant physicians. This was the first time that a “promising” noninvasive biomarker for rejection could be studied at scale, and at no cost to the provider. In fact, the more widely studied, the more revenue the provider would be generating, as every test would be reimbursed by Medicare at a rate of $2,840. CareDx would effectively be profiting from studies being undertaken to determine whether it actually works.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "ee6c1839-9287-4f7b-9afa-9b695a188837", "frameworkName": null, "frameworkSlug": null }, { "bbox": null, "kind": "quote", "text": "we think the coverage-with-evidence-development process is very favorable because in fact you get paid while you're completing your clinical utility work. — Natera's Chief Commercial Officer", "attrs": null, "subkind": null, "toolName": "Authority citation", "toolSlug": "authority-citation", "confidence": null, "componentId": "019dd953-203e-77ad-a69f-0941a36f21ea", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.02, "w": 0.45, "x": 0.12, "y": 0.89 }, "kind": "source-note", "text": "24 11/9/2017 – CareDx Fiscal 2017 Third Quarter Earnings Call", "attrs": null, "subkind": null, "toolName": null, "toolSlug": null, "confidence": null, "componentId": "d5b93ac8-04dc-4a57-a0fb-2da154cc1124", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Narrative foundations (from the Storymakers methodology)", "slug": "narrative-foundations", "agent": "storyteller", "layer": "slide", "matchId": "aa9075b9-f878-4a08-acb9-973266398809", "evidence": "The company immediately began enrollment on a massive 1000-patient clinical trial, which it expected to “include approximately 10,000 reimbursed AlloSure tests over the next 3 years, thus representin", "confidence": 0.5 } ], "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 }