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CareDx Inc (NASDAQ:CDNA)
Q2 2020 Earnings Call
Aug 4, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to CareDx, Inc. Second Quarter 2020 Earnings Conference Call. [Operator Instructions]

I will now turn the conference over to Greg Chodaczek. Thank you. You may begin.

Greg Chodaczek -- Investor Relations

Thank you. Good afternoon, and thank you for joining us today. Earlier today, CareDx released financial results for the quarter ended June 30, 2020. The release is currently available on the company's website at www.caredx.com. Peter Maag, Chief Executive 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 our examination of historical operating trends, expectations regarding coverage decisions, pricing and enrollment matters 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 financials or financing excuse me, our filings with the Securities and Exchange Commission.

The information provided in this conference call speaks only to the live broadcast today, August 4, 2020. CareDx 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 GAAP financial measure may be found in today's earnings release filed with the SEC. I will now turn the call over to Peter.

Peter Maag -- Chairman And Chief Executive Officer

Thanks, Greg, and good afternoon, everyone. I'm pleased to welcome you to CareDx' call to review our results for the second quarter of 2020. Back on April's call, I began by talking about how we chose Transplant Proud as our theme for 2020 and how proud I was of our team's response to the COVID crisis. Today, I can say that our team has taken CareDx to a whole new level. The dedication and resiliency of every member of CareDx is truly inspiring. I want to thank our employees and say you have made the lives of transplant patients and their caregivers better because of your grit, your hard work and your devotion. You exemplify what essential businesses and workers stand for. Thanks for leaning in. Now turning to our exceptional results for the quarter. In the second quarter of 2020, we reported revenue of $41.8 million, an increase of 33% compared with the second quarter of 2019. Growth primarily came from our testing services with revenue of $36.3 million. We provided over 17,100 AlloSure Kidney and AlloMap Heart patient results, an increase of 44% year-over-year. Product revenue for the quarter was $3.3 million, and digital revenue added $2.2 million to the top line. We believe that these are exceptional results in a challenging environment. During this crisis, we have chosen to invest strategically in areas that will accelerate the building of our moat in transplant care. We are leaning in. These strategic areas include our direct-to-patient capabilities and our clinical activities, especially those focused on our multi-modality testing and digital solutions. These investments will all accelerate our precision medicine offering in transplantation.

Our digital acquisitions have proven to be a tremendous asset as it has enabled us to pivot faster than anyone in the industry in building out our offering, Transplant Proud. In the latter part of March and throughout the second quarter, several cities experienced rapid increases in newly confirmed cases of COVID-19. With these increases came more requests from physicians and patients for RemoTraC and mobile phlebotomy. As a result, our RemoTraC services has experienced continued growth. For the quarter, over 40% of our patients' results originated from RemoTraC or other mobile phlebotomy services. Under the tremendous leadership of Reg Seeto, in just over four months, RemoTraC has gone from an idea spawned from conversations with clinicians to a full-service offering that now originates a significant proportion of our patient results. RemoTraC has provided patients peace of mind by giving them the ability to avoid transplant centers and physician offices, thus reducing the risk of contracting COVID-19. To date, around 150 transplant centers are offering RemoTraC to their patients, and over 4,000 kidney, heart and lung transplant patients have enrolled. Our nationwide network of mobile phlebotomists has grown to over 10,000. Not only have we had to change the way we call on customers, but the pandemic has also changed the way we communicate and present important clinical information to leaders in the field of transplantation. In late May, at the virtual American Transplant Congress Annual Meeting, our program included virtual abstract sessions, virtual symposia and prominent offers delivering 10 abstracts. Cutting-edge content on AlloSure, AlloMap, iBox and KidneyCare was presented. Having 10 abstracts accepted for presentation at ATC and having over 1,000 clinicians, patients and investors log onto our virtual sessions was exceptional and quite an honor for our clinical team, which is led by Sham Dholakia.

The large turnout for our virtual events demonstrates our leadership position in transplant care as we are at the forefront of innovation in this space. Others might be talking, CareDx is doing, and the field is recognizing our efforts and our dedication. We are also using these new tools to communicate to clinicians and patients and during industry conferences and interactions with the transplant community. We are very encouraged by the positive feedback from nephrologists, cardiologists, transplant coordinators and patients about our virtual advisory board. We have and will continue to virtually support our customers and to call on our physician advocate and transplant center administrators to every extent possible. While we have successfully pivoted our testing services business with exceptional success, we also point out that our product business with its many launches have been negatively impacted by the COVID pandemic. Hospitals and transplant laboratories across the U.S. and Europe have restricted access to their facility for non for outside personnel. In May, we received CE Mark for AlloSeq Tx 17, our best-in-class solution for HLA matching of transplant donors and recipients. Despite providing better care for patients by extending the typing range to nonclassical HLA side, traction of our launch efforts will be a little late in the U.S. and Europe due to the COVID pandemic. While our product revenue is not what we had hoped for, we had the chance to welcome exceptional talent into this group. With Paul Tausch, we added strong commercial leadership from Thermo Fisher. Paul has been leading the success of One Lambda with Dr. Terasaki for over 25 years. Turning to our operations. We continue to adapt to a dynamic COVID environment in transplant centers, hospitals and even within our own facility. We have established internal operating solutions to protect our employees and their families while continuing our commitment to supporting patients. Despite COVID affecting many large cities across the United States, I'm pleased to report that we have continued our operations without interruption.

We are firmly committed to our mission, and we never wavered from our commitment to prioritizing patients. With respect to our ongoing clinical studies, as one would expect, we did see a slowdown in enrollment in OKRA during the second quarter. However, we experienced an increase in SHORE and utilization of HeartCare as many centers have switched their biopsy protocols to noninvasive surveillance. Our heart franchise has been exceptionally strong in the second quarter, and the value proposition of our precision medicine solutions has never been clearer. In the second quarter, we recorded our first-ever AlloCell revenue. While it was only a small amount of revenue, it clearly demonstrates the next step in expanding our transplant technology from solid organs to cell therapy. To pursue this, we have built an exceptional team with strong business development hires as well as elevating internal talent. While we are in the proof-of-concept phase, we have fielded many inquiries from pharmaceutical and biotech companies of all sizes. We are very excited about the opportunities in cell therapy, and we will continue to update you on our programs. Finally, turning to the balance sheet. The second quarter saw us significantly strengthen our cash position. We closed the quarter with $211 million of cash following a very successfully executed public offering in June. Mike Bell and the team have done an exceptional job. We feel we now have the right-sized balance sheet to continue to accelerate our revenue growth and take full advantage of opportunities available to us. Before I turn the call over to Mike, I would like to take this opportunity to thank our employees again. We are firing on all cylinders. We provide our services to more transplant patients every day. I'm very confident the best is yet to come. As you can tell, I'm optimistic about the remainder of 2020 and look forward to providing updates on the progress in future communications.

Now I'll hand over to Mike to discuss our financials. Mike?

Michael Bell -- Chief Financial Officer

Thanks, Peter. Now turning first to the income statement. Total revenue for the second quarter was $41.8 million, a year-over-year growth of 33%. Growth in revenue was primarily driven by AlloSure Kidney and AlloMap Heart. We saw increased penetration primarily due to the success of RemoTraC and the need for centers to be able to monitor their patients remotely. As a result, testing services revenue in the second quarter increased 41% year-over-year to $36.3 million. Our second quarter product revenue decreased to $3.3 million due to the COVID-related issues outlined earlier by Peter. And our digital revenue was $2.2 million. Moving to our gross margins. For the second quarter of 2020, the gross margin was 64% compared to a gross margin of 63% in the same period of 2019. The non-GAAP gross margin for the quarter was 68% compared to 67% in the prior quarter. On a sequential basis, the non-GAAP gross margin was down approximately 300 basis points compared to the first quarter of 2020 primarily due to the increased number of tests originating from RemoTraC or other mobile phlebotomy services. As a reminder, the cost of a mobile phlebotomy draw can be between $100 and $150 more expensive than a lab draw. Although the incremental costs of RemoTraC and mobile blood draws are here to stay, we are still confident that gross margins will continue to improve over time due to the operating leverage of our testing lab in Brisbane. For the second quarter of 2020, net loss was $6.6 million compared to a net loss of $7.8 million in the same period of 2019. Our net loss per share was $0.15 for the quarter compared to a net loss per share of $0.19 in the second quarter of 2019. Non-GAAP net income was $1.7 million in the second quarter of 2020 compared to a non-GAAP net loss of $0.1 million in the same period of 2019.

Our non-GAAP net income per share in the second quarter of 2020 was $0.04 compared to a non-GAAP net loss per share of $0.00 in the same period of 2019. Note that both GAAP and non-GAAP net income in the second quarter include other income of $4.8 million related to the CARES Act Provider Relief funding that we received in April. As a reminder, we define adjusted EBITDA as non-GAAP net income before interest, income tax, depreciation, amortization and other income and expense. For the second quarter of 2020, we recorded a negative adjusted EBITDA of $2.8 million compared to a positive adjusted EBITDA of $0.1 million in the second quarter of 2019. Our adjusted EBITDA in the second quarter of 2020 was impacted by the cost of RemoTraC and mobile blood draws as well as increased spending in the R&D and G&A lines. For research and development, our clinical study expenses increased due to an uptick in activity in our SHORE study as well as upfront costs related to the UroMap development agreement signed with Cornell in May. Our G&A costs increased sequentially in the second quarter primarily because of the higher legal expenses related to our ongoing litigation efforts. We also booked additional employee-related expenses to reflect the remarkable performance of our employees during this highly unusual quarter. Peter had mentioned that we are leaning in and seizing opportunities to build out our moat during this crisis. Therefore, we expect operating expenses to increase in the third and fourth quarters this year. We will continue to develop our pipeline and continue to focus on top line growth.

We will also expand our sales and marketing efforts beyond transplant centers by going direct to patients and to community nephrologists. In the second quarter, we significantly strengthened our cash position. In April, when the COVID crisis and uncertainty was at its peak, we utilized our at-the-market program to raise approximately $24 million. We followed that in June with a successful public offering of approximately 4.5 million shares of common stock, raising roughly $135 million. As a result, cash and cash equivalents on June 30, 2020, were $211 million. And as Peter outlined earlier, this puts us in a position of strength to execute on opportunities to build up on our transplant platform. Net operating cash flow was $24.1 million in the second quarter of 2020. This includes both the $4.8 million CARES Act Provider Relief funding we received in April as well as the $20.5 million we received from CMS through its expanded Accelerated and Advance Payment Program. As a reminder, we expect CMS to recoup the advance payment between August and November this year. Turning to guidance. Whilst 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 impact of COVID-19 on our business. And as such, we will not currently be providing revenue guidance for the full year 2020.

I'll now hand back over to Peter.

Peter Maag -- Chairman And Chief Executive Officer

Thank you, Mike. In closing, the second quarter was an exceptional quarter for CareDx. With COVID-19 limiting access to hospitals and transplant centers in the United States, our team continued to roll out solutions like RemoTraC across the country to bring much needed surveillance testing to transplant patients. We believe we are experiencing the beginning of a tectonic shift in the way clinicians are monitoring the health of transplantation and precision medicine overall. The movement toward DNA and molecular testing from traditional biopsies is happening, and we are well positioned for the shift. But importantly, we are also the reason for it.

Thank you all for joining the call, and I will open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from Brandon Couillard with Jefferies. Please proceed.

Brandon Couillard -- Jefferies -- Analyst

Thanks, good afternoon. Peter, just on RemoTraC. I'd be curious to just get your prognostications of where you think that program can go, the portion of volumes you think it contributes in the back half of the year. And is there some upper level where you think it will just be a remaining portion of the market that just won't convert to a mobile phlebotomy model? Can you sort of speak to where this program kind of goes the next six months?

Peter Maag -- Chairman And Chief Executive Officer

Thank you so much, Brandon. Thank you very much for joining. Now RemoTraC is embraced by patients. They love it. It's an amazing service where we have phlebotomists going to the home of the patient and make sure that they get the blood draw in the convenient environment that they're used to. And so they don't have to go to transplant centers. And this has been embraced by many patients across the country. 150 centers are using the service now. Now we have 4,000 patients on the platform. That number is growing every day, but it's really depending on where transplant centers are and what their stance is toward telehealth. Some centers have really jumped in and adopted telehealth solutions. Some other centers are actually moving now back as they're reopening up to face-to-face visits. And so it's hard to say. That's one of the reasons why Mike said it's hard to give guidance yet because there's a lot of variability across the country. But RemoTraC as a service is here to stay. We are all in. We have invested into the platform, and there are many, many patient care managers now on CareDx that are servicing this patient population. So there is significant growth drivers going forward.

Brandon Couillard -- Jefferies -- Analyst

I think you talked about launching the AlloCare app later this year, maybe by September. Mike kind of mentioned some more direct-to-patient marketing programs. Are those two tied together? Sort of talk about what that app is, how it helps you actually capture more volumes and kind of what the spend the marketing plan looks like around that initiative.

Peter Maag -- Chairman And Chief Executive Officer

Oh, yes. No, thank you very much. This is in the broader context of CareDx managing the transplant patient journey. And you hear us with RemoTraC, the reason why we were able to pivoting so quickly was having our digital solutions encompassing our surveillance testing modalities. Now with AlloCare, we are prone to tackle one of the biggest issue in post-transplant care, which is compliance and adherence to a standardized protocol. And we're all about standardization so we can fully individualize the offering. With AlloCare, we are now having a simple patient app that allows the patient to monitor their schedules, to be able to monitor their medications and maybe even build a community for transplant patients. So we're very excited about this. This is another touch point for CareDx with a patient that makes sure that there is [Technical Issues] transplant patient journey. So AlloSure AlloCare is launching in September, and we're very excited about that launch.

Brandon Couillard -- Jefferies -- Analyst

Yes, thank you.

Operator

Our next question is from Rachel Vatnsdal with Piper Sandler. Please proceed.

Rachel Vatnsdal -- Piper Sandler -- Analyst

This is Rachel on for Steve today. Congrats on the nice quarter. So first off, can you just give us an update...

Peter Maag -- Chairman And Chief Executive Officer

Oh, thank you so much, Rachel.

Rachel Vatnsdal -- Piper Sandler -- Analyst

Yes. So first, can you just give us an update on the transplant pipeline and impacts on donation due to the pandemic or if you start to see that pipeline return in geographic regions that's starting to open back up?

Peter Maag -- Chairman And Chief Executive Officer

I think overall transplant volume is roughly about 7% down year-to-date. So a very, very nice recovery because we obviously living donations has been stopped for a few weeks. But as we look around the country right now, many transplant centers are back to normal or maybe even overcompensated because transplant centers are really at the forefront of wanting to come back and supporting. Now transplant volumes is back up. And we don't see that this will slow down. Even so, we see some cities might being in hotspots of COVID because the organs will be reallocated to other parts in the country. We have seen that in when there were issues in Detroit actually Cleveland was taking over their organs. And we have had a significant surge in transplantation in Cleveland overcompensating the down go in Michigan and Detroit. So the system is very adaptable. And so we think that for the next six months to come, I think transplant volumes will be back up.

Rachel Vatnsdal -- Piper Sandler -- Analyst

Great. That's awesome. So then on the OKRA and SHORE studies, so can you give us any more clarity on the timing and if enrollment has returned given those delays you saw due to COVID earlier this year?

Peter Maag -- Chairman And Chief Executive Officer

Yes, sure. The context of AlloMap and AlloSure is kind of standard of care now. It's so well penetrated. I think CareDx has defined for many years with AlloMap post-transplant surveillance that was noninvasive. But now in this COVID era, we have seen a tectonic shift away from biopsies really into noninvasive procedures. And so the SHORE trial and the combination of AlloMap and AlloSure has really demonstrated the power of our platform, moving away from biopsy-driven protocols over to post-transplant surveillance. I think with OKRA being a more sophisticated study where we have AlloSure plus AlloMap Kidney plus the iBox scoring, that is more driven by research coordinators and research events. And so we have seen some research coordinator being furloughed, some research activities actually put aside in these kidney transplant centers. And so on kidney, we have seen a small delay on the OKRA recruitment. But actually, as we are reopening up the country, the last weeks have been very promising on our recruiting of our OKRA study. I will say as well as that we had a phenomenal second quarter even without OKRA being supportive. So this really speaks testimony to the value proposition that we bring to transplant centers overall.

Rachel Vatnsdal -- Piper Sandler -- Analyst

Great, thank you. Those are all my question.

Peter Maag -- Chairman And Chief Executive Officer

Thank you, Rachel.

Operator

Our next question is from Alex Nowak with Craig-Hallum Capital Group. Please proceed.

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

Good afternoon, everyone. In the centers that have moved from doing more AlloSures and AlloMaps during the heart of the pandemic and essentially going away from biopsy and irregardless of if they're doing RemoTraC or not, has there been a durable benefit as these centers have reopened and tried to go back to normal? I guess said another way, do you think this pandemic at all has accelerated your penetration goals into some of those transplant centers?

Peter Maag -- Chairman And Chief Executive Officer

I would say from the proof is in the pudding, and we'll need to see that in a couple of quarters, but absolutely. I think we have seen a true shift away from biopsy protocols into noninvasive procedures. I've talked to so many cardiologists that said we always wanted to retire our biopsy protocol, and maybe now is the time to do it. Now the reality might be that some of them are going back on to biopsy. We'll see that in the past. But if you see the feedback from patients that don't have to spend more or less a day in a cath lab and go through an invasive procedure and now they are doing this for the blood test, you wouldn't believe how many positive patient notes I receive and the entire team receives from patients that are saying, "Well, this is so much more convenient. And now being able to do that from home, even better." But I think there is a true shift in care but yet to be seen, right? I mean this is one quarter, and I think the heart franchise has been extremely successful. But I think this is something to stay.

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

That's great to hear. And of the 4,000 RemoTraC patients, how many would you say are brand-new to CareDx? And just on RemoTraC in general, can you say if compliance has actually improved compared to the traditional getting of the blood draw in the clinic? Because I remember that being a core piece of the RemoTraC thesis that compliance would increase.

Peter Maag -- Chairman And Chief Executive Officer

And Alex, you have followed the story for a long period of time, so I don't wonder why I'm not wondering why you're asking that question. We ourselves are looking at these numbers very, very carefully. There have been a number of new patients come onto the RemoTraC franchise. And it's probably true that some patients have been pushed out for a few weeks or another quarter for their surveillance visit, but I think this is a brand-new trend. I think RemoTraC has been exceptionally successful in areas where COVID hit extremely hard, like New York or now we're seeing some uprise in Florida. And guess what, RemoTraC is just accelerating. But I think we'll need to give ourselves a couple of quarters to really demonstrate how much is RemoTraC there to stay, what is the impact on surveillance. And I think what you're getting at, what's adherence, with CareDx now being much more aggressive and intimately involved in the scheduling of patients, we think that long term, there will be a significant upside for us to manage these adherence rates. But again, we need to make sure that we demonstrate that yet. And one quarter is not time enough in these quarterly follow-ups to really determine if we're successful in doing that. I'll maybe ask Reg Seeto also to comment on RemoTraC and patient adherence. We actually significantly invested into our patient care management group. Reg?

Reginald Seeto -- President And Chief Business Officer

Yes. Thanks, Peter. I mean RemoTraC has been an outstanding success. And I think we've obviously added new centers, new patients. As well as adherence has gone up. And as Peter has mentioned, this is obviously from a four-month sort of experience that those all those three parameters have been certainly seen during the period of RemoTraC among the 4,000-plus patients that we've had enrolled in this program.

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

All right, understood. And then just last question for me. Any update on HeartCare reimbursement, where that sits with CMS and Noridian and Palmetto? And then when would you expect to request KidneyCare reimbursement?

Peter Maag -- Chairman And Chief Executive Officer

Excellent questions. I'll give the KidneyCare, this is really too early yet for us to comment on, Alex. We'll probably see this communicating about our reimbursement time lines on KidneyCare once we have clarity on HeartCare. And I'll punt that question over to Mike Bell on HeartCare.

Michael Bell -- Chief Financial Officer

Yes. On HeartCare, Alex, I think no change from really the status last time we spoke. We're still expecting that to go to the final coverage decision toward the back end of the year. It's usually within 12 months from the public comment period, which was October of last year. So we're expecting something around that timing.

Peter Maag -- Chairman And Chief Executive Officer

Alex, keep the fingers crossed for us in the third quarter, right? So thank you for doing that.

Operator

Our next question is from Andrew Cooper with Raymond James. Please proceed.

Andrew Cooper -- Raymond James -- Analyst

Hi, thanks for the questions, Maybe just first, I think, Peter, you mentioned it at least as potentially part of what went on in the quarter. But just do you have any sense for was there any amount of volume that might have been delayed from 1Q or sort of adjusted based on RemoTraC becoming available that we should think about as we think about pacing kind of through the remainder of the year?

Peter Maag -- Chairman And Chief Executive Officer

Excellent question, Andrew. And we finished obviously the second quarter very strong. And we see that continue that trend continue into the third quarter. I think on the heart franchise, we are looking at our numbers and saying, this has been very, very strong in the second quarter. Will that momentum carry on throughout the rest of the year? So I think that's a good question. On the kidney volume, I think the value proposition, at the end of the day, we're so low penetrated overall. So this is such a big opportunity that we are here to stay and build the franchise going forward. So in that sense, there's so much ample opportunity. Now we did comment on the side note as well is that we are building out our presence in community nephrology. So there's going to be an ongoing expansion for CareDx, a tremendous field to grow going forward. So in that sense, we see continued growth going forward.

Andrew Cooper -- Raymond James -- Analyst

That leads actually right into the next question I wanted to ask, which was on that community nephrology effort. Is that when you think about that, should we think about this as building direct kind of one by one in the hospital settings or community settings? Or is there an opportunity to maybe partner with some of the larger players that are interacting with ESRD patients and patients that presumably are coming on to transplant lists? What's the way we should think about you trying to address that?

Peter Maag -- Chairman And Chief Executive Officer

No. Thank you so much, Andrew. You've been following the company as well. And we're all about the continuity of care, the transplant patient journey. We're managing patients on the wait list, we are managing them during the transplantation procedure, and we are managing them also post-transplant. Reg Seeto has actually masterminded our presence into the community nephrology setting, which is a very natural progression about growing our franchise, expanding from a transplant center now into the community nephrology setting. So it's a very, very natural evolution. Over to you, Reg.

Reginald Seeto -- President And Chief Business Officer

Yes. Thanks, Peter. I mean I think it's more than 150 centers quarter-on-quarter actively using AlloSure. We've had deep penetration within the centers. And now we're three years on, we have patients moving community year two and year three and obviously year post-year one. So with that in mind, we've been able to develop a plan which allows us to now strategically follow these patients and also bring new patients into the world of AlloSure. So that's linked to we have a team that's being built out to allow for that expansion as part of that costing.

Andrew Cooper -- Raymond James -- Analyst

I'll stop there. Appreciate the question.

Operator

Our next question is from Yi Chen with H.C. Wainwright. Please proceed.

Yi Chen -- H.C. Wainwright -- Analyst

Thank you for taking my questions. Could you please comment on the transplant volume in second quarter and early third quarter as compared to those in prior periods? And do you think the transplant volume will continue to go up during the remainder of 2020 or remain at current levels for an extended period of time due to the new COVID-19 cases in the country?

Peter Maag -- Chairman And Chief Executive Officer

Excellent question. I think this is really driven by two dynamics. One is living organ donation is back to previous levels, and deceased owner donation has actually never stopped. So in a way, your question is about will living organ donation continue to increase, and I would say yes. I think there was a shell-shocked reaction in many transplant centers during COVID-19 that said, "Oh, we are backing off." And now as they have learned how to deal with the crisis, we see actually a significant increase. The latest numbers on organ availability, these are actually significantly increasing due to COVID-19 because of cardiovascular death and, believe it or not, because of overdosing. So there's a lot more patients unfortunately that are overdosing, and there are more patients that are statutory at homes that are experiencing cardiovascular deaths, which leads to an increase in organ availability with the need increasing need of organ transplantation because we have 100,000 patients on the waiting list on kidney.

So in a way, I see a significant increase, which is also driven by a support of kidney health initiative from CMS, which you might have read last year, that we're kind of releasing the one-year graft survival metric as the key quality metric for transplantation. And releasing that metric really allows transplant centers to do take a little bit more risk when we are transplanting and not only taking perfect kidneys but also taking kidneys that are OK. And that will drive volume. And the last thing that I would say, Yi Chen, is that many of these centers are also financially driven institutions, and transplantation is a profitable activity within a hospital. And as we read now, many hospitals are looking for sources of income, transplantation might be an easy area to be because you have relatively low case rates, but these are tend to be pretty profitable. So I think all these things will play to a significant increase in transplantation throughout the rest of the year.

Yi Chen -- H.C. Wainwright -- Analyst

Got it. My next question is related to operating expenses, which have increased in second quarter. Was that simply a result of the investment in RemoTraC and other COVID-19-related solutions? And do you expect that to remain at such levels as COVID-19 continues to spread?

Peter Maag -- Chairman And Chief Executive Officer

I'd like Mike to speak about our operating expense, but what we will see is that we are all in. I think this one, we have taken out some stops and really invested heavily, especially in our direct-to-patient activities, and we'll see what sticks. I think you have seen us as a company being extremely responsible and extremely focused on building a long-term sustainable business model. But this was the quarter where we said, "No, we're going other companies might go another way, but we are going all in." And so I'll turn over the mic to Mike, which can give you more detail.

Michael Bell -- Chief Financial Officer

Yes. Yi Chen, I think on the RemoTraC side, most of the impact that we saw actually was in the cost of goods line and impacting our gross margin. On the call earlier, I talked about a 300 basis point impact from RemoTraC on the gross margin. And so we'll probably see those costs are here to stay, and we'll see them going forward. On the opex side, there was cost related to RemoTraC in that we've built out our patient care manager and our direct-to-patient capabilities in some extent. And as Peter mentioned, that's going to continue in future quarters as we want to touch more and more patients. We also had increases on the opex side on the R&D line. Again, some of this COVID-related as we saw more expense related to SHORE and more uptake of HeartCare, but some of those costs were non-related to COVID. We had this upfront to Cornell, so that's for developing the pipeline and that was for UroMap. And on the G&A line, we also had some increase in the in our legal expense line. But yes, I mean overall, as Peter mentioned, I think going forward, we see a bit of a change in the business model, and that will drive some additional expense. But again, it's all focused on top line growth.

Yi Chen -- H.C. Wainwright -- Analyst

Thank you. Thank you, Yi.

Operator

We have reached the end of our question-and-answer session. I would like to turn the call back over to Peter for closing comments.

Peter Maag -- Chairman And Chief Executive Officer

Well, thank you very much for your interest in CareDx. We will continue to keep you updated as we're going into the second half of 2020, and looking forward to keep in touch with you. Thank you so much. Bye-bye now.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Greg Chodaczek -- Investor Relations

Peter Maag -- Chairman And Chief Executive Officer

Michael Bell -- Chief Financial Officer

Reginald Seeto -- President And Chief Business Officer

Brandon Couillard -- Jefferies -- Analyst

Rachel Vatnsdal -- Piper Sandler -- Analyst

Alex Nowak -- Craig-Hallum Capital Group -- Analyst

Andrew Cooper -- Raymond James -- Analyst

Yi Chen -- H.C. Wainwright -- Analyst

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