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This Under-the-Radar Healthcare Company Quietly Surged During the Pandemic

By Patrick Bafuma - May 7, 2021 at 9:15AM

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CareDx just posted 76% year-over-year revenue growth for the first quarter and raised its 2021 guidance.

The leader in organ transplant diagnostics, CareDx (CDNA 0.60%), reported record first-quarter earnings on Wednesday. Total revenue was up 76% year over year to $67.4 million, a rise of 15% sequentially. Notably, that growth was not coming off a pandemic-induced sales lull; the company reported 51% revenue growth in 2020.

Sales of CareDx's blood test for detecting injuries to a transplanted heart or kidney increased 89% year over year to $59.3 million in Q1. The company provided about 33,000 tests for kidney and heart transplant surveillance in the quarter, up by approximately 121% from the prior-year quarter.

But the diagnostics specialist is not standing pat with its current markets. It continues to innovate, as evidenced by the more than 50 abstracts it presented at two major conferences this year.

blocks up to the right


Cultivating a sticky ecosystem for future growth

In January, CareDx acquired TransChart, an electronic health records software provider that specializes in serving transplant centers. More than 20 transplant centers use TransChart's software; their addition to CareDx's client list brings the total number of sites using one of its medical records solutions to more than 90.

Also during the first quarter, the company acquired TX Services. Its TX Connect cloud-based service allows kidney specialists and dialysis centers to electronically submit referrals to transplant programs. The software then tracks these patients and assists them during the wait-list process. TX Connect currently manages more than 20,000 referred dialysis patients and is fully integrated within TransChart. The cloud offering provides services to more than 30 transplant centers and over 500 dialysis centers.

While these offerings generated revenue of only $2.3 million for the quarter -- less than 1% of the company's total -- their potential value for the company is much greater.

Firstly, use of these software systems reduces the barriers to receiving an organ transplant. Second, there has been rising political pressure on Congress to reform the U.S. transplant system to make it more efficient. If Washington acts, that will likely lead to an increased number of transplants, which should benefit CareDx. 

It's also reasonable to expect that CareDx's growing footprint will lead to a greater familiarity with its offerings among medical professionals, and that this will promote wider use of its future products, too.

The company has a lung surveillance diagnostic in clinical trials, which it expects to submit for FDA approval in Q2. It also has a liver test in the pipeline. Data from studies of that product are likely to be presented at a conference this summer.

Financially sound

For now, investors can smile knowing that CareDx closed Q1 with $374.3 million in cash and cash equivalents on the books. For the quarter, its net loss was $700,000 -- $0.01 per share -- a significant improvement from its net loss of $5.8 million in Q1 2020. Adjusted EBITDA was $7.7 million. Not only did revenue grow at a 76% clip year over year, but the company boosted its revenue guidance for the year by $15 million to a range of $270 million to $280 million. Given that this forecast doesn't factor in any potential revenue from its lung testing candidate, which could be on the market in the second half of the year, it's quite possible that it will beat that enhanced guidance.

This $3.8 billion company compares favorably to its peers, with a price-to-sales (P/S) ratio of 13.8 based on its 2021 forecast. Precision oncology diagnostics player Guardant Health (GH -2.06%) for instance, trades at a 37.2 P/S with only 17% revenue growth in Q1 2021. Conversely, the more mature cancer screening company, Exact Sciences (EXAS -2.73%), has a slightly lower P/S of 10.9 with 16% revenue growth in Q1.

CareDx has produced solid growth well above its peers through a pandemic, boasts a sticky business model, has multiple opportunities for expansion, and appears just about ready to transition to profitability. Investors interested in the healthcare sector and growth stocks may want to consider adding it to their portfolios.

Patrick Bafuma has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Guardant Health. The Motley Fool recommends Exact Sciences. The Motley Fool has a disclosure policy.

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Stocks Mentioned

CareDx, Inc Stock Quote
CareDx, Inc
$21.66 (0.60%) $0.13
Exact Sciences Corporation Stock Quote
Exact Sciences Corporation
$38.48 (-2.73%) $-1.08
Guardant Health, Inc. Stock Quote
Guardant Health, Inc.
$50.36 (-2.06%) $-1.06

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