Welcome to the CareDx Fourth Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we’ll hold a question-and-answer session. [Operator Instructions] As a reminder, this conference call is being recorded today March 24, 2016. I would now like to turn the conference call over to Mark Klausner, Investor Relations. Please go ahead.

Thank you for participating in today’s call. Joining us from CareDx are Peter Maag, President and Chief Executive Officer; and Ken Ludlum, Chief Financial Officer. Earlier today, CareDx released financial statements for the quarter and full year ended December 31, 2015. The release is currently available on the company’s website at www.caredx.com. Before we begin, I’d like to remind you that management will make 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 and our future financial expectations are based upon our current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with our business, please see our filings with the Securities and Exchange Commission. CareDx disclaims any intention or obligation except as required by law to update or revise any financial projections or forward-looking statements whether because of new information, future events, or otherwise. This conference call contains time sensitive information and is accurate only as of the live broadcast today, March 24, 2016. I will now turn the call over to Peter Maag. Peter?

Thanks, Mark. Good afternoon, everyone. As we have done on our previous quarterly calls, I’d like to begin with a patient story. As many of us fly United Airlines, you might have followed the Chicago tribune story about the United CEO, Oscar Munoz. He took over as United CEO in September, suffered a heart attack in October and received a heart transplant in January, back to work in March. This is quite amazing and highlights the life changing potential of successful transplantation. It is life changing story like this one that inspire us at CareDx. 2015 was the year of substantial progress for CareDx. We closed 2015 having achieved all of our strategic objectives, including further development of cell-free DNA with AlloSure, increasing AlloMap patient adoption and pursuing external growth opportunities, including the transaction we announced to acquire Allenex. We’ll start this call by covering our cell-free DNA pipeline then I’ll cover our AlloMap business and provide an update on the transaction. Ken will cover the financials for the fourth quarter and full-year 2015 and then we look forward to your questions. Before we discuss operational highlights, I would like to briefly comment on our overall performance. For the full-year 2015, total revenue for the year was $28.1 million with AlloMap revenue being $27.9 million up 8% over 2014. We provided more than 13,000 AlloMap patient results. AlloMap test volume continues to be a strong foundation for our business. We saw 10% year-over-year volume growth, which underscores the importance of AlloMap as a core product for CareDx. Ken will talk through the dynamics of test growth versus revenue growth in his section. Overall, we believe that having reimbursement and billing in-house is a core capability for a molecular diagnostics company. We are succeeding in building a strong R&D effort centered…

Okay. Thanks Peter. AlloMap revenue for the full year 2015 was $27.9 million, up about 8% over 2014. AlloMap volume growth was up 10% for the year. AlloMap revenue in the fourth quarter was $6.7 million flat with the fourth quarter of 2014. Revenues would have been higher, but for a delay in collections of cash basis test from our former billings and collections vendor. As Peter mentioned in July, we transferred this activity to an in-house team. But the prior vendor remained responsible for following the collections on the tests performed through June. We have now also taken over collections on those tests performed prior to June and expect to collect on a number of these tests and recognize this revenue in 2016. Based on the prior collection history, we estimate that we’ll recognize approximately $500,000 to $800,000 in revenue from these tests. Collaboration revenue was also lower than a year-ago. I would remind you that in the fourth quarter of 2014 we had a $1.1 million payment due to the winding down of the partnership with LabCorp, which effects comparability of this quarter. In addition, we have decided to change the revenue recognition from accrual accounting to cash revenue recognition for the regular ongoing royalties we received from a technology license. As a result of this change, we reversed the third quarter’s revenue that we had previously recognized and will not recognize the fourth quarter’s revenue until it is actually paid. This amounted to approximately $200,000 in the fourth quarter of 2015 and the reversal of $86,000 from the third quarter of 2015. Cost of testing in the third quarter was $2.5 million, compared to $2.2 million in the fourth quarter of 2014. This translated to a gross margin of 63% in line with recent performance, but down…

As we’re closing on 2015, we are also turning the page by announcing a CFO transition. We announced today that Ken will be leaving the company. And Charles Constanti will be joining us as the CFO. I’m thankful to Ken for his partnership in the last two years. He was instrumental in guiding us through the IPO process. He has also been a terrific travel companion and I will miss him. I’m pleased that Ken has agreed to remain with the company until June to ensure a smooth transition. With Charles Constanti, we are bringing a seasoned financial expert on Board that will allow the organization to realize its future growth aspirations. Charles brings with him a lot of international finance and accounting expertise, which will be important as we close and integrate the Allenex acquisition. I’m looking forward to working with Charles. It will be a great addition to the team. In summary, I’m delighted by the progress we made throughout 2015 and into 2016 as we move towards advancing our mission to improve patient outcomes in transplant care. Our key objectives for 2016 are develop AlloSure into a commercial product for kidney transplantations. Integrate Allenex and further build out an international diagnostics company focused on the transplant continuum. Continue to grow AlloMap our core product in transplant medicine. We look forward to updating you on our progress at our upcoming Investor and Analyst Day mid-April and on future calls. With that, I would now like to open the call up for questions. Operator?

[Operator Instructions] Our first question comes from the line of Bill Quirk from Piper Jaffray. Your question please.

Hi, everyone. This is Laura Sand on for Bill. First question regarding the CFO transition I guess, why is now the right time for the change?

Well, so this is Ken speaking. And I've just decided that. I'm going to rebalance my life a little bit. I'm not leaving for any particular future position or occupation but I told Peter that I wanted to rebalance a little bit and that gave everybody enough time to allow for a smooth transition.

Okay, thank you for the clarity. And then with the Allenex deal closing in mid-April. How are you looking at top-line synergies and also what is your strategy for the timing of beyond integration process?

Perfect, Laura. Thank you so much and obviously we are in the midst of finalizing the transaction middle of April as you said and then swiftly going into the integration process. We really see there are two synergies for the business. On the one hand, we have a very strong established U.S. presence with CareDX. We have access to 130 transplant centers that we regularly call on. To give you a bit of an understanding the Allenex organization is really relatively young in the United States with the presence in West Chester, Pennsylvania. So we think there will be cross-selling opportunities on the long run. There's a slightly different call point as we're calling on to a transplant center more from the clinical and the coordinator perspective and they're calling on the lab head. But more and more we see these centers are coming together with lab directors and clinicians are sitting around the table talking about individual patients. And then on the other hand, we have the Europe presence of Allenex. They have a very vast distributor network all over the globe. And we believe that with our growing products see AlloSure and all those we can build that presence out on the medium to long-term. So don't expect immediate revenue synergies but on the mid to long-term there is clearly a benefit of being a global transplant business, because transplantation is a pretty global business.

Great, thank you.

Thank you. Our next question comes from the line of Dan Leonard from Leerink Partners. Your question please.

Guys this is actually Michael Sarcone on for Dan Leonard.

Hi.

Hi, Mike.

So it’s look like the AlloMap volumes declined sequentially in the quarter. You think maybe you can kind of elaborate a bit on that and talk about what you were seeing there?

Yes. I think what’s very important, Mike is that we measure our business more on quarter versus previous year quarter and you see healthy growth in the AlloMap franchise of 8% in terms of volume growth. When you look at revenue recognition I think, Ken was outlining the lack of the revenue recognition because of the transition of the billing process. But in terms of underlying volume growth, you see that we’ve been for the year growing 10% and in the quarter 8%. So I think it’s a healthy, healthy gross for AlloMap given where it is in the lifecycle. We continue to be successful and very excited around AlloMap variability, which I would consider being like a lifecycle management activity for the product. And we continue to have a few holdouts especially in the Northeast that we hope to penetrate going forward. So that will continue to drive AlloMap volumes in the future.

Okay. So nothing really to call out what the sequential decline, because we haven’t really seen that in the Q4 in the past.

Our business very much driven by the number of working days and the number of days the patient come in to see clinicians. And given the low numbers – having two working days more or less makes actually a big difference. But in the overall look at it from a quarter over previous year quarter growth which is the 8% growth.

Understood. Thanks. And my second question. Can you give us an update on the QTYPE product launch, I know you guys had some sensors testing the kids. Can you comment on initial feedback?

Yes, I’d like to reserve that comment until we have concluded the transaction. Please be bear with me that we’ll given where it is today, we’ll only comment on this once we have closed the transaction, Mike.

Sure. Thanks.

Thank you. Our next question comes from the line of Paul Knight from Janney Montgomery Scott. Your question please.

First of all, I enjoyed working with Ken, so I’m sorry to see the transition in some ways so thanks to Ken. And then my question would be on the volumes I mean you had 8% year-over-year in Q4, 10% revenue growth for the year. You’re not providing guidance on 2016 but I guess what you’re implying is that the trend in 4Q seems visible is that a fair assumption?

The trend in Q4 is visible, Paul.

Well, the Q4 volume growth of 8% and I guess we should assume that 2016 outlook for volume growth is unchanged?

Yes. Yes. That’s right.

And then regarding data, I know, you’re looking may be as soon as June on additional AlloSure data, is that – are you still with that, Peter?

Yes, absolutely. No, we’re right on line, it’s in line with previous communication DART trial is on course. Super excited with the 13 centers end of December. There might be one more center in the first quarter coming in. But we’re well ahead in terms of our first analysis in the first half of this year. And in previous communication we always mentioned in June there is the American Transplant Congress, which is an important date for us as a company.

And then, I know, there is a chance that the CMS may reimburse patients in these trials under the early innovation program, are you still – is that still a possibility, Peter?

Yes, I know – the ROSE trial as we are combining this and thinking about it. This initiative under coverage, under data development that Palmetto is spearheading in the U.S. I think our trial or our products will be uniquely positioned for that. It is granted by Palmetto, so it is not something that the company would apply for, but it is granted, that we think it is a unique offering for transplantations and it lends itself to such a program. So we are hopeful for this coverage on the data development program.

Do you think that coverage is 2017 or is it this year kind of coverage or can you tell?

Well, I think it really depends on – Paul on the readout of the clinical trial data of DART We will need to build the case that clinicians are using the product and feel comfortable on using the product to – as changing something in the patient treatment algorithm of these post-transplant surveillance patient. So I think, as soon as we know on the DART trial that will give us a very strong handle. But keep in mind, we have very strong academic data in the past. We also have some analysis performed on heart transplantation. So we’ll have a basket of clinical data available for Palmetto and others to make the decision on how this trial should look like and how should we think about outcomes in these transplant patients. ROSE will be focused on how do we get reimbursement for AlloSure. Because it’s a clinically analytically valid – sorry – it’s an analytically validated test that is available as of today here in our Brisbane lab.

Okay, thanks.

Thank you. Our next question comes from the line of Eric Criscuolo from Mizuho. Your question please.

Good afternoon. I guess echoing Paul, Ken enjoy your future endeavors there.

Thank you.

You’re welcome, pleasure working with you. And I guess, can you – about the billing issue that you had as far as the collections as you move to in-house collecting. I think you brought that that whole service inside CareDx in July. So why did that kind of effect you now versus when you first brought everything in-house?

Well in the – at the start of that, the Medicare payments come in and there are at least half of our revenue. And I mean, everything seem to be going okay in the July through August, September timeframe. And then, we realized about November that things were slowing down. So we took a couple of actions and we finally decided to take over direct supervision of collecting those tests. So we actually hired the team leader from that vendor to head up our effort here to recoup those payments. But there was a – these tests were collected actually, the cash collections, the Medicare payments coming in 45 days. But these cash collected tests can take six months to nine months to collect the majority of them. So, there’s a long tail on the cash collections.

Got you, okay. And you are pretty certain though that you’ll collect pretty much everything that you’ve been waiting for?

Yes, we’ve – the figure we gave you has been scrub down and filtered quite a bit from all the potential tests. So we’re trying to get to a realistic number of what we think is collectable. Based on what’s been collectable in the past from the same insurance carriers.

Got you, okay. Thank you. And I guess, if you could just talk about Allenex maybe and then how they fit in the competitive landscape versus other HLA typing companies. And kind of where you think they are, and maybe where they can go in that whole business?

Yes – no, I mean, overall we build a clinical diagnostic company with the focus on transplantation. We have a strong presence in the post-transplant heart. With AlloSure we enter all post-transplants or that organ testing. And now with Allenex, we had a pre-transplant component with the focus on HLA matching. What glues all this together is the advances in clinical diagnostics with NGS Solutions, and the push for personalized medicine. I think we need to do a better job in identifying patients that benefit from extremely costly procedures, and then optimize the treatment. And transplantations are among the highest cost patient, it makes perfect sense to start there. But with Allenex, now we have a pre-post transplant continuum and will be a formidable competitor in that space that’s currently dominated by one company which is One Lambda, which was two years acquired by Thermo Fisher. So I think we have a unique product offering now that we can have clinicians and lab directors think of CareDx is helping them to manage these patients on the pre-post transplant continuum, something that we do with our clinical expertise. And we expect that there will be a lot of excitement around that space.

How much bigger is One Lambda versus Allenex?

They have multiple offering, so think of them as $100 million, $150 million revenue type of company.

Okay, thank you. And just lastly AlloSure reimbursements, have you started conversations with payers and maybe kind of give an update on where you stand there?

Eric, it’s a great question. What’s unique and special about transplant patients and especially kidney transplant patients? 90% of transplant patients or these kidney transplant patients are actually Medicare patients. Because they have – most of them have undergone dialysis previously. And by the time they get transplanted, they are Medicare patients. So having reimbursement from Medicare is the sole focus for us as an organization to make the successful. Now in the past, the Moldex program actually has been advancing reimbursement in these novel diagnostic tests because they have capabilities and individuals that believe on this good clinical data driving better information going forward. So we have had excellent relationships that we established over years with the AlloMap reimbursement, given the value proposition of our product in our company. So there’s very close ties to experts in the field of reimbursement of multicollector diagnostics. And we believe we can leverage this into the AlloSure program. But keep in mind that we are all about evidence and we believe we need to do the clinical trials to demonstrate the evidence to get the product reimbursed that our trial is a substantial undertaking. The D-OAR trial is very substantial and will drive clinical information and evidence that makes it easy for a payer to say yes. That is truly valuable for transplantations and reimburse the product.

So I guess you have to wait for those results to come through before you submit some kind of full dossier to Medicare.

Yes. I think it’s very important, this is all data driven and evidence based and we believe in that. And we have very strong analytical validation data which we’ll share. We now add clinical validation data to that. And then there is a question about how do we think about use of the test and what’s the right time of reimbursement. So we don’t think of this as just such a step function, but actually as we grow in evidence development, their survive time of the reimbursing this product. This coverage under data development might be a good compromise of having early reimbursement, but still continue to build evidence for using the test.

Great. Thank you very much.

Thank you. Our next question comes from the line of Carolina Ibanez-Ventoso from Janney Montgomery. Your question please.

Hi, good afternoon. I only have one question guys. We know that you have a busy year ahead of you, but can you share with us any effects the company is going to make this year towards – if I look in your bioinformatics platform? Thank you.

Hi, Carolina, thank you so much for that question, because it’s really the mid to long-term strategy for the company. As we think about patient management and transplant surveillance, it really starts linking the HLA data pre-transplant together with the post-transplant surveillance data. And – we for that, we need to have a bioinformatics platform. We’ve been making excellent progress on establishing web portals with these 130 transplant centers. Some of them are now ordering AlloMap online. And we actually play back the AlloMap result back into these centers. And we’re thinking about even integrating the AlloMap results into the electronic medical record. We have built relationships with Next-Generation Sequencing data and cloud computing organizations to really form out this bioinformatics network. This is something that will take a couple of years to develop. John Sninsky and his team are actively pursuing that. But we say we’re very excited about building a bioinformatics platform that also links back external databases such as UNOS into this continuum. We continue to believe that our diagnostic tests are the revenue generator. And so our revenue model will be linked to the testing revenue. But ultimately what is driving the use of our test will be data that we’re providing back to the clinicians for decision making. And providing this data in a better form will be very, very important going forward.

Thank you.

Thank you. And this does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Peter Maag for closing remarks.

Well, thank you very much for spending Thursday afternoon and evening with us. We are very much looking forward to continuously updating you in the future. Thank you very much for joining us.

Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.