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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________________________
FORM 10-Q
__________________________________________________
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                to              
Commission file number: 001-36536
__________________________________________________
CAREDX, INC.
(Exact name of registrant as specified in its charter)
__________________________________________________
Delaware94-3316839
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
1 Tower Place
South San Francisco, California 94080
(Address of principal executive offices and zip code)
(415) 287-2300
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
__________________________________________________
Securities registered pursuant to Section 12(b) of the Act
Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, par value $0.001 per shareCDNAThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
There were 52,802,200 shares of the registrant’s Common Stock issued and outstanding as of October 26, 2021.

CareDx, Inc.
TABLE OF CONTENTS
Page No.
Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020
September 30, 2021 and 2020
September 30, 2021 and 2020



Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1.    UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CareDx, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
September 30, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$353,082 $134,669 
Marketable securities10,199 90,034 
Accounts receivable56,181 34,624 
Inventory18,800 10,012 
Prepaid and other current assets6,413 3,758 
Total current assets444,675 273,097 
Property and equipment, net18,719 10,704 
Operating leases right-of-use assets18,316 15,228 
Intangible assets, net48,367 44,355 
Goodwill26,051 23,857 
Restricted cash210 270 
Other assets6,834 1,000 
Total assets$563,172 $368,511 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$14,894 $9,653 
Accrued compensation24,243 18,466 
Accrued and other liabilities30,599 20,602 
Refund liability - CMS advance payment (Note 1) 20,496 
Total current liabilities69,736 69,217 
Deferred tax liability678 1,299 
Common stock warrant liability195 447 
Deferred payments for intangible assets2,084 3,560 
Operating lease liability, less current portion17,876 16,069 
Other liabilities456 240 
Total liabilities91,025 90,832 
Commitments and contingencies (Note 9)
Stockholders’ equity:
Preferred stock: $0.001 par value; 10,000,000 shares authorized at September 30, 2021 and December 31, 2020; no shares issued and outstanding at September 30, 2021 and December 31, 2020
  
Common stock: $0.001 par value; 100,000,000 shares authorized at September 30, 2021 and December 31, 2020; 52,776,733 shares and 49,441,166 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
52 49 
Additional paid-in capital843,226 632,253 
Accumulated other comprehensive loss(4,093)(2,096)
Accumulated deficit(367,038)(352,527)
Total stockholders’ equity472,147 277,679 
Total liabilities and stockholders’ equity$563,172 $368,511 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CareDx, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except share and per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue:
Testing services revenue$66,464 $45,529 $190,635 $113,264 
Product revenue6,521 5,383 19,160 13,369 
Digital and other revenue2,604 2,457 7,382 6,917 
Total revenue75,589 53,369 217,177 133,550 
Operating expenses:
Cost of testing services18,038 11,900 51,756 30,631 
Cost of product4,919 3,705 13,771 9,635 
Cost of digital and other1,879 1,210 4,861 3,966 
Research and development19,439 12,474 54,479 35,616 
Sales and marketing21,370 13,870 56,421 37,727 
General and administrative18,671 13,117 50,216 35,436 
Total operating expenses84,316 56,276 231,504 153,011 
Loss from operations(8,727)(2,907)(14,327)(19,461)
Other income (expense):
Interest income, net20 29 147 146 
Change in estimated fair value of common stock warrant liability88 79 50 (990)
CARES Act Provider Relief Fund   4,813 
Other expense, net(3,440)(254)(906)(572)
Total other (expense) income(3,332)(146)(709)3,397 
Loss before income taxes(12,059)(3,053)(15,036)(16,064)
Income tax benefit162 235 525 865 
Net loss$(11,897)$(2,818)$(14,511)$(15,199)
Net loss per share (Note 3):
Basic$(0.23)$(0.06)$(0.28)$(0.33)
Diluted$(0.23)$(0.06)$(0.28)$(0.33)
Weighted-average shares used to compute net loss per share:
Basic52,681,451 49,010,680 52,034,450 45,526,810 
Diluted52,681,451 49,010,680 52,034,450 45,526,810 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CareDx, Inc.
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(In thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Net loss$(11,897)$(2,818)$(14,511)$(15,199)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax(937)962 (1,997)853 
Net comprehensive loss$(12,834)$(1,856)$(16,508)$(14,346)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CareDx, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share data)
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 202049,441,166 $49 $632,253 $(2,096)$(352,527)$277,679 
Issuance of common shares through public equity offering, net of commissions and offering costs of $12,495
2,211,538 2 188,753 — — 188,755 
Issuance of common stock under ESPP24,052 — 838 — — 838 
RSU settlements, net of shares withheld121,447 — (2,313)— — (2,313)
Issuance of common stock for services1,339 — 96 — — 96 
Issuance of common stock for cash upon exercise of stock options
139,579 — 2,193 — — 2,193 
Employee stock-based compensation expense— — 6,488 — — 6,488 
Foreign currency translation adjustment— — — (1,503)— (1,503)
Net loss— — — — (687)(687)
Balance at March 31, 202151,939,121 51 828,308 (3,599)(353,214)471,546 
RSU settlements, net of shares withheld160,286 — (6,638)— — (6,638)
Issuance of common stock for services23,163 — 59 — — 59 
Issuance of common stock for cash upon exercise of stock options
427,059 — 6,833 — — 6,833 
Issuance of common stock for cash upon exercise of warrants
3,132 — 205 — — 205 
Employee stock-based compensation expense— — 9,322 — — 9,322 
Foreign currency translation adjustment— — — 443 — 443 
Net loss— — — — (1,927)(1,927)
Balance at June 30, 202152,552,761 51 838,089 (3,156)(355,141)479,843 
Issuance of common stock under ESPP21,412 — 1,301 — — 1,301 
RSU settlements, net of shares withheld118,466 — (8,707)— — (8,707)
Issuance of common stock for services4,008 — 75 — — 75 
Issuance of common stock for cash upon exercise of stock options80,086 1 1,894 — — 1,895 
Employee stock-based compensation expense— — 10,574 — 10,574 
Foreign currency translation adjustment— — — (937)— (937)
Net loss— — — — (11,897)(11,897)
Balance at September 30, 202152,776,733 $52 $843,226 $(4,093)$(367,038)$472,147 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CareDx, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands, except share data)
Common StockAdditional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance at December 31, 201942,498,430 $42 $437,976 $(5,205)$(333,813)$99,000 
Issuance of common stock under ESPP38,147 — 699 — — 699 
RSU settlements, net of shares withheld139,552 — (1,507)— — (1,507)
Issuance of common stock for services3,091 — 66 — — 66 
Issuance of common stock for cash upon exercise of stock options
44,861 — 155 — — 155 
Issuance of common stock for cash upon exercise of warrants
295,466 — 6,299 — — 6,299 
Employee stock-based compensation expense— — 4,200 — — 4,200 
Foreign currency translation adjustment— — — (1,705)— (1,705)
Net loss— — — — (5,823)(5,823)
Balance at March 31, 202043,019,547 $42 $447,888 $(6,910)$(339,636)$101,384 
Issuance of common shares through public equity offering, net of commissions and offering costs of $9,166
4,492,187 4 134,580 — — 134,584 
Issuance of shares in connection with at-the-market equity offering, net of commissions and offering costs of $785
1,000,000 1 23,450 — — 23,451 
RSU settlements, net of shares withheld143,101 — (2,030)— — (2,030)
Issuance of common stock for services2,992 — 58 — — 58 
Issuance of common stock for cash upon exercise of stock options
204,469 — 1,962 — — 1,962 
Employee stock-based compensation expense— — 6,320 — — 6,320 
Foreign currency translation adjustment— — — 1,596 — 1,596 
Net loss— — — — (6,558)(6,558)
Balance at June 30, 202048,862,296 $47 $612,228 $(5,314)$(346,194)$260,767 
Issuance of common stock under ESPP38,576 — 694 — — 694 
RSU settlements, net of shares withheld34,602 — (466)— — (466)
Issuance of common stock for services2,731 — 96 — — 96 
Issuance of common stock for cash upon exercise of stock options159,576 — 1,647 — — 1,647 
Issuance of common stock upon exercise of warrants34,567 — 1,109 — — 1,109 
Employee stock-based compensation expense— — 6,653 — 6,653 
Foreign currency translation adjustment— — — 962 — 962 
Net loss— — — — (2,818)(2,818)
Balance at September 30, 202049,132,348 $47 $621,961 $(4,352)$(349,012)$268,644 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CareDx, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine Months Ended September 30,
20212020
Operating activities:
Net loss$(14,511)$(15,199)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Stock-based compensation26,583 17,424 
Revaluation of common stock warrant liability to estimated fair value(50)990 
Depreciation and amortization6,301 5,052 
Amortization of right-of-use assets2,187 1,896 
Unrealized loss on long-term marketable equity securities167  
Revaluation of contingent consideration to estimated fair value(35)301 
Amortization of premium on short-term marketable securities, net930  
Changes in operating assets and liabilities:
Accounts receivable(21,580)(5,359)
Inventory(9,417)(3,608)
Prepaid and other assets(2,072)(681)
Operating leases liabilities, net(1,677)(1,096)
Accounts payable400 3,831 
Accrued compensation2,711 1,501 
Accrued and other liabilities7,688 1,581 
Refund liability - CMS advance payment(20,496)20,496 
Change in deferred taxes(589)(879)
Net cash (used in) provided by operating activities(23,460)26,250 
Investing activities:
Acquisition of business, net of cash acquired(3,500) 
Acquisition of intangible assets(6,700)(3,250)
Purchases of long-term marketable securities(5,500) 
Maturities of short-term marketable securities78,905  
Additions of capital expenditures, net(7,711)(6,670)
Net cash provided by (used in) investing activities55,494 (9,920)
Financing activities:
Proceeds from issuance of common shares in public equity offering, net of issuance costs paid188,855 134,684 
Proceeds from issuance of common shares in "at-the-market" equity offering, net of issuance costs paid 23,451 
Proceeds from issuance of common stock under employee stock purchase plan2,139 1,082 
Taxes paid related to net share settlement of restricted stock units(15,376)(4,003)
Proceeds from exercise of warrants4 343 
Proceeds from exercise of stock options10,920 3,764 
Principal payments on finance lease obligations(66)(136)
Net cash provided by financing activities186,476 159,185 
Effect of exchange rate changes on cash and cash equivalents(157)64 
Net increase in cash, cash equivalents and restricted cash218,353 175,579 
Cash, cash equivalents, and restricted cash at beginning of period134,939 38,479 
Cash, cash equivalents, and restricted cash at end of period$353,292 $214,058 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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CareDx, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
CareDx, Inc. (“CareDx” or the “Company”), together with its subsidiaries, is a leading precision medicine company focused on the discovery, development and commercialization of clinically differentiated, high-value diagnostic solutions for transplant patients and caregivers.  The Company’s headquarters are in South San Francisco, California. The primary operations are in Brisbane, California; Omaha, Nebraska; Fremantle, Australia; and Stockholm, Sweden.
The Company’s commercially available testing services consist of AlloSure® Kidney, which is a donor-derived cell-free DNA (“dd-cfDNA”) solution for kidney transplant patients, AlloMap® Heart, which is a gene expression solution for heart transplant patients, and AlloSure® Heart, a dd-cfDNA solution for heart transplant patients. The Company has initiated several clinical studies to generate data on its existing and planned future testing services. In April 2020, the Company announced its first biopharma research partnership for AlloCell, a surveillance solution that monitors the level of engraftment and persistence of allogeneic cells for patients who have received cell therapy transplants. The Company also offers high-quality products that increase the chance of successful transplants by facilitating a better match between a donor and a recipient of stem cells and organs. In 2019, the Company began providing digital solutions to transplant centers following the acquisitions of Ottr Complete Transplant Management (“Ottr, Inc.”) and XynManagement, Inc. (“XynManagement”), as well as the acquisition of TransChart LLC (“TransChart”) in 2021.
Testing Services
AlloSure Kidney has been a covered service for Medicare beneficiaries since October 2017. The Medicare reimbursement rate for AlloSure Kidney is currently $2,841. AlloSure Kidney has received positive coverage decisions from several private payers, including Blue Cross Blue Shield (“BCBS”) of South Carolina, BCBS of Kansas City and Capital Health, and is reimbursed by other private payers on a case-by-case basis.
AlloMap Heart has been a covered service for Medicare beneficiaries since January 2006. The Medicare reimbursement rate for AlloMap Heart is currently $3,240. AlloMap Heart has also received positive coverage decisions for reimbursement from many of the largest U.S. private payers, including Aetna, Cigna, Health Care Services Corporation, Humana, Kaiser Foundation Health Plan, Inc. and UnitedHealthcare.
In October 2020, AlloSure Heart received a final Palmetto MolDx Medicare coverage decision for AlloSure Heart. In November 2020, Noridian Healthcare Solutions, the Company's Medicare Administrative Contractor, issued a parallel coverage policy granting coverage when used in conjunction with AlloMap Heart, which became effective in December 2020. The Medicare reimbursement rate for AlloSure Heart is currently $2,753.
In May 2021, the Company purchased a minority investment of common stock in the biotechnology company Miromatrix Medical, Inc. (“Miromatrix”), for $5.0 million, and the investment is marked to market. Miromatrix works to eliminate the need for an organ transplant waiting list through the development of implantable engineered biological organs.
Clinical Studies
In January 2018, the Company initiated the Kidney Allograft Outcomes AlloSure Kidney Registry study (“K-OAR”), to develop additional data on the clinical utility of AlloSure Kidney for surveillance of kidney transplant recipients. K-OAR is a multicenter, non-blinded, prospective observational cohort study which has enrolled more than 1,700 renal transplant patients who will receive AlloSure Kidney long-term surveillance.
In September 2018, the Company initiated the Surveillance HeartCare™ Outcomes Registry (“SHORE”). SHORE is a prospective, multi-center, observational registry of patients receiving HeartCare for surveillance. HeartCare combines the gene expression profiling technology of AlloMap Heart with the dd-cfDNA analysis of AlloSure® Heart in one surveillance solution.

In February 2019, AlloSure® Lung became available for lung transplant patients through a compassionate use program while the test is undergoing further studies. In June 2020, the Company submitted an AlloSure Lung application to the Palmetto MolDx Technical Assessment program seeking coverage and reimbursement for Medicare beneficiaries.
In September 2019, the Company announced the commencement of the Outcomes of KidneyCare on Renal Allografts (“OKRA”) study, which is an extension of K-OAR. OKRA is a prospective, multi-center, observational, registry of patients receiving KidneyCare for surveillance. KidneyCare combines the dd-cfDNA analysis of AlloSure Kidney with the gene expression profiling technology of AlloMap Kidney and the predictive artificial intelligence technology of KidneyCare iBox for a multimodality surveillance solution. The Company has not yet made any applications to private payers for reimbursement coverage of AlloMap Kidney or KidneyCare.
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Products
The Company’s suite of AlloSeq products are commercial next generation sequencing (“NGS”)-based kitted solutions that the Company has developed as a result of its license agreement with Illumina, Inc. (“Illumina”). These products include: AlloSeq™ Tx, a high-resolution Human Leukocyte Antigen (“HLA”) typing solution, AlloSeq™ cfDNA, a surveillance solution designed to measure dd-cfDNA in blood to detect active rejection in transplant recipients, and AlloSeq™ HCT, a solution for chimerism testing for stem cell transplant recipients.
The Company's other HLA typing products include: TruSight HLA, a NGS-based high resolution typing solution; Olerup SSP®, based on the sequence specific primer (“SSP”) technology; and QTYPE®, which uses real-time polymerase chain reaction (“PCR”) methodology, to perform HLA typing at a low to intermediate resolution for samples that require a fast turnaround time.
In March 2021, the Company acquired BFS Molecular S.R.L. (“BFS Molecular”), a software company focused on NGS-based patient testing solutions. BFS Molecular brings extensive software and algorithm development capabilities for NGS transplant surveillance products.
Digital and Other
Following the acquisitions of both Ottr, Inc. and XynManagement, the Company is a leading provider of transplant patient tracking software (“Ottr software”), as well as of transplant quality tracking and waitlist management solutions. Ottr software provides comprehensive solutions for transplant patient management and enables integration with electronic medical record (“EMR”) systems providing patient surveillance management tools and outcomes data to transplant centers. XynManagement provides two unique solutions, XynQAPI software (“XynQAPI”) and XynCare. XynQAPI simplifies transplant quality tracking and Scientific Registry of Transplant Recipients reporting. XynCare includes a team of transplant assistants who maintain regular contact with patients on the waitlist to help prepare for their transplant and maintain eligibility.
In September 2020, the Company launched AlloCare, a mobile app that provides a patient-centric resource for transplant recipients to manage medication adherence, coordinate with Patient Care Managers for AlloSure scheduling and measure health metrics.
In January 2021, the Company acquired TransChart LLC for cash. TransChart provides EMR software to hospitals throughout the U.S. to care for patients who have or may need an organ transplant. As part of its acquisition of TransChart in January 2021, the Company acquired TxAccess, a cloud-based service that allows nephrologists and dialysis centers to electronically submit referrals to transplant programs, closely follow and assist patients through the transplant waitlist process, and ultimately, through transplantation.
In June 2021, the Company acquired the Transplant Hero patient application. The application helps patients manage their medications through alarms and interactive logging of medication events.
Also in June 2021, the Company entered into a strategic agreement with OrganX to develop clinical decision support tools across the transplant patient journey. Together, the Company and OrganX will develop advanced analytics that integrate AlloSure, the first transplant specific dd-cfDNA assay, with large transplant databases to provide clinical data solutions. This partnership delivers the next level of innovation beyond multi-modality by incorporating a variety of clinical inputs to create a universal composite scoring system. The Company has agreed to potential future milestone payments.
COVID-19 Pandemic
On January 30, 2020, the World Health Organization (the “WHO”) announced a global health emergency because of a new strain of coronavirus (“COVID-19”) originating in Wuhan, China and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 pandemic, including the impact associated with preventative and precautionary measures that the Company, other businesses and governments are taking, continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company, but the pandemic may materially affect the Company's financial condition, liquidity and future results of operations.
In the final weeks of March and during April 2020, with hospitals increasingly caring for COVID-19 patients, hospital administrators chose to limit or even defer, non-emergency procedures. Immunosuppressed transplant patients either self-prescribed or were asked to avoid transplant centers and caregiver visits to reduce the risk of contracting COVID-19. As a result, with transplant surveillance visits down, the Company experienced a slowdown in testing services volumes in the final weeks of March and during April 2020. As a response to the COVID-19 pandemic, and to enable immune-compromised transplant patients to continue to have their blood drawn, in late March 2020, the Company launched RemoTraC, a remote home-based blood draw solution using mobile phlebotomy for AlloSure and AlloMap surveillance tests, as well as for other standard monitoring tests.
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To date, more than 200 transplant centers can offer RemoTraC to their patients and over 9,000 kidney, heart and lung transplant patients have enrolled. Based on existing and new relationships with partners, the Company has established a nationwide network of more than 10,000 mobile phlebotomists. Following the introduction of RemoTraC and with the easing of stay-at-home restrictions and the opening up of many hospitals to non-COVID-19 patients, the Company’s testing services volumes returned to levels consistent with those experienced immediately prior to the COVID-19 pandemic.
In spite of the resurgence of COVID-19 infection rates, which resulted in increased stay-at-home and renewed travel restrictions, the Company did not experience a decrease in testing services volumes. The Company’s product business experienced a reduction in forecasted sales volume throughout the second and third quarters of 2020, as it was unable to undertake onsite discussions and demonstrations of its recently launched NGS products, including AlloSeq Tx 17, which was awarded CE mark authorization in May 2020. The Company's product business maintained normal sales volumes during the fourth quarter of 2020 and increased sales volumes throughout 2021.
The Company is maintaining its testing, manufacturing, and distribution facilities while implementing specific protocols to reduce contact among employees. In areas where COVID-19 impacts healthcare operations, the Company’s field-based sales and clinical support teams are supporting providers through virtual platforms. Although the executive orders that placed certain restrictions on operations in San Mateo County and the State of California, where the Company's laboratory and headquarters are located, were lifted effective June 15, 2021, new orders or restrictions may be adopted in the future depending upon the COVID-19 transmission rates in the Company's county and state, as well as other factors.
In addition, the Company has created a COVID-19 task force that is responsible for crisis decision making, employee communications, enforcing pre-arrival temperature checking, daily health check-ins and enhanced safety training/protocols in its offices for employees that do not work from home.
Liquidity and Capital Resources
The Company has incurred significant losses and negative cash flows from operations since its inception and had an accumulated deficit of $367.0 million at September 30, 2021. As of September 30, 2021, the Company had cash, cash equivalents and marketable securities of $363.3 million.
CMS Accelerated and Advance Payment Program for Medicare Providers
On March 27, 2020 the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Pursuant to the CARES Act, the Centers for Medicare & Medicaid Services (CMS”) expanded its Accelerated and Advance Payment Program in order to increase cash flow to providers of services and suppliers impacted by the COVID-19 pandemic. CMS is authorized to provide accelerated or advance payments during the period of the public health emergency to any Medicare provider who submitted a request to the appropriate Medicare Administrative Contractor and met the required qualifications. During April 2020, the Company received an advance payment from CMS of approximately $20.5 million, and recorded the payment as Deferred revenue - CMS advance payment on the Company's condensed consolidated balance sheet.
During December 2020, the Company reassessed the Deferred revenue - CMS advance payment and repaid the entire amount in January 2021. The Company recorded the amount as Refund liability - CMS advance payment on the condensed consolidated balance sheet as of December 31, 2020. Refer to Note 8, Balance Sheet Components, for further explanation.
CARES Act Provider Relief Fund for Medicare Providers
Pursuant to the CARES Act, the U.S. Department of Health & Human Services (“HHS”) distributed an initial tranche of $30.0 billion in funds to healthcare providers that received Medicare fee-for-service (FFS”) reimbursements in 2019. These payments to healthcare providers are not loans and will not be required to be repaid. As a condition to receiving these payments, providers must agree to certain terms and conditions and submit sufficient documentation demonstrating that the funds are being used for healthcare-related expenses or lost revenue attributable to the COVID-19 pandemic. Due to the recent enactment of legislation and absence of definitive guidance, there is a high degree of uncertainty around the CARES Act’s implementation and the Company continues to assess the impact on its business. Furthermore, HHS has indicated that it, along with the Office of Inspector General, will be closely monitoring and auditing providers to ensure that recipients comply with the terms and conditions of relief programs and to prevent fraud and abuse. All providers will be subject to civil and criminal penalties for any deliberate omissions, misrepresentations or falsifications of any information given to HHS. Providers will be distributed a portion of the initial $30.0 billion of funds based on their share of total Medicare FFS reimbursements made by the U.S. in 2019. During April 2020, the Company received a payment of approximately $4.8 million representing its portion of the initial tranche of funds, recorded in other income (expense), net on the condensed consolidated statements of operations.
The Company is complying with the key terms and provisions of the CARES Act Provider Relief Fund, which includes, among other things, the requirement that the Company maintain appropriate records and cost documentation. During the quarter ended September 30, 2021, the Company was notified by HHS that the Provider Relief Fund Reporting Portal was open for reporting
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on the use of Provider Relief Fund payments, and the Company completed and submitted a report indicating the use of the funds the Company received pursuant to the CARES Act.
June 2020 Underwritten Public Offering of Common Stock
On June 15, 2020, the Company sold 4,492,187 shares of common stock (which included shares sold pursuant to the underwriters’ full exercise of an overallotment option granted to the underwriters in connection with the offering) through an underwritten public offering at a price of $32.00 per share for aggregate net proceeds of approximately $134.6 million.
January 2021 Underwritten Public Offering of Common Stock
On January 25, 2021, the Company sold 1,923,077 shares of its common stock through an underwritten public offering at a public offering price of $91.00 per share. The net proceeds to the Company from the offering were approximately $164.0 million, after deducting underwriting discounts and commissions and offering expenses.
On February 11, 2021, the Company sold 288,461 shares of its common stock pursuant to the full exercise of the overallotment option granted to the underwriters in connection with the offering. The net proceeds to the Company from the full exercise of the underwriters' overallotment option were approximately $24.7 million.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2020, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Material changes to the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 are reflected below.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and follow the requirements of the Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain notes and other financial information that are normally required by U.S. GAAP can be condensed or omitted. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of the Company’s financial information. The condensed consolidated balance sheet as of December 31, 2020 has been derived from audited consolidated financial statements as of that date but does not include all of the financial information required by U.S. GAAP for complete financial statements. Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses in the unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to transaction price estimates used for testing services revenue; standalone fair value of digital revenue performance obligations; accrued expenses for clinical studies; inventory valuation; the fair value of issued common stock warrants and embedded derivatives; the fair value of assets and liabilities acquired in a business combination or an assets acquisition (including identifiable intangible assets acquired); the fair value of contingent consideration recorded in connection with a business combination; the grant date fair value assumptions used to estimate stock-based compensation expense; income taxes; impairment of long-lived assets and indefinite-lived assets (including goodwill); and legal contingencies. Actual results could differ from those estimates.
Concentrations of Credit Risk and Other Risks and Uncertainties
For the three months ended September 30, 2021 and 2020, approximately 61% and 58%, respectively, of total revenue was derived from Medicare. For the nine months ended September 30, 2021 and 2020, approximately 60% and 56%, respectively, of total revenue was derived from Medicare.
As of September 30, 2021 and December 31, 2020, approximately 29% and 28%, respectively, of accounts receivable was due from Medicare. No other payer or customer represented more than 10% of accounts receivable on either September 30, 2021 or December 31, 2020.
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Marketable Securities
The Company considers all highly liquid investments in securities with a maturity of greater than three months at the time of purchase to be marketable securities. As of September 30, 2021, the Company’s short-term marketable securities consisted of corporate debt securities with maturities of greater than three months but less than twelve months at the time of purchase. These short-term marketable securities are classified as current assets on the condensed consolidated balance sheet.
The Company classifies its short-term marketable securities as held-to-maturity at the time of purchase and reevaluates such designation at each balance sheet date. The Company has the positive intent and ability to hold these marketable securities to maturity. Short-term marketable securities are carried at amortized cost and are adjusted for amortization of premiums and accretion of discounts to maturity, which is included in interest income (expense), net on the condensed consolidated statements of operations. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on short-term marketable securities are included in interest income (expense), net. The cost of securities sold will be determined using specific identification.
The Company considers investments in securities with remaining maturities of over one year as long-term investments. As of September 30, 2021, the Company's long-term marketable securities consisted of corporate equity securities and corporate debt securities. These long-term marketable securities are classified as other assets on the condensed consolidated balance sheet.
The Company classifies its long-term marketable debt securities as available-for-sale and reevaluates such designation at each balance sheet date. The Company records its long-term marketable equity securities at fair market value. Unrealized gains and losses from the remeasurement of the long-term marketable equity securities to fair value are included in other expense, net, in the condensed consolidated statements of operations. Realized gains and losses and declines in value judged to be other-than-temporary, if any, on long-term marketable securities are included in interest income, net.
Leases
Effective January 1, 2019, the Company adopted Accounting Standard Codification (“ASC”) Topic 842, Leases using the optional transition method and applied the standard only to leases that existed at that date. The Company determines if an arrangement is or contains a lease at contract inception. A right-of-use (“ROU”) asset, representing the underlying asset during the lease term, and a lease liability, representing the payment obligation arising from the lease, are recognized on the condensed consolidated balance sheet at lease commencement based on the present value of the payment obligation. For operating leases, expense is recognized on a straight-line basis over the lease term. For finance leases, interest expense on the lease liability is recognized using the effective interest method and amortization of the ROU asset is recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet.
The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its incremental borrowing rate. The incremental borrowing rate is determined by using the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment.
As of September 30, 2021, the Company’s leases had remaining terms of 0.67 years to 7.42 years, some of which include options to extend the lease term.
Recent Accounting Pronouncements
In October 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-10, Codification Improvements, which contains amendments that improve the consistency of the ASC by including all disclosure guidance in the appropriate Disclosure Section (Section 50). The FASB provided transition guidance for all the amendments in this ASU. The amendments in Sections B and C (Section A has been removed) of this ASU are effective for annual periods beginning after December 15, 2020 for public business entities. Early application of the amendments in this ASU is permitted for public business entities for any annual or interim period for which financial statements have not been issued. The amendments in this ASU should be applied retrospectively. The Company adopted the standard on January 1, 2021. The adoption of the new standard did not have an impact on the Company's condensed consolidated financial statements and disclosures.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force), which contains amendments that clarify and reduce diversity in an issuer's accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. The amendments set forth in this ASU are effective for all entities
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for annual periods beginning after December 15, 2021. Early application of the amendments in this ASU is permitted for all entities. The amendments in this ASU should be applied prospectively. The Company plans to adopt the standard on January 1, 2022. The Company is in the process of assessing the impact that this new standard will have on its consolidated financial statements and disclosures.
3. NET LOSS PER SHARE
Basic and diluted net loss per share have been computed by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration of common share equivalents as their effect would have been antidilutive.
The following tables set forth the computation of the Company’s basic and diluted net loss per share (in thousands, except shares and per share data):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Numerator:
Net loss used to compute basic and diluted net loss per share$(11,897)$(2,818)$(14,511)$(15,199)
Denominator:
Weighted-average shares used to compute basic and diluted net loss per share
52,681,451 49,010,680 52,034,450 45,526,810 
Net loss per share:
Basic and diluted$(0.23)$(0.06)$(0.28)$(0.33)
The following potentially dilutive securities have been excluded from diluted net loss per share as of September 30, 2021 and 2020 because their effect would be antidilutive:
Three and Nine Months Ended September 30,
20212020
Shares of common stock subject to outstanding options1,989,286 3,082,273 
Shares of common stock subject to outstanding common stock warrants3,132 14,445 
Restricted stock units1,810,257 1,912,397 
Total common stock equivalents3,802,675 5,009,115 

4. FAIR VALUE MEASUREMENTS
The Company records its financial assets and liabilities at fair value.  The carrying amounts of certain financial instruments of the Company, including cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities.  Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date.  The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
Level 1: Inputs that include quoted prices in active markets for identical assets and liabilities.
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
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The following table sets forth the Company’s financial assets and liabilities, measured at fair value on a recurring basis, as of September 30, 2021 and December 31, 2020 (in thousands):
September 30, 2021
Fair Value Measured Using 
(Level 1)(Level 2)(Level 3)Total Balance
Assets    
Cash equivalents:
Money market funds$334,895 $ $ $334,895 
Long-term marketable securities:
Corporate equity securities4,833   4,833 
Corporate debt securities 500  500 
Total$339,728 $500 $ $340,228 
Liabilities
Common stock warrant liability$ $ $195 $195 

December 31, 2020
 Fair Value Measured Using 
 (Level 1)(Level 2)(Level 3)Total Balance
Assets    
Cash equivalents:
Money market funds$85,797 $ $ $85,797 
Liabilities
Common stock warrant liability$ $ $447 $447 
The following table presents the issuances, exercises, changes in fair value and reclassifications of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis (in thousands):
 (Level 3)
 Common Stock Warrant Liability
Balance as of December 31, 2020
$447 
Exercise of warrants(202)
Change in estimated fair value(50)
Balance as of September 30, 2021
$195 
As of September 30, 2021, the Company had one investment in convertible preferred shares carried at cost. In the event the Company had to calculate the fair value of this investment, it would be based on Level 3 inputs. This investment is not considered material to the Company's condensed consolidated financial statements.
In determining fair value, the Company uses various valuation approaches within the fair value measurement framework.  The valuation methodologies used for the Company’s instruments measured at fair value and their classification in the valuation hierarchy are summarized below:
Money market funds – Investments in money market funds are classified within Level 1. Money market funds are valued at the closing price reported by the fund sponsor from an actively traded exchange. At September 30, 2021 and December 31, 2020, money market funds were included as cash and cash equivalents in the condensed consolidated balance sheets.
Short-term marketable securities – Investments in short-term marketable securities are classified within Level 2. The securities are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly.
Long-term marketable equity and debt securities – Investments in long-term marketable equity securities are classified within Level 1. The securities are recorded at fair value based on readily available quoted market
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prices in active markets. Investments in long-term marketable debt securities are classified within Level 2. The securities are recorded at fair value based on observable inputs for quoted prices for identical or similar assets in markets that are not active. Long-term marketable securities are located within other assets on the condensed consolidated balance sheets.
Common stock warrant liability – Common stock warrant liability is classified within Level 3. The Company utilizes a binomial-lattice pricing model (the “Monte Carlo Simulation Model”) that involves a market condition simulation to estimate the fair value of the warrants.  The application of the Monte Carlo Simulation Model requires the use of a number of complex assumptions, including the Company’s stock price, expected life of the warrants, stock price volatility determined from the Company’s historical stock prices and stock prices of peer companies in the diagnostics industry, and risk-free rates based on the implied yield currently available in the U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of the warrants.  Increases (decreases) in the assumptions discussed above result in a directionally similar impact to the fair value of the common stock warrant liability.
Common Stock Warrant Liability Valuation Assumptions:
September 30, 2021December 31, 2020
Private Placement Common Stock Warrant Liability
Stock Price$63.37 $72.45 
Exercise Price$1.12 $1.12 
Remaining term (in years)1.542.28
Volatility66.00 %73.00 %
Risk-free interest rate0.19 %0.14 %

5. CASH AND MARKETABLE SECURITIES
Cash, Cash Equivalents and Restricted Cash
A reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the amount reported within the condensed consolidated statements of cash flows is shown in the table below (in thousands):
September 30, 2021December 31, 2020September 30, 2020December 31, 2019
Cash and cash equivalents$353,082 $134,669 $213,798 $38,223 
Restricted cash210 270 260 256 
Total cash, cash equivalents, and restricted cash at the end of the period$353,292 $134,939 $214,058 $38,479 
Marketable Securities
All short-term marketable securities were considered held-to-maturity at September 30, 2021 and December 31, 2020. As of September 30, 2021 and December 31, 2020, some of the Company’s short-term marketable securities were in an unrealized loss position. The Company determined that it had the positive intent and ability to hold until maturity all short-term marketable securities that have been in a continuous loss position, thus there was no recognition of any other-than-temporary impairment as of September 30, 2021 and December 31, 2020. All short-term marketable securities with unrealized losses as of each balance sheet date have been in a loss position for less than twelve months. Contractual maturities of the short-term marketable securities are within one year or less as of September 30, 2021.
The long-term marketable equity securities were recorded at fair market value. The long-term marketable debt securities were considered available-for-sale at September 30, 2021. The contractual maturity of the long-term marketable debt securities are less than three years.
The amortized cost, gross unrealized holding losses, and fair value of the Company’s marketable securities by major security type at each balance sheet date are summarized in the tables below (in thousands):
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September 30, 2021
Amortized CostUnrealized Holding Gains (Losses)Fair Value
Short-term marketable securities:
Corporate debt securities$10,199 $(2)$10,197 
Total short-term marketable securities10,199 (2)10,197 
Long-term marketable securities:
Corporate equity securities5,000 (167)4,833 
Corporate debt securities500  500 
Total long-term marketable securities5,500 (167)5,333 
Total$15,699 $(169)$15,530 
December 31, 2020
Amortized CostUnrealized Holding LossesFair Value
Short-term marketable securities:
Corporate debt securities$90,034 $(136)$89,898 
Total short-term marketable securities$90,034 $(136)$89,898 

Contractual maturities of the marketable securities at each balance sheet date are as follows (in thousands):
September 30, 2021December 31, 2020
Within one year$10,199 $90,034 
After one year through five years500  
Total$10,699 $90,034 

6. BUSINESS COMBINATIONS
TransChart LLC
In January 2021, the Company acquired TransChart for cash. TransChart provides EMR software to hospitals throughout the U.S. to care for patients who have or may need an organ transplant. As a result of the acquisition, the Company recognized goodwill of $2.2 million and intangible assets of $2.0 million.
The pro forma impact of the TransChart acquisition is not material, and the results of operations of the acquisition have been included in the Company's condensed consolidated statements of operations from the respective acquisition date.
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7. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible assets acquired.
Goodwill is tested annually for impairment at the reporting unit level during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances. There were no indicators of impairment in the three and nine months ended September 30, 2021. The balance of the Company's goodwill as of September 30, 2021 and December 31, 2020 was $26.1 million and $23.9 million, respectively.
Intangible Assets
The following table presents details of the Company’s intangible assets as of September 30, 2021 ($ in thousands):
September 30, 2021
Gross Carrying AmountAccumulated AmortizationForeign Currency Translation