CDNA CareDx, Inc 10-Q 2026-03-31 section summaries

CareDx (CDNA) — Q1 2026

CareDx returned to operating and net profitability as revenue grew sharply, led by transplant testing services and patient and digital solutions. Results also reflect lower litigation-settlement expense, while higher personnel and commercial spending absorbed part of the growth. The quarter’s financial picture includes positive operating cash flow, increased accrued liabilities—particularly payer refunds—and continued material litigation exposure. After quarter-end, the company announced a sale and an acquisition that would reshape its portfolio.

Consolidated results

Revenue increased 39.0%. Operating expenses were $116.502M, compared with $98.059M. Litigation-settlement expense fell to $0.600M from $5.360M, while R&D rose to $21.416M from $18.524M, sales and marketing to $30.373M from $22.991M, and G&A to $30.484M from $22.769M. Net interest income declined to $1.909M from $2.784M.

Revenue by category

Testing services grew 47.6%, and patient and digital solutions grew 33.5%; product revenue declined 4.3%. CareDx reports one operating and reportable segment. By geography, U.S. revenue was $113.646M versus $79.865M, while Rest of World revenue was $4.054M versus $4.820M.

Testing-services revenue estimates and payer reimbursement are important considerations: Q1 2026 revenue included $17.7M for tests performed in prior periods, and an increased third-party-payer refunds reserve reduced revenue by $3.4M. The comparable quarter included a $1.1M revenue reduction related to prior-period tests and a change in estimate. Medicare accounted for approximately 27% of Q1 2026 revenue, down from 37%; it represented 14% of receivables at March 31, 2026, versus 21% at December 31, 2025.

Balance sheet and cash flow

Derived tangible common equity was $241.097M, up from $230.805M at year-end. Intangible assets at March 31 comprised acquired/developed technology of $11.344M, customer relationships of $10.948M, commercialization rights of $4.241M, trademarks/tradenames of $2.076M, acquired in-process technology of $1.250M, and a favorable license agreement of $2.243M. No goodwill or intangible-asset impairment indicators were identified.

Cash and cash equivalents were $77.923M. Held-to-maturity marketable securities had $120.154M amortized cost and $120.007M fair value, including $147K of unrealized holding losses; at year-end, amortized cost was $135.944M and fair value was $136.596M, including $652K of unrealized gains. The company reported no other-than-temporary impairment. The cash-flow improvement came despite a $17.810M reduction in accrued compensation; accrued compensation on the balance sheet fell to $20.545M from $38.107M at year-end.

Obligations, litigation and capital allocation

Accrued and other liabilities rose to $49.542M from $41.754M, notably as the refunds reserve increased to $7.954M from $3.500M and professional fees to $7.518M from $4.988M. Deferred revenue was $5.555M, up from $4.653M. Operating lease liabilities totaled $24.498M in present value ($6.661M current and $17.837M long-term), against $21.2M of lease right-of-use assets; facility leases run through 2033.

Natera patent litigation remains a significant contingent risk. A prior jury award of approximately $96.3M to Natera was reversed after the court found the asserted patents invalid; Natera appealed, and potential exposure if CareDx does not prevail is up to $96.3M plus interest. Separately, CareDx’s $44.9M false-advertising jury award against Natera was affirmed by the Third Circuit in August 2025, but no receivable or gain has been recorded because the amount has not been realized. CareDx petitioned the Supreme Court for review in February 2026. CareDx also paid approximately $20.25M to settle a securities class action, with final approval in December 2025; related derivative-action proceedings continued, including a proposed $0.6M attorneys’ fee agreement reached after mediation.

Q1 stock-based compensation expense was approximately $9.8M. At March 31, options outstanding were 2,433,684, with a $20.62 weighted-average exercise price; RSUs and PSUs outstanding were 4,854,384, with a $16.89 weighted-average grant-date fair value. Unrecognized compensation was approximately $57.8M. No shares were repurchased in Q1 under the existing program, with $12.2M remaining under its $50.0M authorization. The board subsequently authorized a new $100.0M repurchase program, beginning April 30, 2026.

On April 15, 2026, CareDx agreed to sell its CareDx AB subsidiary and related kitted laboratory products business and software to Eurobio Scientific for $170M cash, subject to customary adjustments. On April 28, it agreed to acquire Naveris for $160M cash, subject to customary adjustments, plus up to $100M in additional cash tied to FY2026 and FY2027 revenue milestones; $5.0M of closing consideration is to be placed in escrow. These transactions indicate a portfolio shift away from the divested laboratory-products business and toward Naveris.

Q1 2026 results

Revenue grew 39%, and the company returned to operating and net profitability. Testing services drove the increase and accounted for 78% of revenue, up from 73% a year earlier, making the business more reliant on transplant testing.

Testing-services revenue increased 48%, well ahead of test-volume growth. The difference was largely attributable to $17.7M of increased net collections on tests performed and revenue recognized in prior periods under ASC 606, partly offset by a $3.4M reduction from recognizing refund reserves payable to third-party payors. Average revenue per test was approximately $1,660, including approximately $14M of prior-period revenue. Volume grew 17% to approximately 54,900 tests. Patient and digital solutions grew 33%, driven by pharmacy sales and digital growth, including an expanded Ottr customer base. Product revenue declined 4%, primarily from lower sales of commercial NGS-based kitted solutions; products were 9% of revenue, versus 13% in Q1 2025, while patient and digital solutions remained 14%.

Testing-services cost rose 13% to $17.097M from $15.113M, below revenue growth as higher volume was partly offset by laboratory efficiencies. Product cost declined 13% to $4.834M from $5.586M, reflecting lower sales, manufacturing efficiencies and favorable manufacturer pricing. Patient and digital solutions cost increased 52% to $11.698M from $7.716M, mainly because of higher pharmacy cost of goods.

R&D growth primarily reflected personnel costs; higher sales and marketing costs accompanied business growth. G&A included $2.0M more stock-based compensation. Litigation expense declined from the prior-year $5.4M securities class-action settlement, partly offset by a $0.6M derivative-action settlement in Q1 2026. Lower interest income primarily reflected reduced cash, cash equivalents and marketable securities; other expense mainly reflected foreign-exchange losses.

Cash flow and liquidity

Q1 2026 operating cash flow included a $14.6M decrease in net operating assets and $9.8M of noncash stock-based compensation. Investing cash flow included $54.7M of marketable-security maturities, partly offset by $39.9M of purchases and capital expenditures. Financing outflows included $2.5M of taxes paid on net share settlements of restricted stock units and $1.5M of contingent-consideration payments.

At March 31, 2026, cash, cash equivalents and marketable securities totaled $198.1M, with no debt outstanding; the accumulated deficit was $732.5M. Despite its history of significant losses and negative operating cash flows, management expects available resources and anticipated operating and potential license/collaboration cash flows to cover requirements for the next 12 months. Testing revenue remains subject to test volume, payer coverage and collection decisions, appeals, and uncertainty around reimbursement for tests without established coverage or payment histories. The company also bears costs for samples that do not ultimately produce a report.

Strategy, capital allocation and accounting

The business spans kidney, heart and lung post-transplant tests, laboratory products, transplant pharmacy and digital patient-management offerings. The company is investing in R&D and clinical/outcomes studies to validate existing tests and develop new services, with the aim of expanding its market opportunity and diversifying revenue. A $250M universal shelf registration remains available. The May 2025 buyback had $12.2M remaining at March 31, 2026, with no Q1 repurchases; on April 24, 2026, the board authorized an additional buyback of up to $100M over two years, beginning April 30, 2026.

Critical accounting estimates include revenue recognition, business combinations, acquired intangible assets, impairment of goodwill, intangible and other long-lived assets, and stock-based compensation. The company reported no material changes in these estimates or related matters during Q1 2026 compared with its FY2025 Form 10-K.

Market risk

At March 31, 2026, cash, cash equivalents and marketable securities totaled $198.1 million, held in bank deposits, money market funds, corporate debt securities and U.S. agency securities. The company reported no material interest-rate risk and did not anticipate material exposure. A hypothetical 100-basis-point increase or decrease in rates would have affected the unaudited condensed consolidated balance sheets by approximately $2.0 million.

Foreign-exchange exposure comes from Swedish operations, international sales, foreign-currency transactions and investments, and foreign-currency assets and liabilities. Testing and patient and digital solutions revenue are primarily denominated in U.S. dollars; product revenue is primarily denominated in U.S. dollars and euros. Some operating expenses are denominated in Swedish kronor, Australian dollars and euros. An unfavorable 10% exchange-rate move applied to foreign-currency assets and liabilities at March 31, 2026 would have negatively affected the balance sheets by $0.1 million for the three months ended March 31, 2026, and reduced product and patient and digital solutions revenue by $0.4 million in that quarter.

The company has no near-term plans to formally hedge foreign-exchange exposure, but may establish a program if exposure becomes more significant and will reassess its approach.

Disclosure Controls and Internal Control

As of March 31, 2026, the CEO and CFO concluded that the company’s disclosure controls and procedures were effective at a reasonable-assurance level. No changes to internal control over financial reporting during the three months ended March 31, 2026, materially affected or were reasonably likely to materially affect those controls.

Business performance, profitability and funding

Revenue rose 39% year over year in Q1 2026 and 14% in FY2025, but CareDx cautions that historical growth may not continue and quarterly results can fluctuate. Despite the Q1 profit, the company had an accumulated deficit of $732.5M at March 31, 2026, has not achieved consistent profitability, and expects net losses for the next several years. Spending is expected to increase on R&D, clinical and economic evidence, commercialization, laboratory and sales infrastructure, personnel, compliance, litigation, and acquisition integration; even substantial revenue may not produce sustainable profitability.

At March 31, 2026, CareDx held $198.1M in cash, cash equivalents and marketable securities. Future funding needs could include R&D, clinical studies, commercialization, acquisitions and capital spending. Financing may be unavailable or costly: equity could dilute shareholders, debt could impose senior claims and restrictions, and collaborations could require giving up valuable rights. Insufficient funding could force the company to slow growth, reduce R&D or scale back operations.

Reimbursement, adoption and competition

Medicare revenue from AlloSure Kidney, AlloMap Heart, AlloSure Heart, HeartCare and AlloSure Lung represented 35% of Q1 2026 testing-services revenue. In 2025, CMS cross-walked AlloSure (PLA code 0540U) to CPT code 0493U, setting a 2026 Clinical Laboratory Fee Schedule rate of approximately $2,753—$88 below the prior AlloSure Kidney price, with no price change for AlloSure Heart or AlloSure Lung. A February 2026 law requires reporting private-payer rates from January–June 2025 during May–July 2026; the volume-weighted median could set rates for certain tests in 2027–2029. CareDx does not expect the reporting to materially affect current Medicare pricing. A proposed Medicare local coverage determination could add coverage criteria, utilization limits or bundled payment for some tests; its final effect remains uncertain. Broader government-policy changes, including a 2% Medicare sequestration cut expected to continue through at least 2032 and reduced federal healthcare funding and added eligibility requirements under the OBBBA, could also affect access and reimbursement.

Growth depends on clinicians and transplant centers accepting the tests’ accuracy, clinical usefulness and cost-effectiveness, and on continued or expanded payer coverage. Biopsies and other established practices remain entrenched and may be used alongside molecular tests; favorable biopsy reimbursement and protocol biopsies may constrain adoption. Payers can deny, underpay or recoup claims for eligibility, medical-necessity, duplication or documentation reasons, delaying cash receipts. CareDx is disputing a significant Medicare Advantage payer’s denials, underpayments and recoupments. After earlier Noridian audits, CareDx reports that all claims it appealed were resolved in its favor; a 2023 UPIC review identified $38,975.02 of Medicare overpayments, with four claims then under appeal. UPIC reported no overpayment and requested no further information following a second records request in 2025.

Competition includes biopsy and standard clinical methods, molecular diagnostics, lower-priced alternatives, and established laboratory, software and EMR providers. Competitors may have greater resources or offer tests perceived as equivalent, pressuring prices and margins. Pre-transplant typing faces PCR and NGS alternatives, and automation could affect market share. Continued innovation, evidence, publications and clinical collaborations are important, but studies may fail or be delayed, samples and clinical data may be difficult to obtain, and partners may change priorities. The company’s named transplant tests and products are expected to remain a substantial portion of revenue for at least the next two years.

Operating continuity, regulation and technology

All U.S. testing is performed at one Brisbane, California laboratory, with no redundant U.S. facility. The site is near earthquake fault lines; CareDx has no earthquake insurance. A disaster or power interruption could halt U.S. testing, while a replacement facility would require substantial expense, time, certification and state licenses. Outsourcing may be difficult or costly. The company also relies on outside providers for sample collection and processing, timely shipping, and sole-source suppliers for key instruments, reagents and consumables, including Thermo Fisher, Roche, Illumina, Becton Dickinson and Qiagen. Some suppliers are not covered by guaranteed supply agreements; disruptions could delay testing or commercialization and raise costs.

CareDx must maintain CLIA certification and state laboratory licenses. LDT regulatory policy remains uncertain: future FDA oversight could require additional studies, clinical trials and 510(k) or PMA submissions, raising costs, delaying products or restricting marketing. Applicable healthcare laws include fraud-and-abuse, billing, privacy and security requirements. For violations assessed after July 3, 2025, the filing states False Claims Act penalties range from $14,308 to $28,619 per claim. The SEC concluded its investigation without intending to recommend enforcement, and DOJ declined to intervene in a related qui tam action and closed its investigation without finding wrongdoing; a private relator continues the case, which CareDx is defending.

Cyberattacks, IT failures or privacy breaches could interrupt laboratory operations, billing, R&D or results delivery and expose sensitive information, creating regulatory, litigation and reputational costs. Privacy obligations are expanding across U.S. states and internationally; GDPR penalties can reach the greater of €20 million (£17.5 million in the UK) or 4% of global annual revenue. Use of AI creates additional risks around accuracy, bias, data rights, third-party providers and evolving regulation. International growth also depends on partners securing approvals, reimbursement and effective distribution, and is exposed to trade restrictions, tariffs, geopolitical conflict, currency, tax and local-compliance risks.

Intellectual property, litigation and shareholder risks

CareDx depends on patents, trade secrets and third-party licenses. As of March 31, 2026, it reported seven U.S. patents related to transplant rejection and autoimmune-disease diagnosis, expiring August 2027–May 2035, and four related to organ-function recovery and allograft preservation, expiring July 2038–June 2041. In September 2021, a court invalidated three patents CareDx asserted against Natera; CareDx says this does not affect its ability to provide AlloSure but may limit its ability to block similar products. Its exclusive Stanford license terminated in October 2023. License or patent disputes could require damages, royalties, injunctions or changes to products. Under the Illumina agreement, failure to meet milestones could end exclusivity for affected products; royalties on commercialized products are in the mid-single- to low-double-digit percentages of sales.

CareDx also faces product-liability risk from inaccurate results, acquisition-integration challenges, and dependence on key personnel. A material weakness in internal control over financial reporting identified at year-end 2024 caused immaterial corrected stock-based-compensation errors; the company says it remediated the weakness in 2025. Controls were reported effective at March 31, 2026, but failures could result in inaccurate or delayed reporting, restatements or regulatory and market consequences.

The stock traded between $16.43 and $21.02 from January 2–March 31, 2026, and may fluctuate with clinical, reimbursement, regulatory, competitive and market developments. A May 2025 repurchase authorization had $12.2M remaining at March 31, 2026; no shares were repurchased under it in Q1. A subsequent authorization approved April 24, 2026 permits up to $100.0M over two years beginning April 30, 2026. Repurchases are discretionary and compete with other uses of capital; CareDx does not expect to pay cash dividends in the foreseeable future. NOLs may also be limited by prior or future Section 382 ownership changes, increasing or accelerating cash taxes.

For the three months ended March 31, 2026, no director or officer adopted or terminated a Rule 10b5-1(c) trading plan or a non-Rule 10b5-1 trading arrangement.