Greetings, and welcome to the CareDx second quarter 2018 earnings conference call. At this time, all participants are in listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, David Clair, Investor Relations for CareDx. David, please go ahead.
Good afternoon, and thank you for joining us today. Earlier today, CareDx released financial results for the quarter ended June 30th, 2018. The release is currently available on the company's website at www.caredx.com. Peter Maag, Chief Executive Officer and President, and Michael Bell, Chief Financial Officer, will host this afternoon's call. Before we get started, I would like to remind everyone that management will be making statements during this call that include forward-looking statements within the meaning of 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 terms, expectations regarding coverage decisions, pricing and enrollment matters, and our future financial expectations and results are based upon current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results to differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and descriptions of the risks and uncertainties associated with our business, please see our 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 other forward-looking statements, whether because of new information, future events, or otherwise. This conference call contains sensitive information and is accurate only as of the live broadcast today, August 9th, 2018.
This call will also include a discussion of a financial measure that is not calculated in accordance with generally accepted accounting principles. Reconciliation to the most directly comparable GAAP financial measure may be found in today's earnings release filed with the SEC. I will now turn the call over to Peter.
Thanks, David, and good afternoon, everyone. Thank you for joining us. We had an exciting second quarter. You have heard me speak about individual patients at the beginning of these calls. Now, less than nine months into the AlloSure launch, CareDx supports approximately 1% of all the U.S. living kidney transplant patients. Our strategy to bring high-value diagnostic solutions to transplant patients is now in commercial execution mode and drove strong financial performance in the quarter. This afternoon, I will provide an update on the recent achievements across our two key business drivers, transplant testing services and transplant lab products. Mike will then provide additional financial details on our second quarter performance and discuss our 2018 guidance.
It's great to see the acceleration of our top line, with total revenues growing 48% year-over-year to $17.8 million, driven by a 66% year-over-year increase in testing services revenue to $14 million. Our second quarter adjusted EBITDA was a loss of $0.8 million, an improvement from a loss of $3.2 million in the prior quarter. We are clearly seeing momentum in our business and remain on track to deliver positive adjusted EBITDA in the back half of 2018. AlloSure remains the biggest contributor to our robust growth. With Medicare reimbursement in place and multiple peer-reviewed publications supporting clinical and analytical validity, AlloSure is positioned for continued exceptional growth in the quarters and years ahead. Our laser sharp focus on better kidney transplant surveillance is being embraced by both patients and transplant centers.
At the end of the second quarter, 76 centers had provided AlloSure results to their transplant patients since launch, which is higher than our initial internal projections. These 76 centers represent roughly half of the kidney transplant volume in the U.S. CareDx provided 2,300 patient results in the second quarter to approximately 1,700 kidney transplant patients. Overall, reimbursement was consistent with previous quarters, with 70%-80% of our AlloSure volume attributed to Medicare patients. Demand for AlloSure continues to be broad and includes both patients who recently received a kidney transplant, as well as patients that received a kidney allograft in previous years. Driving adherence to the AlloSure routine testing schedule protocol remains a key part of our strategy. Multiple centers are now utilizing the recommended testing protocol for their kidney transplant patients.
In the second quarter of 2018, 793 new standing order patients were added to the 683 standing order patients from previous quarters, translating into approximately 1,500 total patients on standing order at the end of the second quarter. We define standing order patients as patients that will follow the surveillance protocol for at least one year. Tracking standing order patients is important as it represents the basis of our flywheel dynamic, which we use to describe the recurring revenue effect from patients adhering to our AlloSure routine testing schedule. An important element to establish this protocol is the rollout of our clinical trial, also known as our Kidney Allograft Outcomes AlloSure Registry, or KOR. As a reminder, KOAR is part of our Medicare coverage with data development commitment and follows patients longitudinally for three years. The study will enroll 1,000 patients across 35 transplant centers.
Our Chief Medical Officer, Jim Yee, has been supporting our clinical trial programs for years and is well-known expert in the field. He has spearheaded landmark clinical trials in transplantation. Another reason why CareDx is highly regarded as a partner in transplant care. As of the end of June 2018, 27 centers had been initiated as KOAR study sites, and 237 patients had been enrolled, which is tracking ahead of our initial internal expectations. The team continues to execute well on all aspects of our studies. Running multi-center studies like KOAR is a competitive advantage for the company, as these studies provide us with an additional touch point with large transplant centers and keep us in direct dialogue with the key innovation hubs and opinion leaders. We see compliance and adherence to standard protocols as a key area of our work in the transplant community.
In the KOAR study, we target 75% adherence to our AlloSure surveillance protocol. Our initial experience confirms that this is a good metric to monitor, as some centers have limited processes in place to influence adherence. Our CareDx transplant patient care managers can be very helpful. We will update you on our progress as we gain additional data points. We are incredibly excited about partnering with leading transplant centers on our investigator-initiated trial initiative. In these studies, we are supporting the investigation of donor-derived cell-free DNA in various clinical settings, as AlloSure marks an important contribution in personalizing the care of transplant patients. CareDx will be recognized as a leader in the era of genomic medicine.
Furthermore, with our increasing number of transplant center partnerships, along with our unrivaled peer-reviewed publications, Medicare reimbursement, protocol adherence initiatives, and the ongoing KOAR study, we are building a formidable moat around kidney transplant patient care. The clear lab operations of CareDx have managed tremendous growth this quarter, and we are scaling the business as we grow. We have planned for this growth with our modular approach using Illumina MiSeq technology. In the beginning of 2019, we plan to implement higher throughput Illumina NextSeq technology into our workflow, and we anticipate that this will have a further positive impact on our throughput, turnaround time, and cost per patient result. Now shifting to AlloMap. Second quarter 2018, test volume increased 7% year-over-year, translating into 4,132 patient results.
The 7% increase in the quarter rebounded as anticipated from the 3% growth last quarter that was impacted by inclement weather in several territories in the U.S. We introduced our HeartCare concept in April. This novel heart transplant surveillance solution combines both AlloMap and AlloSure Heart, providing physicians and patients with indicators of both immune system activity and graft health. We are pleased with the initial interest from leading transplant centers. We view HeartCare as a tool to provide heart transplant patients with additional information and anticipate a positive impact on our overall market penetration rate. Now turning to transplant lab products. Our product revenue increased 5% in the quarter to $3.6 million. Recall that in April 2018, we announced that AlloSeq QTYPE had received CE mark approval and is now available on both Roche and the Applied Biosystem platforms.
We have been scaling up manufacturing to meet the market demand from U.S. and European customers. AlloSeq QTYPE is now clinically used in 17 transplant labs. We anticipate the simple workflow, fast turnaround time, recent CE mark, and availability on both platforms has just begun to impact our transplant product business, which remains a key component of our growth and profitability trajectory. As a reminder, beginning of June 1, 2018, CareDx became the exclusive distributor of Illumina's TruSight HLA typing product for the use in the field of transplant diagnostics. These products lead the market in the rapidly growing application of next-generation sequencing in the HLA typing segment and are currently sold globally. We have exclusive rights to develop and commercialize additional NGS transplant products using the Illumina platform. Our development pipeline includes the pre-transplant typing product, AlloSeq HLA, and the post-transplant monitoring product, AlloSeq HCT and AlloSeq cell-free DNA.
The development of these products includes reagent and software development and ongoing collaboration with Illumina. A few weeks into the effort, we are tracking well on our development and integration timelines. With the addition of the AlloSeq product, we also made some changes to our leadership team. David Sayer has joined the company. David brings 25 years of HLA typing development expertise into CareDx, and was the original inventor of the designs included in the AlloSeq HLA product. We also brought Alex Johnson on board to support the commercial side of the product business. This quarter, CareDx also announced the living donor employee recovery policy. CareDx is proud to announce a progressive corporate policy for any employee who donates an organ or bone marrow.
We have received a lot of positive news as we launch this policy at meetings with the National Kidney Foundation and the American Association of Kidney Patients. This initiative underscores our dedication to the transplant field, going well beyond a traditional diagnostic company. CareDx is uniquely positioned to provide genomic information to transplant patients and has established its market leadership with close ties to the clinical community. We strive to be the leader in transplant patient care based on multiple high-value diagnostic solutions. Our focus goes beyond providing test results. We focus on impacting long-term patient outcomes. To do that, we foster direct-to-patient interactions. Today, we care for approximately 1% of the U.S. kidney transplant patient population through our standing order program. This is a great start. I also want to take this opportunity to highlight the recent addition of Amy Abernethy to our board of directors.
Amy serves as Flatiron Health Chief Medical Officer and Chief Scientific Officer. Amy's background and knowledge will be extremely valuable as we build our genomic informatics and patient care management capabilities. We have tremendous respect for the skills that Amy brings to our company. Our ambition is to impact the field of transplantation, linking the information that is gained in the matching process of donors and recipients with the information obtained as we monitor the transplant patients throughout their lifetime. We estimate that there are more than 700,000 transplant patients worldwide, and the need for organ transplantation is ever increasing. CareDx will be well positioned to participate in this field of medicine, which is scientifically exciting and increasingly commercially attractive. Mike, I'll hand the call over to you to discuss financials.
Thank you, Peter. Turning first to the income statement, our second quarter 2018 testing revenue increased 66% year-over-year to $14.0 million. Our 2018 second quarter testing revenue includes AlloSure volume of 2,300 tests, a 7% AlloMap volume increase to 4,132 tests, and the January 1st increase in the AlloMap Medicare reimbursement rate from $2,840 to $3,240. We continue to be very pleased with the revenue and the momentum of AlloSure following the launch, with test trajectory ahead of our initial expectations. Our second quarter product revenue increased 5% year-over-year to $3.6 million. As such, total revenue in the second quarter of 2018 was $17.8 million, representing a 48% increase compared to the prior year's $12 million. For the second quarter of 2018, net loss was $14.1 million, compared to a net loss of $4.0 million in the same period of 2017.
Our net loss per share was $0.40 for the quarter, compared to $0.19 in the second quarter of 2017. For the second quarter 2018, our non-GAAP net loss was $1.3 million, compared to a non-GAAP net loss of $3.6 million in the same period of 2017. Our non-GAAP net loss per share in the second quarter of 2018 was $0.04, compared to $0.17 in the same period of 2017. Starting this quarter, we are disclosing our adjusted EBITDA. We define adjusted EBITDA as non-GAAP net loss before interest, tax, depreciation, amortization, other expense and net loss attributable to non-controlling interest. For the second quarter of 2018, adjusted EBITDA was a loss of $0.8 million, compared to a loss of $2.1 million in the second quarter of 2017.
Net cash used in operating activities in the second quarter of 2018 was $1.9 million, which was in line with our expectations, and our cash and cash equivalents at June 30, 2018, was $16.2 million. Turning to guidance, we are increasing our 2018 revenue expectations to reflect the growth of AlloSure and now anticipate $68 million-$70 million for the year. We remain focused on driving the company towards profitability and giving our expectations for a ramp in AlloSure contribution as 2018 progresses. The positive Medicare price increase for AlloMap and the growth of our product revenues from QType and our Illumina partnership, we continue to anticipate reaching adjusted EBITDA profitability during the second half of 2018. With that, I'll open the call for questions.
Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that is *1 to ask a question. One moment please while we poll for questions. Our first question today is coming from Bill Quirk from Piper Jaffray. Your line is now live.
Great. Thanks. Good afternoon, and congratulations on a really great quarter, guys.
Thank you very much, Bill. It means a lot to us, you saying that.
A couple of questions from me. I guess the first one, Peter, you alluded to in your prepared comments, but can you give us a little additional breakdown for AlloSure tests between those who have received a kidney transplant this year versus previous years? I think we've been pleasantly surprised at the interest kind of beyond year one, but just curious about some additional color here specifically for 2Q.
Absolutely, Bill. We continue to see a number of patients actually entering our AlloSure protocol beyond the one year. With KOAR coming on stream, and I have reported that there are 237 patients probably coming through the KOAR standing order process, there are actually a substantial amount of patients in the outer years. We'll probably see that in the coming quarters, a little bit skewed to the earlier transplant patients because of the KOAR study. Right now, we continue to see very strong demand also in patients that are in year two, three, or even year four out after transplantation.
Okay, great. On AlloMap, really nice to see that bounce back, certainly ahead of our expectations. Peter, you alluded to HeartCare being launched. Can you speak a little bit to what sort of impact that may have had for the AlloMap volumes? Do you think it's simply too early, any sort of impact is on the come here, and that this is simply AlloMap volumes bouncing back from the inclement weather in the first quarter?
Bill, thanks for the question. I think we continue to see mid-single-digit volume growth on AlloMap that we have been portraying. I think it's too early to really see a lot of impact on HeartCare. It is really only launched as a concept. There are not many HeartCare results provided yet. We believe that we'll provide HeartCare primarily through our SHORE registry that we'll be launching in the second half of this year. It's a little bit too early to say, but think about this, continuous penetration, mid-single-digit volume growth is what we're aiming here.
Okay, fair point. Just two more from me, one slightly longer, one quick one. Given the competitive announcement that came out about six weeks ago, can you just talk about, I guess, some of the response from your current users? Certainly, that doesn't appear to have had any impact on center growth, although to be fair, it came out at the end of 2Q.
Yeah, I know. Same, Bill, here. It's very early. I think we haven't heard actually a lot in the marketplace. I'm doing my tours, and we have, obviously, the ear on the ground with a very vast presence in all these transplant centers. We don't hear anything of substance apart here from the local UCSF center in transplant centers across the country. I think it's really early in this process. No, nothing do we hear from the field.
Okay, got it. Mike, just a real quick one for you. Given the approaching profitability, just remind us what the additional diluted share count at is.
Yeah, Bill. Well, our outstanding common stock is 36 million. Fully diluted, including options and warrants, it's 43 million.
Perfect. Thanks, Mike. Thanks, Peter.
Thank you, Bill.
Thank you. As a reminder, if you'd like to ask a question today, please press star one on your telephone keypad. Our next question is coming from Per Ostlund from Craig-Hallum Capital. Your line is now live.
Thanks. Good afternoon, guys. I will echo Bill's congratulations as well. Very solid quarter. Admittedly, this is early, but would love to get some early feedback on the protocol adherence of the standing order patients. I know that, as we're thinking about modeling, it's certainly nice to have that standing order patient count continuing to rise like it is and give us that visibility. Are those patients adhering to the protocol as well as you would hope? Related to that, what sorts of programs are being put in place, whether it's by CareDx itself or by the clinicians to help drive that adherence?
Excellent question, Per, I gave you the number, too, that we use our internal yardstick at 75% adherence. We do see adherence to the protocol in that range on our K-OR study, that gives us an indication that probably K-OR will be even stronger on adherence than the regular population. Probably adherence in the regular population will be somewhere between 50% and 75%, I would guess. What's always the case in these protocols that initially, adherence is actually higher in the first year, for example, than adherence in the second and the third year. You're absolutely right that asking about what is our expectation on adherence. Knowing that, we have put in place patient care managers.
We have a group now, which is a sophisticated call center that actually makes sure that these patients do show up for their second and the third and the fourth and the subsequent AlloSure blood draw. We think that this is very important given that these patients are on an AlloSure protocol for three years. We need to have models in place in order to bring them back and make sure that they get their AlloSure on time and have the test results delivered right back to the center. Adherence is going to be a core theme for us going forward to establish our flywheel concept.
That makes sense. Maybe just to follow up on that. Are there learnings, and admittedly, AlloSure is the newer test on the block for you, but are there learnings from driving that early adherence of the standing order patients that you can turn around and actually apply on the AlloMap side?
Oh, yeah, absolutely. I think we talked numerous times that actually on the heart program, we see that every heart program in the U.S. is using AlloMap slightly differently based on their biopsy protocols. With AlloSure, we really turned the corner and said, "Let's establish a basic AlloSure routine testing schedule, the ARTS protocol, and make it the mainstay." I think we've been very successful in making that the mainstay, especially through our KOAR registry study, that you can only enroll patients when you follow this ARTS schedule. This is a sea change that we bring to the field of transplantation, where we now have a standard protocol for probably minimum 35 centers in the country that follow the KOAR study.
Very good. The AlloSure volume number in the quarter, frankly, kind of blew me away. I'm curious, would you say you were tracking to that kind of a quarter all along, or did you get a positive inflection out of the Transplant Congress? I guess just, kind of on that point, I'd love to hear the feedback that you've gotten in the days and weeks subsequent to the Transplant Congress and how that met your expectations, because obviously, it was a very high-profile event for CareDx.
Per, thank you very much. I was a little bit concerned when you started the call with a solid quarter, and now I think you put that back into perspective. I think at the ATC symposium, we always knew that this is the highlight of the year, and I think the team has nailed it. This was at the end of the quarter, and we have seen tremendous interest. In terms of your earlier questions, are we tracking to our expectations, I think you see that we have increased guidance, and we feel comfortable with our new guidance. Yes, we're continuously executing extremely well, and the ATC symposium has really been a highlight, and we executed very well on that.
Excellent. One last question, and if you addressed this in your prepared remarks, Peter, I apologize. Granted, again, it's still early, but do you have anything you can share from a reimbursement experience standpoint to date on AlloSure? Is it a patient mix standpoint? How many came through Medicare, or is it being reimbursed at the level you expected?
Well, I think that's a good question for Mike to answer.
Yeah. Per, the reimbursement is going as we expected. We're getting paid efficiently by Medicare. We've always said that the Medicare reimbursement would sort of cover 70%-80% of the volume. Actually, what we're seeing is something like a 75% reimbursement on AlloSure, which is driving the revenue for the quarter.
Okay. Very good. Thank you.
Thank you. We have reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.
Well, thank you very much for joining the call. We look forward to updating everyone as we continue to commercialize AlloSure, grow AlloMap and our transplant product business, and progress towards profitability. Thank you very much for joining us today. Thank you.
Thank you. That does conclude today's teleconference. You may disconnect your line at this time, have a wonderful day. We thank you for your participation today.