Good day, ladies and gentlemen, and welcome to the CareDx, Inc. third quarter 2022 earnings conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ian Cooney. Please go ahead.
Good afternoon, and thank you for joining us today. Earlier today, CareDx released financial results for the quarter ended September thirtieth, 2022. The release is currently available on the company's website at www.careDx.com. Reg Seeto, Chief Executive Officer, and Abhishek Jain, Chief Financial Officer, will host this afternoon's call. Before we get started, I would like to remind everyone that management will be making forward-looking 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 trends, 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. The information provided in this conference call speaks only to the live broadcast today, November 3, 2022. CareDx disclaims any intention or obligation, except as required by law, to update or revise any information, financial projections or other forward-looking statements, whether because of new information, future events, or otherwise.
This call will also include a discussion of certain financial measures that are 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 Reg.
Thanks, Ian. Good afternoon, everyone, and thank you for joining us to CareDx's third quarter 2022 earnings conference call. Today, I'd like to focus my discussion on the following three topics. The first is our differentiated financial profile in Q3 results. The second is our growth platform over the next 18 months, which we call the three Cs, catalysts in the pipeline, collections improvement, and coverage expansion. The third is building on our vision of leadership in the transplant ecosystem. Moving to the first topic. During the last earnings call, we made a commitment to achieve adjusted EBITDA profitability by the first half of 2023. Since then, we've made tremendous progress towards this committed goal. Notably, we meaningfully improved our adjusted EBITDA losses in Q3 versus Q2. This is a trend break we liked, especially when combined with our strong balance sheet and debt-free position.
As a management team and board, we believe maintaining this strong financial position is critical to building sustainable business, especially in this current economic environment. We plan to deliver on our profitability goals, and this will enable us to operate as a self-funding business. This has been a constant source of feedback from our long-term shareholders and truly differentiates CareDx when compared to others in our space. As highlights in our financial position, we, one, retain an excellent cash position with $291 million in cash and marketable securities on the balance sheet. Two, we've maintained our high gross margins, highlighted by 73% GAAP and 74% non-GAAP in our testing services. Three, we achieved strong volume growth with a 15% year-over-year and 3% sequential growth. Four, we improved our adjusted EBITDA position to enable our progress towards profitability.
Regarding Q3 results, overall revenue for the quarter was up 5% year-over-year and down slightly sequentially to $79.4 million. Primarily driven by testing services with lower market growth than we projected. Higher than anticipated shift in payer mix to more commercial payers, resulting in an increase in non-reimbursed tests. The incremental 1% sequestration reduction for Medicare tests. Another, also with the impact of Hurricane Ian in the last week of patient testing. There was also a lower growth in our products business from the impact of foreign currency and ongoing staffing shortages in HLA laboratories that have slowed new installations. Despite these, we were able to improve our adjusted EBITDA versus Q2 2022, and we are on track to achieve adjusted EBITDA profitability in the first half of 2023.
Now on transplant volumes, the year-over-year growth for Q3 2022 was mid-single digits. Based on the early signs of a stronger recovery we saw in Q2, we expected higher sequential growth versus what transpired in Q3. Notably, it has taken 18 months for transplant volumes to finally reach the same baseline levels we last saw in Q2 of 2021. Transplant center staffing shortages and decreased living donor kidney transplants remain two of the biggest challenges to market growth. Our testing services remains a strength, with leadership across kidney, heart, and lung. With kidney, we remain focused in executing on our long-term strategy, with now more than 100 transplant center and community nephrology practice following AlloSure Kidney protocols. Today, we have more than 75% usage across kidney transplant centers, and we saw an increase in commercial market share in these transplant centers.
The entry into community nephrology has been an outstanding success and is now approaching 10% of our overall kidney volumes. We have more than 200 practices use AlloSure Kidney in Q3 due to our community nephrology expansion. This represents a significant potential as the majority of transplant patients are managed in a community setting. Although the community patients have a lower coverage level, we have an ongoing commitment to support all patients regardless of payer coverage. With heart, the attachment rate for HeartCare remains above 95%. This demand continues to reflect the value of multimodality. As a reminder, we're the only Medicare-covered gene expression and donor-derived test in heart, and the only test with multimodal coverage through Medicare. Today, more than 90% of heart transplant centers in the United States use a CareDx offering. Now on to lung.
AlloSure Lung addresses a significant unmet need by providing a non-invasive option in the highest-risk transplant patient population, where one in two lung transplant patients will fail within five years. The use of AlloSure Lung has exceeded its trial benchmarks, and we already achieved greater than 60% penetration in transplant centers within 12 months of commercial launch. This uptake in lung reflects the incredible demand in the lung transplant community with greater than 2,000 tests ordered in Q3. Now, moving on to the second topic. As we're working towards a sustainable, profitable model, we're excited by the future opportunities to accelerate revenue growth. We are focusing our efforts over the next 18 months on three priorities called the three Cs, catalysts in the pipeline, collections improvement, and coverage expansion. Now on to the first C, catalysts in pipeline.
I am pleased to announce the following. First, we can share that AlloMap Kidney is currently under MolDX review. Secondly, we are completing CLIA implementation work on UroMap in preparation for a future MolDX submission. We look forward to bringing these latest innovations to clinical use to improve patient care. Now on AlloMap Kidney. This really delivers on the market need for a quantitative immunoquiescence test. AlloMap Kidney is built upon our leading FDA-cleared gene expression test, AlloMap Heart. AlloMap Kidney is being built specifically for kidney transplant patients. UroMap has now completed analytical and clinical validation, and we are finalizing implementation in our CLIA lab. The breadth and quality of data for UroMap are best in class and defined in multiple New England Journal of Medicine publications. UroMap is a gene signature that can assess both the probability of rejection and the probability of BK virus nephropathy.
Now onto the second C, collections improvement. We continue to ramp up infrastructure, and we'll share a new metric which looks at the ASP on reimbursed tests. Notably, our ASP on paid tests has not changed over the last seven quarters. Abhishek will cover this in more detail. During the last six months, we've ramped up our internal infrastructure and third-party support to address the increased workload across the different pay stages with pre-submission, submission, and appeals. We're starting to see signs of improvements in our cash collection, with improved collections in Q3 versus the prior quarter and year-over-year. However, the reality of longer collection cycles for Medicare Advantage and commercial plans means that visible progress will show up with a lag. Now on to the third C, coverage.
The number of non-reimbursed tests continues to increase with our intentional strategy to launching new organs such as lung and to move into community nephrology, where coverage is lower. However, this volume growth creates a long-term opportunity. In the meantime, we are working towards obtaining payer coverage to get these tests covered and reimbursed by private payers. Coverage represents our biggest P&L lever. For example, using 2021 volume numbers, we would have collected over $100 million in incremental adjusted EBITDA if our current commercial test enjoyed the same broad coverage as AlloMap Heart, the gold standard at above 70%. Now, as a reminder, AlloSure Kidney is at above 70%, AlloSure Heart is between 25%-30% coverage, and AlloSure Lung is less than 5%.
We're now targeting two specific milestones that are expected to expand our coverage in AlloSure Heart and AlloSure Lung. On AlloSure Heart, we're encouraged by the inclusion of donor-derived cell-free DNA in the proposed guideline updates at the April International Society for Heart and Lung Transplantation Meeting. As a reminder, AlloMap Heart is part of the ISHLT guidelines already, which was pivotal in expanding payer coverage. On AlloSure Lung, we are working with MolDX to achieve a determination of coverage by Medicare. There is clear demand in the lung transplant community with over 2,000 patients that have used AlloSure since the launch. Notably, there are only 2,500 lung patients transplanted each year and 15,000 patients in the community. Now moving on to the third section, our vision and strategy.
Our vision is to be the lead in the transplant ecosystem, and as one of the few companies 100% dedicated to transplant, CareDx has emerged as a market leader across the transplant patient journey and built an incredibly deep moat within the transplant centers. Today, we're number one in post-transplant biomarkers in kidney, heart, and lung. We're number one in transplant medication coverage discharge with greater than 100 transplant centers. We're number one in transplant quality monitoring with greater than 40 centers. We're number one in transplant-specific apps with more than 55,000 downloads through our app, AlloCare. We're number one in next-generation sequencing, say, HLA typing.
As a reflective milestone, UNOS recently announced that there has been now more than 1 million patients transplanted in the US, with 500,000 or half of those in the last 15 years. We are proud that more than 100,000 transplant patients have used a CareDx offering over those last 15 years, representing 20% of transplanted patients in the U.S. during this time. Moving to guidance. As you saw in our press release. We lowered our guidance and now expect full year revenues to be in the range of $320 million-$325 million. This guide is driven by the lower Q3 revenues and higher than anticipated shift to commercial payers. Abhishek will cover this in more detail in his section.
In closing, we are committed to delivering on our path to profitability in the first half of 2023, and there's a summary. One, we demonstrated our ability to improve our adjusted EBITDA despite a lower revenue quarter. Two, we've highlighted a rich set of potential revenue growth drivers to accelerate growth through the three Cs. Catalysts in the pipeline with the anticipated commercial launches of AlloSure Kidney and UroMap, collections improvements through increased infrastructure, including engagement with third parties, and coverage expansion through AlloSure Lung reimbursement and the potential inclusion of donor-derived cell-free DNA like AlloSure in the ISHLT clinical guidelines. We look forward to the next 18 months as we continue to execute on our strategy. With that, I'll turn it over to Abhishek to discuss our third quarter financials.
Thank you, Reg. We are pleased to report that we are making progress on the commitments we made last quarter on returning to our adjusted EBITDA profitability. I would also like to echo the comments about our confidence in being able to expand coverage and improve collections over time and leverage our business model. Reg alluded to our differentiated financial profile. Let me provide further details on the same and Q3 results. Number one, strong cash position of $291 million in self-funding business model. Number two, solid volume growth and impressive gross margin performance. Number three, progress on our path to adjusted EBITDA profitability. Number four, the strength and the consistency of our ASP on reimbursed tests. I want to start by highlighting our financial strength. We ended the quarter with $291 million in cash equivalents, and marketable securities and no debt.
We continue to invest our portfolio in line with our goals of preserving principal diversification and maximizing returns. In Q3 2022, we generated over $1.2 million in net interest income. We do not require to raise capital and have the flexibility to deploy capital that increases value for our shareholders. This is a unique story in our space. We remain confident that the business is self-funding into the foreseeable future. Moving to the quarter. In Q3, we recorded total revenues of $79.4 million, up 5% compared to $75.6 million in the third quarter of 2021. Testing services revenue was down 2.6% to $64.8 million. Product revenues increased 10% year-over-year to $7.2 million. Patient and business solutions revenue increased 185% year-over-year to $7.4 million.
Our revenues in Q3 2022 were impacted by slower than anticipated market volume growth, a higher mix of non-covered tests, final and second part of sequestration cuts, a burn off with Hurricane Ian, and FX headwinds on our product business. Although the market growth was lower in Q3 as compared to Q2, we were pleased to finally see total transplant volumes return to the same level as they were more than 18 months ago. It has taken longer than expected. For the quarter, our testing volumes grew by 15% year -over- year to over 46,500 tests. We saw sequential volume growth in all organs. The non-GAAP gross margin for the quarter was 67% compared to 70% in the third quarter of last year and 69% in Q2.
The change in gross margin versus the last quarter is primarily driven by our products business returning to its normal gross margin. We continue to maintain healthy gross margin of 74% in our testing services business, despite the continued increase in the mix of unpaid tests. We are very pleased with the durability of our gross margin profile and proud of our lab and the supply chain team as they continue to drive efficiency. Non-GAAP operating expenses for the third quarter were $57 million, down $5 million sequentially from Q2 2022. We are extremely pleased to see this trend change given our committed goal of achieving positive adjusted EBITDA in the first half of 2023. This was achieved by focusing on three factors. Number one, financial discipline across the organization. Number two, operating efficiencies driven by process improvement.
Number three, increasing effectiveness in strategic areas of driving growth and improving collections and expanding coverage. Notably, despite the reduction in OpEx, we continue to invest in clinical development with studies across solid organ and stem cell transplants. For the third quarter of 2022, we recorded negative adjusted EBITDA of $2.5 million, compared to negative adjusted EBITDA of $5.7 million in the previous quarter. We made a lot of ground on our commitment and are pleased with the progress towards our goal of delivering positive adjusted EBITDA in the first half of 2023, and are confident in our ability to continue to drive profitable growth. Now let me turn to ASP. In order to provide further clarity on our ASP this quarter, we are beginning to disclose the ASP for tests where we receive reimbursement.
Our ASP for reimbursed tests has been essentially flat and above $2,500 since Q1 of 2021. The overall ASP started to change in Q1 2021, which was the first full quarter impact of AlloSure Heart. As a reminder, during 2020, our overall coverage in testing services was above 70%. But the addition of AlloSure Heart was only covered at 25%. Our focus is on expanding coverage versus the overall changes in ASP, as these include non-covered tests. To reflect this point, ASP on paid tests was slightly above $2,500 in Q1 2021 and has remained above $2,500 in this most recent quarter. This is in contrast to our overall ASP, which includes non-covered tests.
We want to highlight this metric to emphasize that we're not seeing any price degradation for our tests, and the change in total ASP, which includes non-paid tests, is driven by our strategy to, number one, grow market share in community nephrology. Number two, increase penetration in new areas such as lung, where we are yet to receive broad reimbursement coverage. Number three, launch in areas that drive innovation such as multimodality in heart. As with AlloMap Heart, coverage is an area that will expand over time. As a reminder, our non-GAAP gross margin of 74% has been achieved with greater than 70% coverage for AlloMap Heart and AlloSure Kidney, a 25%-30% coverage for AlloSure Heart, and a less than 5% coverage for AlloSure Lung.
Our goal is to expand coverage to above 70% across our testing services portfolio using AlloMap Heart as the gold standard for coverage and reimbursement. As discussed in our previous calls, our strategy of gaining market share and helping patients improve long-term outcomes coupled with market dynamics has resulted in an increased percentage of non-reimbursed tests. The durability of our adjusted growth margin has allowed us to offset these incremental non-reimbursed tests while providing us an opportunity through expanded coverage and improved collections over time that we are vigorously progressing. Regarding the information request from the government, we do not have any material updates to report. We continue to cooperate and are moving expeditiously in responding to the request.
Turning to guidance, we are revising our full year guidance in the range of $320 million-$325 million from $325 million-$335 million previously. This change in midpoint is driven by lower Q3 revenues and higher than anticipated shift to commercial payers. Specifically, for Q4, in setting the guidance, we have assumed that there are no further sequestration cuts. We do not plan for one-off impacts such as Hurricane Ian. We have built in lower market growth in our range. Lastly, we have assumed a higher commercial payer mix across the range. To close, we have an unbeatable financial position, healthy adjusted gross margin, strong cash position and solid volume growth.
We have demonstrated our commitment to return to positive adjusted EBITDA in first half of 2023 by staying prudent on operating expenses while ensuring that we continue to invest in areas that will drive future growth. With that, I'll open the call for questions.
Thank you. Ladies and gentlemen, if you'd like to ask a question, you may do so by pressing star one on your telephone keypad. Star one for questions. Please make sure the mute function on your phone is turned off so the signal can be read by our equipment. Star one for questions. We'll pause a moment to assemble the phone queue. We'll take our first question from Brandon Couillard with Jefferies. Please go ahead.
Hey, thanks. Good afternoon, guys. Maybe just starting with the guidance for the year and implied for the fourth quarter. You've been running kind of around $80 million in revenue the first three quarters of the year. That would imply a step up of, you know, $4 million or $5 million sequentially into the fourth quarter. Can you just elaborate on level of confidence in that and, you know, how we should be modeling the realized ASP trends sequentially? Is there another kind of 5%, 6%, 7% step down again in 4Q?
Yeah. Hi. Thanks, Brandon. It's Reg, and I'll hand over to Abhishek to take some more questions and comments. You know, for us, you know, we have a strong run rate going to that $320 is what you just sort of described. Where we think, you know, there's actually further opportunity in the marketplace will come from the testing services. We do see growth in the products business and also with digital. The guide Abhishek has outlined and go through step-by-step for you as well now.
Yeah. Sounds good. Brandon, the way the change in the guidance of the midpoint from $330 to $322.5, that primarily has been on account of two factors. The first one is the carryover, the Q3 revenue that came in at the low end of our expectations. The second change in the guidance midpoint is primarily due to the slight modification that we have made on the market growth and the payer mix assumptions based on the Q3 results. Those are the two factors that are changing our midpoint from $330 to the $322.5. Now what is the level of confidence? I think that was the other question that you asked. I think that it's a very balanced guidance.
The way I think about it that, the market growth, the way we are assuming as of right now, that it'll stay around the one and slightly above. That's what we are assuming, that our testing services volume growth will stay in line or slightly above the market growth. We have made sure that our mix will continue to shift towards the commercial payers and there will not be any sequestration cut. Those are two of the four pieces that we are assuming in our guidance, and that provides us a good confidence in the guidance that we're providing.
Well, you know, you may not be in a position to really talk, you know, too much about 2023 yet, but, you know, how should we think about the ASP trend as we, you know, model out next year, and degree of, you know, further erosion, you know, any, you know, parameters you can maybe give us to sort of think about, you know, that line as we get into next year?
Yeah, Brandon Couillard, I'll take the question, and I'll hand it over to Abhishek Jain. I think it wasn't that clear, but I think you're talking about ASP trends, if I understood. I think for us, what we wanna get to is, it's, and you heard sort of our catalysts. I mean, this really is about coverage. It's not about ASP per se for us. I think, you know, you saw that we've shown a slide now, which for the last seven quarters where we get reimbursed tests, we have, you know, achieved in excess of $2,500. The key here is how do we now focus on getting the additional coverage or focus on additional collection in these areas which will then overall, benefit that inflection point with ASP.
We've delivered a series of catalysts which go through launches, which go through coverage, and which go through looking at different collections to improve that overall profile. I think, you know, we've often talked about, and we've seen this over the last few quarters at AS. For us, it's trying to show the transparency here that really there is. When we get reimbursed, we're reimbursed at a pretty constant rate, right? When we're not reimbursed, that's where we have to work on, right? We have to work on how do we get coverage, right? And then we have to work on how do we collect. They're the key pieces, which is why we focus so much on talking about the three Cs. This is the area we're building our infrastructure around. Like, we've demonstrated during this quarter, we have the path to profitability, right?
That's the key metric we put out for next year in our last earnings call. How do we get to profitability? Can we demonstrate? That's why we said the first half of next year. The OpEx, I think we have a good handle on demonstrating that. The second thing is we've now laid out this 18-month sort of period of how we now build on getting improved collections. How do we leverage the catalysts which we expect to come, and then also how we build on coverage as part of that process. I'll let Abhishek talk more on specifics, if it's required on the ASP. Just to manage the expectations, this is where we're pivoting towards.
No, I think, Reg, you have covered it very well. I think this is what we have been trying to discuss and provide the clarity in the past, that the way we look at the ASP, that is basically to make sure that we are actually taking care of the strategy of getting into the community nephrology, for example, or getting into the new organs or providing the multimodality for heart. We spend a lot of time in our prepared remarks on that one. The key point there, Brandon, says that our ASP for the paid test has not changed. Now the question is how do we start to get paid on some of the unpaid tests or the non-covered tests? That is the whole piece on the collection and the coverage.
Those are the two pieces, and that's where we are going to be, focusing on.
Got you. Last one. What next steps in terms of the timeline for KidneyCare, and how should we think about the timing of the potential commercial launch next year?
Yeah, we're really excited by some of the catalysts that we have coming up, and that's why we're thrilled to share what's happening with KidneyCare, with AlloMap Kidney, and now that we've submitted to MolDX for review. For us, you know, we know that there's demand for this test because we saw that through the OKRA enrollment, where this was really the study that people wanted to do and really understand more about this multimodality approach. They weren't really interested in doing another dd-cfDNA test. We really see that, you know, being in the marketplace from the market research we've done.
The other thing that we also have taken away in this demand is having a quantitative test that is one that you can sort of get a longitudinal measure on as well as you do these tests. For us, the market prep with the team are prepared for our marketing materials. The organization infrastructure is already in place. I think we've obviously had some nice publications result of this. In terms of the offering itself has been defined. Again, we look forward to exciting period and review process when we have those discussions. Clearly this is a key catalyst for us, which is we've put in the pipeline and along with UroMap as well.
Brandon, this is the operator. You may be muted. Did you have any other follow-ups? Hearing no response, we'll take our next question from Alex Nowak with Craig-Hallum Capital Group. Please go ahead.
Great. Good afternoon, everyone. This is Connor on for Alex. I guess first, you know, MolDX is holding a Contractor Advisory Committee meeting in mid-November to kind of discuss the coverage of transplant tests. I mean, what's gonna be discussed at this meeting? Is CareDx invited to present? You know, kind of just some color from you guys would be helpful there.
Yeah. No, thanks, Connor. I mean, I think what has been laid out there is it's an invitation event people can obviously attend, and we'll be attending as part of that. It's really being run by subject matter experts, and it's a meeting that's being run by Noridian and Palmetto. You know, we're showing how far we've come as an organization, as a field that transplant gets an additional meeting looking at this process. You know, we think we've done a lot to bring transplant to the forefront. There is an existing LCD process which we're going through, which doesn't change the universal LCD, which was completed, I believe in June 2021, which we're going through current approvals through at this time point.
There was in the past some CAC committees that were held, for example, infectious diseases. There was one held in 2021, and I think about 14-15 months later, there was an update in terms of, an LCD, which actually became a broader LCD. I think the thing here is that, you know, we've been invited. I think everyone's been invited to attend. It's open, although they won't be taking questions from those attending. It's by subject matter experts and, it's by Noridian as well as Palmetto. It's being held over two days, one above the diaphragm, one below diaphragm. We look forward to learning more about that at the meetings.
Got it. Okay, that all makes sense. Just a couple questions, dig a little deeper on the pricing side. I mean, I know you mentioned you're having some success in appeals, kinda through this better infrastructure you're building. Just to kinda dig a little deeper, like when do you expect that to kinda help ASP stop their decline? Just kinda, is the impact ASP still roughly 25% Medicare, 75% commercial, or kind of how are we thinking about that right now?
Yeah. I'll make some comments, then I'll hand over to Abhishek. Again, as we mentioned with Brandon as well, I mean, the way you wanna think about is coverage. We've shared the ASP on reimbursed tests. There was a set of slides attaching with this webcast, and I think when tests are reimbursed, they're pretty much reimbursed above $2,500 across the portfolio. I think that's an important thing that one should take note on. Where we don't get reimbursed is, A, if we don't have coverage or if we don't collect. It's pretty simple, right? We need to collect, and we need to get coverage, as part of that. I'll let Abhishek decide how he wants to answer that, but I just wanna get across again, kind of the notion is, you know, you need coverage and collections.
Talking about these ASPs being a bit of a red herring 'cause here you're talking about there has been no price degradation. If you look at the slides we presented as well, over the last seven quarters. When we get reimbursed, we get reimbursed well. Yeah.
No, I think you have covered it well, Reg. I would only add to that on the collections infrastructure, when we talk about there's a pre-submission, submission, and the post-submission side of it. On the pre-submission, now we are building the capacity. We've almost doubled the capacity there, by putting in more internal resources there. Then comes the submission and the post submission on the appeal side. In fact, we are now contracting with the third-party agencies. Again, we have doubled our capacity there. Now, how soon we are going to be seeing the results? A lot of these payers are basically, as you know, the Medicare Advantage or the commercial payers, and they have a long, payment time. So generally, it is not very, immediate that you build the capacity and then you will start to see the results.
This will definitely, to Reg's point, it will come, and those are the pieces that we are trying to work on.
Got it. That makes perfect sense. Maybe just one more. I mean, the timing of the CAC meeting kinda comes when you're seeking reimbursement for lung. I mean, I guess just it's been on their desk for a while. Just any incremental updates there, feedback from MolDX, what are they saying, things like that.
Yeah. As I mentioned, there's an existing pathway, which is a universal LCD, which has been in place since June of 2021. You know, we don't believe we'll be caught in any changes. The key here is that there is an existing process we submitted. We have good ongoing discussions with MolDX, and we look forward to continuing those discussions. Again, this is really just a you know, subject matter experts. You know, there is no agenda that's been set. We've talked about CAC meeting as well. The only you know, if we took a precedent where we saw that with infectious disease, they actually went in and actually broadened the LCD in that sense. Again, we don't know the agenda. It hasn't been set.
It also says it on the website. Again, we do look forward to hearing more about it. We've submitted under the current process, which is the existing process.
Yeah. All right. Got it. Thank you for the questions.
We'll take our next question from Matthew Sykes with Goldman Sachs. Please go ahead.
Hey, this is Prashant on for Matt. Congrats on the quarter. Just two questions from me. First one, according to recent data, seems like transplant volumes have recovered post-COVID, seem to be trending upward compared to prior couple of years. Do you see that continuing, and how do you account for that in your guide, if at all?
Yeah. I'll comment about the overall transplant volumes, then I'll let Abhishek get into specifics of the guide. For us, if we look at, and I think this is also covered in the slide in the webcast, where, you know, it's taken 18 months to get transplant volumes back at where it was, at its previous peak or high. We're thrilled that it's finally there, but it has taken 18 months. I think, you know, nothing is a given 'cause we did see some sequential growth not as strong as we'd seen in Q2, where we saw, you know, slightly stronger recovery with the mid single digits, and we saw it, you know, in probably the single digits again this quarter. Longer term, midterm, you know, it really is an exciting opportunity.
There are multiple levers that will increase, you know, the number of organs that are done in the United States, and I think we can go into a couple of different areas there, including, you know, improvements to perfusion, the advent of, you know, more living donors, which has been impacted the most during this time period. We also know there are government initiatives, you know, increasing the number of donation and transplantation rates that are taking place here as well. You know, really, there's a lot of different, you know, places where organ donation can go up. You know, at this stage, I think, you know, we haven't sort of seen that full rebound. We saw that impacted again this quarter with not hitting that higher projection that we had as well.
Abhishek will talk about the market growth in terms of the guide.
Yeah. Thanks, Reg. So, when I start to look at the market growth, actually the Q3 transplant volume growth was lower than Q2. Now, when I start to look back the last three quarters where we had seen the transplant volume to recover from a high single-digit decline since the third quarter of 2021, to a mid-single digit growth in the last quarter. That growth of 4% actually came in at the lower end of our expectations, and that kind of impacted some of our expectations with testing services revenue for the current quarter. Now, when we start to look at going forward, we have actually pruned down our market growth assumptions a little bit in line with what we have seen in the last couple of quarters.
We will see as to how this kind of pans out in the next two before we actually start to make more further changes there.
Got it. Thanks. That's really helpful. One last question. Could you talk about how you see the longer-term opportunity for cell transplant? Is the timeline to realize this opportunity further out, or do you see any factors that could accelerate the development of this opportunity?
Yeah, for us, cell therapy is really an exciting area, and I think, you know, for us, it's really predicated on, you know, cell therapies making it onto markets. As of this stage, there hasn't been ones on the solid organ side that have made it through. I think that's sort of the key. As we built out, I think our different strategic steps, you know, it's more meaningful contribution probably in the five-year time period when you have more of these different therapeutics that are approved on the cell therapy side. However, that said, we have, you know, increasing the number of partnerships we've held. We're really excited by the progress we're making here. It is a really, you know, exciting stage of, you know, development.
For us, it's one that, you know, for us as a company that's, you know, fully dedicated to transplant, it gives us multiple options. We've been focused on solid organs now expanding different organs. As part of that, you're seeing with, you know, kidney, heart, and lung, more to come as well. Now we've had the chance also to get in stem cell, which is probably more of a nearer-term opportunity than cell therapy. Then longer term, beyond five years is cell therapy. But again, anything transplant is open for business from our side. Thanks for the question.
Great. Thank you so much.
We'll take our next question from Mason Carrico with Stephens. Please go ahead.
Hey, guys. Thanks for taking the question. This is Jacob on for Mason. Just following up here on the AlloMap Kidney submission to MolDX. Now that it's been submitted, I know it's largely out of your guys' hands, but just kinda wondering what maybe your guys' internal timeline or expectation is to get Medicare coverage for that test. Is the fourth quarter of 2023 still a possibility, or is that largely off the table at this point?
Yeah, I mean, we've submitted the application. Typically, there's like a, you know, a 60-day plus, it's probably been a little bit longer in, you know, what we've seen obviously with the current process. I think for us, we'll just have to wait and see the feedback from there. You know, we again feel we've built a pretty robust package with the publications we've been able to do and I think with the, you know, demand that exists out there as well. I think once again, it really is, you know, not dependent on us, but dependent on others. We just respond and provide answers or ask questions as part of that process.
Yeah, understood. In terms of the launch there, once you do get positive coverage, do you anticipate focusing the initial launch within transplant centers, or do you plan on driving adoption in both transplant centers as well as patients in the community setting? And then any additional color on the difference in clinician behavior in those two settings? Do you see one being more strongly adopted than the other?
Yeah, I mean, I think they're two very different stages, right? I mean, I think you have, you know, transplant centers where we're in more than 75%. We're clearly the leader there. We have extensive protocols. In the community, it's still fairly early. It's fairly diffused. Although we had more than 200 centers use AlloSure last quarter, and, you know, we're starting to get protocols there as well. I would think of them as two very different segments in terms of that approach. I think, you know, there's still more education that has to be done on the community side about, you know, usage of, you know, AlloSure or other donor-derived cell-free DNA and its utility.
I think it's important not to just try to push something out, but to provide the right education supported by strong clinical data with multi-center prospective studies and transplant-specific tests. As we look at AlloMap Kidney, I think it's probably more geared towards where there's existing adoption of AlloSure and, you know, using that as a basis because then they'll understand the utility of multimodality. Again, it all depends on the data. We think we have strong data, and I think we have good experience in what we've seen in HeartCare as well.
Okay. Got it. Thanks. That's it for me.
No, thanks for the question.
We'll take our next question from Yi Chen with H.C. Wainwright. Please go ahead.
Hey, this is Chee on behalf of Yi Chen. We just have a couple of quick questions. The first one being, I'm sorry I missed it during your prepared remarks, but any color on the dip in revenue quarter-over-quarter? The second one being, I guess this was answered a little bit in the previous question, but any color or timelines as it relates to both of your upcoming catalysts? Thank you.
Yeah. I'll take the catalyst questions, then I'll hand over to Abhishek. I mean, for us it's, you know, there's a set requirement of what one has to submit, and we've done that for AlloMap Kidney and UroMap. We're in the preparation for that, as we mentioned in prepared remarks. And then it's actually a back and forth after the submission, and normally there's ongoing dialogue with the agencies that take place. It's hard for us and it wouldn't be appropriate for us to comment on the timeline, but what we do know is that we have good relations, we have good discussions. And again, we feel really good about, you know, the scientific robustness of the packages we have delivered on AlloMap Kidney and plus we'll deliver for UroMap.
Again, just the quality of data. I mean, UroMap, for example, you know, New England Journal of Medicine publications, you know, don't, apart from AlloMap, I don't think others have gone and been submitted with, you know, such robust data. Again, we feel really good about the approach we're taking. The timelines we've missed, but the organization is prepared for all types of scenarios. Again, you know, our goal is to have a fairly efficient field force. It's concentrated. It's one where they know the stakeholders. There's a bit of overlap in some of those stakeholders as well. Handing over to Abhishek.
Yeah. On the revenue side, the testing services revenue dropped by about $2 million versus the last quarter. There are a couple of factors there. The first one, of course, when I start to look back, we didn't anticipate the sequestration impact that we will have in Q3 2022, and we also made some assumptions on the market growth and the payor mix. Now, the first piece on the sequestration that came in as we had projected because we knew that this is going to be about 1% further cut on the Medicare rate. That impacted one-third of the overall revenue drop. The other drop came in because the way we were anticipating the market growth actually came in at the lower end of our range.
That was the other impact, the one-third of the drop. The third piece of the puzzle is basically your paid mix. We anticipated a paid mix, and the actual paid mix came in slightly higher than that. That was the other third part. Those were the three pieces.
Excellent. Thank you so much.
We have no further questions in the queue. I would like to turn the conference back to your presenters for any additional or closing remarks.
Yeah. Hi, Reg Seeto again. Thanks for all the folks who are listening in, and thanks for the great questions from the different analysts. You know, we have a real incredible mission here at CareDx, which is how do we, you know, improve patient outcomes, organ outcomes, for a very subset of special patients in the transplant community along that patient journey. For us, this is all we do day in, day out. We thank you for taking time to listen to this call and supporting us at CareDx for all we do as well. Thanks again. Have a great day.
Ladies and gentlemen, this concludes today's conference. We appreciate your participation. You may now disconnect.