NEW YORK – Investment bank BTIG has initiated coverage of CareDx's stock with a Buy rating and a price target of $40.
In a note to investors on Thursday, analyst Sung Ji Nam said the company's current core products, AlloSure Kidney and AlloMap Heart, represent about $105 million in 2019 revenues and target a total addressable market of about $2.5 billion. These products are gaining strong traction in the transplant patient surveillance market, and CareDx is developing additional products to improve transplant patient outcomes by combining multi-modality testing approaches, artificial intelligence technologies, and other digital solutions.
However, she added, the current addressable market is still significantly underpenetrated and the competitive landscape is sparsely populated. BTIG estimates that AlloMap Heart is still less than 50 percent penetrated into the market, and AlloSure Kidney's addressable market is only 5 percent to 10 percent penetrated, leaving ample room for multiple players, so the recent entrance of Natera's Prospera test to the market doesn't pose a big threat to CareDx as of yet.
"Despite [CareDx] and [Natera]'s false advertising claims and counterclaims against each other, we believe it is still early to tell distinct competitive differences between the two products, and CareDx still has first-mover advantage and competitive advantage with its singular focus on the transplantation market," Nam wrote.
More recently, she said, CareDx also announced plans to develop products for allogeneic cell therapy surveillance, which could represent an additional $5 billion to the firm's total addressable market.
"Given the underpenetration of the current addressable market, [CareDx]'s market leadership, its continuous focus on innovation to meaningfully improve clinical utility of its products, and the sparsely populated competitive landscape, we believe [CareDx] is well-positioned for 20 percent to 30 percent top-line growth over the next couple of years (inclusive of potential COVID-19 related headwinds)," Nam added.
Importantly, she highlighted, CareDx quickly launched RemoTraC — a mobile phlebotomy service to serve transplant patients remotely — when the pandemic hit. To date, more than 150 transplant centers are offering RemoTraC to their patients, more than 3,000 patients have enrolled in the program, and more than 50 percent of CareDx's daily volume is being collected through RemoTraC compared to about 10 percent of the volume pre-pandemic.
"CareDx's value proposition leveraging liquid biopsy-based technology (vs. invasive biopsies) seems to be resonating well for its end market, especially during the pandemic (consistent with sentiment from other liquid biopsy-based advanced diagnostic developers), although we think it's early to tell what the magnitude and sustainability of the impact might be longer-term," Nam said.
CareDx's shares fell more than 2 percent to $32.04 in Friday morning trading on the Nasdaq.