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Craig-Hallum Upgrades CareDx to Buy

NEW YORK – Investment bank Craig-Hallum said Wednesday that it upgraded its rating of CareDx to Buy, with a price target of $15, based on a strong financial position, new CEO, and the possibility of restored Medicare coverage for kidney transplant surveillance testing.

"For the past 12 months, [transplant diagnostics firm CareDx] has been almost uninvestable," Craig-Hallum analyst Bill Bonello wrote in a note to investors, citing uncertainty around Medicare coverage and billing rules, declining revenue, and six months without a CEO.

"Today," he wrote, "the story is substantially de-risked. Medicare cuts are annualizing. Guidance is conservative. The company has $235 million of cash and marketable securities and no debt, which is more than enough to get to cash flow breakeven. There is a new CEO who seems to be focused on all the right things."

Brisbane, California-based CareDx offers noninvasive organ transplant surveillance through its AlloSure and AlloMap profiling tests. Bonello noted that heart transplant volumes are at record levels, with continued growth on the horizon for the foreseeable future.

According to Bonello, there is some $200 million in revenue waiting to be realized in currently unpaid tests. He estimated that approximately 40 percent of the company's tests go unpaid.

Bonello also estimated an additional $70 million to $90 million in annualized revenue, should Medicare restore kidney transplant surveillance coverage.

"CareDx is still in the early innings of penetrating the kidney transplant market," Bonello wrote, estimating a total addressable market in the billions.

Bonello noted several risks to investing in CareDx, which include further Medicare reimbursement changes and other regulatory changes, physician behavior and adherence to testing guidelines, slower AlloSure penetration, and declines in legacy businesses.

In premarket trading on the Nasdaq, shares of CareDx were up roughly 6 percent, at $8.25 per share.