NEW YORK – Palmetto MolDx updated its reimbursement guidance for molecular tests assessing rejection risk in solid organs with more restrictive language concerning appropriate use and testing frequency, a decision that could have negative implications for CareDx and Natera.
A billing article effective March 31 limits reimbursement to one test per patient encounter, provides new coding to define surveillance and for-cause testing, redefines acceptable surveillance testing as compliant only for patients enrolled in centers that utilize surveillance protocols and would otherwise receive such testing, and will no longer reimburse for-cause tests unless used in place of a biopsy or to confirm biopsy results.
The revised guidance impacts CareDx in particular, as it appears to effectively eliminate reimbursement for the multimodal approaches intrinsic to products such as KidneyCare, which use the firm's AlloMap and AlloSure applications in tandem.
In a note to investors, Craig-Hallum analyst Alexander Nowak wrote that MolDx's change may wipe out $15 million of revenue from HeartCare. Nowak noted that CareDx can still bill for AlloSure tests not used in conjunction with AlloMap Heart, although this amounts to under $5 million of estimated revenue. He downgraded CareDx shares to a Hold with a $9 price target.
Despite the change to no longer reimbursing two billed tests per patient encounter, CareDx noted in a statement, "MolDx has indicated that this coverage would be considered with additional data supporting this use. This provides a path for multimodality with sufficient data."
Nowak further wrote that the new guidance could wipe out approximately $50 million of CareDx's $191 million kidney testing business, an estimated 25 percent of which derives from kidney surveillance.
Investment banks Jefferies and BTIG, meanwhile, both maintained Buy positions on CareDx in separate investor notes with price targets of $24 and $19, respectively.
BTIG analyst Mark Massaro called the roughly 33 percent drop in CareDx's stock in early morning trading "overblown," and Jefferies analyst Brandon Couillard wrote that although the updated guidance introduces considerable uncertainty into both near- and long-term revenue forecasts, CareDx retains a strong balance sheet and no debt.
"For now," Couillard wrote, "we await additional information before revising our model."
CareDx noted that it plans to hold follow-up talks with MolDx, to submit additional data for HeartCare, and to update its procedures in line with the revised billing article.
The MolDx decision will also affect Natera, although likely to a lesser extent, as it does not offer multimodal testing.
Craig-Hallum's Nowak wrote in a separate note that Natera simply walking away from the transplant business "should be neutral to cash burn."
In Friday morning trading on the Nasdaq, shares of CareDx were down 18 percent at $8.81.