CareDx Inc (CDNA) 2018 Q4 法說會逐字稿

Greetings. Welcome to CareDx Fourth Quarter Financial Results Conference Call. (Operator Instructions) Please note, this conference is being recorded.

I will now turn the conference over to David Clair. Thank you. Mr. Clair, you may begin.

Good afternoon, and thank you for joining us today. Earlier today, CareDx released financial results for the quarter ended December 31, 2018. The release is currently available on the company's website at www.CareDx.com. Peter Maag, Chief Executive Officer; 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 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. 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, March 6, 2019.

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. 2018 was a breakout year for CareDx. We recently attended conferences at the ASTS, the American Society of Transplant Surgeons and at CEoT, Cutting Edge of Transplantation, where we heard participants refer to us as the transplantation company and expressed appreciation for our 100% dedication to this field. This recognition as the leader in transplantation has not happened overnight but comes from building a partnership with the transplant community over 20 years.

Just last week, we kicked off our Honor the Gift Campaign where CareDx is supporting efforts to extend Medicare coverage for medication for transplant patients beyond the current 3-year limit. We believe this cross-functional partnership with the support of leading patient and industry association aligns with our mission to improve long-term patient outcome. It makes no sense in any health care system to transplant patients and then restrict access to immune suppressive medication. Honor the Gift demonstrates our overall commitment to the field of transplant care. I encourage you all to visit honorthegift.org and sign the petition.

With many initiatives ongoing, we continue to remain focused on bringing our offerings to patients. We are already the leader in heart and kidney transplant surveillance and with our recent announcement, we also plan to be the leader in lung transplant surveillance. This leadership position enables us to achieve our financial goals ahead of schedule in 2018. Total revenues for the year grew 58% to $76.6 million. AlloSure, AlloMap and our products business all contributed to this growth.

In the third quarter of 2018, we achieved both adjusted EBITDA profitability and positive operating cash flow, a full quarter ahead of our plan. We also made tremendous strides strengthening our balance sheet in the fourth quarter, successfully completing a follow-on offering and eliminating our debt, enabling the financial flexibility to accelerate our growth and expand our leadership position. We are now a high-growth, debt-free, EBITDA-positive company.

The main driver of our success in 2018 was AlloSure. Whilst we are still in the early stages of penetrating this $2 billion market opportunity, the initial uptake of AlloSure confirmed our belief that there is a significant need to improve graft survival for kidney-transplant patients through surveillance.

We have built a formidable moat in transplantation, which we continue to widen as we ready the organization for potential competition. Our first-mover advantage, coupled with a proven body of evidence and deep customer relationship enables us to continue to build upon our clinical and commercial leadership position.

As a reminder, the DART study published in the Journal of American Society of Nephrology was a multicenter prospective study, followed nearly 400 patients for 2 years, encompassed 14 major transplantation centers and included data compiled from over 2,100 visits. Since the publication of the DART study, several centers have published clinical utility data in leading journals, such as the American Journal of Transplantation. It is this body of clinical evidence that sets CareDx apart from potential competitors and which positions AlloSure as the choice for both clinicians and patients seeking best-in-class transplant surveillance solutions.

AlloSure is the biggest contributor to our robust growth, penetration of transplant centers continues ahead of our initial plan and the level of surveillance patients continues to grow rapidly. AlloSure's positioning and market acceptance is gaining momentum and positions CareDx to deliver continued growth in the quarters and years ahead.

During the fourth quarter, 100 centers provided AlloSure results to their transplant patients. We estimate these 100 centers account for approximately 60% of the transplant volume in the United States. CareDx provided 4,575 AlloSures out in the fourth quarter to approximately 3,400 kidney-transplant patients. Since launching AlloSure in October 2017, we have provided results to over 6,000 patients, which equates to approximately 3% of the total number of living kidney-transplant patients.

Overall, reimbursement in the fourth quarter was consistent with previous quarters with 70% to 80% of our AlloSure volume attributed to Medicare patients. Demand for AlloSure remains broad and includes both patients who recently received a kidney transplant as well as patients that receive their kidney allograft in previous years.

Driving adherence to the AlloSure routine testing schedule protocol remains the key component of our strategy. Becoming an integral part of transplant center day-to-day workflow strengthened our bond with these centers as well as the patients we serve.

We finished the fourth quarter of 2018 with 3,190 surveillance patients. We define surveillance patients as patients that are managed by CareDx on a predefined transplant center testing protocol. These 3,190 surveillance patients helped build the recurring revenue effect of AlloSure.

We continue to make progress enrolling centers and patients in K-OAR, our Kidney Outcome AlloSure Registry, having reached nearly 75% of our initial 1,000 patient enrollment goal. As of the end of December 2018, 47 centers had been initiated as K-OAR study sites and 748 patients had been enrolled. We anticipate that the number of centers will continue to increase to more than 50, reflecting the very strong interest to participate in this landmark study.

Multicenter studies like K-OAR helped widen our moat in transplantation as these studies provide us with additional touch points with transplant center and keep us in direct dialogue with the key innovation hub and opinion leaders. These studies also drive compliance and adherence to standard protocols, which is a crucial element to our work in the transplant community.

In the K-OAR study, we target 75% adherence to our AlloSure surveillance protocol. Our initial experience confirms that this is a good metric to monitor and compliance to the adherence protocol is tracking within our target expectation. In the second half of 2018, we saw an overall adherence level greater than 50%. This is a focus area for our growing team of CareDx transplant patient care managers.

With our increasing number of transplant center partnerships, our unrivaled peer-review publication, our protocol adherence initiative, the ongoing K-OAR study, our EMR integration efforts and our important relationship with clinical lab directors, we are building a formidable moat around kidney-transplant patient care.

Now shifting to AlloMap. Fourth quarter 2018 test volume increased 6% year-over-year, translating into 4,057 patient results, consistent with our mid-single-digit growth expectation. We introduced our HeartCare concept in April. This novel heart transplant surveillance solution combines both AlloMap and AlloSure-Heart, providing physicians and patients with a comprehensive view of the health of the heart. Our Surveillance HeartCare Outcomes Registry, or SHORE study, continues to be well received by transplant cardiologists, and we anticipate to recruit 35 centers and 2,000 patients.

Now turning to transplant lab products. Our fourth quarter year-over-year product revenue growth accelerated to 24%, contributing $4.6 million to our revenue in the quarter. This is a step up from the 9% growth experienced in the third quarter, with the acceleration driven by the second full quarter of TruSight HLA sales as well as increased market traction for QTYPE. As a reminder, in October, we announced the planned 2019 launch of 3 new AlloSeq next-generation sequencing products. AlloSeq HLA will significantly improve existing next-generation sequencing HLA product offerings by enhancing turnaround time and workflow to make this the best-in-class NGS HLA typing product.

AlloSeq Cell-free DNA kit will enable that outside of the U.S. to assess transplant graft health in the quantitative manner and improve care. AlloSeq BMT is a next-generation sequencing solution, which will enable CareDx to enter the global bone marrow transplant market. All of these product introductions remain on track with our launch schedule.

CareDx is uniquely positioned to provide genomic information to transplant patients and has established its market leadership with close ties to the clinical communities and important lab director decision-makers. This leadership position has been earned from 2 decades of building knowledge and a deep skill set in transplantation. We are focused. We live and breathe transplant medicine. Transplantation is a community in which trust, integrity and scientific rigor is valued utmost and one in which overreaching claims on product capabilities are often viewed with disdain. CareDx has always been committed to building robust clinical datasets using multicenter and prospective key design study. Our ability to continually publish in high impact-factor peer-reviewed and transplant-specific journals separates CareDx as the innovative and science-driven company in transplantation. It is important to build a relationship of trust with the transplant community, including surgeons, clinicians, caregivers and patients. We believe that it is this trust in CareDx that has accelerated AlloSure's launch uptake.

Our focus goes well beyond providing test results. Our goal is to improve long-term patient outcome. With this goal in mind, we foster direct patient interaction. Today, we care for approximately 3% of the U.S. kidney-transplant patient population. This is a great start, but is still just the beginning as we estimate that there are more than 700,000 transplant patients worldwide and the need for transplantation is ever increasing.

Mike, I'll hand the call over to you to discuss financials.

Thank you, Peter. Turning first to the income statement. Our fourth quarter 2018 testing services revenue increased 119% year-over-year to $18.9 million. The significant growth in testing services revenue was primarily driven by the 4,575 AlloSure patient results we provided in the fourth quarter. Growth also came from the 4,057 AlloMap patient results we provided, which was a 6% increase compared to the prior year quarter and from the January 1 increase in the AlloMap Medicare reimbursement rate from 2,840 to 3,240. Our fourth quarter product revenue increased 24% year-over-year to $4.6 million, and as such, total revenue in the fourth quarter of 2018 was $23.5 million, representing an 88% increase compared to the prior year's $12.5 million.

For the fourth quarter of 2018, net loss was $3.8 million compared to a net loss of $31.7 million in the same period of 2017. Our net loss per share was $0.09 for the quarter compared to $1.13 in the fourth quarter of 2017. Our fourth quarter net loss included $3 million of expenses associated with the debt repayment in the quarter, partially offset by $1.6 million benefit from the change in estimated fair value of common stock warrant and derivative liabilities.

For the fourth quarter 2018, our non-GAAP net income was $0.3 million compared to a non-GAAP net loss of $2.6 million in the same period of 2017. Our non-GAAP net income per share in the fourth quarter of 2018 was $0.01 compared to a loss of $0.09 in the same period of 2017. As a reminder, we define adjusted EBITDA as non-GAAP net income before interest, income tax, depreciation, amortization, other expense and net income attributable to noncontrolling interest.

For the fourth quarter of 2018, adjusted EBITDA was a gain of $0.8 million compared to a loss of $2.0 million in the fourth quarter of 2017. This marks the second consecutive quarter of positive adjusted EBITDA. As we have previously mentioned, we will be increasing our operating expenditures in early 2019 to further enhance our leadership position in transplantation. But we will do so without altering our goal of continually improving our operating margins.

Cash and cash equivalents at December 31, 2018, was $64.6 million. The increase in cash from $26.2 million at the start of the quarter was primarily due to our successful follow-on offering completed during the quarter, partially offset by the full repayment of our debt.

Net operating cash flow was positive $2.0 million in the fourth quarter 2018. This continued the trend set in the third quarter 2018 when we achieved net positive operating cash flow of $0.5 million. Note that whilst we continue to target positive operating cash flow in the future quarters, the first quarter of 2019 will include usual start of year outflows, such as annual bonus payments, audit fees and insurance renewals. As a result in the following offering in the fourth quarter, the number of common stock outstanding at December 31, 2018, was 41.4 million, and our fully diluted common stock was 45.5 million.

Turning to guidance. We are providing our initial 2019 revenue expectations to reflect the continued growth of AlloSure and anticipate $105 million to $107 million revenue for the year.

With that, I will open the call for questions.

(Operator Instructions) Our first question is coming from the line of Bill Quirk with Piper Jaffray.

So first question is, I guess, Mike, certainly appreciate the guidance that you gave. Can you help us think a little bit about the breakdown between AlloSure, AlloMap as well as the combined HLA business?

Bill, yes. The guidance of $105 million to $107 million revenue, which is 37% to 40% growth. Basically, the way to look at that, I would look at the product revenue of growing sort of 20% or over during the year. AlloMap volume growing mid-single digit and AlloSure more or less doubling in revenue for the year.

Okay. Got it. And then if you're -- with respect to your comments about the total number of surveillance patients. Can you help us think a little bit about - obviously, the surveillance patients, they sign on for 1 year? Do we have any that dropped off in a quarter, I guess, what I'm asking is for basically the gross adds in the quarter versus the end of the year number?

Bill, excellent question. I think we are early in the launch process. I think 3,100 surveillance patients is pretty awesome, especially when we look into the division of these patients. There are probably 750 patients that are the K-OAR patients in that surveillance patient group and then there are probably 1,200-or-so patients that are first-year patients and then another 1,250 patients that are what we call the maintenance patients. And really these 3 segments we'll see continuously growing in the next year with probably K-OAR adding another 250 to 500 patients on the K-OAR side, and then it's really the question what's the mix between first-year patient growth and then maintenance patient growth. I think we're still early in the launch, but you see these 3 different launch -- growth buckets that we'll continue to pursue. And I think it will be exciting to see these 3 different buckets grow in the year 2019.

Okay. Now that's great color, Peter. And then last one from me, and I'll jump back in the queue is just help us a little bit about Lung. You have a press release recently initiating the study for that. How should we be thinking about time lines around enrollment, study completion, reimbursement, I guess, formal commercial launch of that, et cetera?

Yes. So when we are thinking about kidney transplantation being the $2 billion market opportunity, I think the sizing of the opportunity in the $50 million to $100 million, and I think you were similar to that, it's right for the lung transplant opportunity. But the medical need is very substantial because these patients are very sick. Now we are in the midst of clinical validation, which we'll do on existing CareDx sample sets and including collaboration in the field. I think this -- having a reimbursed product within the 2-year time frame is an adequate time frame to think about.

The next question is from the line of Brandon Couillard with Jefferies.

Peter, one of the things you mentioned in your prepared remarks in terms of around building the moat around AlloSure was EHR and EMR integration. How much visibility do you have in terms of like the number of centers that have integrated you into, I guess, their systems? And what impact does that have in terms of ease of ordering?

Yes, I know and I think we're very earlier still on the EMR integration. I think we can do a lot more in this field. We have started to talk about it as a key driver being part of the workflow and being actually in the electronic medical record we see as a key opportunity. One on -- one hand to really have ease of use for the ordering; secondly, then really driving adherence with the patients; and then thirdly, also to just build what you mentioned the competitive mode. So being part of these EMRs, I think this will be one of the areas of focus for us in 2019, and we'll continue to update you on those. Right now, I think we are -- we have been talking in other settings that about 10 centers are using us the way that we would like AlloSure to be used. So very early in the adoption curve and probably these 10 center types are where we are in the sense of having deep penetration into the workflow.

Helpful. And then on K-OAR, when do you expect we might be able to see the first data readout from, perhaps, the year 1 cohorting? Do you think that's something you might be in a position to share with us some of your initial findings by the end of this year?

I think end of this year might be a little bit aggressive because we said that once we have concluded with the enrollment of the 1,000 patients. So concluded with a 1,000 patient enrollment and then follow up by 1 year and then doing the data analysis. That would probably put us into the second half of next year to have a good readout. Maybe we get a sneak preview at the ATC next year, but that would be very aggressive. But that's probably how we're thinking about reporting out on the initial K-OAR.

And a couple for Mike -- couple for Michael, in terms of the 2019 guidance. Can you help us with what your expectations are for gross margins, both in terms of products and then testing services and then what we should be penciling in for OpEx for the year?

Yes, Brandon. I think on the gross margin, it's probably going to grow a few percentage points on testing revenue. So roughly around 65%. On the product side, we've seen a bit of a reduction in the gross margins in the last half of this year -- sorry, 2018 because of the introduction of TruSight, which was with a distributor margin. So I would expect the product margin to stay relatively constant in 2019. From the operating expense side, I mentioned on the call that we're really going to be increasing operating expense because we're growing, and we're scaling the business. I think off a base of Q4 expense, probably on average, we'll be adding about $4 million a quarter, which will be increasing throughout the year in 2019.

The next question is from the line of Per Ostlund with Craig-Hallum.

Maybe following up to Brandon's question a little bit. In terms of looking at 2019 and really developing the moat around AlloSure, and you've talked a lot -- you've talked at length about deeper penetration of transplant centers. What are the levers, I guess, that we should be thinking about that you have to pull to really drive that deeper penetration? Is it the EMR? Is it patient care coordinators or liaisons, mobile phlebotomy, is it things like that? And then maybe related to that, how keen might be at the eventful launch of kidney care potentially be to really established in that moat as well?

Well, thank you very much, Per. And you were kind of answering a lot of the -- you're mentioning a lot of the things in your question. No, I think it's all of the above. But what I would add to that is it is actually going deep in 50 transplant centers in the U.S. this year. So what you were mentioning EMR integration, making sure that we are part of the workflow, maybe adding mobile phlebotomy, having an additional focus on some of the clinical trials and interesting things that we do at transplant -- at individual transplant centers. That's what we're going to do in 2019. And having this deep connection into these 50 centers will build our relationship and will drive adherence and compliance and will eventually leads to better outcome in these patients. Let's not forget that, we at CareDx, we focused on really driving better long-term outcome for these patients. So being intricately involved with these 50 centers will actually make absolutely the difference for us in 2019.

Okay. That makes sense. And then what about kidney care? Will that launch in 2019?

I think, Per, this is -- the HeartCare concept has been established last year. We are very comfortable with the concept. I think AlloSure in itself has a very long way to go in terms of patient penetration. Adding something to AlloSure, ultimately, will be our goal, because I think it will be multi-marker modalities that makes the difference in these long-term outcome patients. But be assured that we'll be communicating about our product launches with you in a timely fashion. Right now, our product launches, as we mentioned, are around AlloSure-Heart with the HeartCare concept, AlloSure Lung with the clinical validation studies and then we have the exciting AlloSeq franchise. So you can probably appreciate that we are pretty busy and the team is firing in all cylinders.

That's very, very true. Okay. Last question for me. K-OAR enrollment has, obviously, tracked very, very well. Like you said, you're 75% of the way toward your original 1,000 patient goal. Now if I heard correctly in the presentation or the symposium at CEoT here a couple of weeks back, it sounded like maybe you're actually going to take that more toward the 1,300-patient level. So, a, is that true? And then, b, is the thinking there that there's just that much demand? Or is it almost a function of, hey, let's make sure that we met 1,000 patients when we account for the fact that the follow-through is kind of at that 75% level?

I think that's an excellent question and a good observation. I think Jim Yee is the recognized leader in the transplant biomarker field and has been masterminding our landmark clinical trials and publication. And what we've been able to do is launch with K-OAR, a really change -- a sea change by having these centers adopting a standardized protocol in 30 centers, and now we have this demand -- bottom-up demand for centers that want to join K-OAR, and we just talked about more than 50. Now if you do the 50 centers times the 30 patient per center, you are probably closer to the number that you were mentioning, which I recall 1,300, I think. So I think it's important that we continue to build that relationship and the clinical data will follow. And these clinical datasets will be more valuable as there are more patients in them. So having 1,500 patients would be great, 1,300 patients is clearly better than 1,000 and having these longitudinal datasets will be tremendously valuable going forward.

The next question is from the line of John Hsu with Raymond James.

Just staying on guidance for a second. Can you talk about -- you've, obviously, talked about a lot of efforts that you had to deepen the moat in 2019 with potential competition coming. But specifically in that $105 million to $107 million, are you baking in anything specifically for competition that would probably be coming maybe perhaps later in the year?

Excellent question, John. I think we're coming off a year with 58% top line growth and now we're going into a year with somewhere between 35% and 40% growth. The growth dynamic is tremendous in the organization. Mike was mentioning that we are close in scaling moat, I think if there were to be competition, you would probably see them really towards the latter end of the year. The key we think to -- it's the linchpin in molecular diagnostics. What's the linchpin? It's always reimbursement. And I think reimbursement will really determine the presence of competition -- of meaningful competition in the field. And I think our expectations, if there were to be any successful reimbursement news, it would probably come in the fourth quarter or so in this year. So some time to go and for us, ample opportunity to grow.

Okay. Great. And then...

Mike, do you want to add anything?

No. Go ahead, John.

No. Okay. So private reimbursement with private payers, you talked about getting to a critical mass where you could start to have some discussions. I guess, related to that, do you see any movement and potential benefit on reimbursement in 2019?

John, it's Mike. We'll stop discussions with some of the key payers, I think, in 2019. But it always takes a long time to get these private payer reimbursements. So our expectation in the revenue guidance doesn't really include any additional contribution from private payers, and if that was to come earlier than the end of the year, that would be enough time for us.

Okay. Great. And then just on lung, can you talk about -- it sounds like getting a reimbursement within a couple of years. Can you just remind us of the steps and maybe incremental investment in '19 that kind of start moving you towards that end?

Yes. I think the steps would be analytical validation of the tests, which I think we have achieved and demonstrated. The second one would be clinical validation, and we would aim at lung transplantation given our internal datasets and external collaboration, relatively focused approach. There was recently a clinical validation paper by Valantine from NIH, which gives us confidence to make that available to patients and media collaboration with different vendors in the U.S. will accelerate some of the clinical validation studies. Obviously, then the step for reimbursement, this would be a Medicare reimbursement-focused strategy for us where we would apply for a C-code and then would submit the clinical validation papers that we, in our case, will be peer-reviewed and high-impact medical journal publications. And that would lead to the dossier that would probably be reviewed if we are positive thinking in 2020. And then it leads to reimbursement in 2020 or 2021. That's kind of a strategy to be laid out on this one.

Next question is from the line of Yi Chen with H.C. Wainwright.

My first question is just to clarify. So by the end of 2019, there will still be 100 transplant centers using AlloSure, but you will simply have deeper penetration among those centers and have more patients using test. Is that correct?

Yes. What I would try -- what I would say is that there is a tremendous buzz around AlloSure, even -- maybe even more amplified by competition coming right now into the field. And so -- there is tremendous buzz out there. So I would say that definitely, it will be more than 100 transplant centers. But even if we were to be at 130, I don't think it's critical for our launch success. What's really critical for us is going deep in the 50. So while I think our strategy was getting the foot into the door in as many transplant centers as possible. We then had placing K-OAR as the next strategic initiative and execution on K-OAR was flawless. It was awesome. And now, in K-OAR, now we go deep into these 50 centers plus other high-volume centers and make us part of standard of care. And so I'm not so interested in how many centers are using AlloSure. I'm sure that it will continue to grow. But really how deeply are we penetrating the 50 transplant centers. That's going to be the key metric of success for us at the organization this year.

Got it. So just to follow up. You mentioned that the 100 centers has 60% volume of the U.S. kidney transplant. So for those 50 centers, what is the percentage of volume?

It's good. And I was preparing for that question here a little bit. And I'm shying away, but I can tell you that one number that probably for our K-OAR sites, the 50 K-OAR sites that we were talking, this is in the neighborhood about 40% of all kidney transplants performed in these 50 transplant sites. So the 50 target centers, I will not further delve into because that -- the K-OAR sites are clearly our sites that we focus, but there are other few high-volume centers that we're focusing on as well.

Got it. My final question is, does your 2019 revenue guidance include the consideration of the CMS plan to increase access for kidney transplant? Or that could potentially bring additional impact to the top line?

That's very observing, Yi Chen. I think the key to overall and Azar's comments yesterday and the day before from HHS supporting the increase in transplantation. To give you a bit of a number, there are probably 2,000 kidney transplants discarded that could be used if we were to loosen up the burden on bureaucracy. So these 2,000 kidneys that are here and now today would increase the transplant patient by about 10%. How much of this will be driven by availability of organs due to the opioid crisis, how much of this will be driven by the increase in living donors and how much this will be driven by HHS efforts to increase the availability of organs that's hard for us to gauge, but it's all positive, all positive with signs towards the transplant increasing. That's on the backdrop, obviously, because a lot of patients in the U.S. do need -- continuously need a transplant and the need because of diabetes and other end-stage renal disease drivers. It's ever increasing for kidney transplantation. So all these vectors demonstrate that it's positive for growth in the future and years ahead.

The next question is coming from the line of Bill Quirk with Piper Jaffray.

So Peter, I wanted to ask about the total new standing order patients. It was down sequentially for the third quarter. I'm assuming that was due to the holidays and there's the seasonal effect. Is that a reasonable assumption? Or we should see some sort of rebound in the first half of next year?

When we were doing all the math, Bill, it is important to note that there will be patients dropping off after 1 year, there will be patients that actually are not showing up for their surveillance visits. And so just communicating the adds of new transplant surveillance patients wasn't the right thing to do in the second and the third year of launch. And so we've concentrated on the surveillance patients that we have currently on management. And this will be the #2 continuously monitoring going forward. To answer your question more specifically, no, there's absolutely no reason why we wouldn't be growing K-OAR patients enrollment, growing first-year patients and then growing maintenance patients. Already 15% of our volume is roughly attributed to the maintenance patient population that are 5 years after transplantation. So we are penetrating this huge number of kidney transplant patients, 180,000 patients already within the first year after launch, which is very, very promising. So no, don't expect us to slow down on the surveillance patients. But it will be a gradual growth and that's what the team is focused on. This is what we really believe and to change long-term outcomes because if there are surveillance patients, we actually interact with them, and we can impact the long-term outcome.

The next question is from the line of John Hsu with Raymond James.

So I guess, just going back to the -- Peter, some of your comments. How do we think about -- as you look out into 2019, how do you think about maybe the phasing of revenue in the first half versus the back half? Obviously, there was a pretty big acceleration in the back half of last year. So just from a phasing standpoint, how are you thinking about that?

John, thank you so much for the question. I don't have a crystal ball. All I can tell you is that I'm coming off from the CEoT Conference, and it was an amazing buzz. I mean, it's unbelievable when you see what's currently happening with these opinion leaders. At the American Society of Transplant Surgeons meeting, that was for the first time that CareDx really had a substantial presence at that conference, and we were encouraged about the interest of surgeons that traditionally really only focused at 1-year graft survival and their interest into long-term outcome and how we engage with them. I can't tell you how well our growth trajectory is beyond the guidance that we provided with you because the team is in a way heads down and executes on these 50 transplant centers, and we'll report and update you as the quarters progress. But this is an exciting time for CareDx. There's a lot of momentum and the team is heads down and continues to increase the moat in these transplant centers.

Great. And if I could sneak one more in. Just going back to Secretary Azar's comments, one other way of improving access, I think was the study of KidneyX or a price for artificial kidney. So obviously, that would be not necessarily a tailwind for your business. So how do you think about potential time lines associated with that? I fully understand it's probably years away from now.

John, thank you very much for the question. And I would probably put this into the analog of LVAD, where we have the heart pump, where there was a lot of promise and a lot of buzz. And then if you were to ask me today which patient should get an LVAD and which one should be a transplant, I would always go for the transplant. I mean, the ability for transplanting patients and the improvement on quality of life and the long-term survival is hard as any measure, right? LVAD stay in for 2 to 3 years. Heart transplant has mid-term survival for 10 years, right? So until this technology is really so ready and embraceable, I think we'll see a lot of dialysis, and we'll see a lot of kidney transplantations. So we're talking about 10 to 15, maybe 20 years until this has a real impact. Now I really hope that there will be other modalities because transplantation is pretty invasive and pretty complex. But I think for us in the next 10 to 15 years, I don't see anything replacing a kidney transplant.

At this time, I'll turn the floor back to Peter Maag for closing remarks.

Thank you very much all for joining the call. We look forward to updating everyone as we continue to commercialize AlloSure, grow AlloMap and our product business and build on our initial profitability. Thank you very much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.