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Organization and Description of Business
12 Months Ended
Dec. 31, 2016
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Organization and Description of Business

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

CareDx, Inc. (“CareDx” or the “Company”) together with its subsidiary Allenex AB (“Allenex” or “Olerup”) and its subsidiaries, is a global transplant diagnostics company with product offerings along the pre- and post-transplant continuum. The Company focuses on discovery, development and commercialization of clinically differentiated, high-value diagnostic surveillance solutions for transplant patients. In post-transplant diagnostics, the Company offers AlloMap®, which is a heart transplant molecular test (“AlloMap”). In pre-transplant diagnostics, the Company offers Olerup SSP®, a set of Human Leukocyte Antigen (“HLA”) typing used prior to hematopoietic stem cell/bone marrow transplantation and organ transplantation.

AlloMap is a gene expression test that helps clinicians monitor and identify heart transplant recipients with stable graft function who have a low probability of moderate to severe acute cellular rejection. Since 2008, the Company has sought to expand the adoption and utilization of its AlloMap solution through ongoing studies to substantiate the clinical utility and actionability of AlloMap, secure positive reimbursement decisions for AlloMap from large private and public payers, develop and enhance its relationships with key members of the transplant community, including opinion leaders at major transplant centers, and explore opportunities and technologies for the development of additional solutions for post-transplant surveillance. The Company believes the use of AlloMap, in conjunction with other clinical indicators, can help healthcare providers and their patients better manage long-term care following a heart transplant. In particular, the Company believes AlloMap can improve patient care by helping healthcare providers avoid the use of unnecessary, invasive surveillance biopsies and determine the appropriate dosage levels of immunosuppressants. AlloMap has received 510(k) clearance from the U.S. Food and Drug Administration (the “FDA”) for marketing and sale as a test to aid in the identification of recipients with a low probability of moderate or severe acute cellular rejection. A 510(k) submission is a premarketing submission made to the FDA. Clearance may be granted by the FDA if it finds the device or test provides satisfactory evidence pertaining to the claimed intended uses and indications for the device or test. The Company is also pursuing the development of additional products for transplant monitoring using a variety of technologies, including AlloSure®, its proprietary next-generation sequencing-based test to detect donor-derived cell-free DNA (“dd-cfDNA”) after transplantation. Through the acquisition of ImmuMetrix, Inc. (“IMX”), a privately held development-stage company working on dd-cfDNA-based solutions in transplantation and other fields, the Company added to its existing know-how, expertise, and intellectual property the ability to apply dd-cfDNA technology to the surveillance of transplant recipients, which has contributed to the development of AlloSure.

With the acquisition of Allenex, the Company develops, manufactures, markets and sells high quality products that increase the chance of successful transplants by facilitating a better match between a donor and a recipient of stem cells and organs. Olerup SSP is used to type HLA alleles based on the sequence specific primer (“SSP”) technology and has a market in Europe and selected other markets for pre-transplant solutions. The Company also offers XM-ONE®, a standardized test that identifies a patient’s antigens against HLA Class I or Class II, as well as antibodies against a donor’s endothelium. This cross-match test has primarily been used prior to kidney transplants. The Company, by way of Olerup’s sales and distribution agreement with Conexio Genomics Pty Ltd (“Conexio”) (since acquired by Illumina, Inc.) offers a complete product range for sequence-based typing (“SBT”) of HLA alleles. SBT Resolver is a test kit for sequence based HLA typing, while AssignSBT is the companion software for sequence analysis. Because this SBT technology is primarily used in larger typing laboratories, it is a good complement to SSP technology, which is more appropriate for smaller centers. In 2014, Olerup began active development of a new HLA typing product, QTYPE, that uses real-time polymerase chain reaction (“PCR”) methodology. QTYPE was commercially launched at the end of September 2016. This technology is based on SSP technology, which Olerup was well-situated to develop.

The Company’s headquarters are in Brisbane, California; primary operations are in Brisbane and Stockholm, Sweden; and it operates in two reportable segments.

Liquidity and Going Concern

The Company adopted FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) effective December 31, 2016, which requires the Company to make certain disclosures if it concludes that there is substantial doubt about the entity’s ability to continue as a going concern within one year from the date of the issuance of these financial statements. The Company has incurred significant losses and negative cash flows from operations since its inception and had an accumulated deficit of $212.6 million at December 31, 2016. As of December 31, 2016, the Company had cash and cash equivalents of $17.3 million, and $24.0 million of debt outstanding under its debt and capital lease obligations, net of debt discount.

As discussed in Note 18, in March 2017, the Company received net proceeds of $24.0 million in connection with the issuance of a debt obligation to JGB Collateral LLC and certain of its affiliates (“JGB”), of which $11.2 million was used to repay the Company’s outstanding debt obligations to East West Bank. In addition, the debt agreement requires the Company to maintain a minimum of $9.4 million of cash at a named financial institution. These funds are restricted as to withdrawal and are not available to the Company to fund its operations or repay indebtedness.

Pursuant to the Company’s convertible debt financing agreements, the Company is required to file a registration statement with the SEC registering for resale the shares underlying the securities issued or issuable to JGB in the financing. Because the Company failed to file the registration statement with the SEC by April 17, 2017, commencing on April 18, 2017, the Company began accruing liquidated damages payable to JGB at a rate of approximately $7,000 per day. These damages will continue to accrue at the same rate on a daily basis until the registration statement is filed with the SEC.

Due to insufficient working capital in Allenex, a debt covenant in the Company’s Term Loan Facility Agreement (the “Term Loan Facility”) with Danske Bank A/S (“Danske”) relating to maintaining an adequate leverage ratio was violated at each of June 30, 2016, September 30, 2016 and December 31, 2016. The Company obtained waivers from Danske for the violations of the debt covenant as of June 30, 2016 and September 30, 2016. For the violation as of December 31, 2016, the Company received a conditional waiver from Danske based on the preliminary consolidated financial statements for Allenex as of and for the three months and year ended December 31, 2016 prepared under International Financial Reporting Standards as adopted in Sweden and for regulatory reporting in Sweden. Any change to the preliminary Allenex consolidated financial statements could result in a withdrawal of the conditional waiver and could result in Danske demanding repayment of the debt outstanding. While Allenex received waivers from Danske for the violations, due to continuing liquidity matters, the Company has determined that it is not probable that Allenex will be in compliance with this covenant in future periods. For these reasons, the long-term debt due to Danske is classified as a current liability in the consolidated balance sheet as of December 31, 2016.

Absent Danske not demanding repayment of the outstanding debt, the Company believes that its cash and cash equivalents of $17.3 million at December 31, 2016, expected revenues and the available net proceeds available to the Company from the debt agreement with JGB will be sufficient to allow the Company to fund its current operations into the quarter ended June 30, 2017. The Company will require additional financing and/or refinancing of its current debt obligations to fund working capital, repay debt and pay its obligations. The Company may pursue financing and refinancing opportunities in both the private and public debt and equity markets through sales of debt or equity securities. Additional financing might include one or more offerings and one or more of a combination of discounted or at-the-market common stock, securities convertible into or exchangeable for shares of common stock, warrants or other rights to purchase or acquire common stock. However, there can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its operations or on terms favorable to the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the date of the issuance of these financial statements. Moreover, the Company does not believe that it will have sufficient cash to meet its projected operating requirements for the next 12 months from the consolidated balance sheet date included in the Annual Report on Form 10-K unless it raises additional financing. If the Company is unsuccessful in its efforts to raise additional financing and/or refinance the Company’s indebtedness in the near term, the Company will be required to significantly reduce or cease operations.

Additionally, due to the substantial doubt about the Company’s ability to continue operating as a going concern and the material adverse change clause in the loan agreement with East West Bank, the entire amount of borrowings at December 31, 2016 has been classified as current in these financial statements. East West Bank has not invoked the material adverse change clause.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern through December 31, 2016, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The financial statements do not reflect any adjustments relating to the recoverability and reclassifications of assets and liabilities that might be necessary if the Company is unable to continue as a going concern.

Reverse Stock Split, and Increase in Authorized Shares

On July 1, 2014, the Company’s Board of Directors approved an amendment to the Company’s Certificate of Incorporation to reflect a 1 for 6.85 reverse stock split (the “Reverse Stock Split”) of the Company’s outstanding common stock and convertible preferred stock and increase the authorized common stock to 10,000,000 shares, after giving effect to the Reverse Stock Split. The Reverse Stock Split became effective July 14, 2014. The par value per share was not adjusted as a result of the Reverse Stock Split. Effective July 22, 2014, the Company’s certificate of incorporation was amended and restated to provide for 100,000,000 authorized shares of common stock with a par value of $0.001 per share, and 10,000,000 authorized shares of preferred stock with a par value of $0.001 per share. All authorized, issued and outstanding shares of common stock, convertible preferred stock, options and warrants to purchase common or preferred stock and related per share amounts contained in the financial statements have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented.

Initial Public Offering

On July 22, 2014, the Company closed its initial public offering (“IPO”) of 4,000,000 shares of its common stock, and issued an additional 220,000 shares of common stock on August 13, 2014 pursuant to the exercise of the over-allotment option granted to its underwriters. The public offering price of the shares sold in the IPO was $10.00 per share. The total proceeds from the IPO to the Company, net of underwriting discounts and commissions of $3.0 million, were $39.2 million. After deducting offering expenses payable by the Company of $3.7 million, net proceeds to the Company were $35.5 million. Upon the closing of the IPO, all shares of convertible preferred stock then outstanding converted into 6,048,220 shares of common stock, and a subordinated convertible note previously issued by the Company in the principal amount of $5.0 million converted into 510,777 shares of common stock. In addition, all of the Company’s convertible preferred stock warrants were converted into warrants to purchase common stock.