CareDx, Inc.

Case Details

Class Period: February 24, 2021 - May 5, 2022
Date Filed: May 23, 2022
Case Number: 3:22-cv-03023
Jurisdiction: Northern District of California
icon-casetype Case Type: Securities Case

Case Summary

On May 23, 2022, Saxena White filed a securities fraud class action against CareDx, Inc., and certain of its senior executives, for violations of the Securities Exchange Act of 1934. The Complaint alleges that throughout the relevant time period, CareDx made materially false and misleading statements and failed to disclose material adverse facts about the Company’s business, operations, and prospects, thus artificially inflating the Company’s stock price and causing investors to suffer substantial losses when the truth eventually emerged.

CareDx offers diagnostic testing services, products, and digital healthcare software for organ transplant patients and care providers. During the relevant time period, testing services for kidney and heart transplant recipients represented at least 85% of CareDx’s total revenue. Specifically, CareDx’s AlloSure Kidney blood test for transplant recipients was the Company’s primary source of revenue, costing $2,841 per test. Medicare-approved AlloSure tests drove growth of CareDx’s average sale price, an important metric for investors. However, Medicare regulations dictated that CareDx could only be reimbursed for medically necessary tests, severely limiting the number of AlloSure tests eligible for reimbursement. Then, when the COVID-19 pandemic forced vulnerable transplant patients to stay home and avoid going to medical facilities for tests, CareDx launched a home testing program known as RemoTrac. Throughout the class period, CareDx reported growing revenue and strong demand for testing services, specifically emphasizing to investors the success of the RemoTraC service and insisting that RemoTrac was a sustainable business segment, regardless of the potentially temporary nature of COVID-19 restrictions.

The Complaint alleges that during the class period, CareDx had in fact implemented an unlawful Medicare fraud scheme built on improper and illegal tactics to obtain Medicare reimbursement. As a result, CareDx misled investors by failing to disclose: (1) that the Company was improperly and illegally inflating testing services revenue and demand through inaccurate marketing materials, extravagant inducements and kickbacks to physicians and other providers, and improperly bundling expensive testing services with other blood tests as part of its RemoTraC service; (2) that these practices subjected CareDx to an undisclosed risk of regulatory scrutiny; (3) and that these practices artificially inflated CareDx’s reported testing services revenue. Thus, Defendants’ positive statements about CareDx’s business, operations, and prospects at all relevant times lacked a reasonable basis and were materially false and misleading.

The truth began to emerge on October 28, 2021, when CareDx filed its quarterly report for the third quarter of 2021 on Form 10-Q with the SEC. In the report, CareDx shocked the market by revealing for the very first time that it was the subject of at least three government investigations—one by the DOJ, one by the SEC, and one by an unnamed state regulatory agency—related to its “accounting and public reporting practices.” In response to this alarming news, CareDx’s stock price plunged 27%, from $70.34 per share on October 28, 2021, to a closing price of $51.00 per share on October 29, 2021.

Investors learned more about the full scope of CareDx’s fraud and the nature of the government investigations when, on April 15, 2022, CareDx’s former Head of Community Nephrology, Dr. Michael Olymbios, filed a complaint in California Superior Court. His complaint provided extensive detail about: (1) CareDx’s rampant misconduct, including the use of RemoTraC to improperly bundle the company’s most expensive testing services with other blood tests, that led to the government investigations; (2) Defendants’ knowledge of the misconduct throughout the class period; and (3) the Company’s attempts to conceal the misconduct. In response to this filing, CareDx’s stock price dropped an additional 8% the next trading day, from a closing price of $35.41 per share on April 14, 2022, to a closing price of $32.55 per share on April 18, 2022.

Finally, after the markets closed on May 5, 2022, CareDx issued a press release announcing financial results for the first quarter of 2022, reporting a near 5% decline in the average sale price of the Company’s testing services. In response to this news, CareDx’s stock price plunged another 18.5%, from a closing price of $31.66 per share on May 5, 2022, to a closing price of $25.87 per share on May 6, 2022.

On August 25, 2022, the Court appointed Oklahoma Police Pension and Retirement System, Sheet Metal Workers Local 19 Pension Fund, Local 353, I.B.E.W. Pension Fund, and Beaumont Firemen’s Relief & Retirement Fund as Lead Plaintiffs and Saxena White as Co-Lead Counsel.

On November 28, 2022, Lead Plaintiffs filed their amended complaint, further detailing and refining the fraud allegations. On January 27, 2023, Defendants filed their motion to dismiss the complaint.

On May 24, 2023, the Court granted Defendants’ motion to dismiss the amended complaint but granted Lead Plaintiffs an opportunity to amend the complaint. On June 28, 2023, Lead Plaintiffs filed a second amended complaint.  The Defendants filed another motion to dismiss and briefing concluded in late-September 2023.

On October 31, 2023, the Court held a hearing regarding the motion to dismiss the second amended complaint and a ruling is expected soon.