Q4 2019 Earnings Call
Good afternoon, and welcome to Castle files fine.
This fourth quarter and you're into 2019 conference call. As a reminder, today's call is being recorded the will begin today's call with opening remarks and introduction followed by a question answer session.
Likes to turn the call over to Frank Stokes Chief Financial Officer. Please go ahead Sir.
Thank you operator and good afternoon.
And everyone welcome to cancel life Sciences fourth quarter and year end 2019 financial results Conference call. Joining me today is councils founder President and Chief Executive Officer Derrick muscle.
Information recorded on this call speaks only as of today March 10 2020.
Therefore, if you're listening to the.
Like we're reading the transcript of this call any time sensitive information may no longer be accurate a recording of today's call will be available on the Investor Relations page of the company's website for approximately three weeks.
Before we begin I would like to remind you that sold the information discussed today may contain projections or other forward looking statements regarding.
<unk> future events, where the future financial performance for the company had are made pursuant to the safe Harbor provision of the private Securities Litigation Reform Act that 1995.
Forward looking statements are based upon current expectations and involve inherent risks and uncertainties and there could be no assurances that the results contemplated in these statements.
We'll be realized.
A number of factors and risks could cause actual results to differ materially from those contained in these forward looking statements.
These factors and other risks and uncertainties are described in detail in the company's final prospectus filed with the Securities Exchange Commission on July 26 2019.
Moving to our registration statements on form S. One and then the Companys other documents and reports filed with the Securities and Exchange Commission.
These forward looking statements speak only as of today and we assume no obligation to update or revise these forward looking statements as circumstances change I'll now turn the call over there.
Thank you.
Thanks, and good afternoon, everyone. Thank you for joining us today.
This afternoon, we will review fourth quarter and year end financial results.
Key accomplishments and upcoming milestones and discuss our twentytwenty revenue guidance and strategic priorities.
The entire council about us aren't his team did an excellent job throughout 2019.
Which was an incredibly strong year.
Strong in terms of growth in our gene expression profile test volume.
Our next from your growth and continued evidence development for our decision Dx melanoma tests and our decision do you have to you and test and progression of our pipeline products.
During 2019.
Team, we successfully completed two commercial team expansions.
One in the first quarter of 2019.
And the second one in December 2019.
We went from 14 outside sales territories in December 2018 to 32 outside sales territories acid.
December 2019, which provides us confidence in our ability to execute our twentytwenty strategic growth priorities.
In 2019 for the fourth quarter year ended we reported revenue of $17.6 million and $51.9 million respectively.
The full year 2019 revenue of $51.9 million compares favorably to the $22.8 million reported for the full year 2018.
As we look forward to our growth potential in Twentytwenty, we anticipate generating $61 million to $64 million in revenue.
And plan to provide quarterly updates on this guidance.
In order to support our continued growth we plan to further expand or commercial sales team continue our evidenced development and further ramp up our R&D efforts.
We did announce reported volume in January for both of our proprietary gene expression profile.
Yes.
But decision Dx melanoma for use in patients diagnosed with invasive cutaneous or skin melanoma.
We delivered 4480 test reports in the fourth quarter and 15529 test reports for the year up 37% and 29.
5% over prior periods in 2018, respectively.
Adoption with new physicians for decision Dx melanoma in 2019 was up 24% year over year and total ordering clinicians increased 32% year over year to just over 3900.
3927 to be exact.
Based on an annual U.S. incidence of newly diagnosed invasive cutaneous melanoma patients of approximately 130000.
And approximately 11 to 15000 clinicians who treat melanoma.
We believe our annual 2019.
Penetration to be about 12% of patients and about 25% to 30% of clinicians.
We believe the success of our commercial expansion in February 2019 contributed in part to the excellent growth. We saw in decision Dx melanoma as well as our continued evidence developing which Rob will discuss.
Further in a moment, we anticipate continued success with volume growth with our recent additional commercial expansion in December 2019, which resulted in a total of 32 outside sales territories with commensurate increases in associated commercial and medical affairs personnel.
All in our.
Im are facing teams more than doubled in size to over 50 people as of December 2019, compared to December 2018.
As we have in the past, we're continuing to assess our commercial team needs as we prepare to launch our late stage products and anticipate adding at least an additional eight.
The 10 outside sales territories with commensurate increases in associated commercial and medical affairs personnel in the second half of Twentytwenty.
Turning to our decision Dx you and task for patients diagnosed with you'll melanoma, we delivered 434 reports in the fourth quarter.
And 1000.
2526 test reports for the full year, 2019, a 13% and 8% increase year over year, respectively.
You may recall that our decision Dx U.M. test has been standard of care for a number of years and we believe treating clinicians are ordering our test for an estimated 85%.
Jim I patients diagnosed with Youview melanoma.
Therefore, we are pleased with our year over year growth of 8% for very mature product.
Now I'd like to discuss several fourth quarter and recent key accomplishments with our continued evidence development and late stage pipeline products.
Let me remind you that our.
Vision Dx melanoma test assesses the aggressiveness or likelihood to recur or metastasize based upon the biological signature of an individual patients primary melanoma tumor.
We have shown that our decision Dx melanoma test prediction individual patients likelihood to recur.
Or metastasized to the Sentinel lymph node regionally differently and even death for melanoma, because we can predict multiple endpoints are decision Dx melanoma test impacts more than one decision point, specifically our tests currently guides to clinical.
<unk> that are made just after the time of diagnosis.
The first use of our cash as to informed decisions on Sentinel lymph node biopsy.
When the tumor is to millimeters thick or less and the second uses to guide subsequent treatment plan decisions.
In November.
Got it from to prospective multi center studies supporting the clinical use our decision Dx melanoma test to guide discussions and recommendations regarding sell into biopsy surgery were presented at the 16 International Congress of Society for melanoma research.
In the first prospective multi center study.
I'd.
We reported that in Sentinel lymph node biopsy assessed patients 65 years of age or older with T one or T. Two tumors.
And a low risk castle class one a test result.
In a lift out positivity was 2.7%.
Significantly less than patients with a castle class one be to two way or castle class to be test result.
And importantly below the 5% threshold at which cancer treatment guidelines do not recommend the sentinel lymph node biopsy surgical procedure.
Tier one tier two tumors.
Our melanoma is that head of a tumor depth that has to millimeters or less.
As a point of reference this group comprises 86% of all patients that we test today.
In the second study.
This one also multi center and perspective.
Look to address the clinical question of are we doing.
Patients harm if a patient with a T one or T. Two melanoma tumor and the decision Dx melanoma class one a test result.
Avoided a settlement a biopsy surgical procedure.
We previously addressed this question within analysis from our long term archival or.
Prospective study cohorts.
In this study we reported data on outcomes Ray Multicenter prospective study with the median follow up time of 3.2 years in patients who did not experience a metastatic event.
This study found that patients with a tier one tier two tumor and a class.
One a test result had a three year overall survival rate of 99.4% a distant metastasis free survival rate of 98.7% and a recurrence free survival rate of 96.6%, adding further support that this T. One key.
New class one a population can safely avoid setting off to biopsy surgical procedure.
Also regarding our decision Dx melanoma test results from a study designed to establish the level of evidence.
Were published in the December 2019 issue of the Americans.
Journal of clinical dermatology.
Methodologically. The authors conducted a systematic review of the literature and established a level of evidence for our decision Dx melanoma gene expression profile test based upon criteria used by the American Joint Committee on cancer or a JCC.
The national comprehensive cancer network, our NCCN and the American Academy of dermatology or a the criteria respectively.
The results show that decision Dx melanoma test.
Achieves a higher level of evidence then determine at that time.
By these organizations specifically the systematic review.
Included evaluation of seven development and validation studies that led the authors to classify decision Dx melanoma as a level one to two according to age JCC criteria.
Level, one to three b.
According to NCCN criteria and level to a according to a b criteria.
The authors conclusions were higher than the official underwriting is that as confirmed by the A.J.C.C. and NCCN and the two to three see rating designated by the A.D. and latest version.
No there melanoma guidelines all of which were conducted prior to this study.
The NCCN guidelines for cutaneous melanoma or updated in December 2019.
Although it appears.
All of our 22 peer reviewed publications, we're not reviewed.
Hey positive shift in the inclusion language was made indicating that the decision Dx melanoma test may provide information that is an adjunct to AJ cc staging with a category to a level of evidence.
This level of evidence is consistent with systematic review study just noted and also published.
In December 2019.
Also in the fourth quarter, we received notification of the American medical associations CPT editorial panel, except that our application for a category one multi analyte asked a with algorithmic analysis or mall CPT code.
For our decision Dx melanoma test.
This code will be effective on January Onest Twentytwenty one.
In order to attain a category one mop CPT code a test must meet certain levels of evidence requirements. For example, the clinical efficacy must be documented in the published literature.
Additionally, it.
Requires that test used to be perform with a frequency consistent with the intended use that this use is consistent with current medical practice and that is performed by many physicians or other qualified health care professionals.
The aim A's CPT editorial panel agreed that our decision Dx melanoma test met.
All of these criteria.
With this acceptance both of our proprietary Mark tests decision Dx U M and decision Dx melanoma have met the criteria required for category, one mop CPT code.
As a reminder, we have 22 peer reviewed publications.
That support the two currently clinically actionable uses of the decision Dx melanoma test and we anticipate additional publications and Twentytwenty.
Conclusions in the December 2019 systematic review the NCCN guideline update and the am a CPT editorial panel.
Actions support our belief that evidenced development matters, we will continue to invest in Evans development to support both patient penetration and covered by commercial payers.
As it relates to our intellectual property.
Last week, the first us patent related to our decision to X melanoma.
It was issued by the United States patent and trademark office. This patent covers methods are treating cutaneous melanoma in patients having high risk detainees melanoma tumors.
Now turning to our pipeline products. We are excited about the progress that we've made regarding our decision Dx SDC test.
For use in patients with one or more high risk squamous cell carcinoma house.
And our tests for suspicious pigmented lesions.
As you May recall, we reported data from the clinical validation study in October 2019.
On January Twentyth 2020, we presented data on the use of a test into.
I missed out Carcinomas that were categorized as high risk by the NCCN guidelines.
Study demonstrated that the use of our test.
In combination with A.J.C.C. staging enable identifying approximately 50% of high risk patients who had a metastatic rate that was similar to the.
General FCC population.
In other words, we could successfully rule out approximately 50% of high risk patients from a high risk treatment plan.
As of today, we are excited about the opportunity to potentially commercialize our decision Dx FCC test with the hope that patients who are diagnosed with.
Hi, rich disease based upon the NCCN criteria could make more informed decisions regarding the initiation of aggressive agile and therapies or watchful waiting.
We look forward to providing with updates in the coming months.
Of interest we received notice them the abstract regarding our decision Dx FCC.
Test was accepted for an oral presentation has a late breaking abstract during the basic science.
Catania, some colleague pathology session at the 2020 American Academy of Dermatology annual meeting being held in Denver, Colorado. The presentation is scheduled to begin at fourth.
30 PM Mountain daylight time on Saturday March 20 Onest.
Regarding our second late stage pipeline product our test for suspicious pigmented lesions.
We believe that we remain on track for commercial launch in the second half of Twentytwenty. We plan to report data from a clinical validation study in the second half of.
The year prior to launching this test we believe that these two late stage pipeline products decision Dx FCC and our test for suspicious pigmented lesions will increase our estimated total addressable U.S. market by approximately $1.4 billion for a total us Tam of approximately 2 billion.
Collars.
Ill now turn the call back over to Frank who will provide additional detail relating to our financial results.
Thank you Derek we're pleased with our strong execution and growth in the fourth quarter and full year 2019, we reported revenue of $17.6 million in the fourth quarter and $51.9 million.
For full year.
An increase from 11.4 million and 22.8 million over the fourth quarter and full year 2018, respectively.
As a reminder, quarterly year over year comparability of our revenue continues to be affected by the Medicare local coverage determination or LCD for our decision.
Melanoma test that was issued in the fourth quarter of 2018.
While the LCD covered reimbursement for tests reports delivered prior to the fourth quarter 2018, due to the timing of the issuance of the LCD and GAAP revenue recognition requirements. All 2018 decision Dx melanoma Medicare revenue covered by the.
LCD was not recognized until the fourth quarter of 2018, when the LCD became final effective.
The amount of such revenue derived from decision Dx melanoma tests delivered in the first three quarters of 2018, but not recognized until the fourth quarter 2018 was $5.2 billion.
Stated differently, if our fourth quarter 2000 revenue only included Medicare test for decision Dx melanoma that were performed in the fourth quarter of 2018 than 2018 revenue would have been $6.2 million compared to fourth quarter 2019 revenue of 17.6 million.
This is a non-GAAP.
Please see our non-GAAP reconciliations at the end of our earnings release from this afternoon.
Our year over year revenue was driven by a 29% increase in 2019, indecision Dx melanoma test reports volume compared to 2018.
As well as by higher revenue per test or SP.
As Derek.
Discussed earlier, we anticipate generating revenue of 61 million to $64 million in 2020.
We expect to give the first update on our progress in May We report our first quarter 2020 financial results.
The full year 2019 revenue of 51.9 billion.
Crudes $2.5 million a positive.
Revenue adjustments compared to positive revenue adjustments point $3 million for the full year 2018.
The increase in positive revenue adjustments, primarily relates to cash collections in 2019.
Test reports delivered prior to 2019.
Other words previous periods for which no revenue was.
Recognize originally.
No revenue was recognized originally in alignment with the requirements for revenue recognition under GAAP.
We believe based on recent reimbursement activity that additional positive adjustments in future periods at some level are possible for at least the next few quarters.
Our gross margin during the fourth quarter was 89% it was.
6% for the full year 2019, compared to 77% for the full year 2018.
This improvement in gross margin was primarily driven by operating leverage as result of our strong volume growth.
Our operating expenses for the year ended December 30, Onest 2019 were $37.2 million.
There are $221.3 million per year ended December 31, 2018, an increase of 75%.
This increase was primarily the result of higher personnel costs, particularly due to the expansion of our sales and marketing organization, but also due to the expansion of administrative support functions as well as increases in.
<unk> expenses associated with our growth and higher R&D expense, which increased by $2.5 million in 2019 compared to 2018.
We expect our R&D expense to increase further as we continue to invest in activities related to enhancing our existing products and developing new products as a percentage of.
Revenue our SG they expense was 58% for full year 2019, compared to 72% for 2018 with the improvement primarily attributable to the increase in operating leverage as result of our revenue increase.
Interest expense increased by $2.3 million to $4.6 million for the.
Your ended December 30, Onest 2019, compared to the year ended December 31, 2018, primarily driven by the issuance of convertible promissory notes in the first quarter of 2009.
These notes were converted into common stock in July 2019 in connection with our IPO.
The remainder of the.
Due to a combination of higher outstanding credit balances and higher interest rates on our banking credit facility.
Our net income for 12 months ended December 30, Onest 2019 was $5.3 million, which includes the benefit of a onetime $5.2 million noncash debt extinguishment game.
For two.
2019, we reported a 21 cents per share.
Loss, which under GAAP excludes the benefit of the debt extinguishment game.
For the year ended December 30, Onest 2018, we had a net loss of $6.4 million or $5.33.
<unk> per diluted share.
Moving next.
Next to our cash flow performance for the year into 2019 capital generated $7 million and positive operating cash flows compared to negative operating cash flows of $12.3 million in the prior.
Finally, we had cash cash equivalents at December 30, Onest 2019 of $99 million, which we.
Along with cash generated from sales of our products.
Sufficient to fund our operating expenses for the foreseeable future.
Additionally, we believe we're positioned well to execute on our expansion plans and support our ongoing research and development activities I'll now turn the call back over there.
Thank you Frank in summary, we are extremely pleased.
With our team performance in 2019, including strong year over year growth in volume for our decision Dx melanoma test to successful commercial expansions in our commercial medical affairs teams and significant advances in evidenced development. We look forward to another great year in 2020 and we thank you for your continued interesting castle.
Operator, we're now ready for Q1 day.
Thank you to ask a question.
Star one.
Your question press the pound.
To ask a question press Star then one key.
Our first question.
Comes from.
So.
With SVB Leerink your line is open.
Yes, Hi, Derek Frank Thanks for the question. So the first question I have is on the guide it was stronger than what we had expected than what.
Street I believe was modeling.
Could you.
Walk us through the contribution.
That you expect here from volume contribution from SP.
And if you could provide also any if you're expecting any contribution from.
In that in that guide.
Hi, Thank you good to hear from yes, I'll, let Frank.
Handle that question.
Sure. So funny, we we're not assuming any revenue contribution from new products, which we anticipate launching this year.
We.
Based on GAAP accounting principles, we won't have enough experience with those products to record or or accrued revenue at the time of.
Out of report shipments. So we will only reflect revenue on a cash basis or when we actually collecting the cash and those those tests and just given the the timing of the appeal cycle, we just don't see that being material or meaningful at all in 2020, So that guide doesnt.
New product guide.
And you can you can assume as as we have the uveal melanoma product.
Is flat ish.
In terms of both.
Volumes and a SP, that's a fairly mature product and as we've said in the past we think we test.
A significant percentage of the patients maybe 80, 85% of the patients.
And so while we will continue to support that test and it's an important test for us.
Just given the penetration levels, we don't model.
Two too much additional volume there so the growth in revenue is primarily driven by by.
All yumes and modest improvement in ASP on our cutaneous melanoma test although again.
The the reimbursement prop process and pathway is is along one so so we're primarily focused on on volume growth there.
Okay.
And then.
On the out of period adjustments, you had 4.3 million.
This quarter at 3.2 million last quarter.
And now second quarter of large adjustment here. So how should we think about that going forward.
And then.
Is there any contribution from that.
Or.
Our expected contribution that you expect and in 2020 guidance from appeared adjustments.
So excuse me if you look at if you look at the total year out of period. It was two and a half million dollars.
Instead, I'll give you a sense of where those at a period reports are coming in.
There's the lag is sort of appears to be quarter to quarter, maybe quarter, plus a little bit to quarter.
So we will see some of that in 2020.
Although as we continue to mature both our reimbursement progress as well as our appeals progress.
We should see that began to converge toward toward accrued revenue.
Avenue.
Okay, and then if I could Derek if I could touch on the sales reps.
Mostly growth in volume is a key metrics for you.
As you look at this sort of somewhat expected disruption here in travel plans and.
And largely due to current novartis.
And do you expect any impact there on the sales rep territories are they largely local.
And how should we think about the cadence for the year given.
Full year guide how should we think about the cadence in the first half versus second.
This year and then the last one if you could also elaborate what's your expectation for sales rep expansion this year.
Sure. Thanks and question Anthony Thank you so.
Maybe I'll start sort of towards the last word myself forward. So.
As you know from.
From the releases in the past in today's release, we completed our second.
Expansion in 2019 in December of 19 to go to 32 outside sales territories.
And we also have.
Extended groups around that so we have an inside sales associate group as well as.
Well Theres personnel.
All told customer facing individuals that castle was in the low fiftys and at the end of 2019 and that compared to being the low twentys at the end of 2018, some more than doubling in terms of customer facing personnel that are that are either hair and friendswood or on the ground.
Across the us from geography standpoint.
We have certainly seen a couple of of conferences that we would normally exhibit at and hold one hour meetings at a b cancel here in the March time period.
I don't know organizations will continue to kind of roll those.
Going forward after April and May or if we see an adjustment depending on the on the Cronto virus I guess.
News flow penetration et cetera.
So I think.
Hosting events at major meetings, probably in the second quarter will be less than we had planned are scheduled for because as major meetings are being postponed.
Or cancel.
So far we haven't heard.
Feedback from our representatives of the medical science liaison room in terms of local interactions being canceled or postponed.
Our belief is at the information that we are providing to physicians regarding.
Equally improving the care of their patients with use of our test continues to be valued.
What I don't know, which is maybe the question you haven't asked is.
Our positions dermatology practices surgical oncologists going to actually see a reduction in patient flow.
Our people are going to go into their physician less often because they.
Our concerned about Corona virus in the in the office of that Dr and avoid getting a skin cancer diagnosis or not I would think that if we see something it should be quite mild to moderate but I guess that sort of is that more of national risk I would say so at this point in time, we see nothing that would projects that have a slowdown of individual.
Patients opting to forego seeing their positions when they're concerned about a skin cancer or a or or a eye catching back. So I think that from a business perspective and castle I would not we don't put in our model today, some sort of a major adjustment ship because.
People, who need care I.
I would expect there would still seek out care I guess than a reason with timely manner.
In terms of sort of.
Ramping up as you know we started out in the first quarter 2019.
Year over year reported growth in our cutaneous melanoma test decision Dx melanoma in the low Twentys I.
I think right, 21% I think it was and we ended the year in the fourth quarter 19 over the fourth quarter 2018 at 37% growth in reports year over year. So we think that was driven by by by two major elements. The first was the expansion of the customer facing.
Personal medical affairs groups and this demonstrated that we were.
Substantially undersized I guess, you would say in a promotionally responsive marketplace that was.
And that was crying out for I guess educational efforts that we can deliver.
And the second of course was was was a very very nice trail of evidenced development over the course of.
The year, which I think helped us communicate better to our clinicians where to use our test appropriately and we're not too for example, the expansion in December of 2019 to those 32 outside sales territories in more than 50 customer focused individuals I think de risks.
Our growth opportunity throughout 2020, so that feels pretty comfortable to both Frank and I and the rest of the organization.
And and we do expect that that expansion group, probably takes a quarter and a half of two quarters I think to become fully effective so our internal estimates where that we're starting.
Being off at a great point in December 2019, and that group hopefully becomes fully effective towards the mid summer to third quarter of 2020, which which all feels very strong in terms of being able to help educate.
Clinicians.
To make a activities on the use of our test improving patient care.
Maybe off the area.
That's great alright. Thanks, Thanks, Derek Thanks for all the details.
Absolutely welcome.
Our next question comes from.
[music].
Your line is open.
Hi, Thanks.
The question, maybe starting out with a a question on gross margin or 2020, Frank could you kind of help us think about the Kate and potentially for for the year. Obviously, you know you saw very strong growth I expansion last year she'd be kind of carry that over.
This year, if you could maybe also go over kind of puts and takes in terms of how we think about modeling that are going forward.
Yeah, I think so do you think thanks for your question I think that the gross margin performance. We solved for the full year 2019 is is probably durable until we launch our new products and when we launched them products. Given my earlier comments will have cost associated with.
Those new test reports, but any revenue we actually receive will be deferred into later period. So you could see the gross margin be impacted by that somewhat but but in terms of a a normalized sort of steady state.
Runrate gross margin that that middle 80 per cent is about right for for going forward. This year I think.
Great. Thank you and then maybe on the commercial pair coverage side you know Derek could you talk about kind of what be near term strategy is in terms of.
What type of milestones, we may we may be able to see in the near temple's. The next 12 18 months kind of you know what your strategy sorry, there you know how the early conversations might be going shores or thanks. Thanks.
For the questions and I'm going to European.
So I'm I'm going to assume that we're talking primarily about our Disney X. melanoma test for cutaneous melanoma, but I'll spend a second here on the U.B. melanoma test sell on the U.V. melanoma test with his decision B.S.U.M.
We do enjoy a broad coverage both in terms of Medicare population, which is a reminders about 45% of the patients that we test and the majority of commercial plans across the U.S. do include that fact of reasonable necessary and covered we are targeting the.
He remaining plans to ensure that they see the data interpret the fact that.
The major a third party technical assessment grooves, all support the use of our testing clinical care.
Do national guidelines, such as NCCN and they should be.
Valuating our test in the prospect of it it does actually improve.
Patient that health outcomes and they should be covering this test proactively because it is down to the carousel, even gaining modest improvements in the in the few plans that are that we don't have <unk> using melanoma. We expect some of those to go ahead no occur this year, but in terms of revenue impact I think you won't be able to see that on the on.
A revenue line so turning to decision the X. melanoma test for cutaneous melanoma, you had anticipated or model a couple of years ago that we would not see Ah commercial covered shifting until Palmetto had completed their moldy X. review of our test and as you know we had our initial local.
Coverage determination policy or L.C.D.C. effective in December 2018, we had a expanded draft L.C.D. posts in August of 2019, and the comment period closed.
Kind of mid December 2019, So we do expect the draft to L.C.D. based upon L.C.D.'s ahead of us.
To post as a final L.C.D., probably in the third or fourth quarter 29, 2020, there's not any sort of statutory requirements of when they would do that but our thinking based upon.
The L.C.D.'s that went from draft a vital in earlier 2019 took about 11 12 months that seems to be maybe the right place to put a stake in the ground.
We did see last last fall and the third quarter when policies that were being reviewed base in late late second quarter of them were being effective in third quarter moved from negative to policy with a with a a a small number plans.
We do have additional commercial payers that are in the also the mid year cycle and Twentytwenty are managed care of group is certainly engage with them too I'll, let them appreciate the.
The the molecular the moldy x. coverage decision by Palmetto. We also saw in December 2019 positive improvements in the language from N.C.C.N. as it relates to recognizing that our test may add value to current staging systems from what we can tell they did not necessary.
Early where do you all 22 of our peer reviewed publication, so shifting from sort of a negative stance to a semi pauses stands I think is a good thing that's where most of them like her diagnostic test set by the way in terms of M.C.C.N. reviews, we feel we can take that into leverage that properly and I would expect we would see some.
A modest improvements or games in coverage in the sort of second half of 2020 and more through the next year and a half a two years out.
You know it's difficult to appreciate when a when a a thorough review will be completed will that be dependent upon in cycle. Adam cycle. So we're a little careful I'm kind of assuming fantastic change in A.S.P. I think we expect some modest improvements over 2020 2021, that's probably the most conservative a best case approach to take.
<unk>.
That's what I can I ask the questions spongy, yes, absolutely. Thank you so much for that and then just lastly from me I first of all congratulations on getting accepted foreign oil presentation at the at the American Academy of Dermatology meeting later.
<unk> I was curious.
Do you anticipate peer reviewed publications for both of your pipeline product before you launch commercially later this year or I do you think at poster presentations or other types of eight I read out will be sufficient before your commercial launch yeah.
Thank you [noise].
Oh really like that question by that's alright.
I think.
I think from a sort of clinical adoption perspective.
Clinicians would always appreciate seeing peer reviewed publications so they can.
Make their their own assessed spend on a on a on a written piece of work that's been reviewed by their peers I guess, our thinking is that assuming that the that that manuscripts are reviewed in a fairly timely fashion I like to have those publishing imprint <unk>.
Near or at or before the the the time that we watch our products on the so so I guess on a one and I would say we'd like to go ahead and see up here reading publication in the in the literature base.
To add sort of more credibility way I guess to acceptance or review a new product.
That being said, we have conducted a number of of interactions with potential customers and based upon the the feedback we're getting about clinical need to really impact better decisions. We may make the choice to go in advance appear being publication to though that those on meat or timeline. Just so we can have an opportunity.
Need to really made a patient care needs, but that's something we're kind of monitoring right now and we'll we'll make a decision as we get closer to timing and comfort about making these these tests available for for for patient care.
Great. Thank you so much.
Thank you and the next question comes from Catherine Sheltie with spared your line is open.
Hey, guys congrats on the corner and thanks for the questions I guess first on the N.T.C.N. guideline update in December hurt or comments from the pair perspective, but what if any kind of telling do you think this update could provide in terms of driving volumes and 2020.
From from ordered exam point so so.
Quantitatively I think it's too early to comment with data Catherine qualitatively. We we know that there are some clinicians there are some institutions, who have sort of taking the position that we'd like to have third party party endorsement I guess by N.C.C.N. before we went to code adopt overview those tests.
As being ballad. So I do think we expect to see some condition growth poker and maybe some institutional grove occur as the as the adjustment in languages is is put out there by our teams that being sad I don't know, if we could be able to discern Matt.
Independently of the of the growth in our sales force and 23 to 32 sales reps in December so those.
Fortunately or not came on top of each other so do we see a a a a very very nice growth in the first quarter of 2020 for example winter port volume, that's higher than our internal forecast I'm Gonna I I don't know if they'll be able to tease apart and saying that's due to either the the improvement at N.C.C.M. supportive language orbits.
Due to the fact that we scaled ourselves for us up by a third again hopefully combination of both I think we'll be able to look at some individual select institutions, where our information seems to confirm that they were waiting for you know one more brick to fall before they would go in step out and use our test clinically those are probably track more comfortably as being an event.
Into M.C.C.M.
That.
Ask the question of it there.
Yes, very helpful and and then on guidance and might try to take another style that tune each question, but how should we be thinking about underlying cutaneous volume growth in 2020, and then separately based on your comments I assume there isn't anything base embedded into guidance for a final Medicare expansion is that.
Craft.
Yep [noise].
Your your your second point Katherine is correct and.
We would we would suggest that you know we're coming off of a larger base. This year and so we'll see some of the volume growth normalize out to where we think is is a more durable three to five year rate just coming off of the the the growth from last year larger numbers, but but nothing in there, but as I said not too much improvement on.
On.
On reimbursement on the reimbursement side of it.
Okay, Great and then last one for me just how should we think about cap access year any need to expand lab capacity or other major investments ahead.
Yeah, we we are expanding in our our footprint in in both are headquarters in our our lab.
It's it's certainly fairly modest relative to to the to the S.G.N.A. line and all kind of normal course, just to accommodate our growth. So so nothing significant there there'll be some cutbacks, but it's it's it's fairly modest.
Yeah, I I felt slightly selling it on the cap x. I would've concur with francs, a commentary, but what is exciting about the.
Hmm increase in our footprint in Phoenix is is right now I believe we can play last year without we could do somewhere between 60 and 66000 gene expression profile test clinically on an annual basis with a single shift a working five days a week.
So if we did not expand our facility footprint, we could certainly at a second shift potentially or work the weekends and and comfortably improve our our sort of maximum capacity.
We made the decision last fall post I.P.O. that we wanted to get ahead of that commercial need as well as build out a a a stronger research wet laugh facility in Phoenix them. So part of our decision back in the fall to undertake essentially doubling our footprint wants to enable us to one.
Easily managed through our gene expression profiles clinical tests as I was continue to ramp and also hopefully accelerate some of our of our went laboratory discovery efforts in developing efforts for current and future pipeline products.
That remains on track the actual cap X. is quite modest have us get there which is good I think for an overall budgetary standpoint and in here in in Houston earn Friendswood, we've we've maintain rough with the same size facility for about a year and a half and things are height here, we're giving up conferences right and left to make sure we can.
Manage the employee expansion and we expect to be into our new facility that should have several years growth of it in a in the mid summer time line, which again also only has <unk> implications for the company.
Right right I might sneak sneak one more and I know you've talked about potentially initiating some r. and d. work on two additional pipeline test sometime in the first half of this year any color on when we could learn with US now applications would be.
Yeah. So we we are planning on an issue that in the second half of the year by maybe call 2020, right. I guess the question of what's initiation is that when the protocols first go through our be when we actually first analyzing data system. Some.
Broad or we go ruin their.
We.
I'm not sure won't kind of disclose what this targets look like I guess is the first is a is a direct answer there I think we would look at that probably in the second half a year as weekends are kind of seeing some early data and see what that actually means but given the cycle time from developing two clinics availability of a test I figure we have.
2020 to kind of things or what that might look like and either provide some early expectations in terms of what the marketplace might be what the future Tam could be but given it will still be a couple of years out I think we probably would not discussed that until the after the first half a year is that what you're thinking Frank too.
Mm Hmm.
Thank you.
Thank you next question comes from Max Sushi with kind of course Genuity. Your line is okay.
Hi, good afternoon.
Just to start can you speak to trends and when a shrink clinician reordering rate sort of that same store sales growth metric in sticking s., you're seeing with adopters.
Yeah.
Himax good to hear good to talk to you.
Let's see I don't have that updating the 10 k. So I'll talk of we do have maybe and and maybe there's something we need to refresh that next time, we we we go through so we estimate that that based upon the best available data that we have that there's maybe a target clinician audience maybe.
11 to 15000 physicians and nurse practitioners and.
Position assistance that maybe a little high maybe little low, but the date is a little tough to get your hands around that's accurate, but let's let's call that range.
We finished out last year with just over 3900 ordering clinicians so depending on how you want to analyze that I guess that could be 120, 25% of 20 or 30%.
Oh targetable conditions as we see them.
Board at our test at least once last year now given our high growth a number of those clinicians didn't or until the fourth quarter in a smaller number in the third quarter. So it's not like that was a stable annual growth of ordering doctors. So it's what that number side and call at 25% just to just to make it even.
On the patient side.
We believe based upon our analysis bossi or data under reporting of melanoma that there's around 130000 patients diagnosed each year with invasive cutaneous melanoma.
Local or regional so what does that mean is kind of stage, one two or three disease.
Excludes stage for stage for people, who are diagnosed with distant metastasis, which are since that's one of the endpoints are test predicts that would be a poor use our test inappropriate of our test. So take 103000 is your base denominator and we report of out last year 15500, and change reports you know that comes.
In Canada at an annual penetration rate of what 12, 13% maybe so he's got.
Maybe maybe call 13% of patients tested last year.
By 25% inclinations, we think are seeing a reasonable number melanoma patients. So I would say one is that there is is there's an opportunity to I think increase sort of saying store sales to use that terminology and we do see when we look at the types of patients, which was or what are our test on that some physicians have sort of.
Limited the use of our test a certain patient populations based upon breslow sickness, maybe age sometimes.
And that may all be appropriate in terms of how they think about risk without our test and some of the articles that we published last year essentially are looked at focusing a discussion around you know what Dr. Max I understand that you kind of use our test predominately for this kind of population of patients I'd like to have a conversation with.
You about maybe appropriate use of our task in a broader population so that kind of interaction is ongoing today, we did see some nice improvements in terms of physicians, who would limited our use in terms of patients. They thought it was appropriate to more appropriate use what our test is out against in a ladder half a 29 teams will continue that.
<unk> that that expansion I'm, saying store sales.
Over the course of the year.
And of course, given that we only have about one quarter of the estimated ordering clinicians using our test today. There's also a nice opportunity to really go in an impact with both publications and other evidence development as well as guidelines improvements et cetera to be able to have a conversation about some of those fence sitters that we've.
During the past.
But also I think equally equally opportunistic our our positions who maybe we've only seen once in three or four years, not all and to be able to have them have an opportunity with her increased abreast in the field to really listen to to understand appreciate consider and hopefully adopt our test for the betterment of their patient care decisions.
That's very helpful. And then just circling back to them coded 19 question just a button that.
That's just generally how do you view that resilience in your business from supply chain n. easier to that and then customer behavior standpoint.
Yeah, So <unk> supply chains separately here, we reached out back in a in early January to confirm Lear are key reagents and the keys sort of.
<unk> bottlenecks might be and our suppliers are vendor partners indicated that none of the reagents that we use are are are focused on income from China that sounds like limited exposure. They anticipated no no no supply chain issued from a material perspective, though that being said.
What we haven't seen but what I don't know how to gauge would be do we think that there's going to be a a manufacturing plant that might sort of you know closed down or limit limit employee contact because they have some a small population are individual in their in their in their plans that might and that would be diagnosed with krona virus that part.
I can't I can't Guestimate, right now to be quite crank we've.
Check in with our with our our vendor partners here until about once every two weeks and we they indicate they don't see any issues. We also maintain a very healthy supply of reagents anyways.
Advertorial going out so I don't think that'll be a a concern that we see today is that fair huh okay.
The question about sort of patient flow or maybe order flow and report flow again, you know outside of losing a couple of podium opportunities and engaging customers that major meetings, we aren't hearing.
Any material changing rooms have access to our physician base to be able to help properly educate them on newer data appropriate use of our test that could change of course over time here, but so far we haven't seen that bubble up as being a material impact that we should be concerned about but that's you know as of March tabs today.
So we don't see that being a larger issue for us I I think the the the figure which is hard to predict as I said earlier is is are we going to see patients abstaining from going to their clinician.
For the diagnosis of melanoma.
I I guess my my my first comma would be is if you have have a suspicious mole.
You are concerned about I think that patient likely makes themselves go into a dermatologist on a regular basis as opposed to delaying care. So we might see something on a week to week shift or month to month I would think a quarterly impact terms of are are reporting would be would be non visible from public standpoint that do you want to add any commentary or.
Frank Great. Thanks.
Hmm.
Thank you and I'm sure I know other questions and accused like trying to backs a dark for closing comments.
Thank you operator, this concludes our fourth quarter and year end 2019 earnings call.
Thank you again for joining us today and for you continue to interest in support of castle by scientists.
Yeah.
Ladies and gentlemen, this country's today's conference call. Thank you for participating you may now disconnect everyone have a great day.
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