Q1 2020 Earnings Call
[music].
Good afternoon, and welcome to cancel Biosite. His first quarter 2020 conference call. As a reminder, today's call is being recorded.
We will begin today's call with opening remarks.
Okay.
Followed by question and answer session.
I'd like to turn the call or would you Frank Stokes Chief Financial Officer. Please go ahead.
Thank you for Sean Good afternoon, everyone welcome to cancel buys sciences first quarter Twentytwenty financial results Conference call.
Joining me today, its castles founder President and Chief Executive Officer, Derrick Messel.
Information reported on this call speaks only as of today May 11, Twentytwenty. Therefore, if you're listening to the replay 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 week.
Before we begin I'd like to remind you that some of the information discussed today may contain projections or other forward looking statements regarding future events for the future financial performance of the company, including expectations and assumptions related to the impact of the Koby 19 pandemic and are made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act.
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 will 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.
And a couple whose annual report on form 10-K for the year ended December 30, Onest 2019, and then the company's other documents and reports filed with the Securities 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 Frank and good afternoon, everyone.
Thank you for joining us today.
I hope first of all that you were safe and healthy and our thoughts go out to those who have been impacted by the cobot 19 pandemic.
As you would expect todays call have a different structure the normal before we discuss our one key results in detail, we'll talk about the actions we've taken to respond to the situation the impact to covert 19 pandemic is having on our business and what we are seeing in terms of clinician behavior and diagnosis of melanoma and of course.
Unfortunately, the March of skin cancer does not stop and that means that we need to focus on what is best in imagine a patients diagnosed early stage skin cancer.
At Castle, we are committed to our employees patients customers in communities in this unprecedented uncertain environment, Oh, we can't predict how things will turn out as has been our practice, we will be transparent here about our assumptions and what we know today, we will continue to be forthcoming as a situation evolve.
Calls and we believe we will have more visibility in the coming months.
Before I provide details around our response to the pandemic I would like to point out that our team performed extremely well in the first quarter. As a reminder, we had significant momentum drivers in the second half of 2019, including additional evidenced development as well as commercial expansion that occurred on December onest.
These drivers were central to our first quarter Twentytwenty year over year quarterly revenue growth at 100%, reflecting a mix of both growth and ASP as well as decision Dx Test report volume.
Our business in the first quarter was certainly on track.
And I'm excited to see our team regained momentum and performance. He moved throughout the remainder of second quarter and into the second half of a year.
So let's spend a few minutes on cobot 19.
Starting in March in response to government guidelines, we made adjustments to our laboratory operations to achieve to performance goals.
Keeping our employees safe and providing uninterrupted access to our proprietary decision Dx melanoma test and decision Dx U.M. test.
We achieved these goals in that we've been able to keep our lapse fully operational and maintain our specimen receipt to laboratory port turnaround time at an average of less than five days, so that our clinician customers who rely upon our test results to make more informed treatment plan decisions did not have to.
To make any adjustments to a normal decision making process.
In areas recovered 19 impacts health care interactions such as field based sales of medical affairs, we've been able to pivot visits programs and projects to be performed online and by telephone.
Additionally, based upon the analysis of company supply chain, we believe we have adequate reagent and consumable inventory levels and have not seen nor do we anticipate any impact on our ability to deliver test results due to supply channel concerns now, let's turn to what we're seeing in terms of clinician behavior.
Diagnosis of melanoma and the impact to our business.
As you know the pandemic has caused significant disruptions to office visits and we've recently seen a corresponding reduction in clinician orders for our decision Dx melanoma test as a result of cobot 19.
We have as you would expect participated in and analyze the number of dermatology practice focused studies.
The most recently used was a proprietary customer study that we conducted.
We believe the reduction indecision Dx melanoma test orders is due to the reduction in the number of patient seen by definition customers. The subsequent impact on reduced biopsies performed with the end result, being a reduction in the number of diagnosed melanomas.
According to our studies patient visits were reduced by about 60% for the week of April 20th compared to the week of February 24th.
We first observed a reduction indecision Dx melanoma test orders beginning in the back half of March and for the period of April one to May six we saw an overall decrease of 43% indecision Dx melanoma orders compared to the same period in 2019.
We have seen a stabilization in the decline of orders beginning the second week of April.
Well, we can't predict what a return to normal will look like we will do our best outline our assumptions here.
The first question, we asked ourselves is what drives the diagnosis of melanoma.
We performed analysis of seven US peer reviewed publications that shows at approximately 80% of diagnosed melanomas are initially identified as a concerning skin lesions by a patient their spouse a family member that is self identified.
While the remaining approximately 20% are diagnosed by clinicians either during a planned skin check or incidental to a routine exam.
We believe that the vast majority of the 80% of patients who self identified I concerning lesion will be seen by their clinician some point.
So now we have the remaining 20% of patients whose melanoma was not self detected.
We asked a series of questions and then proprietary study that I noted earlier.
Our customers indicated that they plan to add an additional office day to their pre co would work routine for two to three months to be able to accommodate catching up on the performance that were postponed during the last seven day weeks and Furthermore, they intend to prioritize the scheduling a biopsies.
These uncertainties surrounding potential patient flow and thus the rate of diagnosis of melanoma is the rationale for suspending our previously announced Twentytwenty annual revenue guidance at this time.
Now I will provide some thoughts about our strategy for operating and growing the business. So that we remain a business strength as we continue to move through the current cobot 19 situation and lay a foundation for execution in the latter half of Twentytwenty and 2021.
We continue to invest in our business and we're pleased that our strong balance sheet, coupled with our capital efficiency enables us to do so this includes filling key positions in our commercial and R&D groups and the initiation of clinical studies to drive additional evidence development for decision Dx melanoma as well as support the commercial.
Launch of our two pipeline test.
Further with the publication of three peer reviewed articles in the last couple of weeks that document the clinical validity and impact of our decision Dx STC test in patients diagnosed with high risk cutaneous squamous cell carcinoma, we plan to launch our decision Dx FCC pipeline test.
In the third quarter of 2020.
As you know our proprietary tests are used to inform important treatment planning decisions in early stage cancers, and having the opportunity to expand our service to patients diagnosed with high risk Catania squamous cell carcinoma is an important step, perhaps even more important relative to trios decisions being made due to cope with 19.
Concerns.
Early condition in response to the expected clinical utility has been enthusiastic and we're excited about the opportunity to offer this tool for their use in treating their patients.
You will recall that we have a second near term pipeline test that is completing validation.
This test is targeted to assisting dramatic pathologists to make a more informed diagnosis for suspicious pigmented lesions.
That can't safely be rolled out as benign or rolled in as melanoma.
We are wrapping up our prelaunch work on this program and our planned launch remains on track for this pipeline test in the second half of Twentytwenty.
In the midst of the cobot 19 pad demick I would like to personally thank our employees for their dedication during a difficult times. It is important to understand that we were and are able to meet the needs of the patients that we serve today as well as those tomorrow due to the tremendous efforts of each and every one of our team members.
As we make the appropriate decisions to continue building our business for long term success and value creation. We are proud that our strong position has enabled us to continue to execute on our mission is of serving all our stakeholders our patients our clinicians our employees and of course our shareholders.
Now turning to our first quarter results. The castle Biocides. His team continued to perform at an exceptional level in the first quarter with continued significant growth in revenue and decision Dx melanoma Test report volume.
As noted earlier in the first quarter of Twentytwenty, we reported revenue of $17.4 million, a 100% increase over the same period in 2019, we attribute this increase in part to the successful expansion of both our commercial teams in 2019 and continued evidenced development.
For lead product decision the ex melanoma for use in patients diagnosed with invasive melanoma, we side, 42% increase year over year in tests reported volume in the first quarter delivering 4574 test reports.
Adoption with new clinicians for decision Dx melanoma in the first quarter of Twentytwenty was up 43% year over year.
Based on an annual us incidence of newly diagnosed invasive melanoma patients of approximately 130000, we believe our first quarter penetration to be about 14% of cases.
Let me remind you that our decision the ex 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 predicts an individual patients likelihood to recur or metastasized to the Sentinel lymph node.
Regionally distantly and even debt for melanoma, because the tested designed to predict multiple endpoints are decision Dx melanoma test can impact more than one decision point specifically our trust currently guides to clinical decisions that are made near the time of diagnosis.
The first intended clinical use of our test is to informed decisions on Sentinel lymph node biopsy when the tumor thickness is less than or equal to two millimeters and the second intended use is to guide subsequent treatment plan decisions.
We have consistent data from 23 publications to date with additional publications expected this year supporting the validity and the utility of the decision Dx melanoma and supporting further clinician and commercial coverage penetration.
Turning to our decision Dx UN tests for patients diagnosed with Uveal melanoma, we delivered 361 reports in the first quarter of Twentytwenty, which is consistent with the first quarter of 2019.
You may recall that our decision Dx UN test has been standard of care for a number of years and we believe treating clinicians are ordering our test for an estimated 85% of patients diagnosed with Uveal melanoma. Therefore, our first quarter report volume is inline with our expectations for this product.
As it relates to the impact of co with 19 on our decision Dx U.M. test monthly year over year comparisons are difficult to interpret due to low incidence of uveal melanoma, but we have seen what appears to be some softening since early April of weekly order flow in the range of 5% to 20%.
Now I'd like to discuss several key accomplishments in the area of continued evidence development and with our late stage pipeline products.
For our commercially available tests, we saw two publications in the first quarter.
The first publication focused on data from a multicenter prospective study demonstrating that decision. The SQM test results significantly impacted treatment plan recommendations for patients with Uveal melanoma. This was published in the peer reviewed journal melanoma management.
The multi center clear to study was designed to prospectively evaluate patterns of physician referral and metastatic surveillance regimens for you you Viewmont mall patients who were tested with decision Dx UN as part of their diagnostic workup and to compare management plans, which seen decision Dx UN low risk class one test result.
Faults and those with high risk class to test results medical oncology referrals were more common for patients with class. Two results then for those with low risk class one results with a P value of less than 0.001.
Importantly, this study is the fourth peer reviewed publication that documented the clinical use of a decision Dx uveal melanoma test to impact patient care decisions in patients diagnosed with Uveal melanoma.
All four studies have shown consistency of use we find this to be exciting given that we are in the business, providing information that will improve alignment of management plans with the patients risk and metastasis.
The second study.
Was published in the Journal of American Academy of Dermatology Orange AD.
And this was data from a systematic review and made analysis of four study cohorts demonstrating that decision Dx melanoma is an independent significant predictor of recurrence and metastatic risk in patients with invasive cutaneous melanoma.
Achieving the highest strength, a recommendation taxonomy or sort level for a bio.
Marker.
That is level one evidence.
The study found that position the ex melanoma risk assessment is independent from the other traditional clinical and pathological factors of age breslow stickiness alteration and central if no status and improves risk assessment compared staging factors alone.
This is significant publication given a historic system is used by the American Academy of dermatology and other organizations to evaluate the quality quantity inconsistency of evidence supporting tests, such as decision Dx melanoma.
And a systematic review and made analysis achieved the highest level of evidenced poor prognostic tests such as ours.
Now turning to our pipeline products. We are excited about the progress we have made in our decision Dx FCC test for use in patients with high risk cutaneous squamous cell carcinoma, and as we discussed earlier based upon our progress we plan to launch this test in the third quarter of 2020, the development of validation of decision Dx.
Said was recently published in Jab the results demonstrated that decision Dx FCC is not only in independent predict or metastatic risk that was shown to be the strongest predictive metastatic risk relative to current FCC staging systems and can complement clinical pathlogic risk factors to better stratify, the risk of metastasis and thus.
Subsequent treatment plan decisions in patients with high risk FCC.
A second studies support of the framework for integrated decision Dx FCC into risk appropriate management, a patients with high risk FCC as defined by NCCN.
This study was recently published in current medical research and opinion or see MRO and it found combining decision Dx FCC class results.
With AJ CCT stage in a group of 300 NCCN high risk patients identified a group a 159 of them with a rated metastasis of 7.5%.
Similarly, combining test results with the Brigham Women's hospital staging system identified a group of 173 patients with metastatic rate of 8.1%.
Rates in both groups approach the rate observe the general FCC patient population.
By comparison class to be patient in the study had rates and metastasis, surpassing 50% regardless of the staging system with which it was combined our rate that would warrant implementation of a high intensity plan within the NCCN management recommendations.
Incorporation of decision Dx FCC results with T. stage for these patients identified a group of more than 50% of patients that would have been recommended for a low intensity management plan.
While 34, 39% will be recommended for a moderate intensity plan and only 8% for a high intensity plan.
All within the current NCCN.
Management recommendation guidelines.
The third study was also published as companion article NCM Aro.
Using a well established pre test post test vignette methodology 162 patients documented the treatment plan that they would employ for patients with high risk FCC driven plan modalities included follow ups schedule Centralist, a biopsy nodal imaging agile and radiation adamant chemotherapy.
These clinicians were then asked to determine the treatment plan with the addition of decision Dx FCC test results.
The addition of a decision Dx SCC test result class, one score or low risk resulted in more than a 60% reduction in the treatment plan modality intensity well decision Dx FCC classed to be test score high risk results in a in a more than a 90% escalations.
Dream plan modality intensity.
Importing more than 95% of imagine recommendations were aligned in a risk appropriate direction that match the decision Dx FCC class result.
And importantly, all changed or within the broad established guidelines for patient management, meaning that the addition of decision Dx FCC did not create new treatment pathways, but rather enabled significant risk appropriate adjustments within the broad established guideline plans.
We are excited about the progress we've made for this test. These three recent publications and about the commercial launch plan in the third quarter 2020.
Regarding our second late stage pipeline product our test for suspicious pigmented lesions, we're completing our prelaunch work and remain on track for our plan commercial launch in the second half of Twentytwenty. We plan to report data from a clinical validation study in the second half of Twentytwenty prior to launching this test we believe these two.
Two late stage pipeline products decision Dx FCC and our test for suspicious pigmented lesions will increase our estimated total addressable us market by approximately $1.4 billion for total us Tam of approximately 2 billion.
Ill now turn the call back over to Frank Who'll provide additional details relating to our financial results.
Thank you Derek.
As Derek shared earlier, we're confident that our business fundamentals are strong and the continued investments we're making in our business enable us to navigate the cobot night team related uncertainties delight ahead, as well as continue to position us well for long term growth.
We're pleased with our strong execution groups first quarter.
We reported revenue of $17.4 million in the first quarter of 2020, a 100% increase from $8.7 million in the first quarter of 2019.
Our increase in revenue was driven by 42% increase in the first quarter in decision Dx melanoma test reports compared to the first quarter of 2019.
And higher revenue per test or ASP.
First quarter revenue includes $3.2 million of positive revenue adjustments compared to positive adjustments of point $6 million for the first quarter of 2019.
The increase in positive revenue adjustments, primarily relates to cash collections in the period on test reports delivered prior to the first quarter in other words in price previous periods for which no revenue was recognized originally.
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 or possible.
Our gross margin during the first quarter was 86% compared to 82% for the first quarter 2019.
The improvement in gross margin was primarily driven by operating leverage as result of our strong volume growth and higher ASP.
Our operating expenses for the quarter ended March 30, 2020 were $13.9 million compared to $7.4 million for the same period last year.
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 administrative expenses associated with our growth and higher R&D expense, which increased by $1.5 million in Q1 2020 compared to the same quarter in 2019.
As we mentioned earlier, we expect to R&D expense to increase further as we continue to invest in activities that position us well for long term growth and support our products.
As a percentage of revenue RSU expense was 63% for the first quarter of 2020 compared to 69% for the first quarter.
2019.
With the improvement primarily attributable to the increase in operating leverage as a result, as a result of our revenue increase.
Interest income increased $5.3 million in the first quarter 2020, due to higher balances of cash and cash equivalents.
While interest expense decreased by $43 million $2.8 million for the first quarter 2020 compared to the first quarter of 2019, primarily driven by the convertible promissory notes that were outstanding in the first quarter of 2019.
His notes were converted into common stock in July 2019 in connection with the IPO.
Our net income for three months ended March 31st 20, $21.6 million or three cents earnings per diluted share compared to the net loss of $1.4 million or a $1.22 cents loss per diluted share for the three months ended March 30, Onest 2019.
Moving next to our operating cash flow performance for the first quarter 2020 castles net cash used in operating activities was point $3 million compared to net cash provided by operating activities of $1.3 million in the prior year period with the decrease due mainly to the timing of certain cash receipts and disbursements.
Finally, we had cash and cash equivalents at March 31, 2020 of $98.7 million largely unchanged from year end.
On April 10th of 2020, we received an automatic payment of $1.9 billion will use department of health and human services for Lee funds allocated to Medicare providers under the cares.
On April 16th we received that advance payment of $8.3 million from the centers for Medicare Medicaid services under its accelerated and advance payment program, which was recently expanded to provide increased cash flow to service providers during the cold in 19 pandemic.
Beginning in August 2020 claims we submit for reimbursement will be applied against the balance of the advance payment until it has been fully recouped.
At April 32020, our cash and cash equivalence position was approximately $110 million.
We believe our current cash position along with the cash generated from sales of our products will be sufficient to fund our operating expenses for the foreseeable future.
We believe the strong financial position allows us to continue to invest in our business and execute on our strategic growth plans I'll now turn the call back to Dirk.
Thank you Frank in summary, we are extremely pleased with our teams first quarter's performance, including strong year over year growth in revenue and volume for our decision to X melanoma test, although near term uncertainties exist. We remain confident in our long term outlook for the company and our ability to maintain our position as the leading skin cancer diagnostics company.
Thank you for your continued interest in castle. This concludes our remarks.
Operator, we're now ready for Q1 day.
Thank you you asked the question was depressed starling your telephone to withdraw your question pressed the punky key symbolically compiled the Tony roster.
Our first question comes from Matt Mrcc with Canaccord Genuity your line.
Hi, Thanks for taking the questions.
So.
Right.
I guess as it relates to the delay between patients initial tissue biopsy in inland that decision Dx melanoma test is Ron how should we be thinking about the timing of volume impacts whether that Q2 Q3 year or beyond as we just look at the current state of collections procedures.
Okay.
Thanks, Matt I think.
The evidence that we.
Gathered from both our proprietary studies as well as.
Data, where when the in dermatology clinical practice surveys overall.
It appears that the vast majority of dermatological offices lease those that are medically oriented I can't comment on cosmetics by any means at least the medically oriented clinics.
Our planning and opening up as soon as they can they're planning on adding an extra day to practice to try and catch up.
We'll be delayed or canceled a rescheduled appointments and they are estimating.
Two to three months before there are sort of caught up so thats kind of our customers' expectations I guess the sort of.
The larger question might be.
To patients feel comfortable coming back in early May early June for example is that going to take another couple of months before they get comfortable coming into seeing their positions. So thats. Apart. We obviously don't have a hand along.
And I guess, our hope would would be that individuals who are risk of developing skin cancer had develop a pigment lesion on their skin that theres team.
Does that causes patient of Medicare AIDS to wait and extra month or so before they come in I think we have a hard time thinking given that sort of growth patterns of melanoma that you'd see a patient ignoring that growing melanoma or growing due to the melanoma their skin for the entirety of 2020, but again, that's the part we don't quite high.
To handle arm.
It is sort of what that pace and fear factor balances against the patients desire to to actually have that lesion, we look at and hopefully confirm it it may not be melanoma as appose is melanoma.
The other element I think which would probably.
I will say moves in our favor necessarily but.
Certainly if we go ahead to look at the difference of expectations between private practice dermatology opening up and institutional academic practices or tertiary care centers. It does seem that the tertiary care centers are moving a little bit slower from what we can gather across the us than their counterparts and private practice.
Bodes a bit better for us.
The vast majority of our orders and serving our call patterns with our commercial groups are on private practice clinicians as opposed to institutional base clinicians as I don't know if I guess the is the answer your thinking about trying to get too.
Yes, that's great and then great to see the two pipeline tests on on track to launch in Q3 and later this year is within the current environment can you just help us understand.
Your expectations for the launches decision Dx FCC in the early days and then maybe any comment on cross selling earn the attachment rate to decision Dx melanoma melanoma would be great. Thank you.
Yes, that's a.
Excellent question, so we've been.
Evaluating the complexity that we're going to add into our field forces to launch both the decision Dx FCC test as well as the.
Other pipeline tests for assisting in the differential diagnosis of says this is pigmented lesions.
We have made I guess the following decisions one of them as that we will.
Fully training, our existing 32 sales representatives and their counterparts in the medical affairs or medical Science liaison group on the cutaneous squamous cell carcinoma test and that those groups will sort of launch that test nationally on a relative balance expectation.
We would expect kind of the vast majority call it 90% of interactions be continuing to educate our core customers and future customers on our continuous melanoma assay with a a second call position. If you want to kind of color first and second on the squamous cell carcinoma test and we believe we have the.
The people in place to be able to balance that properly.
In terms of the of the suspicious pigmented lesion assay.
We made the decision.
That when we launch that we will launch that with a dedicated.
Separate dedicated expansion force that we'll be focused on on sort of a dramatic pathology call point as opposed to dermatology call point with the with the other salesforce will focus on and that will be important because I think that will that reduces the complexity of trying to have our representatives and our medical science liaisons back.
Alex to new products, plus a reasonably new product position, the ex melanoma test and by reducing that complexity by having at least initially.
Separate carve out group will affect group focused predominantly on the second pipeline test launch and then we can see over time, if we believe it's in our benefit to keep that separate or to go ahead and pull that back in one kind of see performance overtime.
Great and then maybe just a quick modeling question to Frank just as it relates to $8.3 million Medicare payment base will that hit the balance sheet and then gradually can vary to revenues over time and we've seen some other specialty labs and start getting paid on some expanded lcds ahead of the Finalization. So I'm just thinking in regard.
So the timing of any step up in Asps in our minds and that's it for me nice color. Thanks, guys.
Thanks, It won't impact revenue.
Your revenue of course will be.
Reflected as we shipped test reports out.
It will appear as.
It's obviously its cash in a liability that liability will sort of erode away as we as we file claims.
And those those claims to recoup against that advance.
Thank you. Our next question comes from Kaplinsky with Baird. Your line is open.
Hey, guys question first you talked about seeing stabilization in the decline of orders beginning in the second week of April any color on what turns have looked like in recent weeks or how orders have trended. So far in may compared to last year, just to give us a sense of how activity levels might be coming back.
Good our pointing fingers at our hair care. So that's sort of today's question or Proterra, Kevin Let me, let me take a swipe at it we saw the order rate drop as as the.
You know the shutdown sort of sort of spread and then kind of that was sort of bolus of shutdowns that came through.
So we sold or drop all week to week basis.
Through in the early kind of middle part of April and then that drop sort of tapered off into kind of stabilized.
And we're not far enough in yet I think to say that we're seeing things accelerate again yet.
But we are encouraged that.
That the drop seems to have cut a found itself a bottom here.
And.
And certainly as you can expect as you see.
Corporate stays in even different localities within a state adopt different policies of sort of reopening or.
Well, we review as the Central Medical Commerce.
We are hearing from our fuel base groups that some places are sort of back up and running I guess you would say.
As as hard as they can to go ahead and try and catch these patients who had deferred or delayed appointments and other places are still saying give us a couple of weeks or two but before we move forward. So I think during the course of the next.
Im assuming four to five weeks, we're going to kind of see geographical variations of what that looks like so hopefully about an anomaly enter.
The early part of the Middle Judy will have a much better handle at what on what.
What patient flow looks like in the in the field of dermatology.
Okay, how receptive have terms spin to virtual appointments with their rap you've been able to get meetings with key business or is it primarily existing customers.
The.
And your typical mix and volume growth.
In originating from new customers versus existing.
Yes so.
I'll answer the first part of that off we've disclosed volume by a newer old customers.
So I think that that the group has been.
Very effective at converting appointments to either significant telephonic or email conversations including web based appointments.
We pivoted.
All of our speaker programs are currently towards.
Web based seminars have also.
Been doing quite a lot of advisory board work to try and understand the marketplace. The move and the kind of adjustments here better too and I think I've nothing about high complements in terms of the output of those interactions.
[music].
I don't have any quantitative data regarding our 90% of our interactions with better web based telephonic or web based discussions with current customers versus kind of new customers I NOI.
I don't think anecdotally of discussions I had last week with our head of the commercial group where.
There has certainly been interactions with.
With with non with non ordering clinicians that are coming onboard. So those are happening, but I would assume that it's a the focus of the access point is probably is probably their heard tilted towards individual clinicians who have reviewed our test decided to adopted.
And are giving us time to understand how the latest publications of papers can help improve their use of the test clinically and we probably are seeing a reduction in terms of quote new customer visits without the mine natural sense.
But I would expect will stealing I'll turn the corner to analyze that data later on this this quarter.
Okay last one from me for the separate dedicated gas was to focus on falling back.
Ladies and gentlemen.
I'll point.
Are you thinking that group will be.
I think thats under evaluation, we had indicated I guess earlier in the year that we are thinking we were certainly budgeting only sort of a 9% to 10% expansions and weren't quite sure. If we would full that in or keep a separate I don't know who go that big to be honest to that kind of we're thinking about right now kind of scaled down our scale up as we as we get through market research over the course.
The summertime.
I think it thinking it's essentially kind of a single region now how what that breadth of control. It looks like is the question we're wrestling with.
Okay. Thanks, guys.
Thank you. Our next question comes from Celgene BT I'd. Your line is open.
Hi, Thanks for taking the questions.
Hope everyone. Thanks, Jason healthy.
I was wondering avenue this might be early but there are lot of moving pieces, but how does the value proposition for your your attached on heavy resonated and the value proposition resonated better in the into current cobot 19 pandemic environment given that at the test could potentially eliminate.
Other more invasive procedures.
So.
Qualitatively I would say, yes, but if you asked me to point to a study I would say don't have that.
Just as as a as it maybe a 32nd reminder, for the others on the call here So our cutaneous.
Melanoma test is a are the.
Decision Dx melanoma test of course is able to predict.
Spreading or metastasis and that includes spreading to the seven lift a biopsy. This analyst, though area silicon effect that biopsy decision other Sentinel lymph node. It also predicts recurrence to any part of the body beyond the Sentinel lymph node as well as system metastasis in depth for melanoma, so the impact of.
Being able to perhaps safely have a patient ruled out or safely tree on used for a similar to biopsy procedure.
In sort of as co with 19 rebalancing of risk benefit I think is very real if that's what you're going to getting it I think thats a a point, we're going to continue to understand with our customers in a in a careful manner of what's best for the patient.
In terms of but next theories of decisions do we have that patient come back to a.
Ambulatory care center or two institution for active surveillance with CTP imaging for example, or already okay.
[music].
Having that patient being seen only for clinical follow up visits in the private practice setting I think we can impact that kind of risk benefit as well.
As we've talked about maybe earlier, we do have data, indicating that people who have stage three disease of those patients who are several of the positive. We do in fact achieve of air very nice strong stratification in that overall group between people, who actually have a low risk of metastasizes and perhaps succumbing to melanoma from a high.
Risk.
That datasets more limited than our data in earlier stage, one and two patients and localized. These earlier by one can imagine as we sort of get get back into the clinics here do we see an increase in proceed utility because maybe we're helping.
Make decisions are watchful waiting as being a much more appropriate way to go or at least clinically watchful waiting versus kind of day aggressive either in surgical procedure area with several for biopsy procedures or even ashwin therapy, but again I don't have hard data to say, we've seen sort of a.
A light bulb go off of many customers that we certainly here those interactions today.
Great that's helpful.
And then you talked about the proprietary.
Dermatology practice survey.
Got it out there just curious if there's any information around what the role of telemedicine is in the current environment I was curious given that.
Given the Oregon, yes, some of the potential at patients.
We think that could be a driver of.
Yes, the patient flow going forward in terms of creating margin for the patients to go see there.
Colleges.
Yes thats.
Yes, we are aware some data, including our own.
We saw a shift to I think the last survey that we did the one we just talked about on the earnings call was sort of feel to maybe a week and a half ago and I believe that the data on that show that that 90% of practices were practicing tele dermatology in that week of a for April twentyth, but that's that's.
As to giving a greater number than our practicing held dermatology in February certainly.
That being said I think part of the concerns that we're seeing our customers is that the patient population that probably is most at risk. So those over 55, those over 65 of developing melanoma.
If you just look at this is my personal bias here, but I'm, assuming that if you look at at who buys new Samsung and Eli phones, if not the 75 year old person who's who might have skin cancer. They might have an older phone with a poor.
Poor photo.
Opportunity there so I think there's concerns among our clinicians that the ones, who we are most concerned about missing a melanoma probably have the poorest IP scale.
Hills, as a group and probably the lowest technology and Thats really concerning that they may be missing things. So my sense here is that they're going to hopefully try and if they maintain tele dermatology going forward.
For this near term period that that'll be focused more on non skin cancer concerns unless they can get really really comfortable that they're not missing.
Early stage.
Skin cancer, because the patient is able to quite at the focus point ready to go. So I think thats quite a concerning aspect now that being said the fact that 80% of melanoma as our sort of self detected by patients I think is very comforting that that at least the majority melanomas should be diagnosed in a fairly routine flow, although I think certainly been delay here.
During the during the lock down across the U.S.
The other 20% that's the question of how do you pick up incidental findings with a.
With high levels of confidence using pellet dermatology. That's that's a question a lot the latency and hopefully from just a patient care perspective, we see.
A normal season on the routine diagnosis of melanoma and other skin cancers, so that we.
Our per season, we're going to see just day, a worsening of outcomes because.
The deeper and thicker these things go the worst prognosis.
Great that makes a lot of sense.
Then just lastly, maybe once or Frank how should we think about gross margins in the second quarter I talked about roughly 40% decline and test volumes in the first months Westell just how should be.
Well, let's stick with my that look like.
In that kind of environment. Thank you.
Sure Sungy, so I don't want to not only guide to a number here but.
You know a lot of as you know Cogs is of a combination of.
Space for the lab.
People to run tests and consumables, so fewer test fewer consumables.
But space and people are largely stable. So I would expect gross margin to come down a bit but as you know its oh, we have a nice healthy gross margins, so theres room there for us.
Great. Thank you so much.
Thank you our next question comes from.
Hello.
Tim Robinson.
Yes.
Frank.
So the first question I have is appreciated the 80% to statistic where patients are sold preparing themselves for the dermatologist, but given the progression of melanomas multi year, what's your expectation of the mix sort of mix of dermatologists that are willing to push the clinical visit further.
For Medicare is patients and above 65, and above where so those that are likely to remediate view it more sooner and as the derm practices open across the country.
So I think I can answer that directly but if I if I missed the answer posted a little differently funny if thats okay.
So our sense is that.
From our surveys and studies and also individual clinician contact is that there is concern about taking individual who is compromised or risk and not doing the wrong thing Thats certainly as the case that being said.
The individuals that our greatest a risk of dying for melanoma those in the Medicare population. So you've got sort of a really really hard balancing act here and a lease of the questions I've talked to directly there is a real concern that we're going to be.
No.
Doing a great disservice by by not diagnosing early these melanoma is because we all know that as they grow bigger and thicker in their biology changes the likely to that become an incorrect, becoming a more aggressive melanoma.
Increases day by day, and so Theres a balance there that if they if they sniff out over the phone for example, or on a video.
Tell dermatology visit that Theres and there's a there's an inkling of a potential skin cancer, our understanding of their prioritizing those patients and encouraging them to come in Asap and perhaps some of the office procedures that are putting in place in terms of spacing out patients and.
Et cetera to go to reduce infection potential is going to have an impact where those older individuals will be more comfortable coming in.
The practice now what the reality in terms of numbers of patients returning I think thats, that's going to be the one that we've talked about earlier. The is the question. We don't have a handle on certainly.
Dermatology clinicians are highly attune.
But the downside impact of diagnosing melanoma other skin cancers later, rather than earlier, so I think they'll be encouraged to say that is the more important concerning issue that's going to be matter of patients I've been cleaning.
Uncomfortable either calling the first place until they wait for another one cycle of time I guess.
Or not.
But I did I get at the heart of your question there.
Yeah that's.
That's helpful and thanks for the context there.
If I could ask them commercial payers.
What's the where do you stand currently what what are some of the efforts. It looked like you had a number of upward sort of planned out.
But where do you stand.
For our commercial payers and do you expect those efforts to be pushed out given the kogan impact here or are those still on track and then one of four Frank is on sales teams additions and overall operating expenses I. Appreciate it will be expanding to commercial team, but if you could give some numbers on that.
For the second half of the year are your expectations. The same and if you can provide us numbers and sales are for ads for the second half the year that you expect to thank you.
So.
So as I was asked that question last for some question yes. Good.
You want to know Penny repeat the portfolio question well were proposal the second part.
Yes. So the first part is on the commercial payers, where do you currently there so.
Yes, so so so as.
And all that the as a reminder, button, but we haven't probably discuss this is at least last fall from an earnings call standpoint.
Most of the of the play of the of the commercial payers.
That are reviewing melanoma tests architecture melanoma caster melanoma in general seem to fall into the first quarter in third quarter kind of.
Tree are so we we are managed care group and our and our and our medical Affairs group is working hard at at at impacting on providing the right information to allow individual plans and tech assessment groups to review the most after they data and for those who are on the review cycle for the third quarter.
After we have expectations of seeing a number flipping from either nothing to positive or negative deposit as well more early 2021 and more in later in 2021 as well.
We in speaking with our head of managed care I'm, only where maybe a couple.
Plans that have sort of said we're way too busy here I think the reality of is that most of the medical directors, who are reviewing diagnostic tests undoubtedly has had some.
Additional workload in terms of reviewing maybe which cobot 19 tested bring onboard and maybe other medical policy issues, but my understanding is most of them are working against the normal cycle anyways most of them already we're working as at on as Offsite employees. So I think we're hearing minimal delays because of.
Of KOVA disrupting kind of office lower view flow, but we did hear review in the late March early April time periods. So maybe there's an impact that one could see in the third quarter 2020, but I don't think we'd be I want to point is something and say in our harvest. This.
The lack of a change in up to a positive policy was because of Kobe them as payer it seems to be much more minimal minimalize than that.
And the other yes, and then putting that I think.
Keep in mind, we've got.
A multi.
Multi arm marketing effort here so.
With that with the next expansion I would say and we're not.
Quite sure yet we're still doing the market research work, but somewhere in the seven to nine or 10 range in terms of outside reps for for the diff product.
We'll certainly higher at least one more medical science liaison to complement that force and then as you recall, we have a very important function of an internal sales associate that supports that field team and our current ratio would suggest we would probably add two of those so it's a similar wave if you will.
Or similar expansion to what we what we did back in December.
And the allowance as well in February Onest kind of the same scope and scale. That's been very much by design. We we sat there last year and said you know if we think we need to expand by actually we just bring all these people on.
And we did it in a more measured fashion to make sure we work disrupting physician relationships.
And we were continuing to generate quality opportunities for those those salespeople and the folks in that effort.
Okay. Thank you.
Thank you know clearly showing no further questions at this time I turn the call back over to Derek muscle for closing remarks.
Thank you Shannon how this concludes our fourth quarter 2020 earnings call want to thank you again for joining us today and for continued interest in castle Biosciences.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
[music].
[music].
[music].