Q3 2020 Castle Biosciences Inc Earnings Call
Good afternoon, and welcome to the Council Bluffs arches third quarter 2020 conference call. As a reminder, today's call is being reported we will begin today's call with opening remarks and introductions followed by a question and answer session I would like to turn.
The call over to bring Stokes Chief Financial Officer. Please go ahead.
Thank you operator, good afternoon, everyone and welcome to counsel Bio Sciences third quarter 2020 financial results Conference call. Joining me today is castles founder President and Chief Executive Officer direct metal.
Information recorded on this call speaks only as of today November nine 2020. Therefore, if you are listening to the replay or 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 some of the information discussed today may contain projections or other forward looking statements regarding future events or the future financial performance of the company, including expectations and assumptions related to the impact of the Cobi 19 pandemic and are made pursuant to the safe Harbor provision of the private securities literate litigation.
Format like tea.
Forward looking statements are based upon current expectations and involve inherent risks and uncertainties and there can 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 in the company's annual report on form 10-K for the year ended December 31st 2019, and in the company's 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 to Derek.
Thank you Frank and good afternoon, everyone. These are exciting times, a castle and I. Appreciate you taking the time to join us today.
As always I would like to start today's call by thanking the castle team.
Through their hard work and dedication to improving the lives of patients with skin cancer, we successfully executed our strategic priorities in the quarter and remain optimistic about our growth initiatives ability to position us well for both near term and long term value creation.
This afternoon, I will discuss our performance for the quarter along with recent developments touching what we believe the continued impacts of COVID-19 will be on our business and then turn it back to Frank Who'll provide more detail on the third quarter results and our financial position.
In the third quarter, we saw strong performance I'm off couple fronts. This includes increased year over year revenue returned to year over year increase indecision Dx melanoma report volume.
And the successful execution on our commercial launch of decision the X S. C C.
Our gene expression profile tests for patients diagnosed with cutaneous squamous cell carcinoma, commonly referred to as FCC.
And with one or more high risk factors in other words patients that today's guidelines label as high risk.
We estimate the high risk FCC U.S. only population to be 200000 patients.
To start we are pleased that for the third quarter of 2020, we had an increase in total revenue to $15.2 million or 3% from $14.8 million in the third quarter 2019. This includes prior period revenue for the third quarter of 2020 of $1.5 million compared to three point.
19 million for the same period of 2019.
Im pleased to report that report volume for decision Dx melanoma. Our current primary revenue driver returned to year over year growth for the third quarter of 2020 as.
As a reminder, our decision he ex melanoma test is used to guide or and for management of patients who were diagnosed with early stage cutaneous melanoma.
The diagnosis of cutaneous melanoma requires that a biopsy be performed and that the dramatic pathologists render a diagnosis of cutaneous melanoma.
In the third quarter Twentytwenty, we provided 4404 decision Dx melanoma test reports representing growth of 7% compared to the third quarter of 2019, and a 46% increase over the second quarter of 2020.
We delivered this increase in a year over year report volume, even as our analysis of third party data tells us that in the third quarter cutaneous melanoma diagnoses decreased by approximately 12% compared to the same quarter in 2019.
Thus, we are very pleased with our third quarter volume growth in the context of this baseline of reduced diagnoses and therefore patients.
We continue to believe that the reduced cutaneous melanoma diagnoses are due to delays or cancellations and patient visits attributable to the COVID-19 pandemic, which then result in reduced diagnostic biopsies, and thus reduce diagnoses and melanoma and appropriate patients for us to test.
Additionally, as we have all seen cobot cases are beginning to increase again in parts of the U.S. and that brings uncertainties about the continued impact to our business.
As I, just mentioned diagnoses were down 12% in the third quarter compared to the third quarter 2019. However.
However, third party data also showed an increase of diagnoses in the third quarter of 2020 compared to the second quarter of 2020.
Patient trends continue without a significant change.
Based on our third party data, we estimate that the annual diagnoses of cutaneous melanoma, maybe reduced by approximately 20000 or more compared to 2000 nineteens incidents that is to say, we expect cove. It to continue to impact our decision Dx melanoma volume in the fourth quarter and into 2021.
And due to delays in the overall number of patients diagnosed with cutaneous melanoma although.
Although there is a trend of increased diagnoses in the third quarter from the second quarter of Twentytwenty.
Additionally, at some point, we believe that delayed melanoma diagnoses will be diagnosed but we are uncertain as to when.
Our commercial team continued with their promotional efforts of combined in person and virtual events during the third quarter.
This paralleled our continued successful conversion of the majority of our in person peer to peer programs to virtual meetings. Additionally, we did capture additional conditions to order our decision Dx melanoma test for the very first time during the third quarter of 2020.
Turning to reimbursement, we accomplished an important decision Dx melanoma milestone in the third quarter as you may recall, the Medicare administrative contractor or Mac Palmetto Moldx Dx issued a draft local coverage determination policy or LCD in August 2019.
The final positive expanded LCD and the accompanying billing and coding article or post in October 2020, the effective date for the Palmetto LCD and the billing and coding article is November 22nd Twentytwenty.
Importantly, this LCD. The article was nearly identical in terms of coverage to the draft August 2019, LCD, meaning that the expanded LCD provides reimbursement for the significant majority of Medicare beneficiaries, whose clinicians order decision Dx melanoma as part of their patient match.
Your plan.
It is also worth noting that comments were received during the comment period and 100% of the comments were supportive of the expanded coverage.
We believe this represents great alignment between Palmettos assessment of the appropriate use of decision the x. melanoma and the conditions that use our test to guide their patient management decisions.
Additionally, in iridium the MCE oversees our laboratory in Arizona issued an identical LCD an article to the Palmetto LCD, but iridian LCD, an article will be effective on December six 2020.
In addition to what we see as positive news surrounding our decision Dx melanoma test we successfully executed on launch of decision Dx FCC, which became commercially available on Monday August 30, Onest Twentytwenty that decision Dx FCC test is intended for use in adding actionable patient specific.
Information to risk assessment and to help guide management decisions in patients diagnosed with cutaneous squamous cell carcinoma, with one or more risks factors. These so called high risk cutaneous squamous cell carcinomas.
We have submitted our technical assessment dossier for Medicare coverage to Palmetto multi X and in the third quarter Palmetto confirm that it was accepted as complete a.
Accordingly, we expect a draft local coverage determination policy to be posted in Twentytwenty, one with Finalization that expected approximately 12 months following the draft.
As a reminder, we expect Medicare to be our largest payer for decision Dx FCC as a typical age at time of diagnosis of SCC is near 70 years. While it is certainly early and the U.S. is still dealing with Covance, we have seen strong interest from clinicians.
You should recall that the target customer for our decision Dx FCC test is the same target customer for our decision Dx melanoma test that is dermatologist and most surgeons say sub specialty of dermatology, who have a medical dermatology practice.
Thus, we anticipate having significant leverage from existing dermatological focused sales team.
From clinical availability on August 30, Onest through October 30, Onest Twentytwenty decision Dx FCC has been ordered 282 times by 193 clinicians most of which were existing decision Dx melanoma customers.
Turning to our decision Dx UN test for patients diagnosed with Uveal melanoma, we delivered 318 reports in the third quarter of Twentytwenty compared to 356 reports in the third quarter of 2019.
As it relates to the impact of COVID-19, our U.M. test monthly year over year comparisons are difficult to interpret due to low incidence of UBI melanoma.
That being said we continue to believe the year over year decrease is due to the pandemic as majority of UBI amount. All diagnoses are made incidental to a routine eye exam and routine eye exams are largely delayed during the second quarter due.
Due to our belief that the majority of your melanoma diagnoses occur incidental to a routine eye exam as compared to the majority of cutaneous melanoma diagnoses being self protected by the patient.
We expect recovery in the diagnosis of Uveal melanoma, and that's our order volume for decision Dx UN to be time shifted relative to the recovery that we have observed for a decision Dx melanoma test.
As you know two key components of our growth strategy for near and long term value creation are evidenced development to support appropriate use of our tests and support coverage by commercial payers and a strong pipeline.
We saw strong progress in both in the third quarter.
Data from a systematic review a meta analysis of decision Dx melanoma test was published in print in the September 20 at issue.
Of the journal of the American Academy of Dermatology or Jad.
Under multivariate analysis the decision Dx melanoma test was shown to be independent from other clinical factors such as age breslow tumor thickness alteration and nodes status and our decision Dx melanoma test improved upon a risk assessment performed with these staging factors alone.
I don't have the strength of recommendation taxonomy or sort system. So our team.
Systematic review a meta analysis provides for the highest level of evidence for prognostic biomarker that is level one evidence the.
The sort system is used by the American Academy of dermatology and other organizations to evaluate the quality quantity and consistency of evidence supporting test such as decision Dx melanoma.
Additionally, the publication of a retrospective study showing that decision Dx melanoma impacted management decisions for patients diagnosed with stage one to three melanoma appeared on future oncology.
Study authors developed a recommended melanoma patient care pathway that incorporates decision Dx melanoma test results to help inform frequency and duration of follow up visits blood work and surveillance imaging inline with predictive anesthetic risk.
Patients decision Dx melanoma test result was found to have an impact on the number and duration of follow up and surveillance visits and that patients assessed as having high risk of metastasis as.
Designated by decision Dx melanoma class to test result receive more intensive management than patients assessed as having a low risk as doesn't antibody decision. The x. melanoma class one test result clinician.
Clinicians using the test were shown to adjust patient management in a risk appropriate direction within recommendations of national guidelines the.
The outcomes from this study parallel those of our previously published clinical utility articles and should help further drive market penetration and reimbursement.
With regard to our pipeline last week, we launched our second new test for Twentytwenty.
By the way not just the second in at Twentytwenty, what the second in a span of 10 weeks. This.
This test has named decision Dx diff, Dx melanoma or diff Dx melanoma for short.
Diff Dx melanoma is our test for patients with a suspicious or difficult to diagnose pigmented lesion and it became available for clinical use on Monday November 2nd.
50, X. melanoma is designed to aid the dramatic pathologist in characterizing difficult to diagnose monocytic lesions and classifies these lesions as benign or suggestive of benign neoplasms or malignant or suggested a melanoma.
A small number of leases will fall into the intermediate risk group, meaning that the legacy cannot be excluded.
We had several goals in mind when we set out on this pipeline program a couple of years ago.
Our target product profile called for a gene expression profile test with a high level of accuracy and an improved rate of actionable results and technical success, while minimizing intermediate results and including populations that have been underserved by existing technologies.
We also took the same development approach that we use for our decision Dx melanoma test with learnings gained over the last eight years or so.
Specifically, we started the belief that melanoma or a benign lesion knows more about itself than we do so rather than pre determining the selection of which genes matter.
We left the tissue itself tell us which genes were important.
As the development data is being analyzed we use our latest artificial intelligence tools to identify a final gene listen algorithm.
We then tested this development or training cohort in independent clinical validation.
By the way. These are the same tools that we use for our decision Dx FCC test.
And based on the intent to treat analysis of our validation study, which was presented just this morning at the American Society of dramatic Pathologies annual meeting DFT.
50, x. melanoma accurately diagnosed malignant and benign cases, with a 99.1% sensitivity, 94.3% specificity, 93.6% positive Richter value at a 99.2% negative predictive value importantly, the intermediate risk.
Result occurred in just 3.6% of the cases, which was better than a target performance within a five well begin development of the test. Additionally, our technical success rate was 96.6%.
To sum, we're so fortunate to have a research and development team located at both in Friendswood, Texas, and Phoenix, Arizona that work as a well oiled machine and in Twentytwenty. They are two for two having completed validation on to clinically significant test and skin cancer decision Dx.
Cc and diff Dx melanoma, both of which we expect to have positive impacts on the lives of patients diagnosed with skin cancer.
To support our Dx melanoma test two peer reviewed articles were submitted and subsequently accepted by skin. The journal of cutaneous medicine and are expected to be published later this month.
The first article as our development and validation study and includes the data I just outlined on diff Dx Melanomas performance.
The second is a clinical utility study demonstrated that dip Dx melanoma test results increased diagnostic confidence in Dermatopathologists. The clinical utility study also demonstrated that clinical management decisions were influenced by dip Dx melanoma and.
In a manner that align with the test result in the majority of cases included in the study.
Findings suggest that the dip Dx melanoma test can help clinicians provide more informed patient management plans and improve care for patients with difficult to diagnose monocytic lesions.
You know we entered 2020 with a single end market skin cancer test that had a total us addressable market of 540 million.
With the launch of this third skin cancer test, we estimate that for decision Dx melanoma decision Dx FCC and if Dx melanoma combined our total addressable U.S. market is now approximately $2 billion you.
You may recall that we expanded our commercial team in the third quarter of 2022 create a dedicated sales force to support the launch of our Dx melanoma test.
This dedicated team is primarily introducing the DFT ex melanoma test to dramatic pathologists, while our existing sales team will remain focused on decision Dx melanoma and decision Dx FCC.
At the end of the day, we believe that our DFT ex melanoma test should be ordered by both dramatic pathologist and dermatologists. Thus it is our intention once we are past. This initial launch period to full this new dedicated team into the existing sales team as well as further expand such that we expect to.
Exit Twentytwenty, one with approximately 55 outside sales territories.
As we have discussed in order to continue to increase our substantial body of evidence to support our gene expression profile test, we are accelerating investments in our research and development activities, including our clinical trials as we stated on our last earnings call. In August. We recently initiated two key trials. The first is the personalized study.
In which we are evaluating and decision Dx melanoma for interactions with adjunct therapies.
The second is the connection of study, which is collecting long term outcomes for up to 10000 patients who've been tested with decision Dx melanoma.
We believe these studies combined will provide us with the largest database on patients with melanoma and their tumor biology.
We will provide more information on these studies as we make progress the.
The development of our pipeline continues to be an important part of our long term growth strategy and we are or will shortly be initiating new clinical research and development programs for test and other dermatologic diseases with high clinical need we look forward to discussing these programs with you in 2021 I will now turn the call back over to Frank who will provide additional detail.
Relating to our financial results.
Thank you Deric three.
To reiterate we are pleased with the continued progress we made in our strategic growth initiatives in the third quarter, which we believe position us well for near and long term growth in the third quarter of 2020, we reported revenue of $15.2 million, a 3% increase from $14.8 million in the third quarter of 2019, primarily due to higher.
Your per unit revenues and increased test volume, partially offset by reduced revenue adjustments related to prior periods in.
In addition to interior test revenue our third quarter revenue includes positive adjustments related to test delivered in prior periods of $1.5 million compared to $3.2 million in the third quarter of 2019.
We are pleased with our ability to maintain strong gross margins during the third quarter of 2020, our gross margin was 84% compared to 88% for the third quarter of 2019, reflecting the expansion of laboratory staff in preparation for both launches of decision Dx STC and Disti ex melanoma as well as anticipate.
To further volume growth for decision Dx melanoma.
Our operating expenses for the quarter ended September 32020 were $16.6 million compared to $8.6 million for the same period last year. The increase was driven primarily by higher SGN, eight which increased by $4.6 million, partly attributable to higher personnel costs associated with our increased head count.
And in particular, our expanded sales and marketing team at administrative support functions.
Stock based compensation included in this DNA was $1.5 billion for the third quarter of 2020.
Compare 2.2 million in the same quarter of 2019, we.
Reflecting both higher post IPO stock option valuations as well as additional awards outstanding due to growth.
R&D expenses increased by $1.5 million and was primarily associated with increases in personnel costs attributable to additional head count as well as higher expenses for professional fees associated with our recently initiated clinical studies.
As we've discussed over the past couple of quarters with regard to our R&D expense. We expect further increases as we continue to fill critical roles progress key clinical studies, including the two Derrek just mentioned and continue to invest in activities that support our products and position us well for continued growth.
As noted on our second quarter earnings call. In April 2020, we received a onetime payment of $1.9 million in refunds automatically allocated to Medicare providers under the Cures Act from the US Department of health and human services.
Based on guidance issued by the government at that time, we concluded that we would be able to retain the payment.
His treatment was consistent with other healthcare companies that received such a payment.
In September HHS change the criteria for retaining this payment now based on this change in criteria, we reversed the income recognized previously.
Interest expense decreased $2.4 million for the third quarter 2020, compared to the third quarter 2019, primarily due to interest on the convertible promissory notes that were outstanding last year.
These notes converted into common stock in connection with the IPO in July.
We began monthly scheduled repayments of our term debt in June and have paid down $3.3 million through September Thirtyth Twentytwenty.
The third quarter of 2019 included two non operating items that did not recur this year a.
The debt extinguishment gain of $5.2 million related to the convertible notes which is above.
And certain mark to market losses of $2.7 million, which were primarily associated with a separate convertible note transaction entered into just prior to last years IPO.
Our net loss for the three months ended September 32000, <unk> was $4.6 million compared to net income of $5.8 million for the three months ended September 32019.
Diluted loss per share attributable to common stockholders for the three months ended September 30, Twentytwenty was 23 cents compared to diluted earnings per share attributable to common stockholders of five cents for the three months ended September 32019.
Operating cash flow for the third quarter was negative $3 million compared to positive point $8 million in the prior year period, primarily reflecting the previously mentioned planned acceleration of investments in the business, including increased R&D expenditures and the expansion of our sales and marketing team.
For the nine months ended September 30, Twentytwenty, we generated $10.3 million of operating cash flow compared to $2.5 million during the same period in 2019.
As a reminder, our operating cash flow for the nine months ended September 32020 benefited from an advance payment of $8.3 million from CMS, which will be applied against future Medicare claims that we submit for reimbursement.
Originally recruitment was to start August of Twentytwenty, but recent legislation has delayed the start of the recruitment until April 2021.
Which will continue for a period of up to 17 months, excluding the $8.3 million payment our adjusted operating cash flow a non-GAAP measure for the nine months ended September 30, Twentytwenty was point $1 million compared to $2.5 million for the same period in 2019.
Finally, we had cash and cash equivalents at September 30, Twentytwenty of approximately $183.1 million we.
We believe our current cash position allows us to confidently continue to invest in R&D and sales and marketing activities to support the continued growth of our dermatology diagnostic portfolio as we build the company from near and long term growth.
Ill now turn the call back over to Derek.
Thank you Frank in summary, with our strong execution in the third quarter. We are pleased with our third quarter results were optimistic that our investments in our growth initiatives will continue to drive growth and position us well before we move on to Q in a I want to express my gratitude to our employees. It is through their dedication to.
Improving the lives of people diagnosed with skin cancer that we remain well positioned for near term and long term success. This concludes our remarks. Thank you for your continued interest in castle operator, we are now ready for Q today.
Thank you ladies.
Ladies and gentlemen, if you have a question at this time. Please press Star then one on your telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Im showing our first question comes from the line of Max Sushi with Canaccord Genuity.
Hi, Thanks for taking the questions.
So it's nice to see decision Dx melanoma volumes return to growth.
Can you just give us a sense for what the recovery trends are that that played out towards the end of Q2 Q3, and then how things are trending just with the recent recent COVID-19 resurgence is our clinicians better equipped to deal with the pandemic. This time around just the sort of avoid the math.
To the declines that we observed back in April.
Yes, so himax. Thank you for joining and for the question may be answered part of it the provenance satisfaction, maybe Frank can add some color.
We havent.
We are we did not do a sort of end of October 1st week in November Pauls, the marketplaces kind of get a sense of what's happening with.
Physician visits in terms of patients returning in any kind of trending post third quarter is to be honest.
And our third party data that we purchased from Symphony Health.
Takes about a month to sort of fully return to sort of fully be accurate.
On the rate of diagnoses. So were there are most accurate data really probably extends in the end of September 1st week of October maybe I guess, what what what that what the Symphony health data appears to show, although it needs and mature out is that we.
We weren't able to discern on a qualitative basis sort of any.
Any sort of visible national retraction, despite having cold cases pop up in August and September et cetera. So I think that hopefully will translate as we get further into the fourth quarter that physician practices, we're able to.
Optimize whatever they could in the summertime and patient flow has seemed to be negatively impacted I guess the most concerning part we had not about castles business what about patient care really is if.
If we end up exiting 2020 without sort of a significant trend improvement in terms of the rate of diagnosis. In these last couple of months of the year. There's a lot of patients out there who are going to be diagnosed with a more worrisome deeper thicker and by very nature, a more aggressive melanoma and that really is not good from a.
Patient care perspective, obviously.
On the capital side of the business it means more and more of those lesions are actually more concerning and maybe you'd have some upside on test volume once they get diagnosed but in terms of sort of post re queue trends I think it's too early for us to.
Give you any sort of solid commentary today, Frank you want to.
I think I think hey, Max I think it's I think we're still seeing sort of this this dual impact.
Impact of physicians, you'll probably seeing fewer patients some of that from the logistical concerns of of.
Derms or previously roughly happy to double book appointments and I don't know if you've ever been to the Doctor and you look at the person next to them and say I'm going to 10 o'clock appointment wind jurors, we'll we'll months 10 o'clock too.
That was.
That was something that can manage with multiple consultation rooms et cetera. Now there is a real limit to that and then finally there are just a few there are some patients that are still concerned about about getting out at all in some cases and going to medical facility. So.
We'll we'll see that eventually begin to begin to wane, but.
Certainly the news through the fall of cases.
Stubbornly stay in the Cobot case rates stay in stubbornly high I think continued impact People's mindsets.
Thank you and our.
Next question comes from the line of Catharine show with Baird.
Right.
Hey, guys. This is actually Tom.
On for Kathryn first.
The questions.
So so maybe just on the 50 acts launch I mean, I understand it's been a week since the official launch.
A couple of weeks since you guys posted the Webinars.
Just curious.
What's the qualitative feedback been from industry.
Industry and clinicians on numbers on the data you guys presented.
And how have conversations gone with docs.
You've had them who who previously ordered did the forced the first to market test how those gone and do you get a sense that they're open to making a switch.
Do you guys have tests.
So on the island.
On our DXL melanoma test.
One two.
Too early I guess to really give anything that's going to be meaningful.
We made a test available clinically on Monday of last week, so really only in market five and a half six days today I would say that we did.
More market research ahead of launch.
For both our Dx melanoma test and our squamous cell carcinoma test than we ever did before and part of that just maturing as a company of course, having more resources.
And I believe that the target product profile that we were guided towards pursuing a couple of years ago. When we started our program, which was can you can you get to a really high technical success rate. So that the majority the vast majority of specimens you that we send to you actually come back with the result of some.
Hi.
And can you can you kind of reduced that sort of intermediate risk zone as narrow as possible. So that most of the time, we get back an actual data of either saying the biology looks like it lines up with a benign lesion or the biology looks like it lines up as the malignant melanoma and if you could achieve those things.
Well then we're in like Flynn and I think as you saw from our Advair.
Investor call I guess was about 10 12 days ago I guess now.
We hit all those boxes, we were able to maintain and actually have a a significant.
Accuracy scores for both.
Sensitivity and specificity, while maintaining a very narrow intermediate zone and I think the market research that we conducted over the course of the summertime into the early fall hit the Mark there.
Now.
What do we think is going to happen in the marketplace.
As we kind of move out of the availability last week. It look at the first sort of month or two of uptake my sense is that we will have.
Clinicians, who perhaps have either been using on a routine basis or sporadically. The other gene expression profile tests I think if we walk in there and show them, our data and obviously be careful because we don't have any head to head trial comparisons and there's no reason that to overstate the hand, you've been down but I think to go add walk up.
And have honest conversation, saying this is the kind of.
Of target product profile, you asked us to go ahead and the labor we have done it.
Ill.
Is there interest here and having you evaluate our test.
Your next year is that patients I think thats going to come over very very positively because again, we hit everything all four cylinders and sort of the final aspect, which I think is quite real is to say you know what.
We have over 42, 4300, clinicians dermatologists and surgeons in the last year, who awarded our decision Dx melanoma test.
One of the beauties and one of the reasons why some of your peers encouraged us to develop the deferred Dx melanoma test was because of the ability to really hand.
Dermatologists and patients have very quick one two punch in so it ends up lining up that the diff Dx melanoma test is producing a tumor biology signature that looks like a malignant melanoma and the dramatic pathologists and you as the dermatologists make that call. We can very rapidly turn around the results for our decision.
On the X. melanoma test so that the right treatment planning can be initiated now is the dramatic pathologists wouldn't you agree that's in the best interest of patient care. So I think we have a couple of positive things there that make us very.
Very bullish I guess in terms of initial openness to evaluate and try our product out and I think our ability to deliver results in a fashion. That's that's that's near what our validation study will go ahead and drive the rest of the equation.
So we're quite positive there I think it's too early to understand in the marketplace that those dramatic pathologists who have.
Who who didnt have not embraced gene expression profiling as an appropriate ancillary test.
What's the trigger that will kind of move them from being non users are nonbelievers to try and get product out and getting the benefit of having a more accurate diagnosis that I think we'll have to work into the marketplace and maybe take a bit longer to kind of get a really really good good feel of how they react a part of that was was it was a request to also to say you know.
There are some difficult to to evaluate lesions that aren't even included in the validation studies at some of these existing test. If you could include some of those sub types.
That would really make me much more encouraged to think about the value of using gene expression profile test to help get to a better.
A better more accurate more confident I guess I would say diagnosis. So we tried to tackle all those things Tom and as I said, we were successful and I think we'll.
We'll have to report back here in another couple of months here, how the how the early early market trends look.
Sure.
Appreciate the color and if I could add a follow up here.
I think you guys had maybe comment it.
Briefly there may have missed this specific number.
New ordering physicians for Dx melanoma in the quarter.
How is that trending and related the are there any.
Additional updates from the Salesforce they tried to make to increase the reach given perhaps more limited access in and are they still seeing.
Limited access.
More broadly.
Okay.
So on the sort of maybe maybe a third quarter salesforce trends compared to second quarter. So I think largely speaking across the U.S. every sales territory.
Is is back open I guess I would say, whereas in the second quarter, you had certain parts of the country, where you are under strict.
Strict orders me central business standpoint to not be out there both as a field force and also as dermatologists seeing patients. So both things were shutdown in different spots of the country at different times in the second quarter bleeding into July through certain extent I think as we closed out the third quarter of 2020, we did see all territories.
Opened for business I guess, you would say are doctors in all territories open for business.
I think that we thought overall.
More clinician calls our sales calls being made in person than being made virtual or zoom calls or telephone calls. So I think those are are very positive trends in that improves sort of from second quarter throughout the third quarter. So looking forward as they're seeing how fourth quarter opens back up.
I think we are still believing with as sort of lower rates of melanoma diagnosis in third quarter 20, compared to third COVID-19 that we're still seeing clinicians having a difficult time, either one getting back to seeing the same number of patients in a given day that used to see.
Prior to Cove, and that's probably just due to office space constraints and.
Ill.
Exam room, cleansing technique et cetera, and sort of the cobot area versus pre cobot era.
And then I also we've got some third party data, indicating that even in practices, where your Clark, where you're getting close to back to a 100%, but number of newly diagnosed skin cancers, not just melanoma, but also squamous cell and basal cell carcinoma are down compared to where they were during co would and during the pre covance.
Im hearing so it seems that there is a sort of a maybe that's all related to a more elderly population being a little more sensitive are cautious about returning for a a sort of bump on their skin versus saying you know this this bump could be cancer.
But again I think we expect that to go ahead and improve as we go on.
Certainly melanoma doesn't go away. So if you're looking at something on your arm of your form our year or year on year capping your you've been looking at for a couple of months. They can weighing do I go in or do I wait at some point in time that that that's going to get big enough and have enough are you going to make the call to go in.
I just hope for the patients they could occur as early rather than later, Frank you want to.
Yes, and just to answer the question on clinicians.
We had fewer new ordering because of clinicians this quarter Q3 of 2020 than we did in Q3 of 2019, but just to be clear that doesn't mean, we had fewer physicians ordering it just means the the pool of new new physicians was.
Fewer than last year.
But anecdotally, we had physicians who order for the first time in the quarter, despite only having virtual interactions with our with our field team, which which we think is great. We much rather be live and in person.
But I think it's a tribute to the outside folks that they're finding ways to pivot to virtual interactions that are in fact quite effective.
Great very helpful. Thanks, guys.
Thanks, Doug.
Thank you and we have a follow up from Maxim Suji with Canaccord Genuity.
Hey, guys I think I got boxed out there.
So it's nice to see the early decision Dx STC volume starting to come in I guess, what sort of early it's early but are there any early adoption trends that you're seeing and can you just give us a sense for how these sales interactions are going just given the cross selling opportunity and maybe any debt.
This is in similarities compared to the early days of the decision Dx melanoma launch.
Yep. Thanks, Thats a good question Max I can provide.
More color there than I can on the Dx melanoma test sets because of timing by the way.
So I think.
I don't want to get ahead of my enthusiasm here.
I think launching new diagnostic tests is difficult to forecast for anybody.
I think launching new diagnostic tests in the sort of.
Not full access not normal interaction period is difficult to forecast even on top of that.
I can't tell you how pleased I am that we had for the first essentially two months on the marketplace order flow coming in at what was it 280 84 orders out of a base of 193 doctors I mean that is just fantastic as far as I'm concerned and if you. If you map out that the sort of first two months compared to.
Other diagnostic tests of similar.
You know market sizes in terms of patients or even more I don't think we've seen one we've kind of looked across the earnings of other companies that matches apps. So I think it's become it's a very it's off to a very good start don't over promise a whole lot of things. After a very good start one of our key goals on the commercial side of the business was to make.
Sure that we tried to educate clinicians in a in a careful thoughtful manner as they rolled out decision Dx FCC and with it with the most important measurement being the number of doctors that are ordering the test versus the number of tests that are being ordered and those should go hand in hand.
But I would far rather be in a position at the end of next year to turn around and say we have we have X number of doctors one to 3000 doctors, who are who have who have begun to incorporating.
Our decision Dx FCC test into their practice management habits of patients with one or more risks factors and squamous cell carcinoma versus having.
200, or 300 doctors, who order a lot I think that would show you that ones that squamous cell carcinoma is largely diagnosed by frontline medical dermatologist that having a wider number of positions evaluate listen to the literature I understand we're trying to do and use our test.
Even if they order 12345 10 test in the year is a far more sustainable base of business to really push through heavy as reimbursement comes through so I think that that those two metrics are very very positive for us, especially in the first sort of I guess, it's been with eight or nine weeks at all I don't know how many weeks since our September October this year, but.
They are a very short period of time very nice ramp. So that's quite positive I think that we have.
The the fact that the majority or the vast majority of physicians, who awarded our decision Dx FCC test our current doctors, who are using our decision Dx melanoma test.
I think supports our thesis that if you build a business around what a customer needs and you have a customer call point like dermatology or skin cancer than the ability to kind of leverage that that channel should be seen and in fact, I think we're seeing that already in terms of our first two months in the marketplace. All of those things, let me say that we kind of.
During the quarter and fourth quarter in the next two quarters at 21, it's going to be.
Wonderful to see how how the decision Dx SCC test as impacting a significant number of patients still very early in launch with advisors given number of healthcare providers.
Batches sets us up with a really really wonderful opportunity later next year and in 2022.
Absolutely. So you are getting paid for a portion of your decision Dx going on the volumes on an out of network basis with some commercial payers can you just give us a sense for if this is.
We've evolved from decision Dx FCC and dip Dx.
Are there any unique factors that may influence your desire to seek out of network payments for for your new pipeline test launches.
Yes, so we.
We won't be accruing revenue for those new to us the two new test Eric referenced at the time, we ship. The report will only reflect revenue when we actually collect some cash and to your point that will be through the appeals process through commercial payers.
We think we'll have some success there.
We it is our policy as you know we do bill for for the test we think we have the the.
The evidence is clear that the test adds value to the to the diagnosis and so we bill it appeal and push that through so.
I don't know how long it'll take to get to where we are with our first due to us, but we're going to work hard on that and as I think you know we've got a really strong.
Reimbursement and claims appeals team. So we're confident that eventually they'll they'll begin to start knocking those over.
Great. Thanks for squeezing me back in.
Thanks, Mike.
And our next question comes from the Latin sung Ji Nam with BP I G.
Hi, Thanks for taking the question maybe another one for a decision DSSD. He obviously good volume Vicki and I was wondering was there a backlog built into that you know.
I had at the line or should we anticipate continued growth in terms of volume from the 282.
Obviously understanding that.
Given the recent research.
There might be some disruption in terms of patient club.
Yeah.
Great question.
We.
We did have a large our oh, we do have a large number of collaborating centers in the us I think over.
Over 50, 55, I think through the second quarter.
Of investigators are clinicians who are involved in our decision Dx FCC test. We did not go out actively ahead of clinical availability say hey, this is available.
It will be available at a month or two so hold up your your your patients for example, so I think the acuity to reflects just true.
Normal ramp in an environment here.
Of launching without sort of any people kind of holding or pentair or pent up demand per se.
And I say that because the other part of the equation is that as our as given that the sales force that sells decision Dx melanoma, two dermatology and other skin cancer physicians like surgical oncologist is the one.
Thats launching the decision Dx FCC test and because reimbursement is solid our solid or that's what is driving our revenue growth is the melanoma test the the commercial focus really is to say.
Every call during this launch period needs to start out with decision Dx melanoma and as you complete that and look to see how youve moved your doctor along the educational curve then turned the corner and talk about the decision Dx FCC and my understanding is that the vast majority of physicians have been interested in compliance.
And with that order there are some that say hey, I saw your email request in this call and we talk about FCC first and we certainly comply with that but thankfully most of them have been quite quite good. So so I think I think as we move forward and launch here, we didn't necessarily sort of have you know all 32 sales.
Representatives on the inside the entire MSL force and the inside sales group moving on decision Dx FCC at the end of August and early September. They were they are first moving on the melanoma test and then there to introducing FCC something that that gave gave us a very gentle ramp through September and October.
Great that's very helpful.
Then just a clarification question boy that decision Dx melanoma for the study that you guys are doing for.
To determine.
You know the appropriateness of ads have been therapy are you guys looking at gene expression profiling or are there other biomarkers that you might consider incorporating.
So the.
The protocol enables both I guess I would say so we're looking at at the ability of of obviously the currently validated in market decision the X. melanoma test.
Identify which patients should be on active in therapy. We also are including additional genomic analyses and also including some liquid biopsy poles to make sure. We we can tackle all the questions properly at one time.
Great and then lastly from me on its great to see that you're adding. This addition, I was curious in terms of.
For your existing physicians are there efforts underway to help them identify additional patients.
For the existing.
Physicians that are currently using.
I will now.
Let me have you repeat that one time I think I'm not I was just kind of.
Trying to figure out kind of the same store sales if you will.
Given that you are adding a physician.
Wondering if they're still eight I'm, assuming there's still a lot of opportunities to.
Help your existing physicians identify other patients that might benefit from okay. I thought you're talking about and that is the kind of help how practice.
Practice marketing activities, which we would like to help our dermatology got much more productive skin cancer specialists, certainly, but that's not the question you asked.
Yes, I think there is still plenty of room for same store sales growth.
So certainly any new ordering clinician in the third quarter.
Our first time ordering dr., probably didn't start out July 1st with 10 patients that's almost always a ramp as somebody evaluates and adopts our test sell our existing customers are usually more productive just because they are hopefully ordering during the whole quarter as opposed to at some time in the third quarter.
We do see opportunities in our ordering doctors to to it to expand the appropriate use of our test. So for example, there are some dermatology practices are physicians where they.
Maybe initially are currently use our tests for only people who are clearly set on lift a biopsy referral base. So somebody who has a melanoma that 0.8 millimeters or a thicker that's not also rated so we see a lot of dermatologists initially order, our test where they're thinking about referring.
Now that invasive surgical procedure, because that's where they are concerned about risk. They pick 0.8, 0.7, 0.9 is there sort of threshold to start ordering our test and we see no orders from anybody diagnosed with a melanoma between 0.3 and call a 0.8 millimeters theyre seeing those patients, but they made the decision in their minds that the risk is low.
Enough I don't need to worry about it.
With that being said a significant number of settle upto procedures occur in those patients with those thinner melanomas and there are certainly recurrences that occur and potentially death for melanoma and so part of our of our commercial teams efforts are to arm each individual sales representative.
With their own physician data and if they look and see that that Dr. map sold for example has is a pretty good user of our test he seems to be incorporating into patient care, but he only uses it I'm pointing millimeter thicker than they would tailor their discussion their message to walk in there and say, Hey, I think theres a lot of patients who could benefit from the from the value of our.
Test in this sort of 0.3 to <unk> 0.8 millimeter range can we talk about that please.
And when that when that happens any well over a couple of effective conversations we do see many times that the same store Doctor begins that begins using our tests in those thinner melanoma patients, which is fantastic for patient care.
Great. Thanks, so much for taking the questions.
You're welcome.
Your next question comes from the line of Puneet Souda with SBB Leerink.
Yes, Hi, Frank and Derek a couple of quick questions here.
The volume came in a little bit lower than our estimate and continuous melanoma just wanted to get a clear view on number one.
The things that you talked about but just specifically the sales rep access to dermatology facilities do you expect that to tick up.
In the fourth quarter or maintain sort of at the same levels. We were asking this because obviously, we're seeing some challenges from sales rep accessing don't qlogic clinics in the sort of the virtual setting and I mean doing more virtual versus in person.
But obviously those are in the middle compromised patients was dumped patients the little bit different and then the second question is how should we think about volumes in the fourth quarter given sort of what you are seeing here and on top of bed the impact from holidays if any.
Great great questions there so.
I'll I'll try to answer that in my order of importance expenses.
Frank incorrect or you can that you can double check what I Miss Penny.
Historically speaking if we look at the last several years.
Running up to our IPO and certainly last year, we usually see that overall fourth quarter orders or the diagnosis of melanoma is usually similar to the third quarter of each year kind of around the same ballpark. So we do see seasonality in a non cove environment, where typically speaking.
The the third quarter of a year or the fourth quarter of any given year is kind of similar to the third quarter. The first quarter similar to the fourth quarter and the second quarter is when you see your growth and diagnoses and then it sort of is flat for the next three quarters relatively speaking. So so one is that we would not in a normal year.
Expect a significant rise in the rate of diagnosis of melanoma.
In the fourth quarter and a third quarter.
That being said I think to go to the Rep access question. One so we did see over the course of second quarter and certainly throughout the third quarter improving trends on a month to month basis, and I think part of that was related to practice is getting more comfortable are part of it is you can just see with national public data that that across the.
Board healthcare practices are returning to whatever their normal state is.
And we certainly saw rep access improve as well third quarter compared to second quarter. So you know our our modeling is that we would expect that to continue to improve over time now how much stronger gets in the fourth quarter I think it's tough to say relative to the sort of co would resurgence concerns in September October and.
That and that impact on sort of changing the mix of in person calls versus virtual calls.
However on the back end of that is you have a significant number of patients we estimate potentially up to 20000 people who have had a delayed diagnosis of melanoma when do they come in.
I think it's too aggressive to assume they come in in the fourth quarter all of a sudden that just is it just doesn't doesn't flypast credibility a whole lot. So I don't know quite how to guide you to kind of model throughout 21, what do we see or is that sort of post some portion of the population gets a vaccine and all of a sudden they become on lease, but but I think that's going to be up.
A tough thing to think about in the fourth quarter.
We do know, though is that fourth quarter should be around what third quarter isn't that given normal year in terms of rate of diagnosis of melanoma. Our representatives are seeing increased access compared to second quarter I think that carries through to fourth quarter, unless you see a blow up somewhere in the U.S. marketplace. So that is positive because that would mean will return.
Okay closer and closer to pre KOVA details or sales call trends.
Whether or not that's going to impact what we see over the course of.
The fourth quarter I think the more important dynamic is probably one of these missing patients get get their melanoma diagnosed properly.
I think the holidays are here every year and maybe the reason why fourth quarter is usually kind of flat, but third quarter is because you've got holidays reduced the number of really working days in the fourth quarter. So maybe they are actually as a slight increase in diagnoses in the fourth quarter. The third but that gets normalized out bye bye bye for office space.
Thank you want to.
No I agree we need it's up.
It will be interesting to see I mean, we.
Certainly the the nation wide cobot case rate has gone up but it looks like.
Maybe the morbidity has gone down and so maybe that helps people get comfortable.
And we're certainly we're glad to see.
Caesars announcement today on.
On their 90% effect in this vaccine some of the early data points. We had heard were may be the first vaccines would be 60% to 70% effective and gosh, Pfizer can get to 90% Thats.
Certainly I guess better than better than the Bulls are they put up when they started so.
That was nice to see this morning, Yeah, I think I think the only other thing I think I missed in your question. There is I don't know I.
I don't know if I view.
Our rate of growth in three core Twentytwenty relative to 19 is soft in terms of melanoma volume I think if you if you take that and you take into consideration the nearly what 20% drop in the rate of new diagnoses, that's a pretty healthy jump over last year on Sept soy we feel good about the overall.
Strength of the business from that point going forward.
And those and as reduced diagnoses are a temporary time to phenomenon because.
Or we're going to see a lot of patients being diagnosed with stage four disease, which I don't believe is going to happen I think I think that and come back. The question sort of I think went in house.
Okay. That's that's helpful. Thanks for the details there.
The second and I'll try to wrap and another question in the <unk> as well as you know from from a point of is the it came in again, a little bit light versus our estimates sort of in the.
About 250 to 260 lower.
From Q2 to Q3, just wondering if there was anything to note. There is that just reflective of the Medicare population that maybe is not accessing the clinics as much compared to the commercial.
Commercial population commercial bear population of patients and then on the expanded LCD. Derek. This is you said November 22nd does the data Noridian is no December six so when should we start looking.
Looking at the potential date for when you can book revenue for these expanded cases, if you can elaborate on those two thank you.
Analyst first yes so.
Yes, I mean, I don't I don't see anything there's nothing in the ASP trends for the quarter caused us concern I think that number is going to move around a little bit quarter to quarter.
It does seem that the patient base who is.
Most reluctant to get back into into the flow is the older population who are by definition, we're told them. The most vulnerable. So I suspect there's a modest amount of mix mix impact there that may have driven that but generally we will see it move a little bit quarter to quarter, but but nothing.
Durable or persistent there the strikes us.
When you what type of you'll see it and then on the LCD. So.
Medicare regulations distances. So number one we are we certainly expect to have the expanded LCD and the associated billing and coverage article the effective for the full 12 months of 2021.
Given the timing of November 22nd and December six for both of those Max in terms of effective date.
The most important thing really is the.
Is the way Medicare calculates the date of service.
For for a test like ours or any test like ours and that data services, usually going to be the date of surgery or the bait. The biopsy was taken and really in our workflow thats. The majority of the time. So what that would mean is if somebody had I think a 22nd is a Sunday so somebody went into their dermatologists on Saturday.
And had a biopsy taken Saturday, even if a dermatologist order the test on the 20 Threerd in November that Monday, it's going to be a a test that we would be reporting with a beta of service that was November 20, Onest. So I think what you're looking at here is somewhere between probably three and four weeks.
Of melanoma that are diagnosed mainly in December that would be eligible to be a paid for under the expanded LCD certainly our laboratory group and billing group are going to make sure that all appropriate cases are submitted as as covered under the LCD as we always have but I think that I think the amount that will be flushed.
In the fourth quarter, you know, maybe maybe rather than having it be a three month quarter for Medicare claims ends up being a three and a half to three three months in three weeks type of a thing is probably the way to kind of think through that from modeling standpoint.
Great. Thank you.
Thank you and now I'll turn the call back over to President and CEO, Derek Matt sold for any further remarks.
Thank you Andrew This concludes our third quarter Twentytwenty earnings call I. Thank you again for joining us today and for your interest in Kassebaum scientists.
Have a good day.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you can.
Now disconnect.
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