Q4 2020 Castle Biosciences Inc Earnings Call
Good afternoon, and welcome to Castle Biosciences fourth quarter and for year 2020 Conference call. As a reminder, today's call is being recorded and will begin today's call with opening remarks, and introduction followed by a question and answer session I would now like to turn the call over to Frank Stokes Chief.
Officer. Please go ahead.
Thank you operator, good afternoon, everyone welcome to castle Biosciences fourth quarter, and full year of 2020 financial results Conference call joined.
Joining me today is castle's founder President and Chief Executive Officer Gerald muscle.
Information recorded on this call speaks only as of today March eight 'twenty 'twenty, one and therefore, if you were listening to replay or reading the transcript for 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 for the future financial performance for the company, including expectations and assumptions related to the impact of the COVID-19 pandemic and.
Pursuant to the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Forward looking statements are based upon current expectations and involve inherent risks and uncertainties and there can be no assurances that the results contemplated for these statements will be realized.
And number of factors and risks to pause actual results to differ materially from those contained and these forward looking statements. These factors and other risks and uncertainties are described in detail and the cash.
Companies can you and report on form 10-K for the year ended December 31st 'twenty, and 'twenty and into companies and 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. Thank you for joining us today.
This afternoon, I will discuss highlights from our significant achievements during 2020 recap select fourth quarter results.
Provide thoughts on current trends.
And then close and why we remain confident and our ability to create near and long term growth.
And then Frank will provide additional detail on our financial performance.
But before we get started this morning, I would like to discuss the announcement, we made today regarding the launch of our decision Dx melanoma integrated test result.
We believe this launch represents a significant step for and the care of patients diagnosed with cutaneous melanoma.
Specifically decision Dx melanoma, now outputs and integrated test result.
And calculated by and independently validated artificial intelligence based algorithms.
What we call eye 31, J E T.
To provide a more precise predictions of Sentinel lymph node positivity and all.
Order to guide discussions and recommendations for the Sentinel lymph node biopsy surgical procedure.
The I 31 G P test report.
Is based on an artificial intelligence based neural network algorithm discovered and developed or trained.
On a multicenter cohort of 1398 patients walked and then independently validated and a separate cohort.
1674 per.
Expected conceptually be tested patients with melanoma is of all thicknesses.
The other 31 G. P test report integrates and individual patients traditional clinical and pathologic features with the decision Dx melanoma test result score.
What's exciting here is that based upon the linear and Russian slope analysis. The integrated test result provides a near perfect relationship between the predicted and the actual observed Sentinel lymph node positivity outcome and our validation cohort.
We also expect to launch a mobile and web based.
Application on the I 31 G. P. Test later this year. The App is designed to allow clinicians to have and interactive platform to discuss their patients risk on the integration and clinical pathologic features with the decision Dx melanoma test score we.
We are excited about this evolution of our decision Dx melanoma test.
So what is this advance to precision with and integrated test result mean on a practical level.
Let's take a specific patient example.
A 62 year old male patient with the cutaneous melanoma diagnosis and.
And that melanoma has a tumor thickness or a breslau his depth of 0.7 millimeters.
Using population base statistics from a J C C.
Individual patient would have had a likelihood of a pause and sentinel lymph node biopsy result.
Less than 5% using those clinical and pathologic features alone.
And that's important because the NCC and guidelines.
Do not recommend that the Sentinel lymph node biopsy procedure be offered and a patient with a predicted less and 5% set and left our positivity.
Now if we take that same patient and he has tested with our decision Dx melanoma test and receives the lowest risk score or risk class a class one day test result.
Each has and accompanying decision Dx melanoma score of zero point too and that's out of a range of 0.0 to 1.0.
And our integrated test result would predict and likelihood of set and Left-eyed positivity of three 6% less and a 5% predicted by clinical and pathologic features alone.
However, now let's look at that same 62 year old male patient.
But now his decision Dx melanoma test result is our highest for class class to be with and accompanying score of 0.8 now the same patients, but with a different tumor biology profile with the integrated test result is predicted to have a positive sentinel lymph node likelihood.
A 15, 6%.
Compared to the three 6% likelihood with the class one a score I just mentioned and.
And compare it to the clinical pathologic features.
Population base risk of less than five per cent.
Again without having the benefit of our decision Dx melanoma test.
Based upon clinical and pathologic features alone.
This patient would've been managed as if they had less and a 5% likelihood of known positivity and under NCC and guidelines with that positivity number they would not have been offered a similar to biopsy procedure. However by using our decision Dx melanoma test in this patient.
They had a predicted seven lift on positivity or 15, 6%.
Which is significantly above the 10% threshold that MCC and uses for recommending that I sent home for biopsy procedure be offered to that patient. This is clearly a more precise finding that will have a positive impact on patient care.
So today's launch and for decision Dx melanoma integrated test result is designed to provide more precise more personalized prediction of the risk of set and lift our positivity and all.
Order to allow patients to move from population based to personalized and into more precision based medicine and precision based care.
We are planning to move our other tests and the same directions, both a commercially available test and our test and development.
These are exciting outcomes and castle biosciences.
Now as always I'd like to thank the castle team I cannot express how proud and thankful I am and what we achieved in 2020 and the resiliency shown throughout the organization.
Our team's hard work and commitment to improving the lives of patients for skin cancer allowed us to successfully navigate through this unprecedented year.
We remain focused on our strategic initiatives and believe we are well positioned for future growth, providing dermatologic clinicians with valuable genomic information to better inform treatment decisions.
And 2020, we delivered revenue growth and 21% over 2019 and.
And our Dermatologic gene expression profile Test report volume, which includes our two new tests launched and the second half of 2020.
Drew over last year by 8%.
This growth occurred despite a more than 20 per cent reduction.
And melanoma diagnoses, and 2020 compared to 2019, which I will discuss further in a moment.
Key components of our near and long term gross strategy include.
We include advanced and innovative pipeline tests and.
The two launches and the second half of 2020.
As well as moving towards precision medicine that I, just described evidenced developments reimbursement games and the initiation of new pipeline programs.
We achieved all of our 2020 milestones in these areas.
We started 2020 with one skin cancer test and ended the year with a suite of three tests more.
More than tripling, our estimated and market U S total addressable market for $2 billion.
This is a significant achievement for any year, even more so as we face extraordinary challenges from COVID-19.
Recall that castle is proprietary decision Dx melanoma test for patients diagnosed with cutaneous melanoma was developed and validated in house.
With the launch of our two additional skin cancer tests decision Dx SCC for patients diagnosed with one or more high risk features with cutaneous squamous cell carcinoma and decision Dx diff Dx melanoma designed to aid and characterizing difficult to diagnose monostich lesions, we further demonstrated.
Our ability to identify them.
And my logic diseases with high unmet clinical need and we're genomic tests have the potential to improve patient management decisions and then brought that used to test the market.
And 2020, we expanded our significant body of evidence with 11 supportive peer reviewed articles published for our for proprietary gene expression profile tests.
And expect additional publications in 2020, one having already received acceptance out of vacations.
We believe our existing body of evidence provides us with a significant competitive advantage over potential entrants into the U S market.
Decision Dx melanoma alone.
And is supported by 28 peer reviewed publications and through December 31, 2020 has been ordered close to 69000 times for use in patients with cutaneous melanoma.
We expect to continue to invest and evidence development as it remains a key component of our growth strategy supporting adoption of our tests by clinicians and.
And reimbursement by commercial payers.
Turning to 'twenty 'twenty, one, although we are seeing areas of recovery.
Due to COVID-19, we continue to experience some headwinds to our G. P test report volume growth rate, including decision Dx melanoma. Our current lead revenue driver, which we believe is a result of reduced diagnoses of cutaneous melanoma.
As I previously discussed 'twenty, and 'twenty diagnoses and melanoma were down by more than 20% or approximately 26000 diagnoses compared to 2019.
We continue to believe this is due to a mix of temporary closing of dermatology practices and our patient volume and the second and third quarter of 2020 and.
And as well as the shifting from in person and general health care visits to telemedicine visits, which we believe was a significant factor and the ongoing reduction and the diagnosis of melanoma.
Especially in the back half of 2020 and early 'twenty 'twenty. One for example, typically a patient would go in for their regular high blood pressure diabetes or just an annual physical visit and the primary care clinicians identify a concerning mol.
Which after in person and testing will be identified as a melanoma.
However, with telemedicine visits we believe these identifications and are not taking place as often give.
Given that our decision Dx melanoma test is ordered by physicians after biopsies take place and the diagnosis of melanoma is rendered a delay and the diagnosis of melanoma does reduce the pool of eligible patients.
In addition to the impact of Covid and we believe the severe weather, we have experienced and the first quarter and many parts of the U S has impacted dermatology practices and patient flow today.
As you May recall historically, our first quarter is generally flat for the fourth quarter.
Therefore, given the continued impacts from Covid recent weather and historical first quarter seasonality, we expect our first quarter 2020 one decision Dx melanoma test result reported volume to.
To be softer than the fourth quarter of 2020, however, due to the effect of our first full quarter of expanded Medicare LCD for decision Dx melanoma and other factors for the first quarter of 2021, we don't expect the sequential softening and report volume over the fourth quarter of 2020.
To translate into a commensurate softening and revenues and the first quarter of 2021 compared to the fourth quarter for 2020.
Although we can't predict or trajectory other recovery of these missing diagnosis of melanoma, we anticipate improvement and our volume growth rate for the second half of 'twenty, one and into 2020 two although we expect that it will not be linear specifically, we expect the majority of the estimated 26000 patients who are <unk>.
Not diagnosed in 2020 as well as those who are not diagnosed and early 2021 to be diagnosed later in 'twenty, one or and 22, which could be impacted by the timing of both COVID-19 vaccinations and the return to in person medical care and we know that the best patient outcomes are linked to early detection of cancer.
So for the best patient care and outcomes. We are hopeful that these diagnosis will happen sooner rather than later.
As you know one important metric for US is the achievement of reimbursement milestones with our proprietary innovative tests and our decision Dx U M for UV melanoma and.
And decision Dx melanoma tests have both been designated by CMS as a D L Ts or advanced diagnostic laboratory tests per.
Practically this means that the Medicare rate for our test or evaluate every year based upon the median allowable private payer rate for 2020, one a rate for decision Dx U M.
Was set at $7000 776.
And our rate for decision Dx melanoma is 7193.
In addition to our 2021 Medicare rate. It is important to remind you of the expansion of the LCD for decision Dx melanoma.
You may recall that we received initial LCD coverage and late 2018.
The initial LCD covered the use of our decision Dx melanoma test to guide Sentinel lymph node biopsy surgical decisions.
Palmetto and meridian and at that time did not evaluate coverage for the other management decisions such as initiation of imaging surveillance.
Follow up frequency referrals to oncology et cetera that are and clinical use today and.
Initial LCD covered around 45 per cent of clinically tested Medicare patients. We subsequently worked with Palmetto and meridian regarding and expansion of the initial coverage as many clinicians were using our decision Dx melanoma test for those other management decisions.
Subsequently and expanded draft LCD was posted in 2019 that covered those additional uses.
This drop was converted to a final LCD that was effective on December six 2020.
We estimate that the current L. C D and I'll cover slightly more than 90 per cent of all clinical uses.
Meaning that in 2020, one we expect the decision Dx melanoma test to be a covered benefit for more than 90 per cent of all Medicare beneficiaries.
Let's now turn for the two skin cancer test relaunch and the second half of 2020.
The technical assessment dossier for a decision Dx SCC test was submitted to Palmetto and meridian and the second quarter of 2020.
We received confirmation of acceptance and the submission is being complete and Ah.
Third quarter 2020, and believe although there can be no assurances that a draft LCD should be posted in 2020. One we believe if the LCD could be posted and the first half of 'twenty 'twenty, one, but I remind you that there is no specific timeframe under which palmetto and meridian and must operate.
We've also and early 'twenty 'twenty, one and submitted our technical assessment dossier for our decision Dx Diff Dx melanoma tests, we are hopeful and timeframe for review for our <unk> melanoma test will be shortened.
And as Palmetto and Meridian had previously reviewed myriad my past melanoma test and found the intended clinical use to meet the definitions and medical reasonableness and necessity.
As a reminder, our jif Dx melanoma test has the same intended clinical use as myriad tests.
Accordingly, we also expect that a draft local coverage determination policy should be posted in 2021 with Finalization and 2022.
Now I'll briefly recap 2020 revenue and test volume and highlights in 2020, we increased revenue by 21% to $62 $6 million from $51 $9 million and 2019. This includes positive revenues related to prior periods of zero point.
And $2 million for 'twenty, and 'twenty compared to $2.5 million for 2019.
As our business continues to evolve we are focusing on total Dermatologic test volume is a key metric for measuring our success.
As a reminder, we announced in January and we delivered 16790 total Dermatologic gene expression profile tests in 2020.
Which represents an 8% increase and total report volume for Dermatologic tests compared to 2019, specifically.
And specifically the ex melanoma test results delivered in 2020 were 16232 decision Dx SCC test reports delivered in 2020 since the August 31st launch.
For a 485 and the diff Dx melanoma test reports delivered in 2020 since the relaunch on November 2nd 2020 were 73.
Initial response to our two new skin cancer tests decision Dx SCC and diff Dx melanoma did exceed our expectations.
We believe this early performance is due in part to the high unmet clinical need that our tests are feeling.
Equally important though is the value that we are seeing through leveraging our dermatologic commercial channels being able to walk into an office of a current customer.
One who has adopted the suite and Dx melanoma as an important tool and patient management.
Makes it easier to lay out the clinical need and value for our decision Dx SCC test.
And 2020, we successfully executed on two capital raises that together generated approximately $330 million and net proceeds.
We plan to increase the investments, we're making and the company to facilitate our growth initiatives and <unk>.
And in a position of strength and the near term.
As well as lay a foundation for future growth.
These initiatives include the expansion of our commercial team.
Acceleration of our R&D efforts to support our existing tests.
And the advancements of our Dermatologic pipeline tests.
Regarding the expansion of our commercial team you may recall, we successfully completed two commercial expansions in 2019, we went from 14 outside sales territories for 'twenty three and then the 32 by the end of 2019 than and the third quarter of 2020, we added 10 additional sales representatives dedicated to the diff.
Dx melanoma test our test for suspicious pigmented lesions with their focus being to introduce the diff Dx melanoma tests to dramatic pathologists during the first six months of <unk>.
Nicole availability.
Before we expand introduction and other.
Clinical dermatology community.
We're actively recruiting for additional 15 to 20 outside sales territories.
Our goal is to exit the first half of 2021 with approximately 60 outside sales reps.
All of whom will sell our entire suite of skin cancer test would call points focus on dermatologists.
Most surgeons surgeons, who work and skin cancer, including surgical oncologists, and head and neck surgeons and dramatic pathologists and we've seen that our G. P. Test report volume growth is responsive and promotional efforts and we are excited to see continued volume growth of our skin cancer test franchise.
We are also accelerating our research and development activities, including two important studies that support our decision Dx melanoma test.
As previously discussed we initiated two significant protocols for our decision Dx melanoma test in 2020, and both are progressing well. The first is the personalized study and which we will evaluate decision dx melanoma for interactions with adjuvant therapies the.
The second is a connection study, which will collect long term outcomes for up to 10000 patients who have been tested with decision Dx melanoma.
Together. These studies will add valuable data to our existing biobank of data on patients with melanoma and their tumor biology.
Which consists of approximately 60000 tissue samples a day. We believe this is the largest database and its kind and are exploring opportunities to leverage the value of these data.
With our industry leading position.
As the only diagnostic company with three commercially available test for Dermatologic cancer we.
We have demonstrated our ability to successfully develop validate and bring to market clinically actionable innovative genomic tests.
We start by identifying and dermatological diseases with high unmet clinical need and.
And we use the gene expression profile and the individual patient's tumor biology to assist clinicians and their patients better and forming treatment optimize health outcomes and reduce health care costs.
Due to the biological complexity and Dermatologic cancers.
Eloping accurate products take scientific diligence stringent.
Stringent clinical protocols.
Artificial intelligence expertise.
Rytary algorithms and significant investments of time and capital.
Building on our proven process I am pleased to announce and we have initiated and working on a number of pipeline tests, which branch out upstream downstream and parallel to our currently marketed tests, although we are still and or the early stages of development.
We believe that we can launch three to five new tests by the end of 2000 and twenty-five utilizing our existing sales channels potentially adding approximately $3 $6 billion to our current U S total addressable market with.
With the result, being a U S only tam of slightly more than $5 $5 billion.
As I said these tests are and early stage development, we expect to provide additional details as soon as appropriate and before the end of 2020 one.
Additionally, the leverage we see on the commercial side of our business translates to our clinical research initiatives.
We had 220 active clinical research sites or centers in 2020, we anticipate we will work with many of these same centers.
<unk> initiatives.
As those who worked on with decision Dx melanoma decision Dx SCC and <unk> melanoma.
I will now turn the call back over to Frank who will provide additional details relating to our financial results.
Thank you Derek we're pleased to report solid financial results and along with the significant progress we made on our growth initiatives. We believe we are well positioned for near and long term growth.
We reported revenue of $17 $3 million and the fourth quarter of 2020 compared to $17 $6 million and the fourth quarter of 2019, which included $3 $5 million and positive revenues related to prior periods.
Compared to $4 $3 million of such revenues and the fourth quarter of 2019.
Our full year, 2020 revenue was $62 $6 million and increase of 21% over 2019, primarily due to higher per unit revenues and increased overall test volume, partially offset by reduced positive revenue adjustments related to prior periods.
Full year 2020 revenue includes positive adjustments related to tests delivered in prior periods.
Point $2 million compared to $2.5 million for 2019.
We were able to successfully scale the organization in 2020, achieving our internal expansion goals and head count moving from 135 on December 31, 2019 to 201 as of December 31, 2020, representing growth of close to 50%.
And in 'twenty 'twenty, one as of March the second we had 220 for employees and continue to fill open positions.
In 2020, we maintained strong gross margins and for the fourth quarter and full year of both our gross margin was 85 per cent compared to 89% and 86 per cent for the fourth quarter and full year of 2019, respectively.
Reflecting the expansion of laboratory staff and preparation for both launches a decision Dx SCC and <unk> Dx melanoma as well as in preparation for the anticipated further volume growth for decision Dx melanoma.
As a reminder, a significant portion of our cost of sales expense represents fixed costs associated with our testing operations. Accordingly, our cost of sales expense will not necessarily increase or decrease commensurately with the change in net revenue from period to period.
Our operating expenses for the fourth quarter and year ended December 31, 'twenty, and 'twenty were $17 $7 million and $59 $5 million, respectively, compared to $13 million and $37 2 million for the comparable 2019 periods.
The increase was driven primarily by higher SG&A, which increased by $5 1 million for the quarter and $18 $3 million for the year attributable in part for the expansion of our sales and marketing teams for the launch of our <unk> melanoma test administrative support functions and higher personnel costs associated with our increased head count which is.
Salaries and bonuses benefits stock based compensation.
R&D expense increased by $5 $9 million and 2020 compared to 2019 and was primarily associated with increases in personnel costs attributable to additional headcount and costs incurred and our clinical study.
And it's Derek discussed earlier and acceleration of R&D efforts as a key growth initiatives and we expect to further increase our R&D expense as we continue to fill critical roles progressed key clinical studies, including the two Derrek just mentioned and continue to invest and activities that support our products pipeline investment and position us well for continued growth.
A recognition of other operating income of $1 $9 million and the fourth quarter of 2020 is attributable to a favorable change and requirements associated with the provider relief funds program under the cares Act.
Interest expense decreased $1 $9 million and 2020 compared to 2019, primarily due to interest on the convertible promissory notes that were outstanding and 2019.
These notes converted into common stock in connection with the IPO in July of 2019. The decrease also reflects lower interest expense on our banking term loan facility, primarily due to lower average balances outstanding.
We terminated and repaid all amounts due on the term loan facility in December 2020, and currently have no debt.
We recorded and extinguishment loss of $1 $4 million. During the year ended December 31, 2020 related to the early repayment and terminating termination of our banking term loan facility.
2019 included certain non operating items, primarily related to debt conversion and mark to market activity, leading up to the IPO.
These items had a net positive effect of income on $2 $3 million for the year ended December 31 2019.
Noncash stock based compensation expense, which is allocated among cost of sales R&D and SG&A totaled $8 $3 million for the year ended December 31, 2020 compared to $1.2 million for the year ended December 31 2019.
We expect material increases and stock based compensation expense in future periods, reflecting both higher post IPO stock option valuations as well as additional awards outstanding due to growth and our head count.
Our net loss for the 12 months ended December 31, 2020 was $10 $3 million compared to net income of $5 $3 million for the 12 months ended December 31 2019 diluted.
Diluted loss per share attributable to common stockholders for 2020 was 54 cents a share.
Compared to diluted loss per share attributable to common stockholders of 21 sets for 2019.
Operating cash flow for the three months ended December 31, 2020 was negative zero point $4 million compared to positive for $5 million for the same period and 2019.
<unk> operating cash flow a non-GAAP measure for the three months ended December 31, 2020 was $1 $5 million.
For the 12 months ended December 31, 2020, we generated $9 $9 million of operating cash flow compared to $7 million during the same period and 2019.
A minor our operating cash flow for the full year 2020 benefited from an advanced payment of $8 $3 million from CNS, which will be applied against future Medicare claims that we submit for reimbursement.
Recruitment will begin in April 2021, and continue for a period of up to 17 months.
We have excluded receipt and the advance payment from adjusted operating cash flow, but as future claims are submitted for reimbursement and applied against this balance and we've spent to include the advanced payment and adjusted operating cash flow as it is from groups.
Excluding the $8 $3 million payment, our adjusted operating cash flow for the 12 months ended December 31, 2020 was $1 $5 million compared to $7 million for the same period and 2019.
Cash used in investing activities was $4 8.002 million 20, compared to zero point $9 million and 2019.
Due to additional capital expenditures, primarily related to expansion of our facilities.
Net cash provided by financing activities was $305 $9 million and 2020, primarily reflecting proceeds for the two public offerings of common stock, partially offset by debt repayments.
And to $88 $3 million cash provided by financing in 2019 for majority of which was attributable to the IPO.
Finally, we ended 2020 with a fortified balance sheet, we had cash and cash equivalents at December 31, 2020, or $410 million and zero debt.
As we continue to make progress positioning ourselves as a leader.
And then just dermatologic genomic testing.
Our near and long term capital allocation priorities remain unchanged and we believe allow us to continue creating shareholder value.
They include first acceleration of R&D efforts to build our expansive body of evidence that supports our marketing tests.
As well as to develop our robust pipeline of tests and something and continued expansion of our sales and marketing team.
Turning to our 2021 outlook due to the uncertainties regarding COVID-19, and the related impact on the diagnoses and melanoma, we're not providing formal revenue guidance at this time, although we can't predict and trajectory of any recovery, our core business and underlying fundamentals remain strong. We are excited about the opportunities that lie ahead and remain committed to building a dermatological.
Logic diagnostics company focused on making a positive impact on patient outcomes and now I'll turn the call back to Darren.
Thank you Frank.
In summary, our team's resilience and strength allowed us to deliver strong results and achieved all of our milestones for 2020, despite the unique challenges and we all face.
As we continue to build our dermatologic franchise, and 'twenty, one and beyond.
To put the patient at the center of everything we do.
Before I move onto Q&A I want to again express my gratitude for our employees. They drive our success, we think and rely on them to continue to innovate execute and focus on improving the lives of patients diagnosed with skin cancer.
Concludes our remarks. Thank you for your continued interest and castle.
Operator, we're now ready for Q&A.
As a reminder to ask a question you wanted to press star one on your telephone.
Withdraw your question press the pound team, please standby and won't be compile the Q&A roster.
Our first question comes from the line of Puneet Uhde.
VB Leerink your line is now for them.
Yeah, Hi, Derek Frank Thanks for the questions.
So first one is on the Guy and I appreciate you pointing out softness and the first quarter and cutaneous melanoma volumes.
Given the pandemic, but just wondering and in terms of the step down here should that be in line with what the step down we have seen.
Low to mid single digit.
Stepped down, but we have seen here and third quarter and fourth quarter is that the right magnitude to think about it and and then just broadly when we think about the full year. You. Obviously have a number of growth drivers here and commercial sales force that's expanded head counts and commercial that's expanded significantly and.
And and you know vaccinations are ongoing so you know sort of maybe if you can provide us maybe what penetration in terms of cutaneous melanoma should we be expecting for the year. If you can provide us the volume for the year.
Thanks for taking just clarify when you were talking about step down are you talking about volume sequentially, just through the quarter or I want to make sure I understand what you're what you're looking for.
Yes.
Sequentially for the first quarter.
Yeah. So you know recall penni typically fourth quarter to first quarter is sort of flattish.
And Theres a number of factors that drive that we think we understand what most of the more I mean, I think a lot of them or.
There is and impact of of patients deductibles resetting in January.
And so you take the December holidays, and Q4, you take that dynamic in Q1, we typically see flattish performance. When you go back and look year over year the sequential quarter.
Performance looks flattish.
This year, we've got continued Covid impact and we've also got some some weather dynamics this quarter. So.
Though it's early yet and we aren't able to quantify it does look like where.
We're going to see some sequential softening and volumes just based on the.
The continued macro factors facing position does it smell.
It relates to penetration.
The difficulty there is just trying to predict how many melanoma diagnoses and theyre going to be this year, having said that.
And we're going to we're going to very soon and have a much larger megaphone for for the physician audience and we have been optimistic that we are timing that.
And with a corresponding.
The resumption of normal commerce as we get through this vaccine cycle and get through some of the.
Some of the broader reopening and as we've as we've said before.
A year ago, I think we all sort of felt like maybe a switch would get flipped and everything would go back to normal uniformly, but we're clearly seeing regional differences.
And we're seeing differences within the regions.
So I think getting a normalization of commerce will get back to that normal rate of diagnoses and then we can be a little bit more.
Predictive in terms of what penetration what growth is going to look like.
That being said as I noted binney Hum.
Despite what doesn't seem to be a recovery from the normal rate of diagnosis of melanoma and the first quarter.
And third party data and we aren't seeing a commensurate softening and revenues at this point in time, So I would day linked those two slightly but.
The other the other question here, which is.
When are those est.
Estimated 26000 patients who are not diagnosed last year begin showing up and I think the worst thing we can do from a public standpoint is to aggressively assume they all come back quickly but.
And those melanoma was aren't going away, they're going to be.
Diagnosed at some point in time.
I don't know if that really starts at the beginning of third quarter of this year and a little bit and second quarter or fourth and its certainly you would think over the next year and a half you would see a return to a normal cadence for the diagnosis of melanoma from a year over year standpoint.
Okay. Thanks, and then and Frank in terms of the prior period, we obviously saw a pick up here how.
And how should we think about that hum prior period quarters going forward because I think the expectation initially was a as you know as the penetration rises as you.
You know the prior period.
And number should be declining.
Declining over time, so maybe just give us a view as to what how youre viewing revenue and deadline.
Yeah, and I think we're going to continue to see the.
The prior period number come down.
As we get more.
More and more accurate and in our accrual rates for our cutaneous melanoma business now having said that that's going to be offset somewhat by the new products that are being launched because the revenue there will be will almost all of that will be prior period as we as we collect on that just due to the appeal cycle. So.
And it should converge is on the <unk> business and then if we are quite successful and the launch products. Then you could see could see that continue to be a factor and the and the revenue line.
Okay and then my last one is on the sales reps can you maybe give us a sense of mix of the sales reps that are doing face to face detailing and with the docs today versus those that are online or maybe how much of the time those face to face versus online today and you know.
The expectation here would be that they would.
And that would turn and face to face and the second half of the year.
Thanks.
Yes, so I'll comment and the last half or so so I think you're right I think our expectation is that.
I don't know what the book the percentage of <unk>.
Sales to face visits versus say, having a really engaged conversation over over the phone or email and text was in 2019, we didn't quite capture data that way, but I would think that we would see based upon current trajectory is a relative beginning of normal and abnormal. So you can kind of third and fourth quarter and he said.
And we haven't pulled data for the first quarter, yet, but we just came off of two.
Semi national sales meetings, the last two weeks and it seems to me is as Frank and I mentioned earlier, it's regional and basis right now you see a strong opening and areas where there is.
A lower level of case numbers, and maybe more and opening up society, there and vaccines roll away through health care providers are largely taken care of course, and so our representatives, becoming more and more.
Vaccine or post vaccine environment, we would expect it to open up slowly.
I would think and the second quarter and as you kind of indicated all the.
Macro press seems to assume that we'll be back into sort of a closer to normalcy and the second half of 2021.
Okay. Thank you.
Thank you. Our next question comes from the line of Paul Knight.
Keybanc Your line is now open.
Thanks for taking the time.
A decision Dx test obviously.
On squamous getting some some some traction can you talk about what your assumptions and the market was and obviously, a nice sequential bump there and what youre thinking about as Q1 and the year rolls out.
Paul you're thinking about the squamous cell carcinoma test specifically yeah.
Yeah, Yeah I think.
The reception of this.
Squamous cell carcinoma test has been higher than our expectations were from kind of a forecast standpoint and.
And that's despite having us really sell the product or introduce it behind the decision Dx melanoma test and we even though it's a launch product we actually tried to Orient. The leave the field forces to basically continue to go ahead and talk first about the <unk> melanoma test and then secondly as theirs.
Time to squamous cell tests, so even though that dynamic was there we were quite pleased with the uptake and it was again ahead of our internal estimates. So why is that I think that there is a mixture of two things and I don't know, which is more important to be honest at this point in time, but clearly an important factor is that.
There is such a great unmet need for clinicians and their patients to make a share decision about the next course of action when you've been diagnosed with a squamous cell carcinoma of the scan and that has one and more high risk features because of the accuracy of just pathology staging alone and just not that great. So I think one is we we.
We identified several years ago with our actually our current melanoma customers.
Significant unmet clinical need and I think the the test is meeting the expectations clinically I think the other part of it though and again, what they don't know which is more important.
The fact that the we anticipate that the the ordering clinician and the ordering customer for squamous cell carcinoma test is likely to have what 90% overlap at the end of the day with current melanoma customers. So I think the fact that these are these dermatologists and most surgeons and NPS and Pas.
Yes.
No the company.
If the ordering our melanoma tests, they hopefully have thought through how to incorporate the results of our decision Dx melanoma test and the patient care and we walk in and that reputation that expectation that I know how to use the test translates over once you start talking about about squamous cell carcinoma. So again, I don't know, which one of those two for.
Factors is more important to accept that.
Certainly if there was no need clinically you shouldnt expect any test orders to come and the door, but certainly having a hopefully what I believe is a very positive reputation among the melanoma customers I think translates pretty quickly too okay I get it I can see the need now, let's talk about the patient population and that could be.
And if it.
And then can you just talk a little bit about the competitive environment alternative tests out there. Our impression is it's probably a year year and a better position and you were based on our competitor review, but any thoughts there.
For the squamous cell test again same thing for melanoma specifically.
And the ZIP melanoma tests. So we don't believe we have at this point and time any direct competitors in the U S. Operating test today, we do anticipate having one or one or two other smaller private European companies might be able to launch their test later this year, maybe next year, but as of now the real <unk>.
<unk> is really standard of care and helping clinicians appreciate that after 2006 peer reviewed publications and Theres a significant weight of evidence that supports the use and value of our test and moving from point a point B now it's interesting pre COVID-19, we had staffed up in December of 19 to 20.
<unk> sales representatives.
I'm sorry.
32 from 'twenty, three and they were trained largely in December and we sort of therefore had kind of a 50% expansion and the first quarter of 2009 2020 ahead of Covid really impacting medical commerce, and we saw significant promotion responsiveness I believe that as we scale our organization from 32 <unk>.
Dermatology facing sales representatives to just above 60, and the next couple of months that will enter in and the second half of the year and I and the same kind of response physician that we saw.
A year ago this time.
Thank you.
Youre welcome.
Thank you. Our next question comes from the line of Jean non from BT Igene. Your line is now open.
Hi, Thanks for taking the questions just a couple of quick ones. One on the integrated test result, obviously that sounds very intriguing would you be able to talk about I'm not sure if it's too early but what's the.
And the magnitude of improvement are adding that component to the overall test result.
Performance characteristic standpoint.
And then if that's the right way to think about it.
Yeah.
Let's see here so.
I don't have an answer to that.
Going to be quite that direct <unk>, sorry about that and I think about sort of using clinical pathologic features alone.
FERC clinicians to decide who to rule in and who would you rule out for a.
And I'll have to biopsy procedure. If you then incorporate using continuous variables wherever you can find them our test itself breslow thickness my product rate et cetera.
Can reshuffle those patients both upwards and downwards and that does result in and the majority of patients being able to fall below a 5% likelihood of Sentinel lymph node positivity. So that's a significant.
Reduction over what you would have with Clinton pathologic features alone as I mentioned and that example that we talked about and are on the conference call. We also can do the opposite now with much more precision. So we can take somebody who falls below the sort of threshold for thinking about and performing a sentiment to biopsy procedure.
And by using this integrated test results SCOR, we could actually find people who would be recommended.
For example for biopsy consultation.
Should you decide to incorporate the tumor biology on top of anthology. So that to me is a tremendous opportunity to both rule out where appropriate with very very high precision and also rule and at the same time.
Gotcha. That's helpful. And then just on the you know obviously think very good initial volume for squamous cell carcinoma.
I think for test.
And I know you guys are targeting your existing decision Dx melanoma customary but are there cases, where I don't know if it's again too early to tell if are there cases, where some of the early adopters and said you might be able to turn them into more robust user.
No not now.
And as you think about and it down the road.
Yeah, I think the answer is yes, so right now there are.
There are probably several hundred.
<unk>, who are most surgeons.
Who are not ordering clinicians and our decision Dx melanoma test that why is that.
And could be access point lack of promotion responsiveness and because we haven't been able to promote to them.
Could be because they are inside of a larger dermatology practice and they do mainly most surgery full time and don't really think about the melanoma patients and they might be doing excision and work on and I think maybe that's a medical dermatology partner and orders are melanoma test we can.
Go and talk to them about the squamous cell carcinoma test and in most cases. The most urgent is the one who is seeing and these patients with one or more high risk factors are features we would hope that we would see the same kind of back benefit and.
In terms of having them assess our squamous cell test and hopefully then also be open and be listening to the melanoma test in terms of where they could actually take charge of after and ordering standpoint. So we do expect both.
Both the.
And the dermatologists, who uses our melanoma test to be the adopter of our squamous cell test.
And we expect to see a minority of clinicians probably mainly most surgeons, who would begin to be interested and hopefully adopt our squamous cell test you could back into seeing the credit the utility around our test. So I think both both wage and benefit us going forward.
Great. Thank you so much.
Right.
Thank you. Our next question comes from the line of Catherine Schulte from Baird. Your line is now open.
Hey, guys. Thanks for the questions and I guess first you've talked about the sales force and sometimes for STC being focused on ordering clinicians rather that volumes can you just comment on and what kind of yardstick therapy measured against.
30% of your existing derm customers be ordering FTE by the end of 2021 or just how would you would catch success there in terms and ordering clinicians by the end of the year.
Oh that sounds like a more than the last answer and you want to.
Yeah.
And I don't know Katherine I don't I don't know if its I don't know if we can give them.
Precision in terms of target for number for us for for numbers.
But what's interesting and what's exciting is that when you have a position that embraces and understands the value of gene expression profile testing for one disease state, it's quite easy to get them to see that value and another and.
So while we have certainly seen the.
And the success of melanoma and make the launch of squamous cell more exciting I think we're going to see the reverse improvement as well I think youre going to have physicians, who order squamous cell first who say I see this value and by the way I've also got melanoma patients and I want the same value there so.
I guess aspirational I think all of the physician should order, both Catherine, but that's probably a bit a bit hopeful but I do think there will be continued to be significant overlap and and as we said most of the orders for squamous came from physicians, who are using and who are users of melanoma. So I think we'll continue to see those two numbers grow fur.
Charlie fairly and lock stuff I would think I don't know what the.
What the specific target and bonuses are set up in terms of number of.
New ordering doctors for FCC and 2021.
Just to be Frank I guess, you should say you should know that number and I don't.
But I think our expectation is that of the 4500 clinicians who roughly all of our tests and <unk> 'twenty 'twenty I guess that was actually the third quarter data and maybe.
Anybody who is seeing.
Invasive cutaneous melanoma is likely to also be seeing squamous cell carcinoma, probably two and a half to three fold times that number so it would be very surprising that at the end of the day not the end of 'twenty. One line to the end of the day. The majority of those decision Dx melanoma customers are not are not also going to be adopting FCC I think.
And as sort of a funny period out.
Coming out of limited face to face meetings, and the fourth and the first quarter of this year, probably tailing and the second quarter and what that really means for kind of full year in person business, we'll see continued acceleration and I would hope.
But our business plan calls for having us to educate as many clinicians as possible about the value of our positioning and FCC test and 'twenty. One so we enter with a much wider base of ordering doctors and we would if we just focused on sort of defining the higher.
And physicians only and being satisfied with the same number of orders coming in and I think thats an important distinction in terms of how our company introduces a test which is clearly going to be transformational in terms of patient care and that sets us up I think for having a wider base of ordering clinicians at the end of 'twenty one for <unk>.
And I should position to grow hard in 'twenty, two 'twenty three 'twenty for post Medicare coverage.
Got it and then you've talked about the potential for launching three to five and task by the end of 2025.
When this year could we learn about what those indications are and when do you think we could potentially see the first ensco's test launch.
First of all the test launch.
I would say I would say 2025, and then you can rotate around that it could be that we see.
Very nice.
Scale up of the R&D efforts and a couple of our early protocols here and this year and next year such that maybe you would might see one or two launch as early as 2020 for but I think safety wise 25 percentage point and time is a good thing to kind of go around.
In terms of timing for sort of discussing specific targets. We're waiting on a couple of data points internally and then.
I thought we would have those conversations here later on and the first part of the year I believe.
Okay, and then last one for me just on the personalized study and what's the.
The expected enrollment for that study and and when do you think that and he could complete and read out.
I think it's a couple of years until we would see a readout and could come as early as.
Later on.
And 2022 relate to this year, but that's probably and aggressive statement to be honest, so I wouldn't put that and hard hearts and hit target wise. This is essentially a study which is taking people who can be treated on label with PD, one inhibitors and assessing the impact of our test and I'll predict outcomes and those patients the.
And.
And when patients arent on therapy, the time to recurrence is about what 1213 years I think from the time of diagnosis for phase III patients through recurrent so it shouldnt be that long and with that in terms of reaching the endpoint, but its too early to kind of low.
And make a hard projection there.
And part of that of course depends upon sort of new patient flow and the sort of COVID-19 time period.
Were you able to get up and running a number of targeted sites last year, we're quite pleased with that but to have patients come back for routine blood exams et cetera. It takes them at a time for that to mature and I think that'll open up quite a bit and.
And the middle of the year going forward.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Max Masucci from Canaccord Genuity. Your line is now open.
Hey, Thanks for taking the questions first one just just Q1 commentary can you just give us a sense, even just directionally for the step up you are seeing and decision Dx melanoma reimbursement under the expanded LCD and are there any factors that might make the modeling exercise for decision Dx melanoma asps.
In 2021, just more complicated than being sort of a black and white process.
Yes, Max so we and the.
Early days here. We are we are seeing that the expanded LCD criteria covers a little over 90% of the other Medicare population.
So that's consistent with where we were.
And where we expected it to be so that's good to see and so that means that of the 45 or so of every 100 patients that are Medicare.
We're getting paid on low forty's or those in general.
And on the commercial side, it's continues to be slow progress.
We have we still do not have.
Positive policy from the Big large major five big players there.
But we are making progress on the regional players and as we continue our track record of publications and and evidence development. We expect to continue to push those over but as we've said before it won't be.
A giant <unk>.
<unk> improvement is going to continue to be blocking and tackling.
Okay, Great and then just bigger picture one just on the Aib's integrated decision Dx melanoma test result.
And this is something that your existing customers may have been asking for.
And then second part does the launch of other mobile App sort of suggests and your positioning the company for success and a post pandemic world when some of the virtual tools and or that are in place to help provide continued access to health care, Mike might remain in place.
And a few questions and there I think.
And last one is yes, I think that we've seen.
Increased wallet and even the prior to Covid.
Within dermatology there are some clinicians who would never pull out their iPhone and for it on something to patients for the across them and they are in their practice and some that would we do see though for instance, and the case of.
Dermatologist.
There are many clinicians who use.
And online app to determine if moses and appropriate and excision approach for people with basal cell or squamous cell carcinomas and thats kind of a a routine app, which is used clinically with patients by the way and we see that with other disease states and dermatology. So part of the sort of feedback that we got even pre COVID-19 was that.
When you guys get enough data to provide an integrated report like this that really takes all the features we think about clinical path logic and gene expression profile and using your test and you roll it into a more precise report, we'd love to see that avail.
Available in terms.
And online and a phone based portal system, so that we can.
Make use of that time with our patients and we're seeing them in person and so I think I think and assay a wave going forward, especially with clinicians under four and under 4500 50 years of age who have grown up and medical school and with that with that approach in terms of education and being part of their lives and that's I think working with the trend.
We do expect that as we gather data with our other tests that we would continue to roll those into the same platform. So that we can provide more and more precise data. The other earlier part of your comment I think if I recall, but I will have you redirect me here when I take a breath was that.
We believe there is a certain approach one should take to developing a a.
A diagnostic or prognostics less test like what castle does and the first thing is to see if you could go from using population based outcome data like staging clinical or pathologic features and if the development of a molecular diagnostic tests and in our case the gene expression profile test.
Actually add value to what you have in front of you. So what's that mean is independent of what the.
And what the Doctor and patient already have and then I think that moves you from a population base to a more personalized basis.
Health care management, which is fantastic is moving even closer and closer to precision based medicine I think as we as we were able to go ahead and successfully generate more prospective consecutively tested patient data and the last year year and a half two years, we were able to validate and independent sample set the first.
Rollout of its integrated tests reported in terms of predicting the Sentinel lymph node positivity rate and individual patients based on using all of these continuous factors both for gene expression profile score as well as the clinical pathologic factors and Thats and Thats really moving I think from personalized to more precise manner.
And approach.
And that's the feedback that we have received through market research earlier this year.
In terms of introducing this new rollout and this new this new.
Way to think about.
Moving again from personalized and much more precision based medicine. So I think this will be a welcome.
<unk>, our next step I guess, you would say and our and the melanoma tests, we have more to do certainly, but it represents a really significant clinical and <unk>.
Forward to really help provide a much more precise single number recommendation with high confidence about what the patient may or may not be facing.
Great. Thanks for the questions.
Okay.
Thank you at this time I am showing no further questions I would like to turn the call back over to Derek Matt and sold.
And for one final statement.
Thank you operator.
Concludes our fourth quarter and full year 2020 earnings call.
And again want to thank you for joining us today and for your continued interest and castle Biosciences.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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