Q3 2023 Castle Biosciences Inc Earnings Call
Good afternoon, and welcome to Castle Biosciences third quarter 2023 Conference call. As a reminder, today's call is being recorded.
We will begin today's call with opening remarks, and introductions followed by a question and answer session.
I would like to turn nickel over to Cabela's, you correct, Vice President Investor Relations and corporate Affairs. Please go ahead. Thank you operator, good afternoon, everyone. Welcome to Castle Biosciences third quarter 2023 financial results Conference call. Joining me today is castle's founder President and Chief Executive Officer, Derek muscle and see.
Financial Officer, Frank Stokes.
Information recorded on this call speaks only as of today November 2nd 2023.
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 statements made today will contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
These forward looking statements include but are not limited to statements about our financial outlook Tam and similar items referenced in our earnings release issued today and statements containing projections regarding future events or our future financial or operational performance, including our anticipated 2023 total revenue and our full year two.
23 to 2025 outlook, our expectations regarding reimbursement for our products and the impact of our investments in growth initiatives and expanded commercial team.
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 Companys annual report on Form 10-K for the year ended December 31, 2022 under the heading risk factors 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. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue adjusted gross margin and adjusted EBITDA that have not been calculated in accordance with generally.
That accounting principles in the United States or GAAP. These non-GAAP items to be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information and assessing our revenue and operating performance reconciliations of these non-GAAP financial measures to the most directly comparable.
GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the Investor Relations page of the Companys website I will now turn the call over to Derek.
Thank you Camilla.
Good afternoon, everyone. As you saw from our announcement a few minutes ago casual delivered yet another outstanding quarter, continuing our track record of strong execution.
Revenue grew by 66% to $61 $4 million in total test report volume grew by 52% compared to the third quarter of 2022.
We achieved these strong results, while generating $5 million in cash flow from operations and $6 6 million and adjusted EBITDA.
Given our consistent performance throughout the year and our confidence in the business. We are again, raising our full year 2023 revenue guidance and now anticipate achieving at least $200 million in revenue an increase of at least 45% over 2022 <unk>.
I attribute our continued strong performance in no small part to the culture, we built a castle and the foundation of this culture is the people who call castle home I cannot thank them enough for their decision to join castle lean in and help drive our success.
Now, let me take you through execution and strategy highlights from the quarter and then Frank will provide additional financial highlights for the period before we turn to your questions.
Let's start with our core dermatology business, which continues to perform extremely well for decision Dx melanoma and decision Dx SCC combined test volume was 11379 growth of 27% year over year for the trailing 12 months as of September <unk>.
<unk> 2023, the combined test volume growth was 33% while compared to the preceding four quarter period. We are very pleased with our third quarter and trailing 12 months volume performance for.
For the three months ended September 30, we had approximately 500, new ordering clinicians that as clinicians ordering our tests for the very first time at approximately 5000 total ordering clinicians across all three dermatologic tests.
As a reminder, there were significant overlap between clinicians who order our decision Dx melanoma test.
And those who are now adopting our decision Dx SCC test in fact during the nine months ended September 32023, approximately 75% of all clinicians ordering decision Dx SCC had also ordered our decision Dx melanoma test during that same period, we believe.
This is a result of the high unmet clinical need that our tests are designed to address coupled with the decision making value, but has acted upon by dermatological providers and the leveraging of our sales efforts across both products effectively.
As it relates to the impact on decision, making I remind you of the results of a multicenter study published in the second quarter of this year from Cleveland Clinic, Northwestern University, and Oregon Health <unk> Sciences Center that showed a direct benefit in outcomes that is survival in patients with early stage melanoma treatment plan.
We're guided by the decision Dx melanoma test results compared to those patients manage at the exact same institutions, whose treatment plans did not include the knowledge of our decision Dx melanoma test results that is untested patients.
For decision Dx melanoma, we delivered 8559 test your portion of third quarter, a 16% year over year increase and roughly flat compared against <unk>, reflecting normal third quarter seasonality. We are pleased by this performance from a patient standpoint, we estimate that we have reached about 25.
Market penetration and we believe substantial growth opportunities are still ahead of us. We believe the most significant drivers of growth are the documented clinical impact our test has on improving outcomes in patients diagnosed with early stage melanoma, coupled with our prior commercial expansion investments intended to educate our customer base.
One of our evidenced development goals is to continue to compare the value of our test to other tools or other tests for patients diagnosed with melanoma, primarily for reimbursement purposes, but also as proactive competitive purposes with our customers in the past this meant focusing on comparing the independence of our decision Dx melanoma test.
To the American Joint Committee on cancer or age ACC staging factors or the national comprehensive cancer networks risk criteria.
Addition to these two risk assessment tools. There is also the existence of Noma grams.
During the third quarter, we announced a new study demonstrating decision Dx melanoma outperformed a noma Graham that was developed at the Memorial Sloan Kettering Cancer Center, and predicting the risk of certain litho positivity in patients with cutaneous melanoma.
This study provides further evidence that using decision Dx melanoma to help guide decisions regarding central to biopsy procedures improves patient selection potentially reducing unnecessary surgical procedures and ultimately improving the care of patients with melanoma.
Similar to decision Dx melanoma, we continue to see strong report volume momentum for our decision Dx SCC test in the third quarter of 2023 with volumes up 72% year over year.
As with our growth in decision Dx melanoma, we believe that our strong growth and volume for decision Dx SCC test is due in large part to the combination of the high clinical need for FCC.
Coupled with the value that our test provides.
We continue to expand the body of evidence surrounding the test. This quarter. For example, we shared new data demonstrating the ability of our decision Dx SCC test to identify patients with localized but high risk cutaneous squamous cell carcinoma, who may benefit as well as those who may not benefit from <unk> right.
<unk> therapy.
Now, let's shift our focus to our gastroenterology franchise and our tissue side for tests that was designed to predict the development of high grade dysplasia or esophageal cancer in patients diagnosed with non dysplastic indefinite or low grade dysplasia bearish esophagus disease.
During the third quarter, we delivered 2829 tissue side for reports compared to 690 in the third quarter of 2022.
As with our decision Dx melanoma and decision Dx SCC test I am pleased to share that during the third quarter, we had multiple data announcements demonstrating a significant clinical utility of tissue cipher and guiding risk align care for patients.
Turning to our mental health franchise, we delivered 2791 <unk>.
To your next test reports during the third quarter of 2023 up from 1208 in the third quarter of 2022.
We are extremely pleased with the momentum thus far including two consecutive quarters of triple digit year over year volume growth. We believe our success is due to a differentiated test, including identifying drug drug and drug gene interactions with lifestyle factors to help improve medication response, and remission rates and a meta health.
Which we believe offer significant opportunity for growth.
In fact recent data from our study showed the addition of drug drug interactions and lifestyle factors to drug gene interactions provided by our <unk> test significantly impacted the number of drug recommendations and contribute to improved or emission rates for patients with moderate to severe depression.
Specifically patients use medication management was guided by our IGN X test were 265 times more likely to achieve remission of depressive symptoms compared to patients who medication was guided by standard of care trial and error approach that is a clinically meaningful.
Improvement to patients suffering from moderate to severe depression.
Moving to our longer term growth initiatives I am excited to share. Some early discovery data on our inflammatory skin disease pipeline program.
As you May recall, we launched the program with the goal of developing a genomic test aimed at guiding systemic therapy selection for patients with moderate to severe atopic dermatitis psoriasis and related conditions.
We are pleased with the early discovery data, which we presented in October at the fall clinical Dermatology conference for instance, the data demonstrated that in patients with moderate to severe atopic dermatitis, where you're able to show that using our noninvasive method of tissue sampling coupled with gene expression profiling can separate out responders from non.
Responders.
Furthermore, our inflammatory skin disease pipeline tests could help distinguish atopic dermatitis psoriasis and mycosis <unk> skin lesions to ensure proper selection based upon an individual patient's molecular profile.
This test has the potential to represent a significant advancement in the care of patients grappling with these debilitating skin conditions.
Importantly, it could empower clinicians to tailor therapy choices by considering their molecular profiles potentially sparing patients undergoing numerous ineffective in costco medication trials for discovering and effective treatment to manage their specific symptoms.
We are encouraged by the data we've generated to date and look forward to providing with additional development updates in 2024 with a test launch targeted for the end of 2025.
Now shifting our focus to a development related to UV melanoma discover.
Discovery data on a potential complementary test is being presented this weekend at the American Academy of Ophthalmology.
As you know UV melanoma is a rare disease with approximately 2000 patients diagnosed annually in the U S.
Our decision Dx UN test as standard of care for newly diagnosed patients and we believe we test about 85% of such patients.
In our ongoing dedication to this patient population. We're currently conducting a study to explore the potential for developing a test that will be tailored for individuals presenting with very small suspicious lesions with uncertain malignant potential there.
The current approach in deciding whether to intervene and treat these suspicious lesions is based on a watch and wait approach.
Where some change in the clinical characteristics of the lesion impromptu decision to definitively treat it and perform a prognostic biopsy.
However, the decision to intervene is highly subjective and can lead to both under treatment or delayed treatment of aggressive lesions and over treatment of lesions that would probably have been filing to follow without any intervention.
We are looking for simple minimally invasive and objective signal that can identify aggressive biology earlier than the current clinical standards in order to allow for potentially earlier interventions we see this.
Potential test.
As a complementary test to our prognostics decision Dx test our data is still in the early stages of discovery, but we expect additional data in 2024, indicating where the development of this type of complementary test may be possible.
Lastly, I am honored to share the castle Biosciences has recently been awarded a top workplaces nationally and award securing a third position among 84 top workplaces in the healthcare sector.
People come first at castle, and our unique culture reflects that mindset.
Our success is not possible without the entire castle team and I would like to express my sincere appreciation for their contributions.
I will now turn the call over to Frank who will provide details relating to our financial results and outlook.
Thank you Derek good afternoon, everyone.
<unk> third quarter revenue was $61 $5 million, an increase of 66% over the third quarter of 2022 overall.
Overall, the increase primarily reflects significant growth in revenue from decision Dx SCC and decision Dx melanoma, driven by ASP growth and strong test adoption through robust clinical evidence.
Adjusted revenue, which excludes the effects of revenue adjustments related to tests delivered in prior periods was $66 million, an increase of 63% over the third quarter of 2022.
Our gross margin during the third quarter was 77, 9% compared to 69, 8% in the third quarter of 2022.
Our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions and revenue associated with test reports delivered in prior periods was 81, 3% for the quarter compared to 76, 2% for the same period in 2022.
Turning to expenses, our total operating expenses, including cost of sales for the quarter were $71 1 million.
This compares to $58 5 million for the third quarter of 2022, and $71 3 million for the second quarter of 2023, the largest driver of the year over year increase in total operating expenses was SG&A expenses, which increased by $8 million compared to 2022 attributable in large part to higher personnel costs <unk>.
Adding bonuses stock based compensation salaries, primarily within the sales and marketing functions.
Cost of sales expense increased by $2 5 million.
Primarily due to increased expenditures on supplies and higher personnel costs associated with the growth in test volume.
<unk> expense increased by $2 million in the third quarter of 2023 compared to 2022, which was attributable to higher personnel costs, driven primarily by expansions in head count in support of our growth and other costs associated with clinical studies.
Total noncash stock based compensation expense, which is allocated among cost of sales R&D expense and SG&A expense totaled $13 million for the third quarter of 2023 compared to $9 2 million for the third quarter of 2022.
The increase was primarily attributable to our annual equity awards granted in December of 2022.
Interest income increased by $1 5 million for the third quarter of 2003 compared to the third quarter of 22, primarily result of higher interest rates and our purchases of marketable investment securities beginning of the third quarter of 2022.
Our net loss for the third quarter of 2023 was $6 9 million.
Compared to a net loss of $20 2 million for the third quarter of 2020 to.
Diluted loss per share for the third quarter was 26.
Compared to diluted loss per share of <unk> 77 in the third quarter of 2022.
Adjusted EBITDA for the third quarter was $6 6 million compared to negative $9 6 million for the comparable period in 2022, an improvement of $16 $2 million.
The substantial year over year improvement reflects strong top line growth along with continued disciplined expense management.
Net cash provided by operating activities was $5 million for the third quarter and net cash used in operating activities was $24 2 million for the nine months ended September 32023.
Net cash used in investing activities was $8 5 million for the nine months ended September 32023, and consisted primarily of purchases of marketable investment securities of $136 7 million in purchases of property and equipment of $9 8 million, partially offset by the maturity of marketable investment securities of 138.
<unk>.
Our balance sheet remains very strong we increased our cash position by more than $4 million in the third quarter of 2023 compared to the second quarter of 2023, ending the quarter with cash cash equivalents in marketable securities of $229 $8 million.
Together with anticipated cash generated from sales of our tests, we expect that our cash operating runway will extend through 2025 at which time, we expect operating cash flow positivity.
As Derek mentioned, we are increasing 2023 revenue guidance to at least $200 million.
Up from at least $180 million.
Importantly, this updated guidance represents an increase of at least $25 million compared to the midpoint of our expectations at the beginning of this year.
Supporting our long range targets for ASP improvements, we continue to make progress for capsules test with commercial and state health plans and expect that to continue over time.
Furthermore, there has been a growing trend of states implementing biomarker state laws with about 14 states with existing laws that will go into effect over the next 14 months.
While implementation and the impact of biomarker laws are still in the initial stages.
We see these developments as a strong statement on the value of Biomarkers and directing treatment plans and applaud the state legislators and governors and supporting improvements in patient treatment plan decisions as a result of biomarker test results.
In conclusion, we had a great quarter from a financial perspective highlighted by strong revenue and test volume growth positive operating cash flow and adjusted EBITDA and a substantial upward revision of our full year expectations I will now turn the call back over to Derek.
Thank you Frank in summary, Q3 was an exceptional quarter with continued strong execution.
Additionally, we're making progress across our pipeline of initiatives. We're excited about our performance through the first three quarters of the year and believe our ability to create value for our stockholders in the near and long term remains intact I would like to conclude today by again thanking our castle team.
Now we'd be happy to take your questions operator.
Thank you in order to allow everyone in the queue and opportunity to address the comes from management team. Please limit your time on the call to one question and only one follow up if you have additional questions. Please return to the key please standby, while we compile the Q&A roster.
Yeah.
Yes.
Our first question today comes from the line of Thomas Flaten with Lake Street. Thomas. Please go ahead. Your line is open.
Thank you Hey, guys I appreciate you taking the questions I was wondering if you could provide us with an update on the Pittsburgh facility in tissue cipher, and whether or not that had anything to do with essentially doubling of volumes from the second quarter to third quarter.
I think we announced.
At a conference in mid September that we had.
Had completed or are scaling expectations that we thought would be completed by the end of the quarter a little early.
And we are beginning to accept new.
New orders from from current customers and as of now that everything is sort of back to normal there. So I think that fee.
The the generation demand that we began seeing in the second quarter.
Certainly.
That backlog as reported now and things are running as normal because I've answered the question Thomas.
Yes, no that's great.
And then if I might the 500, new docs that you brought in our prescribers to the term.
Business was there kind of an even distribution of which product they were coming in for or was it more heavily weighted towards Dx melanoma.
I didn't.
Look at that breakdown did you Frank I. Just noted is that we've done my my assumption.
As we have been running with everything about the earlier commentary there that about.
<unk>.
Of physicians who've been ordering decision.
Decision Dx SCC.
75% of them also order of the melanoma test I assume that ratio is pretty pretty consistent in the third quarter.
Got it appreciate it thank you.
Thank you.
The next question comes from the line of <unk> <unk> with Leerink partners.
Please go ahead your line is open.
Hey, guys. Thanks for taking the questions.
And congrats on a strong quarter here.
Maybe two.
This is maybe Frank or Derek if you could parse out.
What you received in the quarter.
T for FCC.
I recall last quarter, you were expecting you had eliminated that from the second half.
Sort of how should we think about.
Do you see growth in the first half our entertainment that could come that come in the first half of 'twenty four.
Yes.
We don't know if coverage will be in place in the first half 'twenty four fleets.
That's still to be determined, but yes, correct. We did have coverage in place for the third quarter.
And so we were appropriately reimbursed for the value that test during the quarter.
Okay.
And then maybe just a broader question for Derek I mean, I'm sure you had some time to think about.
The FDA regulation and their attempt to regulate the OTT market.
Maybe just walk us through what test that you think you can go easily more easily through the process versus where you need to produce more data or in order to if that process was implemented thank.
Thank you that's a good question puneet.
I think one.
We all have to wait for a little more clarity in specifics from the FDA on their proposed rule, it's a little.
Nebulous from my perspective that being said.
We have in the past looked at sort of the level of evidence and the fda's approach when they were.
Clearing are approving similar kinds of diagnostic tests.
In many instances they deferred to New York State Department of Health Laboratory, permitting and test approvals.
Both of our laboratories.
I think all of our tests, but tissue side for our approved through New York State Department of health tissue Cyber is just a timing thing in terms of when they get around to reviewing it so.
Our perspective has been.
We believe that we have more than adequate data.
That once one understands if the FDA will in fact.
Regulate the laboratory developed test industry, and we were required to or submitted a PMA application that we have that each one of our test is adequate data behind it already published in the public domain.
And certainly the laboratories in both Phoenix, and Pittsburgh already or New York State permitted. So I think we feel pretty comfortable that we have will be more than adequate to go ahead and make that a smooth process for all of the tests.
Got it okay. Thank you.
Yes, Judy Arena.
Our next question comes from Catherine Schulte with Baird.
Catherine. Please go ahead your line is open.
Okay.
Hey, guys. Thanks for the questions.
And just can you clarify what guidance assumes regarding Scranton reimbursement in the fourth quarter can.
Can you confirm you are continuing to receive payments from Nova to US as of today and then you raised guidance by 20 million, but as mentioned earlier I don't think the prior guide include any <unk> revenue in the back half. So was there any guidance raise on the non FCC portfolio was it mostly upside from SBC in the third quarter.
Hey, Katherine Thanks for the question, we don't break out guidance by product, we just give total revenue guidance.
And as we said we were reimbursed appropriately for the value of the test in the third quarter and given the feedback we've gotten we have taken that out for our guidance going forward. So we're not assuming SEC revenue.
Forward looking from here.
Okay got it and then I know Youre still waiting for the final LCD for Nova Thompson decision Dx SCC, but if it turns out it unchanged versus the jobs would that change at all your thoughts on the appropriate sales force size senior care portfolio and scaled back investments until you have better.
Your line of sight to reimbursement.
Yeah, I'll handle that one Kathryn Derek here.
We believe that our current sales forces, which is sitting at around $765 70 people today is appropriately sized for the dermatology marketplace as of today. So even if we only had one test versus two tests in the area managers bags.
That wouldnt change sizing.
At all from our perspective.
There's a question right here.
Okay, great. Thank you.
Our next.
Comes from Nathan <unk> with Stephens.
Please go ahead your line is open.
Hey, guys. Thanks for the questions here congrats on the quarter. So on the strong tissue safer volumes could you give some color on maybe where capacity stands today and how that compares to your expectation of where tissue safer volumes could be next.
Year.
Hey.
Thanks, Yes today.
<unk> for tissue cipher exceeds what we're running.
And our expectation and plan is to make sure that that capacity exceeds what we're running all through next year. So we've got a good targets on what we want to accomplish there and we're ahead of where we need to be to be able to run to satisfy demand for the test.
Okay, great and and given the demand you guys have seen there any updated thoughts on on the commercial team.
How many reps you potentially want to add to that team over the next 12 months or so.
Yes.
Yes.
On tissue cipher, we do think theres, an opportunity to expand the sales effort there given the strong demand for the test I think that as we've discussed before the reception by physicians has been as positive as we expected it to be when we were in the diligence process and so now that we've got.
Some improvement in the capacity of the lab and.
We've.
We've got an option to expand that lab as well. So we feel good about some modest investment in expanded sales force probably.
First half of next year is when I would target that.
Get those reps online and beginning to be productive, it's a great test and the current sales team is doing a great job and in.
Explaining the clinical value to physicians and they're obviously embracing that value. So.
We'll be cautious we'll be judicious, but we do believe there will be an opportunity to add more resources to the marketing effort and energy franchise.
Great. Thanks, Ryan Thanks, guys.
Okay.
Our next question comes from Kyle Nixon with Canaccord Genuity.
Please go ahead your line is open.
Okay.
Hi, This is Alex suggesting online for Carmax and great uptake congrats on the good performance I'm, just kind of getting back.
Yes, Sir.
Reimbursement.
So obviously reorganize the commentary.
Another task ended roughly September <unk> I was just curious regarding its you are able to successfully reenter any data that traditionally use with perhaps some context on our new data prior to the ending of that commentary. Thanks.
I think so.
Can we add more data since the comment period has ended.
Yes.
Yes.
Hi.
Essentially but before the comment period ended I guess.
And since the since the last update.
Yes, so we did submit.
New data.
With our comments.
In early September that was presented.
<unk> in the.
I guess earlier part of August so new data was submitted including I think the most important dataset or two datasets one of them is the is.
The benefit.
Benefits that we have now seen in our SCC test being able to discern patients who are likely to have no benefit or no response.
Two adjuvant radiation therapy, and find those who may or who are likely to get a nice response to agile radiation therapy. That's an important advance in the in the marketplace that nobody has right now for which patients even though they might be eligible for radiation therapy actually will receive a benefit.
Other element that we have that we also presented during the open common meeting and submitted.
Similarly is data from a large 920 patient population study.
To examine.
Within various subgroups.
Subgroups of patients different risk factors.
The risk factor patients hour tests performed and that basically adds value to every one of those subgroups or sub stages of patients, which I think it was also important clinical information to help the medical reviewers understand appreciate the appropriate use of our test in people with one or more risk factors.
Yeah.
Got it.
And one other kind of question here.
You sort of roughly 25% penetrated currently I was curious how you can feel it.
The level of market penetration will evolve.
Over 2024.
But what level you could see.
It did increase until overturn space.
Yeah. So.
<unk>.
I think in the last couple of years, we've seen.
What about three 5% to 4% growth in penetration kind of every 12 to 13 14 months or so is that right, maybe it's maybe 3% to $4 405.
We see no reason why that kind of progress won't continue until maybe we hit.
$50 $60, 65% market penetration. So I think we've got a good runway ramp there now what.
Cause that to go higher or grow more rapidly next year. I guess is the question that we should think about right.
I believe that the more recent data that was published in the late second quarter, both from the NCIC or paper as well as the paper from the from <unk> at all that I talked about in the prepared script are two elements, where you can say hey.
When when when your peers Doctor.
After the use of our tests.
Their patients live longer.
Then when they didn't test them now I would ask you that something that you would want your patients to receive a benefit from as well. So I think that kind of data, which will take time to work into top of mind for our dermatology and surgical customers our colleagues.
That might help accelerate that a bit higher than previous trends, but I think that would be.
What we've seen in the past couple of years.
What we would expect in the next year.
Sure.
Thank you very much.
Our next question comes from Mark Massaro with BTG.
Please go ahead Mark your line is open.
Yes.
Hey, guys congrats on a terrific quarter.
I wanted to ask about obviously theres been a lot of.
There've been a lot of interesting discussions from multiple Medicare contractors, WPS, Palmetto and <unk> I guess.
It would be helpful. If maybe you provided just what your expectations are on timing.
Especially on Palmetto and Nova to US what are the next steps in <unk>.
When do you think we can get an update on any potential changes to the current policies on <unk>.
SEC.
So based upon.
Historical trends with Palmetto.
We have.
Infrequently are very rarely.
Seen reviews go faster than what will be required by the Medicare.
Rules in the Medicare rules, our view need to finalize and post.
A final LCD 365 days afterwards posted or kind of retires or just goes away. So in most cases Palmetto if you just track the data.
LCD as proposed in the data finalize that roughly about a year. So that would mean kind of may of next year is probably the right timing for that they could go faster, but that's out of character.
They usually have operated in the past.
<unk> they don't have a history.
Of really updating or developing new lcd's, that's nearly as robust as palmetto. So that's harder to get a handle around that.
If you just take what they had proposed a year ago with the initial proposed LCD that was about 11 months 10, and a half months as well with a fall the same kind of pathway that's potentially outside number there mark.
Okay. That's super helpful. And then I think you indicated that you are in.
In your guidance Youre, not expecting squamous cell revenue revenue from here.
What I guess what informs that.
That.
That thought process.
Okay.
<unk>.
We got just to give you a feedback from.
A number of those marks from some analysts and some investors as well.
Given the uncertainty around the the LCD processes that are underway that.
The most conservative approach would be to take that out of our guide and so we've taken that advice.
It makes perfect sense.
Last question for me.
You guys are really doing a great job with tissue safer.
What is it I mean, this is 300% plus growth what are some of the drivers here.
Can you maybe just talk about.
In your view what do you think is driving this.
Do you see a path to.
Similar strong trends going forward.
So I would maybe break it down into.
For a three or four elements mark.
One is that.
It's a it's a large population of patients who are being seen either newly diagnosed or re scoped every year and we think thats over 400000 patients. When we were doing diligence. The numbers. We had out of medical claims data was showing more like 300000. So one I just think it's a large underserved patient group that is seeing.
Gastrologist on a regular basis so patients are in the.
Either the endoscopy sweeter than the office being being seen for their bearish esophagus, either newly diagnosed or coming back for repeat surveillance I think the patient flow was there.
Number two is that.
You do have FDA approved devices ablation tools. The most most important one of most I think they have the highest market share one is.
Tool called barracks.
<unk> said that Medtronic markets and manufacturers.
That has been shown in its own clinical trials to be.
Highly effective at sort of killing off bear to soft because lesions and when you do that then they don't progress to cancer, which is the goal.
Now historically, even though they have FDA approval for all grades of dysplasia.
The sort of society guidelines have over the last 10 years sort of see Wow, maybe we should kind of limited to the really really risky group, which includes people with high grade dysplasia, and even that low grade dysplasia. The tissue side of our test is able to take people who have non dysplastic disease, which is the lowest population risk going forward.
And find people, who actually have a a disease.
Progression risk thats higher than low grade dysplasia. So it's a it's a fairly easy linkage for a gas neurologists who says.
I have patients in my own practice, where I'm just was so surprised that they're non dysplastic bearish esophagus lesion progressed to cancer in between visits it just kills me. So they all recognize there's a need there to find those those those those patients in that large non dysplastic group, which makes up about 95% of the overall patient population and.
Most of the people who progressed to cancer now because they are the ones that aren't getting treated and say, but I have on my other hand, an effective tool to eradicate the chance that progressing so it's an easy sort of high unmet clinical need that they have all seen experienced train wrecks that they'd like to catch and they have a tool already available that can go ahead and meet them.
Each of their patients. So that's the second element in terms of timing I think.
Keep it if we if we dial back to third quarter of last year, you'll recall that we were that we hired up initially in January of 2020 to the first sales team for this product they were largely in training in the first quarter. We were also looking at it.
At obtaining ADL status variety of purposes.
And so we think it takes around six months for.
Our sales team to kind of go to be fully effective that would've been right in the third quarter of last year. We also expanded from 14 to 24 sales reps in the fall of 2022, and so the 690 or 90 90 was I think very very solid volume for essentially a team that was just starting and getting his feet going.
And the.
On the reports this quarter just just reflect just just good engine and good demand for it from it from a test going forward.
Excellent I appreciate all the color.
Yes.
We have no further questions I will turn the call back to Derek for closing remarks.
Thank you operator this concludes our third quarter 2023 earnings call.
You again for joining us today and for your continued interest in castle Biosciences.
Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
Yeah.
[music].
Yes.
Sure.
Yes.