Q1 2024 Castle Biosciences Inc Earnings Call
Operator: Good afternoon, and welcome to Castle Biosciences' first quarter 2024 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'd like to turn the call over to Camilla Zuckero, Vice President, Investor Relations, and Corporate Affairs. Please go ahead.
Good afternoon, and welcome to Castle Biosciences first quarter 'twenty to 'twenty four countries call. As a reminder, today's call is being recorded.
Speaker Change: Begin today's call with opening remarks, and introductions, followed by a question and answer session.
Camilla Zuckero: I would like to turn the call over to Camillo Zucker, Vice President Investor Relations and corporate Affairs. Please go ahead.
Camilla Zuckero: Thank you, operator. Good afternoon, everyone.
Camilla Zuckero: Thank you operator, good afternoon, everyone. Welcome to Castle Biosciences first quarter 2024 financial results Conference call. Joining me today is castle's founder President and Chief Executive Officer, Derek Nashville, and Chief Financial Officer, Frank Stokes.
Camilla Zuckero: Welcome to Castle Biosciences' first quarter 2024 financial results conference call. Joining me today is Castle's founder, president, and chief executive officer, Derek Maetzold, and chief financial officer, Frank Stokes. Information recorded on this call refers only as of today, May 2, 2024. 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 following the conclusion of the call.
Camilla Zuckero: Information recorded on this call speak only as of today May seven 2024. Therefore, if you are listening to the replay or reading a 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.
Speaker Change: At the conclusion of the call.
Camilla Zuckero: 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, PAM, 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 2024 total revenue and our 2025 outlook.
Speaker Change: 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.
Speaker Change: These forward looking statements include but are not limited to statements about our financial outlook, Pam 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 2020 for total revenue and our 2020.
Speaker Change: Five outlook.
Camilla Zuckero: Our expectations regarding reimbursement for our products and the impact of our investments in growth initiatives and expanded commercial activities. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties, and there could be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's quarterly report on Form 10-2 for the quarter ended March 31, 2024, under the heading risk factors, and in the company's other documents and reports filed or to be filed with the Securities and Exchange Commission.
Speaker Change: 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 facts.
Speaker Change: And risks could cause actual results to differ materially from those contained in these forward looking statements.
Speaker Change: These factors and other risks and uncertainties are described in detail in the company's quarterly report on Form 10-Q for the quarter ended March 31, 2024 under the heading risk factors and in the company's other documents and reports filed or to be filed with the securities and Exchange Commission.
Camilla Zuckero: 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 growth margin, and adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP. These non-GAAP items should be used in addition to and not as a substitute for any GAAP results.
Speaker Change: 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.
Camilla Zuckero: 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 accepted accounting principles in the United States or GAAP.
Camilla Zuckero: These non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in 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.
Camilla Zuckero: We believe these metrics provide useful supplemental information in 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 table at the end of our earnings release issued earlier today, which has been posted on the investor relations page of the company's website. I will now turn the call over to Derek.
Speaker Change: Tables at the end of our earnings release issued earlier today, which has been posted on the Investor Relations page of the Companys website.
Speaker Change: I'll now turn the call over to Derek.
Derek J. Maetzold: Thank you, Camilla, and good afternoon, everyone. Building on our strength and momentum from 2023, I'm pleased to share that Castle delivered a strong start to the year, growing first quarter revenue by 74% and total test volume by 40% compared to the first quarter of 2023. With our team's consistent execution and successful track record of building a differentiated portfolio of tests across our therapeutic areas, we remain confident in our business and are raising our full year 2024 revenue guidance to $255 to $265 million from the previously reported guidance of $235 to $240 million.
Derek: Thank you Kayla and good afternoon, everyone.
Derek J. Maetzold: Building on our strength and momentum from 2023 I'm pleased to share the castle delivered a strong start to the year.
Derek J. Maetzold: First quarter revenue by 74% and total test volume by 40% compared to the first quarter of 2023 with our teams consistent execution and successful track record of building a differentiated portfolio of tests across our therapeutic areas. We remain confident in our business and are raising our full year <unk>.
Derek J. Maetzold: 24 revenue guidance to $255 million to $265 million.
Derek J. Maetzold: From our previously reported guidance of $235 million to $240 million.
Derek J. Maetzold: Now let me take you through execution strategy highlights in the first quarter and then Frank will provide additional financing highlights before we turn to your question. Starting with our core dermatology business, for DecisionDx Melanoma and DecisionDx SCC combined, test report volume was 11,961 for the first quarter of 2024, a 20% increase over the same period in 2023. We believe our core dermatology offerings continue to present a long-term growth opportunity for us.
Speaker Change: Now let me take you through execution strategy, how that's my first quarter and then Frank will provide additional financing highlights before we turn to your questions.
Derek J. Maetzold: Starting with our core dermatology business for decision Dx.
Speaker Change: <unk> melanoma and decision Dx SCC combined test report volume was 11961 for the first quarter of 2024% to 20% increase over the same period in 2023.
Derek J. Maetzold: We believe our core dermatology offerings continued to present, a long term growth opportunity for us.
Derek J. Maetzold: Studies have shown that these two tests can positively impact patient outcomes and help reduce health care costs. For Decision DX Melanoma, we delivered 8,384 test reports in the first quarter, an 11% year-over-year increase. As we've discussed, driving test adoption through robust clinical evidence remains a priority for us, and this quarter was no exception.
Derek J. Maetzold: Studies have shown that these two tests can positively impact patient outcomes and help reduce healthcare costs.
Derek J. Maetzold: Our decision Dx melanoma, we delivered 8384 test reports in the first quarter and 11% year over year increase.
Speaker Change: As we've discussed driving test adoption through robust clinical evidence remains a priority for us. This.
Speaker Change: This quarter was no exception.
Derek J. Maetzold: As you know, our Decision DX melanoma test has two clinical uses, ruling out a Sentinel-Lifto biopsy surgical procedure and predicting risk of recurrence so that patients can have their treatment pathways adjusted to be more aligned with their biological risk of progression. While one could view these two uses as separate and parallel, the use of our test to rule out a sentimental biopsy surgical procedure must be accompanied with evidence that avoiding this procedure will not put patients in harm's way.
Speaker Change: As you know our decision Dx melanoma test has two clinical uses ruling out a sentinel lymph node biopsy surgical procedure and predicting risk of recurrence. So that patients can have their treatment pathways suggested to be more aligned with our biological risk of progression.
Speaker Change: While one could view. These two uses of separate in parallel the use of our test to rollout, except once a biopsy surgical procedure must be accompanying with evidenced that avoiding his procedure, what I'll put them in harm's way that is that they have an excellent prognosis should they choose to avoid some of the biopsy surgical procedure.
Derek J. Maetzold: That is, if they have an excellent prognosis, should they choose to avoid the sentimental biopsy surgical procedure? To this end, I'm pleased to review data from an oral presentation that took place at the March 2024 meeting of the Society of Surgical Oncology. At this meeting, data was presented from one of our multi-center prospective U.S.-based studies. The data examining the performance of decision DX melanoma in safely ruling out a sentinel lymph node biopsy surgical procedure showed that patients with a T1 or T2 melanoma and predicted to have less than a 5% likelihood of a positive sentinel lymph node by our test, No patients as of the date Although predicted to have a less than 5% likelihood of a positive node, it actually had a positive node.
Derek J. Maetzold: To this end I am pleased to review data from an oral presentation that took place at the March 2024 meeting of the society of surgical oncology.
Derek J. Maetzold: That's a negative predictive value of 100% for this use of our test. But as I noted earlier, and this is clinically important, the study also examined the recurrence of patients who were predicted to have a less than 5% likelihood of a positive node and chose to forego that surgical procedure, as well as patients who were also predicted to have a less than 5% likelihood of a positive node but who, for personal preference, chose to undergo that surgical procedure anyway.
Derek J. Maetzold: At this meeting data was presented from one of our multicenter prospective U S. Based studies the data examining the performance of our decision Dx melanoma and safely rolling out a similar to biopsy surgical procedure showed that patients with a T. One or T. Two melanoma and predicted to have less than a 5% likelihood.
Derek J. Maetzold: I have a positive sentinel lymph node by our test.
Derek J. Maetzold: No patients as of the date of the data pull for this presentation.
Speaker Change: Does it have to have a less than 5% likelihood of a positive node actually had a positive note. That's a negative picture value of 100 per cent for this use of our test.
Derek J. Maetzold: But as I noted earlier and as clinically important. This study also examined the recurrence of patients who are predicted to have a less than 5% likelihood of a positive node and chose to forego that surgical procedure as well as patients who are also really good to have less than 5%, let's say very positive node, but who for personal preference chose to undergo that.
Derek J. Maetzold: Surgical procedure anyway.
Derek J. Maetzold: I'm pleased to say that both of these groups were recurrence-free during the follow-up period, which had a median follow-up of two years. That is, in these two patient populations, our tests had a negative predicted value of 100% for risk of recurrence. This is powerful data that shows the exceptional clinical value that decision-de-action melanoma brings to improving patient care decisions and outcomes. In February, we announced a peer-reviewed publication of study data showing that decision BX melanoma provided significantly better risk stratification than the current American Joint Committee on Cancer staging system in patients with stage one melanoma. This is an important patient group as it represents the largest group of melanoma patients. This publication reports the results of two large Stage 1 cohort studies, including 5,561 patients from the National Cancer Institute's SEER program.
Derek J. Maetzold: I'm pleased to say that both of these groups were recurrence free during the follow up period, which had a median follow up of two years that is in these two patient populations are tests had a negative predicted value of 100 per se for risk of recurrence. This is powerful data that shows the exceptional clinical value that decision.
Derek J. Maetzold: Dx melanoma brings to improving patient care decisions and outcomes.
Derek J. Maetzold: Separately in February we announced a peer reviewed publication of study data showing that decision Dx melanoma provided significantly better risk stratification than the current American joint Committee on cancer staging system in patients with stage. One melanoma. This is an important patient group as it represents the largest.
Derek J. Maetzold: Group of melanoma patients.
Derek J. Maetzold: This publication reports the results of two large stage, one cohort studies, including 5561 patients from the National Cancer Institute Seer program.
Derek J. Maetzold: This study supports the use of a Decision DX melanoma test in Stage 1 melanoma to obtain more precise information about a patient's risk of disease progression to, again, inform more personalized, risk-aligned treatment and surveillance management plans. Looking ahead, we will certainly be focusing our educational efforts on these highly compelling data, along with the findings from our two publications in 2023 that highlighted the fact that the clinical use of our DecisionDx melanoma test correlated to improved patient outcomes. That is, patients lived longer compared to those patients who did not have DecisionDx melanoma included as part of their clinical care. That is, they were untested.
Derek J. Maetzold: This study supports the use of our decision Dx melanoma test in stage, one melanoma to obtain more precise information about a patient's risk of disease progression to again inform more personalized risk align treatment and surveillance as a class.
Derek J. Maetzold: Looking ahead, we will certainly be focusing our educational effort on these highly compelling data along with our findings from our two <unk>.
Derek J. Maetzold: Publications in 2023 that highlight the fact that the clinical use of our decision Dx melanoma test correlated to improve patient outcomes that is patients live longer compared to those patients who did not have decision Dx melanoma included as part of their clinical care that is they were untested.
Derek J. Maetzold: Moving on to our DecisionDx SCC test, we continue to see strong report volume momentum, with 3,577 test reports delivered in the first quarter, an increase of 48% compared to the same period in 2023. DecisionDx SCC continues to be supported by a robust and growing body of evidence. We are particularly excited about a study published in March of this year that showed, in addition to providing risk stratification information, our DecisionDx SCC test identified patients most likely to benefit from adjuvant radiation therapy, or ART for short, and those who can consider deferring treatment given a lower likelihood of benefit.
Derek J. Maetzold: Moving on to our decision Dx SCC test, we continue to see strong report volume momentum with 3577 test reports delivered in the first quarter, an increase of 48% compared to the same period in 2023 decision Dx SCC continues to be supported by a robust and growing.
Speaker Change: We have evidence we are particularly excited about a study that was published in March of this year that showed in addition to providing risk stratification information our decision Dx SCC test identified patients most likely to benefit from adjuvant radiation therapy or <unk> for short and those who can consider deferring tree.
Speaker Change: And then give them a lower likelihood of benefit. This <unk> response data as a high clinical importance for a couple of reasons first.
Derek J. Maetzold: This ART response data is of high clinical importance for a couple of reasons. First, ART has been shown to be an effective adjunctive intervention in patients with high-risk SCC. However, some high-risk SCC patients are either not responsive to ART, or the likelihood of metastasis is lower than predicted by their clinical pathological risk factors. In either case, these patients can be subjected to ART, which carries both significant complications as well as costs.
Derek J. Maetzold: <unk> has been shown to be an effective adjuvant intervention in patients with high risk FCC. However, some high risk FCC patients are either not responsive to a R. T.
Derek J. Maetzold: The likelihood of metastasis is lower than predicted by their clinical pathologic risk factors in either case. These patients can be subject to a R T, which carries both significant complications as well as cost so the ability of our decision Dx SCC test to assist in identifying those who are likely not to benefit from a R. T.
Derek J. Maetzold: So the ability of our decision in the SCC test to assist in identifying those who are likely not to benefit from ART from those who are likely to benefit from ART has high clinical actionability. Furthermore, based on our three-year real-world data, more than 98% of the patients that we test clinically are eligible for ART consideration under one or more of the existing guidelines. Importantly, this was the third peer-reviewed study published since the start of 2024 demonstrating DecisionDx SCC's clinical and or economic value in guiding ART decisions in the high-risk cutaneous squamous cell carcinoma patient population. Now, let's turn to our gastroenterology franchise.
Camilla Zuckero: From those who are likely to benefit from IRT has high clinical action ability. Furthermore, based off of our three year real world data more than 98% of the patients that we test clinically are eligible for consideration under one or more of the existing guidelines.
Derek J. Maetzold: Importantly, this was the third peer reviewed study published since the start of 2024, demonstrating decision Dx SCC is clinical and economic value and guiding our decisions and the high risk cutaneous squamous cell carcinoma patient population.
Derek J. Maetzold: Now, let's turn to our Gastroenterology franchise during the first quarter of 2024, we delivered 3429 tissue ciphertext reports compared to 1383 in the first quarter of 2023, which is 148% growth.
Derek J. Maetzold: During the first quarter of 2024, we delivered 3,429 tissue cipher test reports compared to 1,383 in the first quarter of 2023, which is 148% growth. As a reminder, we believe the total market opportunity encompasses approximately 415,000 patients annually who meet the intended use criteria for this test, representing an estimated U.S. addressable marketplace of approximately $1 billion. As such, we believe our tissue cipher test represents a significant long-term growth opportunity as we're in the very early stages of marker penetration.
Derek J. Maetzold: As a reminder, we believe the total market opportunity encompasses approximately 415000 patients annually, who meet the intended use criteria for this test representing an estimated U S addressable marketplace of approximately $1 billion.
Derek J. Maetzold: As such we believe our tissue cipher tests, representing a significant long term growth opportunity as we are in the very early stages of that market penetration we're.
Derek J. Maetzold: We're excited about the growth prospects of the test, and we are equally pleased by its clinical utility to determine a patient's individual risk of progression from Barrett's esophagus to cancer. Turning to our mental health business, we delivered 4,078 IDGNX test reports in the quarter compared to 2,150 in the first quarter of 2023, which is 90% growth year over year. We believe the ongoing momentum we're experiencing is in part driven by our unique value proposition.
Derek J. Maetzold: We're excited about the growth prospects of the test and we are equally pleased by its clinical utility to determine a patient's individual risk of progression from bearish esophagus to cancer.
Derek J. Maetzold: Turning to our mental health business, we delivered 4078.
Derek J. Maetzold: Your next test reports in the quarter compared to 2150 in the first quarter of 2023, which is 90% growth year over year.
Derek J. Maetzold: We believe the ongoing momentum we're experiencing is in part driven by our unique value proposition in fact data shows that using our test, which considers a combination of drug gene drug drug and lifestyle factors contributed greater remission and greater relapsed control in patients with major depressive disorder and anxiety that nitrile.
Derek J. Maetzold: In fact, data shows that using our tests, which considers a combination of drug-gene, drug-drug, and lifestyle factors, contributes to greater remission and greater relapse control in patients with major depressive disorder and anxiety than the trial and error method of therapy selection. Further, we recently announced new data showing that while two-thirds of IGNX recommendations for patients ages 65 and older were due to drug-gene interactions, one-third were due to drug-drug or lifestyle factor interactions.
Derek J. Maetzold: Air methods of therapy selection.
Derek J. Maetzold: We recently announced new data showing that while two thirds of <unk> recommendations for patients, aged 65, and older where due to drug gene interactions.
Derek J. Maetzold: <unk> due to drug drug or lifestyle factor interactions.
Derek J. Maetzold: Highlighting the value of the IGNX 3-in-1 approach to providing tailored guidance for neuropsychiatric medication selection. Moving on to our pipeline, we're making good progress with our inflammatory skin disease pipeline initiative and expect to provide you with additional updates in the second half of this year. This pipeline genomic test for patients with moderate to severe atopic dermatitis, psoriasis, and related conditions is targeted for launch by the end of 2025, assuming a positive outcome of our discovery, development, and validation efforts.
Derek J. Maetzold: Highlighting the value of the <unk>, three and one approach to providing tailored guidance for neuropsychiatric medications selection.
Derek J. Maetzold: Moving on to our pipeline, we're making good progress our inflammatory skin disease pipeline initiatives and expect to provide you with additional updates in the second half of this year.
Derek J. Maetzold: This pipeline genomic tests for patients with moderate to severe atopic dermatitis psoriasis are related conditions is targeted for launch by the end of 2025, assuming a positive outcome of our discovery development and validation efforts.
Derek J. Maetzold: Lastly, I'm honored to share that for the third year in a row, Castle has earned a Top Workplace USA Award, underscoring our position as a leader in creating an exemplary workforce culture. I want to thank each and every member of the Castle team for their continued hard work. I will now turn the call over to Frank, who will provide details relating to your financial results.
Derek J. Maetzold: Lastly, I monitor share that for the third year in a row Castle has earned a top workplace USA award underscoring our position as a leader in creating an exemplary workforce culture.
Frank: I want to thank each and every member of the castle team for their continued hard work.
Derek J. Maetzold: I'll now turn the call over to Frank who will provide details relating to our financial results.
Frank Stokes: Thank you, Derek, and good afternoon, everyone. As Derek highlighted, we delivered excellent financial results to start the year. Revenue was $73 million for the first quarter of 2024, an increase of 74 percent over the first quarter of 2023. The increase was driven by higher ASPs and test volume growth. I'd note the first quarter 2024 volume reflects our historical quarter over quarter seasonality, which is flat over the fourth quarter. Further impacting our first quarter 2024 volume is the timing of our national sales meeting, which occurred in the first quarter this year, compared to the third quarter in previous years. Historically, the second quarter sees growth sequentially over the first quarter, and we expect the second quarter of 2024 to follow our typical second quarter volume trend.
Frank: Thank you Derek and good afternoon, everyone as Derek highlighted we delivered excellent financial results to start the year.
Frank Stokes: Revenue was $73 million for the first quarter of 2024, an increase of 74% over the first quarter of 2023.
Frank Stokes: The increase was driven by higher Asp's.
Frank Stokes: Test volume growth.
Frank Stokes: First quarter 2020 for volume reflects our historical quarter over quarter seasonality that is flat over the fourth quarter further impacting our first quarter 2020 for volume as the timing of our national sales meeting, which occurred in the first quarter. This year compared to the third quarter in previous years historically, the second quarter sees grow sequentially over the first quarter and we expect.
Frank Stokes: Second quarter 2020 forward to follow our typical second quarter volume trends.
Frank Stokes: Adjusted revenue, which excludes the effects of revenue adjustments in the current period related to tests delivered in prior periods, was $71.3 million for the first quarter of 2024, an increase of 64 percent over the first quarter of 2023. Our gross margin during the first quarter of 2024 was 77.9 percent compared to 70.5 percent in the first quarter of 2023. And our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions and excludes the effects of revenue adjustments in the current period associated with test reports delivered in prior periods, was 80.5 percent for the quarter compared to 76.5 percent for the same period in 2023, an improvement of 400 basis points.
Frank Stokes: Adjusted revenue, which excludes the effects of revenue adjustments in the current period relating to tests delivered in prior periods with $71 3 million for the first quarter of 2024, an increase of 64% over the first quarter of 2023.
Frank Stokes: Our gross margin during the first quarter of 2024 was 77, 9% compared to 75% in the first quarter of 2023 and.
Frank Stokes: And our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions and excludes the effects of revenue adjustments in the current period associated with test reports delivered in prior periods was 85% for the quarter compared to 76, 5%. The same period in 2023, an improvement of 400 basis.
Frank Stokes: Turning to expenses, our total operating expenses, including cost of sales, for the first quarter of 2024 were $78.4 million, compared to $73.6 million for the first quarter of 2023. Sales and marketing expenses were $30.5 million, compared to $29.9 million for the same period in 2023. The increase is mainly due to higher expenses for training events and speaker conferences and expenses for salary and wages, partially offset by lower expenses for travel and lower stock-based compensation expense.
Frank Stokes: Since.
Frank Stokes: Turning to expenses, our total operating expenses, including cost of sales for the first quarter of 2024 were $78 4 million compared to $73 6 million for the first quarter of 2023.
Frank Stokes: Sales and marketing expenses were $30 5 million compared to $29 9 million for the same period in 2023. The increase is mainly due to higher expense for training events, a speaker conferences that expenses for salary and wages, partially offset by lower expense for travel and lower stock based compensation expense.
Frank Stokes: General and administrative expenses were $18 million compared to $16.8 million for the same period in 2023. The increase is primarily attributable to higher expenses for professional services, higher general administrative costs, and higher salaries and wage expense, partially offset by lower stock-based compensation expense. Cost of sales expenses were $13.9 million in the first quarter of 2024, compared to $10.2 million in the first quarter of 2023, an increase of $3.7 million, primarily due to higher personnel costs and increased expenditures on supplies.
Frank Stokes: General and administrative expenses were $18 million.
Frank Stokes: Compared to $16 8 million for the same period in 2023. The increase was primarily attributable to higher expense for professional services higher general administrative costs and higher salaries and wage expense, partially offset by lower stock based compensation expense.
Frank Stokes: Cost of sales expenses were $13 9 million in the first quarter of 2024 compared to $10 2 million in the first quarter of 2023, an increase of $3 $7 million, primarily due to higher personnel costs and increased expenditures on supplies.
Frank Stokes: The increase in personnel costs primarily consists of higher salaries and wages, employee benefits, and bonuses reflecting headcount additions made to support business growth, as well as merit and annual inflationary wage adjustments for existing employees. Supply and service expenses increased largely due to our higher test volume.
Frank Stokes: The increase in personnel costs, primarily consist of higher salaries and wages employee benefits and bonuses, reflecting head count additions made to support business growth as well as merit and annual inflationary wage adjustment for existing employees supply and service expenses increased largely due to our higher test volumes.
Frank Stokes: R&D expenses were $13.8 million in the quarter compared to $14.4 million for the same period in 2023, primarily consisting of lower clinical study expenses and advisory board services, partially offset by higher personnel costs. Total non-cash stock-based compensation expense, which is allocated among cost of sales, R&D, and SG&A, totaled $12.7 million for the first quarter of 2024, down from $13.5 million for the first quarter of 20 Interest income increased by $0.7 million in the first quarter of 2024 compared to the first quarter of 2023.
Frank Stokes: <unk> expenses were $13 8 million in the quarter compared to $14 4 million for the same period in 2023.
Frank Stokes: Primarily consisting of lower clinical studies expenses and advisory Board services, partially offset by higher personnel costs.
Frank Stokes: Total noncash stock based compensation expense, which is allocated among cost of sales R&D and SG&A totaled $12 7 million for the first quarter of 2024 down from $13 5 million for the first quarter of 2023.
Frank Stokes: The increase primarily reflects higher interest rates earned on our cash equivalents and our purchases of marketable investment securities beginning in the third quarter of 2022. Our net loss for the first quarter of 2024 was $2.5 million, compared to a net loss of $29.2 million for the first quarter of 2023. Diluted loss per share for the first quarter of 2024 was $0.09 compared to diluted loss per share of $1.10 in the first quarter of 2023.
Frank Stokes: Interest income increased by $7 million for the first quarter of 2024 compared to the first quarter of 2023. The increase primarily reflects higher interest rates earned on our cash equivalents and our purchases of marketable investment securities beginning in the third quarter of 2022.
Frank Stokes: Our net loss for the first quarter of 2024 was $2 5 million compared to a net loss of $29 2 million for the first quarter of 2023.
Frank Stokes: Diluted loss per share for the first quarter of 2024 was <unk> <unk>.
Frank Stokes: Compared to diluted loss per share of $1 <unk> in the first quarter of 2023.
Frank Stokes: Adjusted EBITDA for the first quarter of 2024 was $10.5 million compared to negative $15.1 million for the first quarter of 2023, an improvement of $25.6 million. This substantial year-over-year improvement primarily reflects strong top-line growth along with continued disciplined expense management. Net cash used in operating activities was $6.8 million for the first quarter of 2024, due in part to annual cash bonus payments and certain health care benefit payments that are not expected to recur during the remaining three quarters of 2024.
Frank Stokes: Adjusted EBITDA for the first quarter of 2024 was $10 5 million.
Frank Stokes: Compared to negative $15 1 million for the first quarter of 2023, an improvement of $25 6 million.
Frank Stokes: The substantial year over year improvement primarily reflects strong top line growth along with continued disciplined expense management.
Frank Stokes: Net cash used in operating activities was $6 8 million for the first quarter of 2024 due in part to annual cash bonus payments at certain health care benefit payments that are not expected to recur during the remaining three quarters of 2024.
Frank Stokes: Net cash used in investing activities was $19.7 million for the first quarter and consisted primarily of purchases of marketable investment securities of $60.8 million and purchases of property and equipment of $9.2 million, partially offset by the maturity of marketable investment securities of $50.2 million. Net cash provided by financing activities was $10.6 million for the three months ended March 31, 2024, and it consisted primarily of $10 million of proceeds from the issuance of long-term debt and $1.1 million of proceeds from contributions to our 2019 employee stock purchase plan, partially offset by the $0.5 million payment of employee taxes attributable to the vesting of restricted stock units.
Frank Stokes: Net cash used in investing activities was $19 7 million for the first quarter and consisted primarily of purchases of marketable investment securities of $60 8 million in purchases of property and equipment of $9 $2 million, partially offset by the maturity of marketable investment securities of $50 $2 million.
Frank Stokes: Net cash provided by financing activities was $10 $6 billion for the three months ended March 31 2024.
Frank Stokes: Consisted primarily of $10 million of proceeds from issuance of long term debt and $1 $1 million of proceeds from contributions to our 2019 employee stock purchase plan, partially offset by the $5 million payment of employee taxes attributable to the vesting of restricted stock units.
Frank Stokes: We ended the quarter with cash, cash equivalents, and marketable securities of $239.2 million. As Derek mentioned, we are raising our 2024 revenue guidance to $255 to $265 million, up from $235 to $240 million, reflecting strong first quarter execution. In conclusion, we're very pleased with our execution in the first quarter of 2024, highlighted by strong revenue and test volume growth and an upward revision of our full-year revenue expectations. I'll now turn the call back over to Derek.
Frank Stokes: We ended the quarter with cash cash equivalents and marketable securities of $239 $2 million.
Frank Stokes: As Derek mentioned, we are raising our 2020 for revenue guidance to 255 million to $265 million up from $235 million to $240 million, reflecting strong first quarter execution.
Frank Stokes: In conclusion, we're very pleased with our execution in the first quarter of 2024 highlighted by strong revenue and test volume growth and an upward revision of our full year revenue expectations I will now turn the call back over to Derek.
Derek J. Maetzold: Thank you, Frank. In summary, the first quarter marked an excellent start to the year with strong execution across the company. I'd like to conclude today by thanking our CASEL team. Thank you for your continued interest in Castle. Now, we will be happy to take your questions, Operator.
Derek: Thank you Frank in summary, the first quarter, Mark an excellent start to the year with strong execution across the company.
Derek J. Maetzold: Like to conclude today by thanking our castle team.
Derek J. Maetzold: Thank you for your continued interest in castle.
Derek J. Maetzold: Now we will happy to take your questions operator.
Operator: Thank you. In order to allow everyone in the queue an opportunity to address the castle management team, please limit your time on the call to one question and one follow-up only. If you have additional questions, please return to the queue. Please stand by while we compile the Q&A roster. Our first question comes from Sabu Nambi with Guggenheim. Your line is open, please go ahead.
Speaker Change: Thank you in order to allow everyone in the queue and opportunity to address the console management team. Please limit your time on the call to one question and one follow up I don't know.
Operator: If you have additional questions. Please return to the queue. Please.
Operator: Please standby, while we compile the Q&A roster.
Subhalaxmi T. Nambi: Our first question comes from <unk> <unk> with Guggenheim. Your line is open. Please go ahead.
Subhalaxmi T. Nambi: Hey, thank you for taking my questions. Could you provide initial thoughts on how we should think about Q2 across the different products? The typical seasonality for DERM, but how should we think about tissue cipher, and ID genetics? And we should still assume no revenue for SEC, right?
Subhalaxmi T. Nambi: Thank you for taking my questions.
Subhalaxmi T. Nambi: Could you provide initial thoughts on how should we think about Q2 across the different products.
Subhalaxmi T. Nambi: Seasonality called them, but how should we think about tissue type of IV genetics, and we should still assume no revenue for that right.
Derek J. Maetzold: Yeah, so we, the guy just only has SCC through this month, through May, and we, you know, we're still early in TC and ID genetics, so I'm not sure that we're feeling seasonality yet in those two products. But in the case of tissue cipher, we probably need, you know, maybe one more quarter to be able to be a little bit more accurate in our modeling there, just because, as you recall, we had the pause in orders in the second and third quarter last year, so we're probably seeing that just beginning to normalize. So, we're liking what we're seeing. I don't know, there may be seasonality there, but we're probably not able to model that in just yet.
Subhalaxmi T. Nambi: Yes.
Subhalaxmi T. Nambi: The guide is only has FCC through this month.
Derek J. Maetzold: Through may.
Derek J. Maetzold: And we are still early in the <unk> and TC NID genetics, so im not sure that we're feeling.
Derek J. Maetzold: Seasonality, yet and those those two products.
Derek J. Maetzold: But.
Derek J. Maetzold: In the case of tissue cipher, we probably need maybe one more quarter to be able to be a little bit more accurate in our modeling there just because we as you recall, we had the pause in orders in the <unk>.
Derek J. Maetzold: Second third quarter last year.
Derek J. Maetzold: So we're probably seeing that just beginning to normalize so we're liking what we're seeing there may be seasonality there but.
Derek J. Maetzold: We're probably not not able to model that in just yet.
Subhalaxmi T. Nambi: Got it. Thank you. And then on the LTT final rule, I think we all have clarity, but just any additional thoughts, given that all your current marketed proprietary tests are all approved under New York CLEP, could you provide any additional color just specifically on tissue cipher, which has conditional approval? And my understanding is it still is under coverage, but any thoughts there? Yeah.
Speaker Change: Got it. Thank you and then on LCD financially I think they all have clarity, but just any additional comments given that all your current marketed proprietary tests are all approved under New York Cliff could you provide any additional color just specifically on the tissue side, clearly China conditional approval and my understanding is it still.
Subhalaxmi T. Nambi: <unk> is under coverage, but any any thoughts there.
Derek J. Maetzold: Yes, our Pittsburgh laboratory, which is where tissue cipher is run out of the past, I guess it's the New York City inspection as a permanent laboratory. But conditional approval for tissue cipher is the timing process with New York State, as I understand that. So given the FDA language of New York State Department of Health approval and additional approval, I think all of our marketed proprietary tests are in good shape.
Speaker Change: Yes, so our Pittsburgh laboratory work tissue cipher has run out of.
Derek J. Maetzold: Past I guess, that's the New York City inspection was a permanent laboratory the conditional approval for tissue ciphers timing process with New York State as I understand that so given the FDA language.
Derek J. Maetzold: In New York City proper health approval initial approval I think all of our marketed proprietary tests are in good shape.
Derek J. Maetzold: Okay.
Kyle Alexander Mikson: Our next question comes from Kyle Mixon with Canaccord Genuity. Your line is open. Please go ahead.
Derek J. Maetzold: Our next question comes from Carl Mixon with Canaccord Genuity. Your line is open. Please go ahead.
Frank Stokes: Hey guys, thanks for the questions. Congratulations on the quarter. Um, yeah, I guess, I guess, Frank, why, um, why the decision to exclude SEC past May? Why is May the right month, I guess, in June, to think about that? And then maybe, for Derek, does the recent publication and the guidelines for SEC make a difference with reimbursement over time, like maybe, like, post this, like in the aftermath of the decision?
Kyle Alexander Mikson: Hey, guys. Thanks for the questions congrats on the quarter.
Frank Stokes: Yes, I guess I guess, Frank why why the decision to exclude SEC past Mei why has made the right month I guess in June to think about that and then maybe for Derrick does the recent publication in the guidelines for FCC make a difference with reimbursement over time like maybe like post this look in the aftermath of the decision.
Frank Stokes: Thanks.
Derek J. Maetzold: Sure. I'll go first, Kyle. I mean, we could, you know, we could pick any month, right? We just know where we are now, and so that's the, we've got visibility into May, and so that's, you know, given the uncertainty in timing, that's where we pick to put the pen in it.
Frank Stokes: Sure I'll go first call I mean, we could.
Derek J. Maetzold: We could pick any any month rate.
Derek J. Maetzold: We know where we are now and so that's the we've got visibility on may and so that's given.
Derek J. Maetzold: Given the uncertainty and timing.
Derek J. Maetzold: Where we were where we picked up.
Derek J. Maetzold: Put the pin in it.
Derek J. Maetzold: Regarding the measure I discussed on the call earlier, Kyle, so we actually had four, or we saw four different publications come out around SCCI, the primary publications, or one was an expert panel slash consensus review recommendation on clinical use of the test. On the one I highlighted on the call, which was really the one focusing on the use of our test to predict therapy response to adjuvant radiation therapy, that's a pretty significant manuscript because
Derek J. Maetzold: Regarding.
Derek J. Maetzold: The master by discussed on the call earlier trial.
Derek J. Maetzold: So we actually had four are we saw four different publications come out.
Derek J. Maetzold: Around FCC, either primary or publications.
Derek J. Maetzold: One was an expert panel slash consensus review recommendation on clinical use of a test on the what I highlighted on the call which was related to one focusing on <unk>.
Derek J. Maetzold: The use of our test to predict.
Derek J. Maetzold: Therapy response to adjuvant radiation therapy, that's a pretty significant manuscript because.
Derek J. Maetzold: More than 98% of the patients that we test clinically today are eligible for adjuvant radiation therapy under one or more of the society guidelines out there, including NCCN. So that is our population that we're testing, and the ability to rule out a substantial number of patients, a majority actually, who we would predict would not receive a clinically discernible benefit really has a great impact on patient care in terms of reducing complications through unnecessary procedures and also has a great savings to the Medicare trust fund since these are mainly Medicare-based patients.
Derek J. Maetzold: More than 98% of the patients that we test clinically today.
Derek J. Maetzold: Our eligible for agile radiation therapy under one or more of a society guidelines out there including in CCM. So that is our population that we're testing and the ability to roll out.
Derek J. Maetzold: A substantial number of patients the majority actually who we.
Derek J. Maetzold: We would predict would not receive a clinically discernible benefit really has a great impact on patient care in terms of reducing complications through unnecessary procedure and also has a great savings to the Medicare Trust fund since these are mainly Medicare based patient so.
Derek J. Maetzold: So, from a coverage perspective, if this article and these other three articles are not included in the reviews of any final LCD, these would certainly be clinically relevant articles to reopen or challenge or initiate a reconsideration process, at least in our eyes.
Derek J. Maetzold: From a.
Derek J. Maetzold: Coverage perspective.
Derek J. Maetzold: If this article in these three article three articles are not included in the reviews of any final LCD. These would certainly be clinically relevant articles too.
Derek J. Maetzold: To reopen up our challenger or initiate a reconsideration process.
Derek J. Maetzold: And our eyes.
Derek J. Maetzold: Yeah.
Kyle Alexander Mikson: Okay, that was great, guys. Just a quick one.
Speaker Change: Okay that was great guys, just a quick one.
Kyle Alexander Mikson: The dermatology Asps increased 40% a year I think that makes sense given I think recent SEC ASP trends were pretty good but it's also a 13% sequential increase from the fourth quarter. So whats.
Kyle Alexander Mikson: What's driving some of these moves this movement and can we see similar double digit increases quarter over quarter going forward.
Kyle Alexander Mikson: I wouldn't I wouldn't model that level of increase going forward.
Speaker Change: We had some good progress on on.
Kyle Alexander Mikson: Collections and we did have some.
Kyle Alexander Mikson: Earlier claims prior period claims that we collected at a higher rate than we had anticipated.
Kyle Alexander Mikson: Which accounted for some of the out of period or prior period revenue, but we're.
Kyle Alexander Mikson: We're continuing to make progress but.
Speaker Change: My expectation is it's slow and steady rather than than accelerating.
Frank Stokes: The dermatologic ASP increased 40% a year. I think that makes sense, given, I think, at recent SECs, ASP trends were pretty good. But it's also a 13% sequential increase from the fourth quarters. So, um, you know, what's driving some of this movement? And can we see similar double digit increases quarter over quarter going forward?
Kyle Alexander Mikson: We now turn to some Jinan with Scotiabank. Your line is open. Please go ahead.
Frank Stokes: Hey, this is Cory rosenbaum on for <unk>, Thanks for taking my questions.
Frank Stokes: So regarding the final rule on the Fda's L. D T regulation they recognize your existing products are not affected.
Frank Stokes: Obviously, the rule will take multiple years.
Frank Stokes: And they may face hurdles along the way.
Frank Stokes: But does this change your strategy or the timeline for your development pipeline, specifically for the inflammatory skin disease products I know it might be too early to tell but any insight here would be great.
Frank Stokes: I wouldn't model that level of increase going forward. We made some good progress on collections, and we did have some earlier claims, prior period claims, that we collected at a higher rate than we had anticipated, which accounted for some of the out-of-period or prior-period revenue. But we're continuing to make progress, but my expectation is it will be slow and steady rather than accelerating.
Frank Stokes: Yes.
Corey: Excellent question Corey so.
Sung Ji Nam: We now turn to Sung Jee Nam with Scotiabank. Your line is open, please go ahead.
Speaker Change: Our guidance. So far has been that we believe we are on track or remain on track to launch.
Corey Rosenbaum: Hey, this is Corey Rosenbaum. I'm for Sung Ji.
Speaker Change: The initial version of our tests for inflammatory skin disease therapy response prediction by the end of 2025, there are a number of thing.
Corey Rosenbaum: Areas within the final rule that the FDA indicates theyre going to be clarifying.
Corey Rosenbaum: In the next period of time I'm not sure if that means two months' or two days or six months.
Corey Rosenbaum: We certainly plan to.
Speaker Change: <unk> had discussions around what this means for future marketed tests since Theres no way that will be launched by May six of this year.
Corey Rosenbaum: But as of right now I would say that we're so far out between now and 2025 that I wouldnt, we wouldnt be positioning I wouldn't say that that that timing should change at this point, but obviously as we work through the.
Corey Rosenbaum: The final rule and understand how we want to how we could have newer test manage we can provide clarity in future quarters.
Corey Rosenbaum: Yeah.
Corey Rosenbaum: Great that's great insight I appreciate it and also you previously mentioned potential expanded market opportunity our uveal melanoma in the early detection of the disease are there any updates in terms of the development timeline, there and when we might be able to get some updates on that initiative.
Corey Rosenbaum: Not not on this call here, but that's a good question there so.
Corey Rosenbaum: I can't recall, the internal milestones provide clarity on that but let's get let's get back to you guys.
Speaker Change: In the summertime.
Corey Rosenbaum: Yes.
Corey Rosenbaum: Our next question comes from Thomas Flaten with Lake Street. Your line is open. Please go ahead.
Corey Rosenbaum: Thanks for taking my questions. So regarding the final rule on the FDA's LDT regulations, I recognize your existing products are not affected. Obviously, the rule will take multiple years to be phased in, and they may face hurdles along the way. But does this change your strategy or the timeline for your development pipeline, specifically for inflammatory skin disease products? I know it might be too early to tell, but any insight would be great.
Corey Rosenbaum: Great I appreciate you guys, taking the questions on the fourth quarter call. You mentioned that in early <unk>, you would be evaluating our salesforce expansion for tissue safer do you have any updates for us on that.
Derek J. Maetzold: Now, that's an excellent question, Corey. So our guidance so far has been that we believe we were on track or remain on track to launch. The initial version of our tests for inflammatory skin disease therapy response prediction by the end of 2025. There are a number of areas within the final rule that the FDA indicates they're going to be clarifying in the next period of time. I'm not sure if that means 2 months or 2 days or 6 months.
Speaker Change: Yes so.
Derek J. Maetzold: We certainly plan to have discussions around what this means for future marketed tests, but there's no way that they'll be launched by May 6th of this year. But as of right now, I would say that we're so far out between now and the end of 2025 that we wouldn't be positioned to go in and say that that timing should change at this point. But obviously, as we work through the final rule and understand how we would have newer tests managed, we can provide clarity in future quarters.
Derek J. Maetzold: We've actually expanded our sales force for tissue cipher.
Derek J. Maetzold: The majority of the expansion territories were filled I think effective April 1st and there is a couple that come in in the last week or two so the initial expansion efforts and <unk> essentially done.
Derek J. Maetzold: We do plan on kind of watching the <unk>.
Derek J. Maetzold: We expand the territories once we have the representatives trained up in the field full time see how the responsiveness is it may look to do an additional expansion here in the second half of 2024, depending on what we're seeing in terms of territory productivity growth, but otherwise though that.
Derek J. Maetzold: Expansion you could say it was largely completed by now so you're really talking about sort of beginning to see I think an impact that we estimate five to six months from the date of hire to when you begin to see good productivity coming out of a new area managers. So I would think towards the end of the third quarter fourth quarter, we should be able to see publicly.
Derek J. Maetzold: And I assume that kind of expansion.
Speaker Change: Got it and then Frank.
Derek J. Maetzold: The updated 2024 guidance is within the range of your 2025 original long term plan.
Derek J. Maetzold: How should we think about 2025 in the context of having increased the guidance to this level for 2024.
Derek J. Maetzold: Recall that our guide Thomas assumes that we even though the evidence is in our view.
Derek J. Maetzold: Even to the layperson clear that our SCC test is not as great clinical utility we are.
Derek J. Maetzold: We're assuming that that comes out of our revenue.
Derek J. Maetzold: Back half of this year and $25. So.
Derek J. Maetzold: We would have that headwind there but.
Derek J. Maetzold: Youre right were close to there.
Derek J. Maetzold: As we sit here today.
Speaker Change: Got it I appreciate it thank you.
Derek J. Maetzold: Yeah.
Corey Rosenbaum: Great. That's great insight. I appreciate it.
Derek J. Maetzold: We now turn to Paul <unk> with Keybanc. Your line is open. Please go ahead.
Derek J. Maetzold: And also, you previously mentioned a potential expanded market opportunity for uveal melanoma in the early detection of the disease. Are there any updates in terms of the development pipeline there? And we might be able to get some updates on that initiative.
Speaker Change: Hi, Eric a question on.
Derek J. Maetzold: Not on this call here, but that's a good question there. So I can't recall the internal milestone to provide clarity on that, but let's get back to you guys in the summertime.
Derek J. Maetzold: The tissue cipher and genetics are youre seeing obviously big growth there are you.
Derek J. Maetzold: Is it kind of pull through are you really putting it in.
Derek J. Maetzold: Because marketing effort on those those two tests.
Thomas Flaten: Our next question comes from Thomas Flaten on Lake Street. Your line is open, please go ahead.
Derek J. Maetzold: Yes.
Thomas Flaten: Hey, Paul Thanks for the question.
Thomas Flaten: We definitely market all of our tests in a very thoughtful and deliberate way so.
Derek J. Maetzold: Great. Appreciate you guys taking the questions. On the fourth quarter call, you mentioned that in early 2Q, you would be evaluating a Salesforce expansion for Tissue Cipher. Do you have any updates for us on that?
Derek J. Maetzold: We do see great demand for those tests, but the hurdle to achieve that or.
Thomas Flaten: To recognize that demand is physician education, and Thats really what our marketing effort is focused around his physician education.
Thomas Flaten: Making sure that the target targeted healthcare providers understand the benefit to their patients of using our tests. So so with both of those tests once the health care practitioner understands that benefit then theres really good pull through they get it and they become adopters in many cases.
Derek J. Maetzold: Pretty quickly.
Derek J. Maetzold: But to get them there we have to educate so.
Derek J. Maetzold: These are still fairly.
Derek J. Maetzold: Fairly.
Speaker Change: Fairly pinpoint use here on these test it's not it's a very.
Derek J. Maetzold: Just being subset of patients and so we need to first illustrate to the physician, which subset of his patients.
Speaker Change: We'll benefit and then to help them understand what that benefit is and then for many of them then they want to say, okay, I get it I get which patient I get how it can help now walk me through your data and let me get comfortable that debt.
Speaker Change: That youre going to do what we think we're going to do here. So.
Speaker Change: We have a very I mean, it's very very detailed very in depth. The team has done an incredible job or our physician facing materials are incredibly well develop we've got a large team of very smart people that worked very hard to put that together and it's very effective but you still have to get in front of the <unk>.
Speaker Change: <unk> so that.
Derek J. Maetzold: That tip of the spear interaction is still very important.
Derek J. Maetzold: Yeah.
Speaker Change: SCC are physicians ordering that test are they.
Derek J. Maetzold: Ultra ordering more and more Dx melanoma test is.
Derek J. Maetzold: Well.
Thomas Flaten: Meaning I don't know if you've analyzed yeah yeah.
Thomas Flaten: Our halo effect of having them see better utility for both disease States you mean.
Derek J. Maetzold: Yes.
Speaker Change: It's interesting I don't frankly, probably often vice versa, we haven't analyzed that from our perspective.
Speaker Change: On a.
Speaker Change: Ladies and gentlemen, we lost connection with our speaker. Thank you for your patience as we reconnect him.
Derek J. Maetzold: [music].
Derek J. Maetzold: Sure.
Derek J. Maetzold: Yes.
Derek J. Maetzold: Yeah.
Speaker Change: Ladies and gentlemen, thank you for your patience, we have the speakers reconnected. Please continue with your question.
Speaker Change: Yes. The question on the Halo effect of subsequent.
Derek J. Maetzold: Orders after an FCC prescription.
Thomas Flaten: Yes, Thanks Paul.
Speaker Change: Gave such a great answer I hate that it got cut off.
Derek J. Maetzold: We do think Theres nice halo or pin action there the clinical utility for the two test is very similar so once you illustrate to a health care practitioner the benefits of the FCC tests to that group of patients. It's a it's a fairly easy adjacency to demonstrate the benefit to melanoma patients that are melanoma tests. So.
Derek J. Maetzold: It's very similar clinical utility just for two different distinct groups of patients and.
Derek J. Maetzold: Your instinct is right.
Derek J. Maetzold: A short step to the adjacency there.
Derek J. Maetzold: Thanks.
Derek J. Maetzold: Our next question comes from Nathan <unk> with Stephens. Your line is open. Please go ahead.
Thomas Flaten: Hey, guys. Thanks for taking the questions I will actually just keep it to one here.
Thomas Flaten: There's been a lot of questions in past quarters on how you guys will shift around resources decision Dx SCC happens to lose coverage I wanted to ask about the capital allocation strategy, if coverage where demand remain in place and cash generation wants to remain elevated.
Thomas Flaten: How would you rank order your priorities in terms of organic investments that would play out how would you think about sales team additions across the franchises and what other investments would you prioritize if that happens to play out.
Speaker Change: Now I'll start with that here in France.
Derek J. Maetzold: Adjusted so.
Derek J. Maetzold: Okay.
Derek J. Maetzold: I think.
Derek J. Maetzold: We have plans that assume FCC coverage is maintained but wants to sort of cloud is lifted.
Speaker Change: And we can execute those with higher levels of confidence based upon what you just pointed out which is cash generation opportunity right.
Speaker Change: So I think that we're probably close to where it should be.
Speaker Change: In terms of our skin cancer dermatology focused sales team.
Derek J. Maetzold: Yeah, so we've actually expanded our sales force for Tissue Cipher. The majority of the expansion territories were filled, I think, effective April 1st, and there's a couple that have come in in the last week or two. So the initial expansion efforts in 2Q are essentially done. We do plan on kind of watching the expanded territories once we have the representatives trained up in the field full-time, see how the responsiveness is, and may look to do an additional expansion here in the second half of 2024, depending on kind of what we're seeing in terms of territory productivity growth.
Thomas Flaten: We even with this most recent expansion going out into the mid Thirty's I guess with tissue cipher, we probably are.
Derek J. Maetzold: 60% to where it needs to be at the end of the day.
Derek J. Maetzold: But otherwise, though, that expansion, you could say, has been largely completed by now. So you're really talking about sort of beginning to see, I think, the impact of that. You know, we estimate five to six months from the date of hire until you begin to see good productivity coming out of a new area manager. So I would think towards the end of the third quarter or fourth quarter, we should be able to see publicly a nice impact on expansion.
Derek J. Maetzold: So we would certainly look at pulling forward.
Derek J. Maetzold: Some of those territory expansions, although again, we also want to balance that against.
Derek J. Maetzold: Breaking too many relationships.
Derek J. Maetzold: At the same point in time between existing customers with having them.
Derek J. Maetzold: Deal with new <unk>.
Derek J. Maetzold: New area managers as hires versus the ones that you're dealing with a.
Derek J. Maetzold: The balancing act there we are certainly also held back on.
Derek J. Maetzold: Scaling our IGF sales team and marketing team as well due again kind of waiting to watching and also getting our R. R.
Derek J. Maetzold: Comfortable with where we're targeting our efforts in making sure that we're getting the kind of response that we expect so there are a number of areas there I could see us.
Derek J. Maetzold: Cohen capital in terms of just improving the rate of penetration of our existing tests without much of a change in the core.
Derek J. Maetzold: Decision Dx melanoma FCC dermatology teams.
Derek J. Maetzold: I think below that level.
Derek J. Maetzold: There are.
Derek J. Maetzold: Probably some additional internal R&D activities that we'd be comfortable moving a little more quicker on that we haven't talked about publicly so we could see some some deployment around around.
Derek J. Maetzold: Internally developed pipeline SaaS, although one could say part of that but also I need to be weighed against the sort of.
Derek J. Maetzold: Additional clarity from the FDA.
Derek J. Maetzold: Final rule here in terms of how they're going to deal with with new LTE GE cash so thats something we would.
Derek J. Maetzold: Thoughtfully look at evaluate understand what we what we do now we don't know I think the last one they are probably saying either acquisition targets out there we'd be more comfortable pursuing.
Derek J. Maetzold: Versus not pursuing and obviously you had a couple of years, we'd like to turn around and say we have.
Derek J. Maetzold: Two or three.
Derek J. Maetzold: Marketed reimbursed tests and sort of the gastro neurology area.
Derek J. Maetzold: Those who come from internally generated assays, although it'd be nice to find some additional tests that are out there that already have coverage not been marketed because that could slip in right away, but again, that's not necessarily a core rush.
Derek J. Maetzold: It looks sort of out to maybe 2027 and turnaround would be nice to have two or three.
Derek J. Maetzold: Cash that are that are clinically actionable and valued by our dermatology I mean buyer gastrology customers. The same goes to sort of assess mental health franchise call point.
Derek J. Maetzold: At that point in time of course, we would have expected to launch or inflammatory skin disease faster series of tests to the dermatology market.
Derek J. Maetzold: We.
Derek J. Maetzold: Are evaluating right now is that sort of a separate parallel sales forces that makes most sense to our customers is that too confusing. So we could actually go too much.
Derek J. Maetzold: To a much higher level of out of the number of dermatology sales representatives covering three or four products to the same customers. So we have to work through what makes sense from a customer perspective, and a confusion perspective and so those are the kinds of things I would say in order of ranking.
Derek J. Maetzold: Commercial expansion efforts, some R&D internal activities and then.
Derek J. Maetzold: Or are there are there are there things that we can bring in a company that had been developed by others again.
Thomas Flaten: Got it. And then Frank, the updated 2024 guidance is within the range of your original 2025 long-term plan. How should we think about 2025 in the context of having increased the guidance to this level for 2024?
Speaker Change: Got it that's helpful. Thanks, Eric.
Frank Stokes: I will recall that our guide, Thomas, assumes that we, even though the evidence is, in our view, even to lay people, clear that our SCC test has great clinical utility, we are assuming that that comes out of our revenue in the back half of this year in 2025. So, you know, we would have that headwind there, but you're right, we're close to there as we sit here today.
Thomas Flaten: Our next question comes from Katherine <unk> with Baird. Your line is open. Please go ahead.
Thomas Flaten: Got it. I appreciate it. Thank you.
Speaker Change: Hey, guys. Thanks for the question first from multi access I think we're coming up on the one year Mark from mill squamous cell jobs CBS beginning of next month.
Speaker Change: You had any additional conversations with them and what do you think the likelihood is.
Thomas Flaten: And the final LCD.
Paul Richard Knight: We now turn to Paul Knight with KeyBank. Your line is open, please go ahead.
Thomas Flaten: So we have ongoing interactions with the Mol Dx medical records as well as the other Medicare contract as well, which I think we have always done that but at least we've tried joining westwood sites.
Paul Richard Knight: So they are certainly aware of these newer publications that have come out that supports the clinical use of our tests, obviously from a standpoint of risk stratification as well as as.
Paul Richard Knight: As predicting response or lack thereof to agile radiation therapy.
Paul Richard Knight: Even our risk stratification, David has more than doubled in terms of the number of patients under study and publish studies so.
Paul Richard Knight: So hopefully those kinds it published elements make an impact on them.
Paul Richard Knight: I think the pumpkin date.
Paul Richard Knight: According to the Medicare part of Integra, Mango is 365 days and data is being posted I've seen in the past where there are times when when multi access taken a month or two longer which I guess they are asking for a grace period on that so we think kind of a June July time period is the right time here to still think about I think in general now in terms of likelihood of him.
Paul Richard Knight: <unk>.
Paul Richard Knight: Reversing the funny word I would say.
Paul Richard Knight: Our medical records that multi action I think I've been fairly consistent publicly and also with us that you know.
Paul Richard Knight: They're going to try and review the literature.
Paul Richard Knight: Do the right thing from an evidence based perspective, and if they miss things they are very appropriately.
Paul Richard Knight: Look to taken public comments, I'll say, we kind of Miss something here, we should go and make a change as opposed to kind of digging their heels in saying, what we said this a year ago and we have nothing to go ahead and put on your comments for so I think the most relevant recent example that we talked about last fall was sort of the the.
Paul Richard Knight: The site for LCD with sort of went from a foundational non coverage.
Paul Richard Knight: LCD.
Paul Richard Knight: A foundational covered LCD.
Derek J. Maetzold: Hi Derek. A question on the tissue cipher and ID genetics is, you're seeing obviously big growth there. Is it kind of pulling through, or are you really putting in a focused marketing effort on those two tasks?
Derek J. Maetzold: Hey Paul, thanks for the question. We definitely market all of our tests in a very thoughtful and deliberate way. So, we do see great demand for those tests, but the hurdle to achieve that or to recognize that demand is physician education. And that's really what our marketing effort is focused on, physician education, making sure that the target healthcare providers understand the benefit to their patients of using our tests. So with both of those tests, once a healthcare practitioner understands that benefit, then there's really good pull through. They get it, and they become adopters in many cases pretty quickly. But to get them there, we have to educate them. So these are still fairly..., you know, fairly pinpointed uses here on these tests.
Derek J. Maetzold: It's not, you know, it's a very distinct subset of patients. And so, you know, we need to first illustrate to the physician which subset of his patients will benefit and then help them understand what that benefit is. And then, for many of them, then they want to say, "Okay, I get it."
Derek J. Maetzold: I get which patient. I understand how it can help. Now, now walk me through your data and let me get comfortable that you're going to do what we think we're going to do here. So we have a very, I mean, it's very, very detailed, very in depth. The team has done an incredible job. Our physician-facing materials are incredibly well developed. We've got a large team of very smart people that work very hard to put that together, and it's very effective, but you still have to get in front of the physician. So that tip of the spear interaction is still very important.
Paul Richard Knight: On SCC, are physicians ordering that test? Are they also ordering more and more DX melanoma tests, as well?
Operator: Is there a halo effect of having them see better utility for both disease states? You mean? Yeah. It's interesting. I know Frank was going to cut me off and vice versa. We haven't analyzed that from our perspective on a, Ladies and gentlemen, we've lost connection with our speaker. Thank you for your patience as we reconnect them.
Operator: Ladies and gentlemen, thank you for your patience. We have the speakers reconnected. Paul, please continue with your question.
Paul Richard Knight: Yeah, you know, the question about the halo effect of subsequent orders after an FCC prescription. Um, yeah.
Derek J. Maetzold: Yeah, thanks, Paul. I gave such a great answer. I hate that it got cut off.
Derek J. Maetzold: We do think there's nice halo or pin action there, and the clinical utility for the two tests is very similar. So, once you illustrate to a healthcare practitioner the benefits of the STC test to that group of patients, it's a fairly easy adjacency to demonstrate the benefit to melanoma patients of our melanoma test. So, it has very similar clinical utility just for two different distinct groups of patients, and your instinct is right. That's a short step to the adjacency there.
Mason Owen Carrico: Our next question comes from Mason Carrico with Stevens. Your line is open, please go ahead.
Mason Owen Carrico: Hey, guys, thanks for taking the questions. I'll actually just keep it to one here.
Derek J. Maetzold: There's been a lot of questions in the past quarters on how you guys will shift around resources if decision DXSEC happens to lose coverage. I want to ask about the capital allocation strategy if coverage were to remain in place and cash generation was to remain elevated. How would you rank your priorities in terms of organic investments if that was to play out? How would you think about sales team additions across the franchises and what other investments? Would you prioritize if that happens to play out? Now I'll
Derek J. Maetzold: I'll start with that here, and Frank can adjust it. So I think I will.
Derek J. Maetzold: We have plans that assume SEC coverage is maintained, but once the sort of cloud is lifted, then we can execute those with higher levels of confidence based upon what you just pointed out, which is a cash generation opportunity, right? So I think that we're probably close to where we should be in terms of our skin cancer dermatology-focused sales team. Even with this most recent expansion going, what, into the mid-30s, I guess, with tissue cipher, we probably are 60% to where we need to be at the end of the day.
Derek J. Maetzold: So we would certainly look at pulling forward some of those territory expansions. However, again, we also wanna balance that against, you know, breaking too many relationships at the same point in time between existing customers by having them deal with new area managers as hires versus the ones they've been dealing with. So that's a balancing act there.
Derek J. Maetzold: We have certainly also held back on I'm scaling our IGX sales team and marketing team as well, again kind of waiting and watching and also getting our feet comfortable with where we're targeting our efforts and making sure that we're getting the kind of response that we expect. So there are a number of areas where I could see us, Coyne Capital, in terms of just improving the rate of penetration of our existing tests without much of a change in the core Decision Index, Melanoma, and SCC dermatology teams. I think below that level...
Derek J. Maetzold: There are probably some additional internal R&D activities that we'd be comfortable moving a little quicker on that we haven't talked about publicly. So we could see some deployment around internally developed pipeline tests, although one could say part of that might also need to be weighed against the sort of additional clarity from the FDA final rule here in terms of how they're going to deal with new LDT tests. So that's something we would thoughtfully look at, evaluate, and understand what we do know and what we don't know.
Derek J. Maetzold: I think the last one there probably is saying, "Are there acquisition targets out there we'd be more comfortable pursuing versus not pursuing?" And obviously, in a couple of years, we'd like to turn around and say we have two or three marketed reimbursed tests in sort of the gastroenterology area. Those could come from internally generated assays, although it would be nice to find some additional tests that are out there that already have coverage and have been marketed because that could go in and slip in right away. But again, that's not necessarily a core rush.
Derek J. Maetzold: But if it looks sort of out to maybe 2027 and turns around, it'd be nice to have two or three tests that are clinically actionable and valued by our gastroenterology customers. The same goes for sort of this mental health franchise call point. And at that point in time, of course, we would have expected to launch our inflammatory skin disease test or series of tests into the dermatology market, which we are evaluating right now.
Mason Owen Carrico: Is that sort of a separate parallel sales force? Does that make the most sense to our customers? Is that too confusing? So we should actually go to a much higher level of the number of dermatology sales representatives, but covering three or four products for the same customer. So we have to work through what makes sense from a customer perspective and a confusion perspective. And so those are the kind of things I would say in order of ranking. Commercial expansion efforts, some R&D internal activities, and then, you know, are there things that we can bring into a company that have been developed by others again?
Catherine Schulte: Got it. That's helpful. Thanks, Derek.
Catherine Schulte: Our next question comes from Catherine Schulte with Baird. Your line is open, please go ahead.
Derek J. Maetzold: Hey guys, thanks for the questions. First, for Moldy X, I think we're coming up on the one year mark from the Squamous Cell draft LCD at the beginning of next month. Have you had any additional conversations with them? And what do you think the likelihood is that they could reverse their decision in the final LCD?
Derek J. Maetzold: So, we have ongoing interactions with the Moldy X medical record as well as the other Medicare contracts as well, which I think we have always done that, or at least we've tried to anyway, I would say. So they are certainly aware of these newer publications that have come out that support them. The clinical use of our tests, obviously, from a standpoint of risk stratification, as well as predicting response or lack thereof to agile radiation therapy.
Derek J. Maetzold: Even our risk stratification table has more than doubled in terms of the number of patients under study in published studies, so hopefully those kinds of published elements will make an impact on them. I think the pumpkin bait will work.
Derek J. Maetzold: According to the Medicare program integrity manual, it's 365 days from the date it's being posted. I've seen in the past where there were times when Moldy X has taken a month or two longer, so I guess they're asking for a grace period on that. So we think kind of a June-July time period is the right time period to still think about, I think, in general. Now, in terms of likelihood of them happening, reversing is a funny word.
Derek J. Maetzold: I would say, The medical records at Moldy actually have been fairly consistent publicly and also with us that, you know, they're going to try and review the literature, do the right thing from an evidence-based perspective, and if they've missed things, they are very appropriately looking to take in public comments and say, we kind of missed something here. We should go and make a change as opposed to kind of digging in their heels and saying, well, we said this a year ago, and we have nothing to go ahead and input on your comments for.
Derek J. Maetzold: Thank you, operator. This concludes our first quarter 2024 earnings call. Again, I thank you for joining us today and for your continued interest in Castle Biosciences.
Derek J. Maetzold: So I think the most relevant recent example that we talked about last fall was sort of the Cypher LCD, which sort of went from a foundational non-coverage LSD to a foundationally covered LCD between draft and final posting. I think there are parallel elements between the Cypher data development and SCC, but of course, that's in our eyes, not necessarily the eyes of the Moldy X-Metal Collector. So I'm quite hopeful that once they see the significantly newer and greater data, certainly publications that directly answer some of the questions they had about our test, as well as this new ART response data, provide an element of knowledge that we are creating new treatment pathways. Our test is having a tremendous impact on improving appropriate care within existing treatment pathways for patients based upon both risk stratification information as well as this newer data regarding adjuvant therapy and adjuvant radiation therapy response.
Derek J. Maetzold: Okay, great, and then on tissue cipher just with volumes flat sequentially here, you mentioned you're still figuring out that seasonality, so do you think that was seasonality or were there other dynamics going on there beyond that and the national sales meeting? Yeah, I think I think there's probably some seasonality there and maybe
Derek J. Maetzold: Yeah, I think it's probably some seasonality there, and maybe there could be a little bit of kind of pull forward, I guess pull through. You know, there may have been some patients who were seen when we were in a pause on taking orders, and those orders came through in the fourth quarter, which might have shifted them from, they might have been third-quarter orders that got shifted to fourth. And, you know, unfortunately, we don't know for sure, so that's a bit of a guess there. So I think after this quarter, we'll probably be able to see what a normalized kind of cadence looks like and be a little bit more able to see where we are in the penetration pathway there.
Mark Anthony Massaro: Our final question today comes from Mark Massaro with BTIG. Your line is open, please go ahead.
Vivian Alam: Hey, guys, this is Vivian Alam for Mark. Thanks for taking the questions. And I apologize if this has been covered already; I had some technical difficulties.
Operator: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.
Vivian Alam: But, um, so in recent months, we started to see a pickup in opportunistic M&A. You have a very strong balance sheet. So I was just wondering how you're thinking about deploying that balance sheet, just in light of recent competitor valuations and potentially adding to the bag here specifically for DERM. Thanks.
Derek J. Maetzold: Yeah, of course. So, um... You're right.
Derek J. Maetzold: Assets are a challenge in valuation in many cases. We certainly look at other opportunities. I think inorganic growth is down the priority as we think about, one, the value of what we have in the house and, two, our own capabilities. And so we always look at things. We always evaluate things and give them an objective view.
Derek J. Maetzold: But I think for now that external growth is still further down the list.
Vivian Alam: Okay, great. Thanks for taking the question.
Operator: This concludes our Q&A. I'll now hand it back to Derek Maetzold for closing remarks.