Q3 2024 Castle Biosciences Inc Earnings Call
It afternoon and welcome to Castle by a science-in-steadquarter, 24 conference call.
Speaker Change: As a reminder, today's crew is being recorded.
Speaker Change: We'll begin today's call with opening remarks and introductions followed by a question and answer session. I would like to turn the call over to Camilla Zuckero, Vice President Investor Relations, and corporate affairs, please go ahead.
Camilla Zuckero: Thank you, operator. Good afternoon everyone. Welcome to Castle Biosciences third quarter, 2024 financial result conference call. Joining me today are Castle's founder, president, and chief executive officer, Derek Maetzold, and chief financial officer Frank Stokes.
Camilla Zuckero: Information Recorded on this call speaks only as of today November 4, 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.
Camilla Zuckero: 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.
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 security's litigation reform act of 1995.
Camilla Zuckero: These four-looking statements include, but are not limited to statements about our financial outlook, Tam, and similar items referenced in our earnings release issue today, and statements containing projections regarding future events or our future financial or operational results and performance.
Camilla Zuckero: including our anticipated 2024 total revenue, our expectations regarding reimbursement for our products and targeted launch dates and other milestones, and the impact of our investments in growth initiatives, including our ability to achieve long-term growth and drive stockholder value.
Camilla Zuckero: For looking statements are based upon current expectations and involve inherent risks and uncertainties, and there can be no assurances that results contemplated in these statements will be realized.
Camilla Zuckero: A number of factors in risk could cause actual results to differ materially from those contained in these four looking statements.
Camilla Zuckero: These factors and other risks and uncertainties are described in detail in the company's annual report on Form 10K for the year ended December 31, 2023, and it's quarterly report on Form 10K for the quarter ended September 30, 2024, in each case under the heading risk factors. And in the company's other documents and reports filed or two be filed with the Securities and Exchange Commission.
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.
Speaker Change: In addition, some of the information discussed today includes non-gap financial measures, such as adjusted revenue, adjusted gross margin, and adjusted EBITDAs that have not been calculated in accordance with generally accepted accounting principles in the United States or GAP.
Speaker Change: These non-gap items should be used in addition to and not as a substitute for any gap results.
Speaker Change: We believe these metrics provide useful supplemental information in assessing our revenue and operating performance.
Speaker Change: Reconciliation of these non-gap financial measures to the most directly comparable gap 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 company's website. I will now turn the call over to Derek.
Derek: Thank you Camilla and good afternoon everyone.
Derek Maetzold: I'm pleased to share that Castle BavSines is deleted another strong quarter, growing revenue by 39% and total test report volume by 41% over the third quarter of 2023. Our excellent performance continues to be supported by this strength of our innovative test and the winning spirit of our entire team.
Derek: We achieve positive cash flow in earnings, highlighting the operating leverage in our business model that is continued to drive the frigid financial performance.
Speaker Change: Additionally, we have substantial balance, she capacity, allowing to invest in the business for a long-term growth and to continue our efforts to drive shareholder value.
Speaker Change: Given an RF standing here today results and confidence in our business momentum, we are raising our full year 2024 revenue guidance range to between 320 and 330 million dollars, reflecting year-reyear growth of 45 to 50%.
Speaker Change: This change reflects an increase from our previously reported guidance range of 275 to 300 million dollars.
Speaker Change: Now, I will walk you through execution and strategy highlights from the third quarter, and then tranquil provide additional financial highlights before we turn to your questions.
Speaker Change: Starting with our core dermatology business.
Speaker Change: For decision-DX Malinoma, we delivered 9,367 test reports in a third quarter, a 9% year-rear increase despite reflecting normal third-quarter seasonality.
Speaker Change: From a patient perspective, we estimate that we achieved approximately 30% market penetration. Now looking ahead, we see considerable growth opportunity as we believe decision-ex melanoma has a potential to continue increasing market penetration in the coming years.
Speaker Change: are compelling body evidence reinforces continued adoption, including more than 50 peer reviewed publications supporting the clinical use of a betest.
Speaker Change: The Will Work Hall, that are decision-de-ex-mellonomatest, assist clinicians with answers to too related, but separate questions in the post-diagnostic time period.
Speaker Change: The first is what is the genomic or biologic risk of a patient having a positive Sentinel-LIF mode, which impacts the decision to perform or not perform a sentinel of to a biopsy surgical procedure or SLNB.
Speaker Change: And the second is, is the patient likely going to have a low risk of recurrence on the taxes in the next five years or a high risk of metacysis.
Speaker Change: The second question drives much of the post-diagnostic treatment pathway. To this end, we saw yet another independent study published in the third quarter. This study by Krisa Edal, focused on a predictive accuracy of the decision-de-ex Malonoma test for SLNB positivity.
Speaker Change: You may recall that several years ago, once we had an adequate base of research samples with long-term follow-up, we challenged ourselves with two questions. The first question was, was the algorithm that we developed in 2012 still the best algorithm for evaluating the accuracy of our 31 genes?
Speaker Change: The second question was, did this remain the best algorithm, then could the performance of our decision to expel on our tests for predicting both SLNB positivity, as well as risk of recurrence being proved if we add a clinical and or pathologic factors?
Speaker Change: We did not identify a better algorithm regarding the assessment of our 31 genes. So we retained the initial algorithm and cut points that were established in 2012. But we did find that we could improve the accuracy of our patient report by incorporating a different pathological factors for each use of our test.
Speaker Change: To A-Cunisons and Understanding these additional results that they receive, we term the integration of these clinical pathologic factors as I, 31 GEPS LMB, for SLMB positivity, and I, 31 GEPR-O-R for risk every current.
Speaker Change: This was a great discovery because one could have assumed that the clinical pathologic factors for predicting a recurrence or metastasis to the seminal lymph node
Speaker Change: will be the exact same as those needed for predicting recurrence that did not occur within the Sutton-Lyft note. I mention this background because this is the kind of science-driven approach that I believe we have always strived for here at CASEL.
Speaker Change: Rather than assuming that these clinical pathologic factors would be the same for both uses and that we understood the biology of melanoma than the melanoma itself, we instead intentionally evaluated each factor for each clinical use.
Speaker Change: Now, back to Dr. Cresa and the college study.
Speaker Change: This study focused on the clinical performance of our 31 JEP SLMB test results.
Speaker Change: What they found was that for patients predicted to have less than a 5% likelihood of a positive FLMB, the actual positivity rate was 0%.
Speaker Change: In contrast, patients predicted to have a greater than 10% rate had an actual positivity rate of 31.9%, which was a highly statistically significant difference.
Speaker Change: These results are just one example of the clinical value of our DecisionDx melanoma in enabling more precise and personalized management of melanoma patients.
Speaker Change: improving patient selection for the SLMB surgical procedure and helping to reduce unnecessary procedures and their associated health care costs.
Speaker Change: The data provided evidence that CGDX melanoma can identify patients with a low risk of positivity who may safely forego SLMB, as well as those with a higher risk who may want to consider the surgery.
Speaker Change: To conclude, this is yet another publication demonstrating the impact our tests can have toward improving patient outcomes.
Speaker Change: Moving on to our Decision DX SCC test.
Speaker Change: We continue to see strong test report volume amendment.
Speaker Change: with 4,195 test reports delivered in the third quarter of 2024.
Speaker Change: an increase of 49% compared to the same period in 2023. Helping drive test adoption are the more than 20 peer-reviewed publications since the launch of the test.
Speaker Change: We were especially pleased with the recent publication of a new study by Dr. Emily Ruiz.
Speaker Change: of the Britain Women's Hospital, and colleagues further supporting the youth.
Speaker Change: of our Decision DX STC test in guiding patient selection and decision making related to the use of adjuvant radiation therapy, or ART, in patients with high-risk cutaneous squamous cell carcinoma.
Speaker Change: or SCC.
Speaker Change: The study reinforces the ability of our tests to identify patients likely to benefit from adjuvant radiation treatment, as well as a majority of ART-eligible patients who would be predicted to receive no clinically discernible benefit.
Speaker Change: Importantly, this is the second study published this year that demonstrates the ability of Decision EX-SCC to identify patients who are more or less likely to benefit from adjuvant radiation therapy.
Speaker Change: The first study was by Dr. Aaron and colleagues and was published in the American Society for Radiation Oncology's prestigious Red Journal in May.
Speaker Change: Comparing the two studies, it's important to note that both demonstrated that patients with Physician DX-SCC Class 2b test results, which indicate the highest metastatic risk potential.
Speaker Change: saw a 50% reduction in disease progression when treated with adjuvant radiation therapy and significantly slowing the spread compared to those who do not receive adjuvant radiation therapy.
Speaker Change: For patients with Decision DX-SCC Class 1 test results, which represent the lowest metastatic risk, the studies found no difference in disease progression between those treated with adjuvant radiation therapy and those who remained untreated.
Speaker Change: This study shows that Class I patients, who make up the majority of SCC patients, can be counseled to consider safely deferring ART, underscoring DecisionDx SCC's value in ruling out unnecessary treatment.
Speaker Change: Finally, this marks the sixth study since the start of 2024 demonstrating the value of decision DX-SCC test results in improving risk-aligned patient care through precise tumor biology-based risk stratification.
Speaker Change: Now, let's turn to our tissue cycle test, which is used to assess the individualized risk of esophageal cancer progression in patients diagnosed with Barrett's esophagus disease.
Speaker Change: We are pleased with how well tissue cipher has been received by the gastroenterology community.
Speaker Change: I'd remind you that in July 2023, we temporarily paused accepting tissue cipher orders and resumed accepting new orders in a phased approach beginning in September 2023, which made for a slightly more favorable year-over-year comparison for the third quarter of 2024.
Speaker Change: Having said that, we are nonetheless extremely pleased with our third quarter 2024 results and year-to-date 2024 test report volume performance.
Speaker Change: With the recent expansion of our commercial team earlier this year, plans for continued modest expansion to the end of 2024, sufficient capacity in our Pittsburgh laboratory to beat demand momentum, and very early stages of market penetration in an estimated $1 billion U.S. TAM, we believe we are well positioned for continuing momentum with a significant runway for future growth.
Speaker Change: I will now turn the call over to Frank, who will provide details relating to our financial results.
Frank Stokes: Thank you, Derek. Good afternoon, everyone. As Derek highlighted, we are proud to report excellent financial results for the third quarter of 2024.
Frank Stokes: Revenue was $85.8 million, an increase of 39% over the third quarter of 2023. The increase was driven predominantly by test volume growth for our dermatologic and non-dermatologic tests and higher ASPs for our Decision DX SCC test compared to the third quarter of 2023.
Frank Stokes: I'd remind you that our DecisionVx FCC test was granted Advanced Diagnostic Laboratory Test, or ADLT status, effective June 30, 2023.
Frank Stokes: This designation resulted in an increase in our Decision DXSTC Tests ASP starting in the third quarter of 2023. So the impact of that improvement in ASP has now been integrated into our results for a full four quarters.
Frank Stokes: Adjusted revenue, which excludes the effects of revenue adjustments in the current period related to tests delivered in prior periods, was $86.3 million for the third quarter, an increase of 42% over the third quarter of 2023.
Frank Stokes: and excludes the effects of revenue adjustments in the current period associated with test reports delivered in prior periods was 81.9% for the quarter compared to 81.3% for the same period in 2023.
Speaker Change: Turning to expenses, our total operating expenses, including cost of sales for the quarter, were $80.7 million, compared to $71.1 million for the third quarter of 2023.
Speaker Change: Sales and marketing expenses were $29.8 million in the third quarter of 2024, compared to $28.5 million for the same period in 2023. The increase is mainly due to higher travel and transportation costs incurred through our business development activities, as well as slightly higher marketing costs, while personnel costs were relatively consistent.
Speaker Change: General and administrative expenses were $20.7 million in the third quarter of 2024, compared to $16.1 million for the same period in 2023.
Speaker Change: The increase is primarily attributable to higher personnel costs, higher professional fees, and higher information technology related costs.
Speaker Change: Higher personnel costs reflect headcount expansions in our administrative support functions, as well as merit and annual inflationary wage adjustments for existing employees.
Speaker Change: Cost of sales expenses were $15.6 million in the third quarter of 2024 compared to $11.3 million in the third quarter of 2023, primarily due to higher personnel costs and higher expenses for supplies and lab services.
Speaker Change: Increases in personnel costs reflect a higher headcount due to additions made to support business growth in response to growing test report volumes as well as merit and annual inflationary wage adjustments for existing employees.
Speaker Change: Higher expense for supplies and lab services also reflects higher test report volumes.
Speaker Change: R&D expenses were $12.3 million compared to $12.9 million for the same period in 2023, primarily due to slightly lower expense for clinical studies and personnel costs.
Speaker Change: Total non-cash stock-based compensation expense, which is allocated among cost of sales, R&D expense, and SG&A expense, total $13 million for the third quarter in each of 24 and 23.
Speaker Change: Interest income increased by $0.6 million for the third quarter of 2024 compared to the third quarter of 2023. The increase primarily reflects higher average balances in marketable investment securities and slightly higher interest rates.
Speaker Change: For the third quarter of 2024, we had a $6 million income tax expense.
Speaker Change: primarily driven by continued Medicare coverage for our Decision DX STC test.
Speaker Change: Specifically, due to the unpredictability in coverage, we previously estimated our income tax provision for all of 2024.
Speaker Change: based on a pre-tax loss for the year.
Speaker Change: However, with updated information, we were able to re-forecast to a position of generating net income, resulting in an income tax expense for the third quarter of 2024. We expect to also incur a tax expense in the fourth quarter of 2024.
Speaker Change: Our net income for the third quarter of 2024 was $2.3 million, compared to a net loss of $6.9 million for the third quarter in 2023.
Speaker Change: Diluted earnings per share for the third quarter was $0.08 compared to a diluted loss per share of $0.26 in the third quarter of 2023.
Speaker Change: Adjusted EBITDA for the third quarter was $21.6 million, compared to $6.6 million for the comparable period in 2023, an improvement of $15.1 million. The year-over-year improvement primarily reflects strong top-line growth, along with continued disciplined expense management.
Speaker Change: Net cash provided by operating activities was $23.3 million for the third quarter of 2024 and $40.5 million for the nine months ended September 30, 2024.
Speaker Change: $2.3 million of proceeds from contributions to our 2019 Employee Stock Purchase Plan and $1.6 million of proceeds from the exercise of stock options partially offset by the $2.4 million payment of employee taxes attributable to the vesting of restricted stock units.
Speaker Change: We ended the quarter with cash, cash equivalents, and marketable securities of $279.8 million.
Speaker Change: We believe our strong balance sheet provides significant financial strength to continue to grow our business in the near and long term.
Speaker Change: As Derek mentioned, we are raising our 2024 Revenue Guidance to $320-$330 million.
Speaker Change: up from $275 to $300 million.
Speaker Change: In conclusion, I'm very proud of our third quarter of 2024 and year-to-date financial performance. We look forward to continued momentum in the fourth quarter to close out a strong 2024, which we expect will set the stage to drive both near and long-term shareholder value. I'll now turn the call back to Derek.
Derek Maetzold: Thank you, Frank.
Derek Maetzold: In summary, this is a very exciting time for Castle Biosciences.
Derek Maetzold: Our team continues to execute at a high level, delivering strong third quarter and year-to-date results with the goal of positioning the company for the long-term growth and success.
Speaker Change: Thank you for your continued interest in CASEL.
Speaker Change: We will now be happy to take your questions. Operator?
Speaker Change: Thank you Derek. In order to allow everyone in the queue an opportunity to address the council management team please limit your time on the call to one question and only one follow-up.
Speaker Change: If you have additional questions, please return to the queue. Please stand by while we compile the Q&A voice chat.
Speaker Change: We have the first question on the phone line from Karl Mixon with Canaccord, you may proceed.
Karl Mixon: Hey guys, thanks for taking the questions, congrats on the quarter.
Karl Mixon: I guess, like, just based on how the DERM revenue set down in 3Q from 2, you can talk about how much of that set down was, like, kind of came from DIGIT-NDX SEC revenue?
Speaker Change: And if there's anything else you can share on the portion of claims processed by lab for that test, it would be helpful to understand the impact from non-coverage by Palmetto as well as potentially NOVA tests. Thanks.
Speaker Change: Kyle, are you talking about sequential volumes?
Speaker Change: Yeah, from 3Q, from 2Q. Thanks.
Speaker Change: Yeah, so if you, when you look in our documents, our MD&A, we put a chart in there every quarter that shows...
Camilla Zuckero: Zuckero, Derek Maetzold, Frank Stokes
Camilla Zuckero: patient encounters, just reduced number of physician office days in
Camilla Zuckero: Were you asking about FCC volumes?
Speaker Change: Yeah, and that's helpful, Frank. Just the non-coverage by Palmetto during, you know, what happened earlier in the quarter, you know, could have seen some impact from that in 3Q. Let me just confirm that that happened and if that's kind of evident based on the P&L, based on the numbers that we saw in 3Q.
Speaker Change: Now we didn't see that impact on the business from the Palmetto draft or the Palmetto policy.
Speaker Change: Yeah, exactly. Okay. Okay. Thanks for that. And then on the pipeline, the inflammatory disease test.
Speaker Change: Derek, can you give us a primer of that market opportunity and the competitive landscape before this, some data maybe in the next few months here? And what should we expect as it relates to that readout in terms of timing and the path to validation for that test over the next year or so?
Derek Maetzold: Yeah, so we are, let me go back first to our earlier established milestones. We committed to providing a public update on our progress.
Derek Maetzold: You know, where were we able to discover a test? What's that test look like? And when might we reconfirm launch? We are still on track to go ahead and have a public conversation about that call between now and the end of the year, so that remains on track.
Derek Maetzold: In terms of launch, we had guided previously, you know, sometime prior to the end of 2025. That still remains intact. So I think we're on track for both those milestones. In terms of the
Derek Maetzold: of the first part of your question there, the broader opportunity, the broader approach here. I'll just take...
Speaker Change: atopic dermatitis as an example here but we are our large ongoing prospective multi-center protocol
Camilla Zuckero: enrolls patients who are initiating systemic biologic therapy or are switching, so it's sort of this moderate to severe
Speaker Change: patient population for both atopic dermatitis as well as the other end of that spectrum being psoriasis, but if I just focus on one potential use it would be having a patient Have severe enough symptoms where they have decided I'm going to step over from topicals
Speaker Change: Do you, as a patient, as a clinician, want to sort of just do trial and error so you can see which first therapy you would have normally used actually works well for your specific disease, or do you want to use a R-test?
Speaker Change: to go ahead and identify a higher likelihood of getting a very, very solid response versus a lower likelihood. So that's what we're driving towards in terms of the ongoing analysis, and we'll discuss the outcome of that here sometime during the fourth quarter, obviously.
Speaker Change: Thank you.
Speaker Change: Okay, that was great. Thanks guys. Appreciate it.
Speaker Change: Yep.
Speaker Change: Your next question comes from Sung Jin Ahn with Scotiabank.
Speaker Change: Your line, Jason.
Speaker Change: Hey, this is Corey Rosenbaum. I'm for Sung Ji. Thanks for taking my questions. So you won a Presidential Poster Award at the recent ACG conference related to tissue cipher. Would love to get a sense of the interest level or awareness for tissue cipher from the physicians at the conference.
Speaker Change: What kind of feedback did you receive and if there was any pushback, what's the biggest pushback you're getting at the moment?
Speaker Change: Camilla, I missed the middle part of Corey's question.
Camilla Zuckero: He was saying, unless Corey you want to repeat it, he was just saying what is the reception or the feedback you're getting from physicians at this time and if you're getting any pushback, what pushback are you receiving around tissue cypress?
Camilla Zuckero: around tissue cypher specifically.
Camilla Zuckero: Yes, Tissue Cycle. There was an award winning author at the conference. Yeah, he was just basing it off that we won an award at the conference and then that was the segue.
Speaker Change: pushback in terms of resistance, I guess.
Speaker Change: I don't hear much resistance from our commercial team.
Speaker Change: I think we are still in the very, very early stages, despite having
Speaker Change: been marketing this now for what, I guess, 21 months or so.
Speaker Change: Still in the introductory phases of physician awareness, we obviously have
Speaker Change: clinicians who have read through enough of literature.
Speaker Change: that they appreciate our tests and are using it on their appropriate patients, but I think we still are.
Speaker Change: early on, so I think resistance is quite low.
Speaker Change: to adopt the test. I think it's more awareness and then beginning to incorporate our test into the workflow so it changes or impacts patient flow. And that, I think, is largely due to the
Speaker Change: to the fact that that pathology grading
Speaker Change: I think almost all of our gastroenterologists realize that there was a lot left on the table to try and direct risk-aligned care in patients with Barrett's esophagus disease. We also know, or the average gastroenterologist knows, that if I recommend
Speaker Change: Esophageal eradication therapy, the most common form really, is using Medtronic's radio frequency ablation tool.
Speaker Change: to eradicate the Barrett's lesion, I can essentially stop that Barrett's lesion from progression to cancer. However, we can't ablate everybody who has Barrett's esophagus disease, so it ends up being that
Speaker Change: the majority of patients, I think 420-430,000 patients.
Speaker Change: If you just rely on pathology diagnoses alone, or grading alone,
Speaker Change: Those patients would go under just active surveillance, being seen every five or seven or eight years or three years for a repeat endoscopy, hoping that you go ahead and catch those that are progressing early enough.
Speaker Change: where you can still save them from progressing to esophageal cancer. So they know that RFA and eradication therapy works.
Speaker Change: They also know that we can't, as a system,
Speaker Change: afford to kind of get all these patients treated with non-dysplastic and various esophagus disease. And so they use our test to really say, hey, I know there are bad actors in that large group of non-dysplastic patients.
Speaker Change: If I can find them, I will intervene with them and hopefully stop cancer progression. And that's essentially how our test is being thought about in terms of ruling in appropriate interventions. At the same time, they also can say, well,
Speaker Change: I probably have my patients come back too frequently.
Speaker Change: for repeat endoscopies because I just do.
Speaker Change: And if I use the test and get a low-risk tissue cipher test result, then I'm pretty comfortable talking to a patient about relaxing.
Speaker Change: being more frequent. So it does both things well.
Speaker Change: finding patients of a higher likelihood of progressing and putting them into the course of having that Barrett's esophagus lesion essentially ablated or, quote, cured. And the other way, which is to kind of de-escalating care. And because of that, of those fact patterns, I think our resistance that we would see is largely just
Speaker Change: still low awareness or early awareness and our job is to really keep educating our customers about the use of the test, why it's important to consider and if they agree that they would adjust patient care they should order the test for their patients.
Speaker Change: Great, really appreciate that insight. On the hurricanes, obviously there were a few recently that may have an impact on Q4. Can you elaborate on if there was any impact in Q3 and how any Q4 impact could be reflected in guidance? Thanks.
Speaker Change: so
Speaker Change: Right now, I think Colleen came, what, the latter part of September and then Milton was in October, so that was more of a fourth quarter event. With the lead time between a patient seeing a dermatologist, and I'm talking predominantly about our dermatology business here, with the lead time between a patient...
Speaker Change: seeing a dermatologist or an MP or PA
Speaker Change: You get a biopsy, it goes to pathology, it takes a few days a week for a diagnosis. Our test is ordered after that. So one, I don't know if we saw a meaningful impact in the third quarter as that hurricane,
Speaker Change: went through sort of the upper panhandle of
Speaker Change: in some of the pathway there who are still not practicing full-time because of lack of resources and utilities. And we certainly know that Milton knocked out part of Florida there for a period of time. So I would expect we'd have some impact in terms of volumes in the fourth quarter, only because
Speaker Change: The assumption would be that dermatology practices are pretty overbooked anyways and
Speaker Change: Missing a few days to a week or two of practice, you can't necessarily fit those all into that exact same quarter, so...
Speaker Change: I would expect that we may see some volume.
Speaker Change: estimate around there, except to say, here's our updated guidance for 2024. And that includes some assumptions here on fourth quarter volumes perhaps being impacted by the hurricanes.
Speaker Change: Thank you. We now have Thomas Slayton with Lake Street.
Speaker Change: Please go ahead.
Thomas Slayton: Thanks, I appreciate you taking the questions. Frank, I apologize if I missed this, but how much STC contribution are you assuming in the in the guide?
Speaker Change: We are assuming, Thomas, that we'll have it through almost the whole quarter at this point.
Thomas Slayton: Got it.
Speaker Change: And then just a question on the tissue side for reps. I know you've probably had what like three four months with the larger team. Have you seen any positive impact from them? And I know you've said previously it takes about six months to become kind of fully productive, but just curious where they are on that pathway.
Speaker Change: We like what we're seeing. I think that they're tracking the way we would expect them to. So, you know, we'll hopefully be seeing full contribution as we get into next year. But very pleased with that April 1 class and how they're coming online.
Speaker Change: Got it. Appreciate it. Thank you.
Speaker Change: Amy.
Speaker Change: We now have Mason Curricoe, Webb Stephens. Your line is open.
Mason Curricoe: Hey guys, thanks for the questions. You're just continuing on that. Could you just remind us where the rep count stands for the GI team today? And then I think I heard you guys say a moderate expansion going forward. How many more reps do you plan on adding maybe over the next 6-12 months?
Speaker Change: Yeah, so we had expanded our territory, a number of territories, so I think around 40-ish.
Speaker Change: in the kind of April-May time period, if you recall.
Speaker Change: And we have added to that over the course of this quarter. We'll continue into 2025. The exact number we haven't quite nailed down at this point in time. I think we think they were around.
Speaker Change: 10,000 practicing gastroenterologists that should be
Speaker Change: Targetable customers.
Speaker Change: They do practice in larger groups than dermatologists do in general, so we don't think sort of targeting 75 or 70 to 80 is the right number. We think probably ending up in the low 60s feels about right, but that'll be data-driven and based upon
Speaker Change: our ability to impact those 10,000 gastroenterologists in their individual practice setting. So certainly I would expect us to go and go in the next year, kind of in the low to mid 60s will be our target, but we haven't necessarily locked in on what that looks like right now.
Speaker Change: Okay, and sorry if I've missed this, but...
Speaker Change: The path forward for DecisionDX to SBC, where do you guys...
Speaker Change: Stay in there. Obviously, it's still paid by Novotox right now. You guys have been publishing a lot of evidence.
Speaker Change: supporting the value of that test. So are you pursuing the reconsideration process with Palmetto? Have you had discussions with them? Any color you can share there?
Speaker Change: Not a whole lot, so we continue to be reimbursed by Medicare following our
Speaker Change: appropriate, I guess, in our eyes. And plus, as you probably noted when that was posted earlier this summer, that none of the
Speaker Change: Seminal articles that came out following the fall of 2023 were included.
Speaker Change: Most importantly, probably, was our two...
Speaker Change: More recent articles, one of them Aaron et al, the other one Ruiz et al, which represented the
Speaker Change: largest ever and the second largest ever studies published in squamous cell carcinoma of the skin.
Speaker Change: evaluating the effectiveness of adjuvant radiation therapy, and with those two studies showing clear utility in being able to say, hey,
Speaker Change: You've got a hundred people that are eligible for ART. Who's going to benefit? Who's going to respond? Who will likely get a non-
Speaker Change: clinical benefit to be able to find that the majority of patients who are eligible could be pushed towards ART
Speaker Change: and at the same time focusing on the minority of patients who will get a robust response.
Speaker Change: Both studies showed that patients who
Speaker Change: who we were predicted to have a not only high risk of metastasis, but also have a high benefit, saw more than a 50% reduction in the incidence of metastasis compared to those who do not receive ART therapy. So, great impact there. One would expect...
Speaker Change: that not only the Palmetto team, but also the Novitas team will look at that data and say, wow, we have the opportunity here to really
Speaker Change: not create a new pathway but to arm clinicians and patients within a current pathway to make better, more informed decisions at the end of the day, reducing complications.
Speaker Change: And there was a study published earlier this year showing that if you just take direct cost, that is what we think is the median or the average cost of adjuvant radiation therapy, less the reimbursed cost of our test,
Speaker Change: And that was used across the board of people who received radiation therapy a couple of years ago on the Medicare
Speaker Change: Reimbursement numbers that Medicare might save upwards of, I think it was $900 million a year in cost savings. That is real significant dollars that could be spent elsewhere in the Medicare system.
Speaker Change: For more information visit www.FEMA.gov
Speaker Change: That's helpful. Thank you.
Speaker Change: Thank you. We now have Puneet Suda with Lingering Partners. Please go ahead.
Speaker Change: Your expectation there and how would it affect the reimbursement strategy?
Speaker Change: So, they've been pretty consistent in the last three or four years, sort of post-COVID, Benit.
Speaker Change: in that they usually meet, I think their in-person meeting is in July where they consider
Speaker Change: sort of updating the non-FDA-approved therapy pathways, I guess.
Speaker Change: and they routinely publish updates in either December of that year.
Speaker Change: or I think in the case of this.
Speaker Change: in early 2024. They're not published in late 23. They published in
Speaker Change: We don't have any inside information regarding.
Speaker Change: what they might do to kind of modify, update, or include our tests as part of the treatment pathways.
Speaker Change: Okay, that's helpful. And then on the pharmacogenomics, one of the peer diagnostic companies had an on-coverage decision from a commercial pair.
Speaker Change: Can you elaborate if there is any impact to ID genetics from that?
Speaker Change: And then, you know, could you talk a little bit about if there were further pressures from the...
Speaker Change: Managed Care Organizations and payers in the diagnostic space, where do you think you have the most defensibility in your current reimbursement that you're getting paid?
Speaker Change: Frank
Speaker Change: Sure, yeah.
Speaker Change: We did know that, Puneet, and it's a small impact for us. We're not under contract with that payer.
Speaker Change: So, our payments are less consistent than I assume peer companies are, so not a big impact on us right now.
Speaker Change: As it relates to strategies on reimbursement, you know, it's the same strategy we
Speaker Change: really just have done across the board here, continuing to generate evidence and continuing to educate and show support for tests and show the clinical utility and
Speaker Change: You know, the pharmacogenomic test has tremendous clinical utility.
Speaker Change: by the payer.
Speaker Change: You know, the cost of somebody with depression not being on the right med is borne by their family and their employer, unfortunately, and so one can suppose then that that makes the insurance companies ambivalent as to the actual patient outcome. But for us, very, very minimal impact and something we'll just have to keep following and keep tracking.
Speaker Change: Thank you for watching!
Speaker Change: Okay, just wanted to follow up on that.
Speaker Change: Do you expect commercial reimbursement for cutaneous melanoma? Where do you stand with that effort and any other tests where you are pursuing commercial beyond the ADLT rates that you have?
Speaker Change: Yeah, we are pursuing commercial coverage with all of our tests. That's correct. Certainly continue to push on that and that's part of our data generation effort as well as our presentation and payer interaction strategy.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: We have our next question on the line from...
Speaker Change: All night with Keybank. Please go ahead.
Speaker Change: SG&A only up 13% COGS kind of flat percentage of revenue
Speaker Change: Are we kind of plateauing now where you want to be with this SG&A effort, or rollout I should say?
Speaker Change: We've worked hard to be prudent on expenses, and we've worked hard to...
Speaker Change: Thank you very much.
Speaker Change: work to continue to grow the top line but but you know to leverage that P&L and grow the expense categories at a lower rate than then revenue would grow abroad.
Speaker Change: What's the grade that you see R&D having to grow, Derek or Frank? And same thing with SG&A. Is SG&A going to be still kind of a double-digit type grower?
Speaker Change: I think that, I think SG&A, so where does R&D need to be? I don't know, Paul. We would like to have
Speaker Change: You know, in a common-size P&L, sort of a mature view of things, we'd like to have 10 or 15 percent.
Speaker Change: available for R&D, although the limiter there is, you know, being able to deploy that and it's not as simple as just going out and
Speaker Change: Deciding we're going to do it, you know, there's a there's a there are hurdles there just in terms of resources internally from a from a personnel and a capacity perspective.
Speaker Change: There's certainly room to take some territories and add territories here and there, just as we see some territories getting kind of overfull. But that's really where that growth comes from, from a pure...
Speaker Change: a part of from a GNA part of that that category you know certainly much lower growth it's the S part where we've seen growth and it's the S part that we think is important to continue to drive that that attractive top-line revenue growth
Speaker Change: Okay, thanks.
Speaker Change: Thank you.
Speaker Change: Thank you. We now have Subu Nambi with Guggenheim Securities. Your line is open.
Speaker Change: Good afternoon. This is Rikki Anst for Suva Guggenheim. Thanks for taking our question. Could you provide us with some color on what the competitive landscape looks like right now for DecisionDx Melanoma in light of the new data that's been presented by SkylineDx recently, especially given they've partnered with Quest and Tempest to sell the test? Thank you.
Speaker Change: That's an excellent question. So just to provide context for the rest of the audience here. So Skyline has been marketing their test since, I think, what, Frank, maybe.
Speaker Change: maybe summer of 2020 I think is when they announced the commercial availability in the U.S.
Speaker Change: And while we have always talked about competition, we expect that that's healthy for patient care, we haven't seen traction over the last four years. That's been meaningful. As you mentioned, I guess there was an announcement earlier this year that they had partnered with Tempest and Quest has some kind of a license for that.
Speaker Change: If their tests could achieve a less than 5% Sentinelis node positivity rate,
Speaker Change: which is important because for a number of years, I want to say two decades plus,
Speaker Change: NCC and other guidelines have used the threshold of 5% to say, hey, if you have a likelihood of
Speaker Change: of having more or less than a 5% chance you'll be sent with node positive, which means you find even one melanoma cell.
Speaker Change: in that sentinel list node, then you probably should avoid that procedure if you have a five to 10% risk.
Speaker Change: It sort of is in that discuss and consider range, and if you have more than 10%, then we recommend that you consider doing it. So the less than 5% is a very, very important public cut point. Their study that was presented, which was skipped over a little bit in the press, is their low-risk group.
Speaker Change: And so from our perspective, that's not unexpected. In fact, there was a publication in late
Speaker Change: 2022 that I think evaluated both the published data for our test, Decision DX Melanoma, and their test, and what that study demonstrated was that based upon published data at that point in time, if you look at the majority of melanomas who are in that sort of
Speaker Change: five to ten percent question range.
Speaker Change: which we would call T1-T2 melanomas.
Speaker Change: Our test was able to consistently identify patients that we said were low-risk below that 5% threshold.
Speaker Change: Whereas the Skyline test was right about that. So they didn't appear to offer anything more than AJCC staging based upon that paper. And this study here that was presented a couple weeks ago that you were alluding to came in at 7.1%, so not necessarily very favorable.
Speaker Change: In terms of what that means going forward, I guess we'll have to wait and see if clinicians are comfortable
Speaker Change: that provides a 7.1% chance of node positivity in low-risk patients versus the CASEL test, which studies show are below that 5% threshold.
Speaker Change: Thank you.
Speaker Change: We now have Catherine Schultz with BED. Please go ahead when you're ready.
Speaker Change: Hey everyone, this is Tom Peterson on for Catherine. Apologies if I repeat something from earlier in the call. I was jumping between a few calls this afternoon, but I guess maybe just one question for me on ID Genetic. You know, independent of the private payer medical policy update last week, I guess, how are you thinking at a high level about the pace of investment in the ID Genetic business, you know, in the latter part of this year and into 2025?
Speaker Change: Frank
Speaker Change: Thanks. Thanks there. I appreciate that. Yeah, we're continuing. We will continue to be very measured in terms of how we invest there That's um as you're aware that
Frank Stokes: The ASPs there are different than the rest of our portfolio, and so we'll be very cautious about how hard we hit the pedal there. As I noted earlier, well, I'm sorry, it sounds like you might have had to jump from another call, but as I noted earlier, it's an important test, it's a very important category, it's an important patient that needs the benefit of the test.
Speaker Change: and the commercial insurance companies, at any rate, aren't valuing it as such. And so, very difficult on the reimbursement landscape. So, we'll be measured and we'll be thoughtful.
Speaker Change: and we'll make sure that that we get the appropriate return on investment for all for the sales effort we put forward there.
Speaker Change: Thanks, and maybe just one quick follow-up there. You know, for the previously-issued 2025 profitability guidance, can you just remind us, you know, should we be thinking about overall positive net cash flow from offering and activities in 2025 on a four-year basis, or are you just kind of expecting quarterly net cash flow in 2025 to be positive at some point?
Speaker Change: Thank you.
Speaker Change: On a full year basis, we've said we'll be operating, adjusted operating cash flow positive on a full year basis for 2025, and the primary adjustment there is non-cash stock-based compensation expense.
Speaker Change: Got it. Thank you.
Speaker Change: course
Speaker Change: Thank you.
Speaker Change: We now have Mark Moroso with VT-IG. Your line is open.
Speaker Change: Hey guys, this is Vivian on for Mars. Thanks for taking the questions. I'll just keep it to one actually.
Speaker Change: So just on Novotaz, I know we're sort of on an undetermined clock, do you just have any color to share on timing and your general sense of how they're prioritizing SEC review, whether we should be hearing from them in the front half or the back half of 2025?
Speaker Change: And I just wanted to confirm that in the absence of hearing from them, you'll continue to get paid on SEC in the interim. Thanks.
Speaker Change: I can fill up on that one here. So maybe the most important question first, which is that
Speaker Change: Novitas did complete a review in the second first quarter of 2022, in which they indicated to us that this was a test that met Medicare's reasonableness and necessity guidelines, and we have been a covered test since.
Speaker Change: I think the first claim was submitted in April of 2022, and that continues through.
Speaker Change: through today. So we are a covered test which is appropriate given the evidence that was reviewed and which has only gotten stronger since then.
Speaker Change: in terms of any updates on timing or thoughts.
Speaker Change: There is really not an opportunity for direct feedback, so we can't update a whole lot there except to say that we did go ahead and update our guidance to reflect an assumption that we thought we would maintain payment of the SDC test through the end of this year.
Speaker Change: But in terms of projecting, you know, early part of next year, late next year, I think we don't have any good ways to rely on that, which is unfortunate, of course, for all of us, right?
Speaker Change: Go to Beadaholique.com for all of your beading supply needs!
Speaker Change: Right. Understood. Thanks for taking the question.
Speaker Change: Thank you for watching!
Speaker Change: Thank you. I would now like to hand it back to the Founder, President and Chief Executive Officer, Derek, for some final remarks.
Derek Maetzold: This concludes our third quarter 2024 earnings call. Thank you again for joining us today and for your continued interest in Castle Biosciences.
Speaker Change: Thank you all for joining the CASEL Biosciences third quarter 2024 conference call. I can confirm today's call has now concluded. Please enjoy the rest of your day and you may now disconnect from the call.