Q4 2024 Castle Biosciences Inc Earnings Call
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Thank you for watching!
Information recorded on this call speak only as of today February 27, 2025. 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.
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 Securities Litigation Reform Act of 1095.
These forward looking statements include but are not limited to statements about our financial outlook Tam intended use population and similar items referenced in our earnings release issued today and statements containing projections regarding future events or our future financial or operational results and performance.
Including our anticipated 2025 total revenue our expectations regarding reimbursement for our products, including with regard to our decision Dx SCC test opportunities for growth impact of seasonality and other trends the size and structure of our commercial team the timing of targeted milestones.
And the impact of our investments in growth initiatives, including our ability to achieve long term growth and drive stockholder value.
Forward looking statements are based upon current expectations and involve inherent risks and uncertainties and there can be no assurances that the results contemplated in these statements will be realized a number of factors and risks could cause actual results to differ materially from those contained in these forward looking statements. These factors and other risks and uncertainties are described in detail.
In the company's annual report on Form 10-K for the year ended December 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. These forward looking statements speak only as of today and we assume no obligation to update.
Our revised these forward looking statements as circumstances change. In addition, some of the information discussed today includes non-GAAP financial measures.
Such as adjusted revenue adjusted gross margin and adjusted EBITDA that have not been calculated in accordance with generally 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. We believe these metrics provide useful supplemental information and necessity.
Our revenue and operating performance reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the Investor Relations page of the Companys website I will now turn the call over to Derek.
Yeah.
Derek: Thank you Kim and good afternoon, everyone.
Derek: 24 was another exceptional year for capital.
Derek: Im extremely proud of the strong execution by our entire team.
Derek: Fourth quarter revenue of $86 $3 million, we grew revenue by 51% year over year to $332 $1 million for the full year 2024.
Derek: Additionally, total test report volume grew by 36% in 2024 compared to 2023.
Derek: Further as of December 31, 2024, the company's cash cash equivalents.
Derek: Marketable investment securities totaled $293 1 million.
Derek: $50 million increase over December 31, 2023, which we believe will enable us to continue executing on our growth initiatives.
Derek: I will walk you through business highlights in the fourth quarter and full year 2024, and then Frank will provide additional financial highlights before we turn to your questions.
Derek: Starting with our core dermatology business, we delivered growth of 17% for combined decision Dx melanoma and decision Dx SCC over 2023 or.
Derek: Our dermatologic commercial team to support the promotion of both of these tests. Therefore, we look at the growth of these tests combined as the appropriate litmus test of ordering larger portfolios performance.
Derek: A decision Dx melanoma, specifically, we delivered 36000, an acre test reports in 2024, and 8% increase over 2023.
Derek: Correcting for underreporting, we believe the addressable market comprises approximately 130000 patients, meaning that we exited 2020, roughly 28% market penetration.
Derek: We're pleased with our volume growth for 2024, and I would like to revise municipal context, specifically.
Derek: Fourth quarter volume precision Dx melanoma.
Derek: We saw a typical seasonality with the fourth quarter historically, having the fewest working days compared to the other three quarters.
Derek: Specifically in the fourth quarter of 2024, we had two fewer working days than in the third quarter of 2024 further the overlap of Christmas and Hanukkah in December where traditional practice closures as compared to 2023.
Derek: As a reminder, our resistant melanoma test results provide clinicians and patients with actionable results aiming at answering two questions.
Derek: First being does this patient to have a likelihood of a positive lymph node that is below 5%.
Derek: 5% has been the traditional guideline thresholds for avoiding.
Derek: Versus offering a biopsy surgical procedure.
Derek: We have multiple prospective and retrospective studies and consistently shown that our decision Dx melanoma test is able to identify patients who have a less than 5% <unk> positive setting without a biopsy.
Derek: We've also shown that patients who avoided excellent biopsy procedure have excellent long term outcomes. This data consistency, that's our decision Dx melanoma test apart.
Derek: Second question our test results aimed to answer is what is the five year likelihood of this patient is having a recurrence again, we've shown in multiple prospective and retrospective studies that our decision Dx melanoma test is an independent predictor of recurrence.
Derek: At connections use our test results to assist with their decisions as to whether to escalate or deescalate treatment pathways.
Derek: They tested patients show improved survival compared to patients who did not receive versus the extra melanoma tests as part of their clinical care, we continue to.
Derek: To develop evidence to support our decision Dx melanoma test at <unk>.
Currently we have more than 3000 patients enrolled in clinical studies we.
Derek: We believe that the fact that we have been able to consistently demonstrate that we are adding independent value. The traditional staging factors such charges in Dx melanoma test apart.
Derek: These two uses of our test impact patients across all stages of localized melanoma. We believe we have significant room to further penetration across clinical stages.
Derek: Further HR 2020 for data for this test are orders generally align with the seer data.
Derek: Incidence by T stage for patients diagnosed with melanoma.
Derek: Despite having a launch decision Dx melanoma several years back we continue to see new clinicians ordering our tests for the very first time.
Derek: Specifically in 2024, we had 1816 commissions.
Derek: Or does the Dx melanoma for the very first time. This was similar to the number of first time order conditions in 2023.
Derek: Some existing customers may or so and where they see the sweet spot for our test. We continue to have strong interest in usage that we need to then turn into further adoption.
Derek: We currently anticipate mid to high single digit volume growth for the full year 2025, 2024, with the first quarter 2025, being flat or slightly downgraded a fourth quarter 2024 in line with typical seasonality and our expectations.
Derek: Moving onto our decision Dx SCC test.
Derek: We need to see strong test report volume momentum with 16348 test reports delivered in 2024, an increase of 43% compared to 2023 further we saw one 510, new order and conditions for our decision Dx SCC test in 2010.
Derek: Four we.
Derek: We believe that the addressable market of patients diagnosed with cutaneous squamous cell carcinoma in the presence of one or more clinical or pathologic risk factors is approximately 200000 patients meaning that we exited 2020 for roughly 8% market penetration.
Derek: As a reminder, our decision Dx SCC test provides to actual test results.
Derek: First is predicting the risk of metastasis and the second is predicting response to adjuvant radiation therapy. These.
Derek: These uses are supported by 22 peer reviewed publications since the launch of the test, including six studies published in 2024 fuel, which represented the largest second largest studies ever published that evaluate the effectiveness of adjuvant radiation therapy in patients with cutaneous squamous cell carcinoma.
Now, let's turn our reimbursement.
Derek: In January 2025, no botox, the Medicare against their contract with jurisdiction over laboratory in Pittsburgh finalized the local coverage determination or LCD I think through the language signifying non coverage by Medicare or decision Dx SCC.
Derek: Also the effective date originally in February 23, 2025 were subsequently extended to April 24, 2025 to the LCD would become effective as is we would anticipate receiving Medicare reimbursement positioning FCC tests performed on or after April 2000 and for 2025.
Derek: We are disappointed with the impact on patient care, if we lose Medicare coverage given the strength of the evidence and decision Dx FCC's ability to predict the risk of metastasis impacting treatment pathways and the ability to predict responsiveness to adjuvant radiation therapy.
Derek: I'll remind you that a cost effectiveness. The article that was published in January 2024 drove that using decision Dx SCC to guide adjuvant radiation therapy physicians could result in substantial savings to the Medicare program of up to $972 million per year.
Derek: Now, let's turn to our tissue soccer tests are spatial omics tests designed to determine a patient's individual risk of progression or embarrassed esophagus, the high grade dysplasia or soft gel cancer we.
Derek: We have published multiple performance studies, showing that tissue cyber consistently outperformance traditional clinical and pathologic factors, providing physicians with an actionable assessment of the likelihood of a patient is five year risk of progression to hybrid dysplasia or esophageal cancer.
Derek: As such we are thrilled with the positive reception tissue Cyprus received from the Gastroenterology community.
Derek: We delivered.
Derek: <unk> thousand 956 tissue seismic tests reported in 2024 compared to 9000, 102023, representing 130% growth and for the year ended December 2024, we had 1234, new ordering clinicians for the tissue.
<unk> test.
Derek: Accordingly tissue Ciber achieved a significant milestone in 2024, surpassing 25000 test reports delivered since we acquired the test at the end of 2021, suggesting more prices maybe recognizing its value.
Derek: I'd also remind you that in 2020 for the American gas logical association or at.
Derek: At least new clinical practice guidelines in endoscopic eradication therapy for bearish esophagus data it can be effectively treated with endoscopic procedures like ablation by noting identifying high risk patients is crucial.
Derek: Importantly tissue cycle works, how as the first prognostic assay capable of identifying patient bearish esophagus at risk of progressing to high grade dysplasia or stoppage of cancer. This recognition by the agi reinforces tissue cypress role in providing personalized and clinically validated risk stratification.
Derek: Helping clinicians better manage patients with various esophagus.
Derek: We look at 2025 and beyond the growth drivers, we expect for tissue soccer include one the commercial team roughly doubling in size. During the first half of 2024 with continued expansion throughout the second half of 2024 and the first few months of 2025.
Derek: The unmet clinical need and value of our tests being further accepted by clinicians and three a strong focus on education and awareness, we believe that the addressable market of patients diagnosed with barrick's esophagus with non dysplastic indefinite or low grade dysplasia is approximately 415000 patients.
Derek: Per year in the U S, meaning that we exited 2024 with roughly 5% market penetration we.
Derek: We believe in our ability to maintain strong momentum for future growth and currently expect tissue side volume to be significant for the full year 2025 compared to 2024, although not as high as 130% we delivered in 2024 compared to 2023.
Derek: Turning to our mental health business.
Derek: Due to changes in the market and our focus of allocating resources efficiently unprofitable growth in late 2024, we revised our commercial strategy for <unk> test reallocating resources to inside sales and non personal promotions.
Derek: In December 2024, we observed month to month decreases <unk> test reports, which persisted throughout year end 2024.
Derek: We continue to offer our <unk> test and monitor performance. However in 2025, we expect test report volumes and net revenues will continue to decrease in the long term performance of this test remains uncertain.
Frank: And with that I will now turn the call over to Frank.
Frank: Thank you Derek and good afternoon, everyone as Gerald highlighted we delivered strong 2024 results continuing our track record of consistent execution and strong financial performance in the fourth quarter of 2024, we delivered total revenue of $86 3 million, 31% increase over the fourth quarter of 2023.
Frank: And delivered $332 1 million for the full year of 2020 for a 51% increase over 2023 and exceeding our guidance range.
Frank: For full year 2024 increase was driven predominantly by test volume growth for our dermatology and non Dermatologic test as well as our tissue side for tests, along with a higher ASP for our decision Dx SCC test compared to 2023.
Frank: Importantly, we've now grown total revenue at 52% CAGR over the last five years.
Frank: Adjusted revenue, which excludes the effects of revenue adjustments in the current period related to tests delivered in prior periods was $85 8 million for the quarter and $333 $8 million for the full year 2024.
Frank: For 2025, we anticipate generating total revenue of $280 million to $295 million, which reflects decisions the FCC no longer being reimbursed by Medicare for services performed on and after April 24 2025.
Frank: Our gross margin during the fourth quarter was 76, 2% compared to 77, 8% in the fourth quarter of 2023, and our gross margin for the full year was 78, 5% compared to 75, 4% in 2023 are.
Frank: 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.
Frank: Was 81, 1% for the quarter at 82% for the year compared to 82, 3% and 79, 9% for the same periods in 2023.
Frank: With the anticipated loss of decision Dx SCC coverage in late April.
Frank: We currently expect gross margins in the low to mid 70% range and adjusted gross margin in the mid to high 70% range for all of 2025.
Frank: Turning to expenses, our total operating expenses, including cost of sales for the quarter were $82 3 million.
Frank: Compared to $71 8 million for the prior year.
Frank: And were $323 4 million for the full year 2024, compared to $287 8 million for 2023.
Frank: Sales and marketing expenses were $123 $5 million for the full year compared to $113 7 million for 2023.
Frank: The increase is mainly due to higher personnel cost higher sales related travel expense and higher organizational and business development activities.
Frank: Increases in personnel costs reflect the higher head count as well as merit annual inflationary wage adjustments for existing employees.
Frank: General and administrative expenses were $76 6 million for the full year compared to $66 5 million for 2023.
Frank: The increase was primarily attributable to higher personnel cost professional fees and related costs and expenses.
Frank: Increases in personnel costs reflect head count expansion and our administrative support functions as well as merit and annual inflationary wage adjustment for existing employees.
Frank: Cost of sales expenses were $60 2 million for the full year compared to $45 million for 2023, primarily due to higher personnel cost and higher expenses for supplies and depreciation increase.
Increases in personnel costs reflects higher head count to support business growth in response to growing test report volumes commencement of operations at our New Pittsburgh Laboratory in the second quarter of 2023, as well as American annual inflationary wage adjustments for existing voice.
Frank: R&D expenses were $52 million for the full year compared to $53 6 million for 2023, primarily due to lower clinical studies cost lower organizational development costs and lower expense for laboratory supplies, partially offset by higher personnel costs.
Frank: Total noncash stock based compensation expense, which is allocated among cost of sales R&D expense and SG&A expense was $53 million for the full year down slightly from $51 2 million for 2023, Despite an increase of 25% of total head count over 2023.
Frank: Interest income was $12 $9 million for the full year 2024, compared to $10 $6 million in 2023, primarily result of higher balances held in marketable investment securities.
Frank: Income tax expense was $3 3 billion for the full year 2024, compared to <unk> $1 million in 2023, as we realized profitability and positive operating cash flows with full year 2024.
Frank: Merely a result of state income taxes, and the realization of pre tax income in 2024.
Frank: Our net income for the fourth quarter of 2024 was $9 6 million compared.
Frank: Compared to a net loss of $2 6 million for the fourth quarter of 2023.
Frank: And our net income for the full year of 2024 was $18 2 million.
Frank: Compared to a net loss of $57 5 million for 2023.
Frank: Diluted earnings per share for the fourth quarter was 32, a share compared to a diluted loss per share of <unk> 10 in the fourth quarter of 2023.
Frank: Diluted earnings per share for the full year 2024 was <unk> 62 per share compared to diluted loss per share of $2 14 for 2023.
Frank: Adjusted EBITDA for the fourth quarter was $21 3 million compared.
Frank: Compared to $9 4 million for the comparable period in 2023.
Frank: For the full year 2024, adjusted EBITDA was $75 million compared to a negative $4 4 million in 2023.
Frank: Net cash provided by operating activities was $24 4 million for the fourth quarter of 2024 and $64 $9 million for the year ended December 31 2024.
Frank: Historically in the first quarter of the year, we have seen net operating cash use due in part to annual cash bonus payments and certain health care benefit payments that do not recur during the remaining three quarters of the year.
Frank: We expect 2025 to follow this historical trend importantly, we continue to expect to deliver positive net cash flow from operations for the full year of 2025.
Frank: Net cash used in investing activities was $50 $1 million for the 12 months ended December 31 2024.
Frank: And consisted primarily of purchases of marketable investment securities of $205 7 million in purchases of property and equipment of $28 $3 million, partially offset by the maturity of marketable investment securities of $183 $9 million.
Frank: We ended the year with cash cash equivalents and marketable securities of $293 1 million, which.
Frank: Which we believe will allow us to invest in the business for long term growth and to continue our efforts to drive stockholder value.
Frank: In conclusion, we delivered strong financial results in 2024.
Frank: In an effort to ensure the company is positioned for success in 2025, we expect to remain focused on strong execution, coupled with our sound capital allocation strategy, including strategic opportunities I will now turn the call back to Gerry. Thank you Frank in summary, we believe we have entered 2025 and it boosts our financial and operational strength.
Frank: As a result of our long standing commitment to a science driven approach to improve the lives of the patients we serve.
Frank: Our continued investment innovation, along with excellent execution should enable us to deliver.
Speaker Change: Patients clinicians and stockholders. Thank you for your continued interest in castle.
Frank: Now we will be happy to take your questions operator.
Speaker Change: Thank you.
Speaker Change: In order to allow everyone in the queue and opportunity to address the castle management team. Please limit your time on.
Speaker Change: On the crew to one question and one follow up and if you have any questions. Please okay. Keith please standby while we.
Speaker Change: Compile the Q&A with Scott.
Speaker Change: Your first question comes from CBD Namby may with Guggenheim. Please go ahead.
Speaker Change: Guys. Thank you for taking my question.
CBD Namby: In our checks we've noticed that sorry that <unk>, usually prefer decision Dx melanoma, but there was an academic center Austin hesitant to order more broadly before guideline inclusion one do you agree.
Speaker Change: In the absence of guideline update.
CBD Namby: Should we think about the opportunity.
CBD Namby: So if I understood there.
CBD Namby: Thomas back from your interviews I guess that that applies.
CBD Namby: A little contrary to what the 100 800 to 1800 <unk>.
CBD Namby: New first time ordering clinicians.
CBD Namby: In 2020 quarter order the melanoma, so while it could be.
CBD Namby: That there are clinicians who have.
CBD Namby: Ben common users and they have.
CBD Namby: Kind of following onto what they view as a sweet spot. So maybe there is not much expansion for some of those current customers. We did see substantial growth in new first time ordering clinicians last year as well as in 2023.
CBD Namby: From our perspective.
CBD Namby: Outside of a few of the sort of end CCN centers.
CBD Namby: We don't hear much feedback at all regarding end CCN guideline inclusion or lack thereof is driving any sort of a personal decision around treating individual patient except for again, a couple of the NCC and institutions, who I guess feel obligated to follow <unk>.
CBD Namby: <unk> lines as opposed to treating patients individually.
CBD Namby: Go ahead, thank you for clarifying that.
CBD Namby: I want to bring back to atopic dermatitis gene expression profile test that I think is planned to launch by the end of 'twenty five if the validation study results come through and should we expect reimbursement update for this product.
CBD Namby: Reimbursement or launch updates.
CBD Namby: Launch and reimbursement.
CBD Namby: Yes, so we don't at this point in time.
CBD Namby: We believe assuming as you said that the that the rest of the validation study finishes out successfully.
CBD Namby: We wouldn't be on target at this point in time, there's still launch in late 2025.
CBD Namby: I think we discussed this earlier in January maybe with third quarter earnings.
CBD Namby: Once we see what our final profile looks like and the relative value to both clinicians and payers then the team's work in the next four or five or six seven months is to really work through that exact same question survey, which can say.
How do we want to make this test available clinically so that it's doing good for patient outcomes and castle is getting fairly reimbursed and there might be some nontraditional approaches. So I think one of the next several quarters in 2025% expect to have us provide some good clarity on that I think.
CBD Namby: But as I say I think I want to see what the profile looks like so we can really focus in on what that reimbursement strategy will actually be published launch assuming we're successful of course in the in the R&D part of the business either way, though I would say starting from volume of zero.
CBD Namby: To some volume thats higher than that that I would not expect much material revenue I guess is the way to say it all.
CBD Namby: Until what 'twenty eight 'twenty nine probably is the right time for you to think about that.
CBD Namby: Okay.
CBD Namby: Thank you.
CBD Namby: Your next question comes from China.
CBD Namby: With Scotiabank.
CBD Namby: Please go ahead.
CBD Namby: Thank you for taking the questions.
CBD Namby: Tissue paper and getting the New York State Department of Health approval, there what percentage of the addressable market.
CBD Namby: The New York State represent.
CBD Namby: Yeah.
CBD Namby: Oh, sorry.
CBD Namby: That sounds like AI Google question.
CBD Namby: I don't know off the top of my cough here I'm, assuming it's going to be.
CBD Namby: Demographically there'll be nothing different to say would not be.
CBD Namby: Similar to the population in New York as a percentage of the overall U S population I don't think there's any there's no age difference or no health different that I would think would make them a heavier or lighter at play here than just the average percentage of the U S population lives in New York.
Speaker Change: Got you and then just on the decision Dx SCC kind of what the commercial strategy. While you are continuing to.
CBD Namby: Hey.
The reimbursement issue is it just kind of curious if you will continue to offer the test to patients clinicians that order the tests and how we should think about that.
CBD Namby: Fair enough.
CBD Namby: It's a great question. So so should we lose coverage.
CBD Namby: Towards the end of April which is the current expectation.
CBD Namby: One from just a non counsel perspective, but more of a patient care perspective it'll be.
CBD Namby: Hugely disappointing to have Medicare beneficiaries be referred to in undergo adjuvant radiation payer from what we know based upon our two large multicenter studies are published last year that roughly 60% of them will not respond to that intervention.
CBD Namby: The other patients.
CBD Namby: Patients will which is fantastic, but youre really over radiating people in that state that would be disappointed if that continues to go on despite the fact that use of our test and directing radiation therapy, we believe extracts over $900 million a year in excess of spend because you're removing <unk> from the patient now that visa has.
CBD Namby: <unk> Crown.
CBD Namby: Thank you.
CBD Namby: How we would approach it today as I say, if we believe there is a reasonably short term approach to regaining.
CBD Namby: Reimbursement for Medicare then we will leave the test as it is I think so that patients can benefit in the interim period.
CBD Namby: It's a longer term.
CBD Namby: Challenge to regaining covered through Medicare then I think we have to balance out.
CBD Namby: Somewhat of the needs of the shareholders can have an impact on gross margins as well as the impact on our Medicare pressure to go ahead and have that test cover so right now I don't anticipate that we would make the choice of taking off the marketplace completely that seems quite harsh.
CBD Namby: And not in the orientation of a patient focused company.
Speaker Change: Great. Thank you for taking the question.
Thomas Flaten: Thank you we now have Thomas Flaten with Lake Charles on the line.
Speaker Change: Yes.
Speaker Change: Hey, good afternoon, thanks for taking the questions.
Speaker Change: The press release, you mentioned the potential for strategic opportunities with respect to capital allocation should we be thinking about existing verticals new verticals, maybe both just help us out with a little bit.
Speaker Change: So I think we are.
Speaker Change: Always looking at taking our capital and saying what can we do to invest in our current commercial efforts to drive appropriate volume and revenue on a topline looking at what we can find for internal pipeline and also external opportunities as you noted there Thomas.
Speaker Change: From just a pure.
Speaker Change: Profitability driver for cash so it's easier to model out and think about locating additional.
Speaker Change: Test services that fit in our in our current verticals because we already have an infrastructure that we can go ahead and just.
Speaker Change: Diversified cost across that being said.
Speaker Change: We were not in gas urology three years ago, when we bought certain optics to acquire tissue cipher. So I think we are focused both I'm seeing what assets are there that can fit with our portfolios, but are not averse to looking at other areas. If it makes good sense and we see good strong upside.
Speaker Change: Got it and then Frank one for you with with FCC, most likely disappearing from the top line.
Speaker Change: And keeping in mind, you had a really strong adjusted EBITDA number in 2020 for any help you can give us on how to think about adjusted EBITDA for 2025.
Speaker Change: Yes, Thomas we just continue to reiterate we expect to be adjusted EBITDA positive for the year, we haven't given any any scope or scale to that.
Speaker Change: Got it appreciate it thanks guys.
Speaker Change: Yes, Thanks, Tom.
Speaker Change: Thank you.
Speaker Change: <unk> with Keybank on the line.
Speaker Change: Okay.
Hi, Derek Frank.
Speaker Change: Question on FCC, obviously, you're assuming that.
Speaker Change: That is fairly quickly but.
Speaker Change: Is there any residual from non Medicare payers and private pay on FCC.
Speaker Change: No not significant private not significant commercial payment there.
Speaker Change: On the FCC still very early.
Speaker Change: And then strategically whats the M&A market and the market in the world of diagnostics right now is it.
Speaker Change: Have you seen the pipeline mature and possibly a great market because deal flow has kind of been light but.
Speaker Change: Research maybe has not.
Speaker Change: Slow down what's your feeling about are you buying things that are let's call. It more mature in this world.
Speaker Change: Right.
Speaker Change: There is certainly.
Speaker Change: Lots of assets in the diagnostics space.
Speaker Change: But our.
Speaker Change: Filter is pretty pretty soon and so we certainly haven't haven't changed that view or haven't had.
Speaker Change: Our sense is that we loosen that filter. So I think the same sort of discipline and approach is how we're comfortable thinking about things.
Speaker Change: And then as we think about 25% how should we model SG&A is the sales force expenditure.
Speaker Change: Overhead increasing in 2020 five.
Speaker Change: We have made some expansions to the tissue side for Salesforce and that's.
Speaker Change: <unk>.
Speaker Change: Good bit of that was reflected in the Q4 number I think we'll continue to get leverage in the P&L, but we don't see any very sweeping large changes to the sales force, but we will continue to add.
Speaker Change: And that asset as we as we see continued penetration on our test menu.
Speaker Change: Okay. Thank you.
Nathan: Thank you we have Nathan <unk> with Stephens. Please go ahead.
Ben: Hey, guys. Thanks for taking the questions. This is Ben on for <unk>.
Ben: Wanted to start with the Q4 impacts from the Hurricanes and the holidays.
Ben: Do you have a sense for these patients.
Ben: Being able to be rescheduled in Q1 or potentially I guess late in Q4, and then how do these patients factor into your melanoma frameworks for the start of the year here in 2025.
Ben: Alright.
Ben: Yes, it's hard to say when patients get caught up.
Ben: Does it.
Ben: Excuse me <unk> are pretty full.
And we've spoken before and the best analogy is when an airline cancels a claim there arent 180 empty seats on the next plane to put them on so they've got to find ways to move them around and docs have to do the same. So we don't really have a good sense of when those patients flow through and how many of them are lost.
Ben: We think Q1 is probably going to set up like like normal for Q1, and you've got two very large physician meetings in the quarter <unk> got patient reset patient deductibles resetting so.
Ben: As we said in the in the.
Ben: In the release, we expect typical seasonality for Q1 that we've seen in past years.
Speaker Change: Okay, great. Thank you for that and then I appreciate the gross margin color that you guys gave.
Ben: Just.
Ben: Hoping that you'd be able to provide some additional detail as.
Ben: SEC rolls off sorry.
Ben: Starting in April just how we should think about the cadence there as we move throughout the year. Thank you for taking the questions.
Ben: Yes, sure. So yes, the adjustments we referenced in the expected adjustments or impact on gross margin would be.
Ben: At the time reimbursement has pulled back so.
Ben: It wouldn't be phase again, it would be.
Ben: It would be right at the end of that and have that coverage.
Speaker Change: Thank you.
Speaker Change: We have a question from Catherine Schulte with bank.
Tom Peterson: Hi, everyone. This is Tom Peterson on for Catherine Thanks for taking our questions.
Speaker Change: I Wonder if you could kind of walk through your latest thoughts.
Speaker Change: On SEC promotional effort following assumed to non covered here in late April I guess, specifically how are you thinking about potential changes to the dermatology sales force incentive structure is there any contemplation around shifting more toward Dx melanoma.
Speaker Change: Yes is the answer so depending on the.
Speaker Change: What we see between now and the end of April we will be.
Speaker Change: Shifting if not 100% very very close to that towards the melanoma tests only beginning probably may 1st and obviously, we will watch and see what plays out in the next couple of months here, if thats the right call or not.
Speaker Change: The only element that might change.
Speaker Change: A switchback to some kind of a of a shared compensation not 50 50 at all or is something else. Thats 90, 10, 80, 20 would be if we see a line of sight to having near term.
Reimbursement regained our maintained otherwise the expectation here is that we move.
Speaker Change: Back to being.
Speaker Change: <unk> to a 100% for melanoma.
Speaker Change: Okay.
Speaker Change: Got it thanks, and then I know you've got some questions or comments on the tissue paper Salesforce.
Speaker Change: Sales force expansion to end 2024, it sounds like maybe a couple of incremental add here to start 225, I guess can you just give us some more color on where that sits today what the expectation is for 2025, and if you could remind us how you think.
Speaker Change: How do you think about that Salesforce size long term.
Speaker Change: So we think there is.
Speaker Change: Roughly 10000 target of all cash neurologists, who perform upper Endoscopies in that group is a small number who are really focus on upper endoscopies in ablation procedures et cetera that are in that group there we.
Speaker Change: Don't quite know today, or maybe I'm not as confident that should be about how important or how unimportant b.
Speaker Change: Advanced practice participants are nurse practitioners.
Speaker Change: Put us in his assistance and sorting maintaining clinical.
Speaker Change: Interaction with patients diagnosed a bearish south I guess, so if you just go ahead and assume that they arent managing those patients per se and that's really just the gas neurologists with the MD or D O degree behind their name.
Speaker Change: Then sitting in kind of the low sixty's is probably insufficient by maybe <unk>.
Speaker Change: 15 to 25 sales representatives, so part of our expectation here is that kind of.
Speaker Change: Watch and see how this most recent increase in territory size matures during the second quarter, and then probably make additional expansion opportunities.
Speaker Change: Third and fourth quarter, as we sort of see the relationships building among our expanded territories with the current customers and new customers. So it all expand too fast to go and caused more disruption, but expanded the right rate.
Speaker Change: And at the end of the day I guess, we should come back here is.
Speaker Change: The.
Speaker Change: Hi.
Speaker Change: We are quite sure if in the $60 range is where you should be sitting and part of that is looking at promotional responsiveness and territory sizes.
Speaker Change: And travel time, but probably somewhere between 60% to 80% feels about right at full maturity.
Mark Murphy: Thank you we have mark Murphy with BTG.
Speaker Change: Okay. This concludes Ian on for Mike.
Mark Murphy: Questions and I'll, just keep it to one.
Speaker Change: Could you kind of know the costs.
Speaker Change: Non coverage at the FCC could you just remind us of the other pathways.
Speaker Change: That are available to you in contesting that either are continuing discussions with Nova cost.
Speaker Change: Potentially flexing to a different lab.
Speaker Change: And such that you might be covered by Medicare contractor.
Speaker Change: Yes, so there are.
Speaker Change: Part of Integra remainder of our outline different processing approaches one can take two.
Speaker Change: Two interacting when there is an LCD in place one of those would be a reconsideration requests, which we would.
Speaker Change: Back to enter into with Nova task with policy Finalizes as is.
Speaker Change: We are aware of a another laboratory that has filed a lawsuit against <unk> LCD Pacific edge that were went up I guess, a week or two ago.
Speaker Change: That may have an impact on this on the policy timing of this LCD being effective or it may not have an impact but at least they are there are there are there seems to be other laboratories, who are aware of a similar kinds of issues. There is also a administrative law judge challenge, which would usually take a patient to work with you to do.
Speaker Change: That and then.
Speaker Change: That sort of is that our the main pathways within.
Noah: Okay, Noah tossed directly as you may recall, we do have a LCD opportunity with with the Mol Dx group and as we talked about last fall when we finalize that policy. They did not due to the timing of our publications review the adjuvant radiation therapy response data.
Noah: But dropped in a comment or two in the LCD being aware that they were aware of some promising early data. So we take that as as a as a.
Noah: Indication that that is a is a very interesting are interested to clinical use perspective, so we would.
We are in.
Noah: Pursue that approach as well for a positive LCD through the multi X program.
Noah: Those are the main avenues.
Speaker Change: Great. Thanks for taking my question.
Speaker Change: Thank you.
Speaker Change: Half call Nicholson.
Speaker Change: That's kind of code.
Speaker Change: Yeah, Hey, guys. Thanks for the questions just based on consensus.
Speaker Change: Most estimates did not include efficacy do you assume like a quarter and a third of the SEC guidance, probably should've tushar bracketed $300 million could you just kind.
Speaker Change: And then obviously like you didn't.
Speaker Change: Express side of product can you talk about the quarterly assumptions for FCC and <unk>.
Speaker Change: <unk> is that kind of like flat relative to <unk> and 'twenty four levels and then the acceleration of decision to sell them throughout the year, maybe that benefits from the roll off of the commercial team kind of reallocate efforts.
Speaker Change: Right.
Speaker Change: Frank I think here on the first time.
Speaker Change: I am thank you.
Speaker Change: I will cover the guidance ill, let Eric answer the second part the guidance assumes FCC coverage through.
Speaker Change: The LCD effective date of April 24th.
Speaker Change: In terms of acceleration of.
Speaker Change: Melanoma volume as the back half of your question there we.
Speaker Change: We went from being solely focused with the sales force more than half.
Speaker Change: <unk>.
Speaker Change: Less than half the current size of our at call.
Speaker Change: I guess it was summer of 2022, when we went to two US splitting sales force focus between melanoma and FCC and we expanded quite a bit since that point in time. So we would expect some accelerated growth once we return to a fully focused melanoma sales team but.
Speaker Change: To be quite honest don't have any sort of recent history with this number of people in the field about what that might look like for momentum so I'd, rather not over under set expectations to be honest at this point in time until we kind of see how Tao.
Speaker Change: How our customers respond in the second quarter.
Speaker Change: Okay, that's great.
Speaker Change: Second one could you kind of talk about the white space or greenfield opportunities for <unk> melanoma test whether that's.
Speaker Change: Kind of opportunity market or regional.
Speaker Change: Kind of differences I guess has deep penetration in the current practices a material growth driver or just kind of look outside that maybe two adjacent areas.
Speaker Change: Okay. Okay.
Speaker Change: If I break out briefly.
Speaker Change: So.
Speaker Change: We had a downturn.
Speaker Change: Taking 100, new ordering clinicians first time ever last year and that was close to we saw in 2023 as well so.
Speaker Change: It's <unk>.
Speaker Change: Surprising interesting do you want to call that that after being on the marketplace for several years there were still that many numbers kind of dermatological surgical customers, who are adopting our tests for the very first time ever. So there is still I think good good growth in 'twenty five and beyond.
Speaker Change: Of attracting clinicians who maybe they were tough to see maybe they were residents coming into practice. They werent here three or four or five years ago, maybe they were a nurse practitioners or <unk> that are fresh out of school and just learning about new technologies like ours. So I think that that is one area of growth going forward.
Speaker Change: Necessary slowing down a whole lot because of just the.
Speaker Change: New clinicians going into dermatology and also just getting around to those who are either late adopters bye bye style or maybe they are hard to go ahead and get a hold of it and communicate too.
Speaker Change: In terms of current ordering customers when we analyze our data one of the things that we do look at us.
Speaker Change: Is.
Speaker Change: As breslow thickness on the patients who are test is ordered in.
Speaker Change: And if we kind of look at the.
Speaker Change: NCI seer data.
Speaker Change: We can look at it at least the reported melanoma melanoma cases in half the country relative to their breast those thickness and what's called their T stage of their tumor stage and we can then marry against what kind of orders, we're seeing coming in from an individual clinician, if we find out that the only.
Orders that clinician is giving us our first say patients that are between say eight.
Speaker Change: Eight millimeters thick and maybe call. It one five millimeters thick and we're getting almost nothing else from that physician or nurse practitioner.
Speaker Change: We would say that clinician has sort of found what they believe is the sweet spot of our test in our practice because nobody only has those patients and so we have articles and performance studies and clinical <unk> studies that the Salesforce knows how to use that would go back into that same connection who is sort of limited.
Speaker Change: Use of our tests for a certain patient population that hey, this is what I'm seeing and what you're ordering.
Speaker Change: Can we kind of go through data over here and thinner patients and see the value that some of your peers are getting would you agree to that in some cases, we arent successful but in other cases, we are successful in seeing that clinician review of the data think about how they would apply clinically and expand to use in these other customer ranges, so that as an opportunity as well.
Speaker Change: And then we do see other customers, who are current customers, who looks like they're ordering our tests across the spectrum of patients that are diagnosed that probably is close to 80, 9100% penetration for that individual clinicians practice. When obviously, that's really more about maintaining and reinforcing that they are making good clinical disease.
Speaker Change: Patients based upon the use of our test.
Speaker Change: This.
Speaker Change: Thank you.
Speaker Change: Thank you.
Gary: I'd now like to hand, it back to Gary for some clients taking comments.
Gary: Thank you operator, this concludes our fourth quarter and full year 2024 earnings call.
Gary: You again for joining us today and for your continued interest in castle Biosciences.
Gary: Thank you for joining I can't confirm that does conclude today's call. Please enjoy the rest of your day and you may now disconnect. Thank you for your participation.
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