Castle Biosciences, Inc.

Good afternoon and welcome to CASEL Biosciences' fourth quarter and year-end 2019 conference call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions, followed by a question and answer session. I would like to turn the call over to Frank Stokes, Chief Financial Officer. Please go ahead, sir.

Thank you, operator. Good afternoon, everyone. Welcome to CASEL Biosciences' fourth quarter and year-end 2019 financial results conference call. Joining me today is Castle's founder, president and chief executive officer, Derek Maetzold. Information recorded on this call speaks only as of today, March 10, 2020. Therefore, if you are listening to the replay or reading the transcript of this call, any time-sensitive information may no longer be accurate. A recording of today's call will be available on the investor relations page of the company's website for approximately three weeks. Before we begin, I would like to remind you that some of the information discussed today may contain projections or other forward-looking statements regarding future events or the future financial performance of the company and are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties, and there could be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's final prospectus filed with the Securities and Exchange Commission on July 26, 2019 relating to our registration statements on Form S-1 and in the company's other documents and reports filed with the Securities and Exchange Commission. These forward-looking statements speak only as of today. and we assume no obligation to update or revise these forward-looking statements as circumstances change. I'll now turn the call over to Derek.

Thank you, Frank, and good afternoon, everyone. Thank you for joining us today. This afternoon, we will review fourth quarter and year-end financial results, key accomplishments and upcoming milestones, and discuss our 2020 revenue guidance and strategic priorities. The entire Castle Biosciences team did an excellent job throughout 2019. which was an incredibly strong year, strong in terms of growth in our gene expression profile test volume, strong in terms of growth in continued evidence development for our DecisionDx melanoma tests and our DecisionDx UM tests and progression of our pipeline products. During 2019, we successfully completed two commercial team expansions, one in the first quarter of 2019 and the second one in December 2019. We went from 14 outside sales territories in December 2018 to 32 outside sales territories as of December 2019, which provides us confidence in our ability to execute our 2020 strategic growth priorities. In 2019, for the fourth quarter year ended, we reported revenue of $17.6 million and $51.9 million, respectively. The full year 2019 revenue of $51.9 million compares favorably to the $22.8 million reported for the full year 2018. As we look forward to our growth potential in 2020, we anticipate generating $61 to $64 million in revenue and plan to provide quarterly updates on this guidance. In order to support our continued growth, we plan to further expand our commercial sales team, continue our evidence development and further ramp up our R&D efforts. We did announce report volume in January for both of our proprietary gene expression profile tests. For decision DX melanoma for use in patients diagnosed with invasive cutaneous or skin melanoma, we delivered 4,480 test reports in the fourth quarter and 15,529 test reports for the year, up 37% and 29% over prior periods in 2018, respectively. Adoption with new physicians for decision DX melanoma in 2019 was up 24% year-over-year and total ordering clinicians increased 32% year-over-year to just over 3,927, to be exact. Based on an annual U.S. incidence of newly diagnosed invasive cutaneous melanoma patients of approximately 130,000 and approximately 11 to 15,000 clinicians who treat melanoma, we believe our annual 2019 penetration to be about 12% of patients and about 25 to 30% of clinicians. We believe the success of our commercial expansion in February 2019 contributed in part to the excellent growth we saw in DecisionDx melanoma as well as our continued evidence development which I will discuss further in a moment. We anticipate continued success with volume growth with our recent additional commercial expansion in December 2019 which resulted in a total of 32 outside sales territories with commensurate increases in associated commercial and medical affairs personnel. All in, our customer facing teams more than doubled in size to over 50 people as of December 2019 compared to December 2018. As we have in the past, we are continuing to assess our commercial team needs as we prepare to launch our late-stage products and anticipate adding at least an additional 8 to 10 outside sales territories with commensurate increases in associated commercial and medical affairs personnel in the second half of 2020. Trained through our DecisionDx UM test for patients diagnosed with uveal melanoma, we delivered 434 reports in the fourth quarter, and 1,526 test reports for the full year 2019, a 13% and 8% increase year-over-year, respectively. You may recall that our Decision DX UM test has been standard of care for a number of years, and we believe treating clinicians are ordering our tests for an estimated 85% of patients diagnosed with UV melanoma. Therefore, we are pleased with our year-over-year growth of 8% for a very mature product. Now I'd like to discuss several fourth quarter and recent key accomplishments with our continued evidence development and late stage pipeline products. Let me remind you that our DecisionDx melanoma test assesses the aggressiveness or likelihood to recur or metastasize based upon the biological signature of an individual patient's primary melanoma tumor. We have shown that our DecisionDx melanoma test Prediction Individual Patients' Likelihood to Recur or Metastasize to the Sentinel Lift Node, Regionally, Distantly, and Even Death for Melanoma. Because we can predict multiple endpoints, our DecisionDx melanoma test impacts more than one decision point. Specifically, our test currently guides two clinical decisions that are made just after the time of diagnosis. The first use of our test is to inform decisions on sentinel lymph node biopsy when the tumor is two millimeters thick or less. And the second use is to guide subsequent treatment plan decisions. In November, data from two prospective multicenter studies supporting the clinical use of a decision DX melanoma test to guide discussions and recommendations regarding sentinel lymph node biopsy surgery were presented at the 16th International Congress of the Society for Melanoma Research. In the first prospective multicenter study, we reported that in sentinel lymph node biopsy assessed patients 65 years of age or older with T1 or T2 tumors and a low-risk capsule class 1A test result, sentinel lymph node positivity was 2.7%. significantly less than patients with a CASL class 1B to 2A or CASL class 2B test result. And importantly, below the 5% threshold at which cancer treatment guidelines do not recommend the sentinelift node biopsy surgical procedure. T1, T2 tumors are melanomas that have a tumor depth that is 2 millimeters or less. As a point of reference, this group comprises 86%. of all patients that we test today. In the second study, this one also multicenter and prospective, looked to address the clinical question of are we doing patients harm if a patient with a T1 or T2 melanoma tumor and a DecisionDx melanoma class 1A test result avoided a sentinel to biopsy surgical procedure. We previously addressed this question with an analysis from our long-term archival or retrospective study cohorts. In this study, we reported data on outcomes from a multicenter prospective study with a median follow-up time of 3.2 years in patients who did not experience a metastatic event. This study found that patients with a T1-T2 tumor and a Class Ia test result had a three-year overall survival rate of 99.4 percent, a distant metastasis-free survival rate of 98.7 percent, and a recurrence-free survival rate of 96.6 percent, adding further support that this T1, T2 Class Ia population can safely avoid the sentinel-lift-no-biopsy surgical procedure. Also, regarding our decision-DX melanoma test, results from a study designed to establish the level of evidence were published in the December 2019 issue of the American Journal of Clinical Dermatology. Methodologically, the authors conducted a systematic review of the literature and established a level of evidence for decision DX melanoma gene expression profile tests based upon criteria used by the American Joint Committee on Cancer, or AJCC, the National Comprehensive Cancer Network, or NCCN, and the American Academy of Dermatology, or AAD, criteria respectively. The results show the DecisionDx melanoma test achieves a higher level of evidence than determined at that time by these organizations. Specifically, the systematic review included evaluation of seven development and validation studies that led the authors to classify DecisionDx melanoma as a level one to two according to AJCC criteria, level 1 to 3B according to NCCN criteria, and level 2A according to AAD criteria. The authors' conclusions were higher than the official unrated status conferred by the AJCC and NCCN and the 2 to 3C rating designated by the AAD in the latest version of their melanoma guidelines, all of which were conducted prior to the study. The NCCN guidelines for cutaneous melanoma were updated in December 2019. Although it appears that all of our 22 peer-reviewed publications were not reviewed, a positive shift in the inclusion language was made, indicating that the DecisionDx melanoma test may provide information that is an adjunct to AJCC staging with a Category 2a level of evidence. This level of evidence is consistent with the systematic review study just noted and also published in December 2019. Also in the fourth quarter, we received notification of the American Medical Association's CPT editorial panel accepted our application for a Category 1 multi-analyte assay with algorithmic analysis, or MA, CPT code for our decision DX melanoma test, This code will be effective on January 1, 2021. In order to obtain a Category 1 MA CPT code, a test must meet certain levels of evidence requirements. For example, the clinical efficacy must be documented in the published literature. Additionally, it requires that test use be performed with a frequency consistent with the intended use, that this use is consistent with current medical practice, and that is performed by many physicians or other qualified healthcare professionals. The AMA's CPT editorial panel agreed that our DecisionDx melanoma test met all of these criteria. With this acceptance, both of our proprietary MA tests, DecisionDx UM and DecisionDx melanoma, have met the criteria required for Category 1 MA CPT code. As a reminder, We have 22 peer-reviewed publications that support the two currently clinically actionable uses of the Decision DX melanoma test, and we anticipate additional publications in 2020. The conclusions in the December 2019 systematic review, the NCCN guideline update, and the AMA CPT editorial panel actions support our belief that evidence development matters. We will continue to invest in evidence development to support both patient penetration and coverage by commercial payers. As it relates to our intellectual property, last week, the first U.S. patent related to our decision to the ex-melanoma test was issued by the United States Patent and Trademark Office. This patent covers methods of treating cutaneous melanoma in patients having high-risk cutaneous melanoma tumors. Now, turning to our pipeline products, We are excited about the progress that we've made regarding our DecisionDx SDC test for use in patients with one or more high-risk squamous cell carcinomas and our test for suspicious pigmental lesions. As you may recall, we reported data from the clinical validation study in October 2019. On January 20, 2020, we presented data on the use of the test in squamous cell carcinomas that were categorized as high-risk by the NCCN guidelines. This study demonstrated that the use of our tests in combination with AJCC staging enabled identifying approximately 50% of high-risk patients who had a metastatic rate that was similar to the general SCC population. In other words, we could successfully rule out approximately 50% of high-risk patients from a high-risk treatment plan. As of today, we are excited about the opportunity to potentially commercialize Our DecisionDx SCC test with the hope that patients who were diagnosed with high-risk disease based upon NCCN criteria could make more informed decisions regarding the initiation of aggressive adjuvant therapies or watchful waiting. We look forward to providing with updates in the coming months. Of interest, we received notice that an abstract regarding our DecisionDx SCC test was accepted for an oral presentation as a late-breaking abstract during the Basic Science Cutaneous Oncology Pathology Session at the 2020 American Academy of Dermatology Annual Meeting being held in Denver, Colorado. The presentation is scheduled to begin at 4.30 p.m. Mountain Daylight Time on Saturday, March 21st. Regarding our second late-stage pipeline product, our test for suspicious pigmental lesions, we believe that we remain on track for commercial launch in the second half of 2020. We plan to report data from a clinical validation study in the second half of the year prior to launching this test. We believe that these two late-stage pipeline products, DecisionDx STC and our test for suspicious pigmental lesions, will increase our estimated total addressable U.S. market by approximately $1.4 billion for a total U.S. TAM of approximately $2 billion. Thank you, Derek. We are pleased with our strong execution and growth in the fourth quarter and full year 2019.