Castle Biosciences, Inc.

Good afternoon and welcome to Castle Biosciences' first quarter 2020 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.

Thank you, Lashana. Good afternoon, everyone. Welcome to Castle Biosciences' first quarter 2020 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, May 11, 2020. Therefore, if you're 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'd 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, including expectations and assumptions related to the impact of the COVID-19 pandemic and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties. 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 31st, 2019, 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. I hope, first of all, that you are safe and healthy, and our thoughts go out to those who have been impacted by the COVID-19 pandemic. As you would expect, today's call will have a different structure than normal. Before we discuss our 1Q results in detail, Thank you for joining us. in this unprecedented and uncertain environment. While we can't predict how things will turn out, as has been our practice, we will be transparent here about our assumptions and what we know today. We will continue to be forthcoming as the situation evolves and we believe we will have more visibility in the coming months. Before I provide details around our response to the pandemic, I would like to point out that our team performed extremely well in the first quarter. As a reminder, We had significant momentum drivers in the second half of 2019, including additional evidence development as well as commercial expansion that occurred on December 1st. These drivers were central to our first quarter 2020 year-over-year quarterly revenue growth of 100%, reflecting a mix of both growth in ASP as well as decision DX test report volume. Our business in the first quarter was certainly on track. and I am excited to see our team regain momentum and perform as we move throughout the remainder of the second quarter and the end of the second half of the year. So let's spend a few minutes on COVID-19. Starting in March, in response to government guidelines, we made adjustments to our laboratory operations to achieve two performance goals. Keeping our employees safe and providing uninterrupted access to our proprietary Decision DX melanoma test and Decision DX UM test. We achieved these goals in that we've been able to keep our labs fully operational and maintain our specimen receipt to laboratory report turnaround time at an average of less than five days so that our clinician customers who rely upon our test results to make more informed treatment plan decisions did not have to make any adjustments to a normal decision-making process. In areas where COVID-19 impacts healthcare interactions, Such as field-based sales and medical affairs, we have been able to pivot visits, programs, and projects to be performed online and by telephone. Additionally, based upon the analysis of the company's supply chain, we believe we have adequate reagent and consumable inventory levels and have not seen nor do we anticipate any impact on our ability to deliver test results due to supply channel concerns. Now, let's turn to what we are seeing in terms of clinician behavior Diagnosis of melanoma and the impact to our business. As you know, the pandemic has caused significant disruptions to office visits, and we've recently seen a corresponding reduction in clinician orders for our Decision DX melanoma test as a result of COVID-19. We have, as you would expect, participated in and analyzed a number of dermatology practice-focused studies. The most recent of these was a proprietary customer study that we conducted, We believe the reduction in decision DX melanoma test orders is due to the reduction in the number of patients seen by our clinician customers, the subsequent impact on reduced biopsies performed, with the end result being a reduction in the number of diagnosed melanomas. According to our studies, patient visits were reduced by about 60% for the week of April 20th compared to the week of February 24th. We first observed a reduction in decision DX melanoma test orders beginning in the back half of March. And for the period of April 1 to May 6, we saw an overall decrease of 43% in decision DX melanoma orders compared to the same period in 2019. We have seen a stabilization in the decline of orders beginning the second week of April. But we can't predict what a return to normal will look like. We will do our best to outline our assumptions here. The first question we ask ourselves is what drives the diagnosis of melanoma? We performed an analysis of seven U.S. peer-reviewed publications that shows that approximately 80% of diagnosed melanomas are initially identified as a concerning skin lesion by a patient, their spouse, a family member that is self-identified, while the remaining approximately 20% are diagnosed by clinicians. Thank you for joining us. to their pre-COVID work routine for two to three months to be able to accommodate catching up on the appointments that were postponed during the last seven to eight weeks. And furthermore, they intend to prioritize the scheduling of biopsies. These uncertainties surrounding potential patient flow and thus the rate of diagnosis of melanoma is the rationale for suspending our previously announced 2020 annual revenue guidance at this time. Now I will provide some thoughts about our strategy for operating and growing the business so that we remain a business of strength as we continue to move through the current COVID-19 situation and lay a foundation for execution in the latter half of 2020 and 2021. We continue to invest in our business, and we are pleased that our strong balance sheet coupled with our capital efficiency enables us to do so. This includes filling key positions in our commercial and R&D groups, and the initiation of clinical studies to drive additional evidence development for decision DX melanoma, as well as support in the commercial launch of our two pipeline tests. Further, with the publication of three peer-reviewed articles in the last couple of weeks that document the clinical validity and impact of our decision DX STC test in patients diagnosed with high-risk cutaneous squamous cell carcinoma, We plan to launch our Decision DX SCC pipeline test in the third quarter of 2020. As you know, our proprietary tests are used to inform important treatment plan decisions on early-stage cancers, and having the opportunity to expand our service to patients diagnosed with high-risk cutaneous squamous cell carcinoma is an important step, perhaps even more important relative to triage decisions being made due to COVID-19 concerns. Early clinician response to the expected clinical utility has been enthusiastic, and we are excited about the opportunity to offer this tool for their use in treating their patients. You will recall that we have a second near-term pipeline test that is completing validation. This test is targeted to assisting dermatopathologists to make a more informed diagnosis for suspicious pigmental lesions that can't safely be ruled out as benign or ruled in as melanoma. We are wrapping up our pre-launch work on this program and our planned launch remains on track for this pipeline test in the second half of 2020. In the midst of the COVID-19 pandemic, I would like to personally thank our employees for their dedication during these difficult times. It is important to understand that we were and are able to meet the needs of the patients that we serve today as well as those tomorrow due to the tremendous efforts of each and every one of our team members. Thank you for joining us. and DecisionDx Melanoma test report volume. As noted earlier, in the first quarter of 2020, we reported revenue of $17.4 million, a 100% increase over the same period in 2019. We attribute this increase in part to the successful expansion of both our commercial teams in 2019 and continued evidence development. For our lead product, DecisionDx Melanoma, For use in patients diagnosed with invasive melanoma, we saw a 42% increase year over year in test report volume in the first quarter, delivering 4,574 test reports. Adoption with new clinicians for decision DX melanoma in the first quarter of 2020 was up 43% year over year. Based on annual U.S. incidence of newly diagnosed invasive melanoma patients of approximately 130,000, We believe our first quarter penetration to be about 14% of cases. Let me remind you that our decision DX 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 decision DX melanoma test predicts an individual patient's likelihood to recur or metastasize to the sentinel lymph node regionally Distantly, and even death for melanoma. Because the test is designed to predict multiple endpoints, our decision DX melanoma test can impact more than one decision point. Specifically, our test currently guides two clinical decisions that are made near the time of diagnosis. The first intended clinical use of our test is to inform decisions on sentinel lymphoma biopsy. When the tumor thickness is less than or equal to two millimeters, and the second intended use is to guide subsequent treatment plan decisions. We have consistent data from 23 publications to date with additional publications expected this year supporting the validity and the utility of DecisionDx melanoma and supporting further clinician and commercial coverage penetration. Turning to our DecisionDx UM tests for patients diagnosed with UV melanoma, we delivered 361 reports in the first quarter of 2020. Thank you for joining us. Monthly year-over-year comparisons are difficult to interpret due to low incidence of UV melanoma, but we have seen what appears to be some softening since early April of weekly order flow in the range of 5% to 20%. Now I'd like to discuss several key accomplishments in the area of continued evidence development and with our late-stage pipeline products. For our commercially available tests, we saw two publications in the first quarter. The first publication focused on data from a multicenter prospective study demonstrating that decision DXUM test results significantly impacted treatment plan recommendations for patients with UV melanoma. This was published in the peer-reviewed journal Melanoma Management. The multicenter CLEAR-2 study was designed to prospectively evaluate patterns of physician referral and metastatic surveillance regimens for UV monumental patients who were tested with Decision DX UM as part of their diagnostic workup. And to compare management plans, we've seen Decision DX UM low-risk Class 1 test results and those with high-risk Class 2 test results. Medical oncology referrals were more common for patients with Class 2 results than for those with low-risk Class 1 results with a p-value of less than 0.001. Importantly, This study is the fourth peer-reviewed publication that documented the clinical use of a decision DX UV melanoma test to impact patient care decisions in patients diagnosed with UV melanoma. All four studies have shown consistency of use. We find this to be exciting given that we are in the business of providing information that will improve alignment of management plans with the patient's risk of metastasis. The second study, was published in the Journal of the American Academy of Dermatology, or JAD. And this was data from a systematic review and meta-analysis of four study cohorts demonstrating that decision DX melanoma is an independent, significant predictor of recurrence and metastatic risk in patients with invasive cutaneous melanoma, achieving the highest strength of recommendation taxonomy, or SORT, level for a biomarker. That is level one evidence. The study found that the division X melanoma risk assessment is independent from the other traditional clinical and pathological factors of age, Breslow's sickness, ulceration, and fentanyl if no status, and improves risk assessment compared to staging factors alone. This is significant publication given that the SORT system is used by the American Academy of Rheumatology and other organizations to evaluate the quality, quantity, and consistency of evidence supporting tests such as DecisionDx melanoma. And a systematic review and meta-analysis achieves the highest level of evidence for prognostic tests such as ours. Now turning to our pipeline products, we are excited about the progress that we have made in our DecisionDx SCC test for use in patients with high-risk cutaneous squamous cell carcinoma. And as we discussed earlier, Based upon our progress, we plan to launch this test in the third quarter of 2020. The development and validation of DecisionDx STC was recently published in JAD. The results demonstrated that DecisionDx STC is not only an independent predictor of metastatic risk, but was shown to be the strongest predictor of metastatic risk relative to current STC staging systems and can complement clinical pathologic risk factors to better stratify the risk of metastasis and thus subsequent treatment plan decisions in patients with high-risk SCC. A second study supported a framework for integrated decision DX-SCC into risk-appropriate management of patients with high-risk SCC, as defined by NCCN. This study was recently published in Current Medical Research and Opinion, or CMRO, and it found combining decision DX-SCC class results with AJCCT stage in a group of 300 NCCN high-risk patients identified a group, 159 of them, with a rate of metastasis of 7.5%. Similarly, combining test results with the Brigham Women's Hospital staging system identified a group of 173 patients with a metastatic rate of 8.1%. Rates in both groups approached the rate observed for the general STC patient population. By comparison, Class 2B patients in the study had rates of metastasis surpassing 50%, regardless of the staging system with which it was combined, a rate that would warrant implementation of a high-intensity plan within the NCC and management recommendations. Incorporation of decision DX-STC results with T-stage for these patients identified a group of more than 50% of patients that would have been recommended for a low-intensity management plan, while 34% to 39% would be recommended for a moderate intensity plan and only 8% for a high intensity plan, all within the current NCCN management recommendation guidelines. The third study was also published as a companion article in CMRO. Using a well-established pre-test, post-test vignette methodology, 162 patients documented a treatment plan that they would employ for patients with high-risk STC. Treatment plan modalities included follow-up schedule, senile ethnobiopsy, nodal imaging, adjuvant radiation, adjuvant chemotherapy. These clinicians were then asked to determine the treatment plan with the addition of DecisionDx STC test results. The addition of a DecisionDx STC test result class 1 score, or low risk, resulted in more than a 60% reduction in the treatment plan modality intensity. Well, the DecisionDx SCC Class 2B test score, high risk, resulted in a more than a 90% escalation treatment plan modality intensity. Importantly, more than 95% of the management recommendations were aligned in a risk-appropriate direction that matched the DecisionDx SCC class result. And importantly, all changes were within the broad established guidelines for patient management. meaning that the addition of DecisionDx STC did not create new treatment pathways, but rather enabled significant risk-appropriate adjustments within the broad established guideline plans. We are excited about the progress we have made for this test, these three recent publications, and about the commercial launch plan in the third quarter of 2020. Regarding our second late-stage pipeline product, our test for suspicious pigment lesions, we are completing our pre-launch work and remain on track for our planned commercial launch in the second half of 2020. We plan to report data from our clinical validation study in the second half of 2020 prior to launching this test. We believe these two late-stage pipeline products, Decision DX-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. I will now turn the call back over to Frank who will provide additional details relating to our financial results.