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spk02: that weren't being seen in person and having that mole on the back of their neck or the side of their ear be picked up ancillary, those are the ones that are being missed. And when they're coming in, our perception now is that they're coming in with a little more worsened or a little more adverse melanoma in terms of thickness. Now, what's that mean for CASL? I think one is that certainly there are some patients who have very, very thin melanomas like 0.1 millimeter 0.2 millimeters thick where we have difficulty generating data showing that we actually add value in tumors that are that thin in terms of the use of our decision DX melanoma test. There are also patients that are coming in with invasive melanoma So a thickness of 0.1, 0.2, 0.3 or thicker who might have gotten diagnosed earlier with what we would call in situ or non-invasive melanoma, which is really just on the epidermal layer of the skin. We don't test those with our tests. So over time, It's our belief that as these patients begin to come back either to see their primary care doctor in person on a more routine basis or work their way into a dermatology practice, we'll be seeing more patients diagnosed who will actually hit the sweet spot of our test. But that hasn't happened at least yet. But it has to happen sometime because melanoma continues to go ahead and progress and evolve.
spk06: Gotcha. That's helpful. And then I just have one follow-up. Are there any updates in terms of your non-skin cancer programs that are underway? Is there any changes in terms of the timeline of what you have discussed in the past?
spk02: No. We've seen – I think we discussed this maybe at a conference here in the fall. So we have yet to disclose a couple of our other targets, but all of our programs right now are running – out of our internal estimate forecast. I believe that what we're seeing is that most of our pipeline programs are being executed at more high research organizations that are community-based versus hospital-based, and they seem to have sort of come out of COVID ready to start new protocols, I guess you would say, and they're seeing patients. So we don't see any delay in terms of timelines of our earlier estimates earlier this year.
spk06: Great. Thank you so much.
spk07: Thank you, Ms. Naum. The next question comes from Kyle Mixon with Canaccord. Please proceed.
spk03: Thanks. Hi, guys. Thanks for taking the questions. So I wanted to start with the guidance. If I'm doing the math, it looks like a sequential decline in revenue and total revenue. And so I'm just wondering if you're assuming, you know, the same level of third quarter access, like the 90% in-person calls who are the same type of, you know, melanoma diagnoses trend, the 16% to low baseline. And I'm just a little bit surprised given the upside the additional reps could provide. So could you talk about maybe some of the conservatism or tempered expectations that you're making in there? Thank you.
spk02: You go first, I mean, yeah. Yeah, sure, Kyle. So I guess maybe the most important thing is that we begin seeing, I guess, recover is a funny word, nice changes in growth trends, in sort of the May and June time period, and those carried over quite well through the third quarter. And October felt very strong. We do know that in November there were a few working days because of the Thanksgiving holiday, as well as in December. I don't want to say we're being overly conservative, but maybe you could put it in that respect. But typically speaking, in a non-COVID year, You know, 2016, 17, 18, 19, you would typically see fourth quarter diagnosis of melanoma being being flattish. The third quarter is part of the normal seasonality. Now, that being said. I do agree with you that we are very pleased with the field force expansion that occurred on July 1st of this year, and it could be that we're being too conservative in hindsight, as you mentioned here. We certainly don't see any negative trends through October that would cause concern, but we also felt that our guidance was adequate for the rest of the year. Frank, do you want to comment here? I concur.
spk03: Okay, thanks. That's helpful. I understand. Um, and, and I noticed in your, I guess, presentation deck that the potential effect of LTV for FCC and 50X is now officially 2023. Um, not a huge surprise there. I'm just wondering if you could talk about the expectations for private payer and commercial payer coverage, um, in 22 for, you know, the rest of your tests. And are there any products that are kind of better positioned to receive, you know, coverage sooner than others and maybe just due to the growing portfolio of data or some of the guideline, um, effects as well? Thanks.
spk02: Yeah, yeah. So I'll try to tell it apart a little bit here. One is that given it's already November 8th, I think it's highly likely that we'll see a open meeting posted by Palmetto and Iridian for the week of Christmas holidays or between Christmas and New Year's. So I think the likelihood of obviously a 2021 open common meeting and LCS with that occurring before year end is is unlikely. So are here. is that they must be working towards a first quarter 2022 posting and meeting set, which would push, by definition, out about a year or so between then versus when they could have at the absolute limit of time turn a draft LCD to a final and formal one. It could have come earlier, certainly, but I think it's better to be upfront and conservative than assuming a faster term. in terms of coverage on the commercial side of the basis. So we certainly are seeing some revenue coming in for other newer launch tests, predominantly the Decision DX SCC test. We expect that to go and continue in modest amounts during 2022. I don't think we could expect a guideline change or update in 2022 for squamous cell carcinoma. I think that group meets in the fall, I think, of every year. So I think that would be probably the earliest. Towards the end of 2022, we would see an update, which wouldn't have much effect on passing that through on to commercial payers. On the sort of combined diagnostic or comprehensive diagnostic offering, this combined offering of MyPath melanoma and DiftyX melanoma, we did see earlier this year, earlier in 2021, a change in NCCN guidelines that recognize that gene expression profile tests that assist in the diagnoses of a difficult to diagnose melanocytic lesion are included there so we would hope to see some forward movement with some of the payers in 2022 since a number of them put the an NCCN guideline inclusion as sort of the final litmus test to go and pull through from a normal reimbursement trend or coverage. So I think we have expectations for a number of things going forward in 2022 that will hopefully build on our revenue expectations throughout the year. As it relates to the decision DX melanoma test, we did see some progress, the smaller plans in the second and third quarter of 2021. We would expect that to go ahead and continue as we have additional evidence being published later this year and in the next year as well.
spk03: Okay. That was great. Very helpful. Let me just ask one quick question before I hop off. It was nice to see the EHR integration news. I had two questions about that. Basically, number one, could you talk about your current electronic ordering rate, if you can kind of quantify that or maybe qualify that? And also, I mean, do you plan on expanding to the other kind of ambulatory EHRs like NextGen, Epic, and Athena over time?
spk02: So you're talking about the integration with Modernizing Medicine and the Emma platform?
spk03: Correct. Any modernized medicine has a low-cost salt base. I'm just wondering about the rest.
spk02: Thanks. Yeah, yeah. So one is we haven't disclosed the online ordering in the past. I guess we'll look at that maybe at it in the future here. It's a small but important part of the business. through our current online ordering portal with physicians who want it electronically. So that's been going on, but I would say that's a less than half of the volume because there are a number of customers who still value fax machines going over with laboratory ports, and that's just how they operate as a practice. However, that being said, the opportunity to integrate both ordering processes and for all of our tests, by the way, as well as having reports received through EMMA, I think is very exciting. And throughout 2021, we did tests with a number of practices, an individual practice-by-practice solution. And when they were interested in that, we saw them kind of converting business from being facts-based to to EMA-based ordering. So we expect that over the course of 2022, we will see practices, and it could be on a practice level, it could be on an individual clinician level, go from, you know, 0% to 100% online ordering through EMA and receipt of results. I believe that's going to reduce the number of times that we might miss appropriate patients because the doctor is kind of busy that day. It's a Friday afternoon, and by the time they go ahead and come back in on Monday or Tuesday, they've forgotten, do they order the test or not? This should make that much easier and smoother from a convenience standpoint. And the fact that we are able to load in all of our test offerings, I think we will expect to see nice lift throughout the year as that becomes more integrated into our customer solutions. We certainly are entertaining talks with the other minority medical record companies who work with I was just keeping in mind, of course, that we believe that about 90-plus percent of patients with melanoma are initially diagnosed and managed by community-based private practice individuals. So some of the services, I'm thinking about Epic and others who really have a much more command than hospital-based systems, don't really fall into our EMR interest per se. So we are looking forward to kind of seeing this sort of national rollout through modernizing medicine, see the impact it has in the business, and then going from there.
spk03: Okay, makes sense. Really interesting to hear. So I'll leave it there, my question, but thanks so much for taking them.
spk07: Thank you, Mr. Mixon. The next question comes from Thomas Biden with the Lake Street. Please proceed.
spk04: Great. Thanks, guys, for taking the question. I wanted to follow up on a comment both from the prepared remarks and also the press release with respect to the two quarters of time to get the sales reps to optimal productivity. I think you put some caveats around that, Derek, in past calls that it might take longer because of access etc so are we are have you seen an acceleration there so can we expect that they're fully productive by by year end or do you think it's two quarters from now so kind of into the first half of next year i just wanted to clarify that
spk02: Good question. No, I don't think it's going to take a year to have them get up and running. We've had good access. About 90% of our calls have been in person both second and third quarter, and we didn't see worsening through October. So I wouldn't count that as something there. I do think in hindsight that, you know, we had earlier questions during the third quarter. Are we sort of seeing an impact of Delta? If we were seeing it, I think it was covered up because of the effectiveness of our new Salesforce expansion. So my expectation is that we'll hit the ground running with sort of, you know, a fully effective expansion Salesforce at the beginning of the year.
spk04: Got it. And then speaking of commercial teams, I believe on the CERN call you had talked about having a team ready to go for January 1. Is that still the plan to support that product commercially?
spk02: Yes, yes. I think interviews are being completed this week. We expect to have offerors go out and people start during early December, and given the profile of the individuals that we believe will go ahead and come on board at CASEL, they nearly all have a really nice structural gastroenterology experience set, so we would hope they hit the ground running post-training in the early January timeframe, so that remains on track.
spk04: And then just a quick one on the atopic dermatitis psoriasis program. You guys had put out the study design in a poster, I think it was a few weeks back. And it sounds like you've set it up as a treatment selection test. But given the non-invasive sampling platform, is there an opportunity to extend that into response monitoring as well? Or how are you guys thinking about combining those two opportunities, if you are?
spk02: I guess you read the poster well, didn't you? I think the first objective is to really look at which biologic or which systemic therapy a patient's highly likely to get clearance from. And by clearance, we don't mean partial. We're hoping we end up with nearly 100% clearance in our responders. And we expect just the opposite, to go ahead and find therapies that, you know, this patient's going to have a modest to minimal response. So a physician and a patient can really take six off the table and put two on. However, as you noted in that poster, there are serial collections over time, and so by response monitoring, we may be able to pick up three months in advance, for example, before a patient begins to lose response. I think it's too early to comment on that, but that might be of great value for patient care, and obviously it creates a better per-patient annuity for the company going forward if, in fact, we can demonstrate that.
spk04: Great. I appreciate you guys taking the questions. Thanks so much.
spk07: Thank you, Mr. Fladden. The next question comes from Catherine. Schultz with Bayard. Please proceed.
spk08: Hey, guys. Thanks for the questions. I guess first, just on the expansion, I was curious if we could get a little bit more granularity there. How much of this sequential growth came from your new cohort of reps, and how much more do you think that they could contribute in the fourth quarter?
spk02: We haven't analyzed those at my level, per se. And maybe importantly is that we had no areas of the country where we had only 32 dermatology-facing representatives with wide-out areas. We covered the whole U.S. with bodies. So when we went from 32 dermatology-focused people to the mid-60s, that wasn't sort of covering areas that we hadn't covered before where you could say you had sales of zero and you went to something. So I don't think we can accurately – answer that question with any integrity. We were quite pleased with seeing the growth in terms of the productivity of the overall sales groups over the course of July, August, September, and October. As I mentioned earlier, too, I think it was Kyle's question, we didn't want to come out and be overly conservative on the fourth quarter here, but we are quite pleased with the triangulation that we were seeing in August, September, and October with the expanded sales organization. And that should go and bleed us forward quite well in the 22.
spk08: Okay, great. And then can you give us an update on the personalized study, how enrollment is going, and when we could get early data there? And then any additional details on the DECIDE study highlighted in your 10Q on S1B decision-making and outcomes?
spk02: Sure. We've seen – I don't – we saw – a little slower progress maybe in 2020 and early 21 in terms of centers coming on board. I think that was largely due to, to be honest, Catherine, most of the early placements were at sort of academic centers and kind of slowed down in terms of higher being contracting for, observational studies of our sort. That's been a nice improvement over the last quarter or so, so I expect to have us see some initial data probably by maybe the end of next year. I think that might be aggressive of it, but I think that's a reasonable number of patients that we could say, hey, here are patients who really benefited from the use of a PD-1 inhibitor who had stage 3 disease, and here are patients who didn't need it. that would be fantastic to help improve patient selection as opposed to saying, I'm going to wait and watch and nobody gets these therapies because the data is not that strong in terms of efficacy change, or they're all going to get it despite a number of patients who wouldn't benefit. So that's our hopeful timing. You may have seen there was... Data presented at ESMO, I think, by Merck back in late September of this year, September 2021, with the Keynote 716 study that was focused on stage 2B and 2C patients. So those are people who are senilifeno-negative, about a little thicker and uglier tumors and thinner patients. The data there, as you expect, showed a treatment effect, but it was quite modest. We presented data at the same conference that Thomas talked about a couple weeks ago showing the value of our test, especially our integrated model in stage 2B and 2C and can identify people who really likely not benefit from PD-1 therapy because they have a very, very slow likelihood of metastasizing And we found those who were essentially train wrecks going forward. So to me, those two elements make that a quite positive story moving into 2022. As it relates to decide, that's enrolling quite well. I don't think we really had a slowdown in 2021 in terms of enrollment, largely because we had centers up and running kind of in the earlier COVID period in 2020. So data on that study, that, of course, is looking at patients who, are electing to have our test guide a use of a simple biopsy procedure or not, and then tracking those same patients' long-term outcomes, which is similar to some other publications we had come out this spring, I mean this fall. We should also be able to see top-line data, although it will be preliminary with shorter follow-up time later next year.
spk07: Great. Thank you. Thank you, Ms. Schultz. The next question comes from Sunita Sudha with SVB Lyrinc. Please proceed.
spk05: Taking the questions. The first one is really, I mean, this has been covered, I'm sure, but in terms of the DERM practices, are you seeing anything different today? And let me ask it maybe differently. Are you seeing any permanent change in their behavior, how they're interacting with the sales reps in terms of the time that they're allowing the sales rep interaction. Traditionally, that's been more longer in dermatology. Any type of trend that you're seeing sort of post-COVID that gives you a little bit of pause in this market. I'm just, you know, looking in terms of the volumes and the impact that you saw here. We were expecting, obviously, a little bit stronger pickup. And, you know, just if you could qualify what you're seeing in the market as of currently in November, that would be super
spk02: So on a macro basis, I have not heard of any sort of structural changes or trend changes. Certainly on a practice-by-practice basis, we are aware that it's kind of dealt and moved through, that there were some practices in certain locations. That's, you know what, let's go ahead and put off seeing you back in person for another month or two until we're comfortable. But that's expected, right, Puneet? I think... I look at sort of our data being able to have 90% of sales calls in person now for two quarters running, second quarter and third quarter of this year, to be interesting. When I compare that to, I guess, what I'm hearing some of our other microdiagnostic peers who are seeing, you know, 75%, 40% in-person calls, there's something different. I think about Castle and dermatology, and I want to believe that the fact that we have three product offerings that are all highly clinical actionable to dermatologists who are diagnosed in early stage skin cancer, be it melanoma or squamous cell carcinoma, is setting us something differently than those other companies who have blocker diagnostic tests, but are finding much more resistance towards getting back in person with customers. So I don't know, I want to perceive that's a castle difference in terms of the value of our tests and the level of educational value that our representatives bring to an office versus other companies. But it certainly is a dynamic which is different. So I can say from a castle standpoint, we aren't seeing some kind of a long-term shifting that we're aware of on a macro or systemic basis. It might be happening on a practice-by-practice basis, but nothing I can point to nationally and say, you know, this is something to be concerned about going forward.
spk05: Got it. And then a question on the Medicare prior quarter adjustment. Frank, how should we think about that going forward? Just wanted to clarify. And in terms of data readouts, given the conference, Derek, could you just maybe lay out for us what are some of the things that we ought to watch out over the next couple of months? Thanks for taking the questions.
spk01: Yeah, so, Puneet, the prior period relates to all payer categories, and we'll continue to see that. It'll bounce around. We'll have some positive and some negative. I think what's important is we've gotten much better at accruing a rate per test that's closer to our actual collection experience. And so the same quarter last year was north of a million dollars, and this quarter I think was 90 grand difference on $24.5 million. So that's a nice improvement there. And, of course, you obviously see this in the other companies you cover. All the companies are going to have some prior period adjustments from time to time. And also, as we said before, if Squamous and DIF DX really grow quickly, eventually we should see some benefit from the appeals process, and that might tick off the prior period a little bit.
spk02: As it relates to sort of milestone timing in 2022, there are a couple of meetings in the January time period that – that have shorter abstract submission dates. That might be something to look at in terms of the milestone of data presentation. AAD this year, I think, is in March, and they offer a late-breaking opportunity that we would hope to have some data go in there as well. So I think around the AAD time period is an area where where you'd expect to go and see some activity. The next kind of spring meeting that's of importance to us target market-wise is the American College of Mohs Surgery, or ACMS, and that's always kind of late April, early May. ASCO, as you know, is in June, but we really operate in early-stage skin cancer, so... We might have activity there, but to be honest, that's not the customer base that we would care about. It's really dermatology for us as a company. So those are the ones I would line up there earlier that we would expect to go to have some important data from a penetration driving perspective be presented.
spk03: Okay.
spk07: Thank you, Mr. Suda. The next question comes from Paul Knight with KeyBank. Please proceed.
spk00: Derek, thanks for your time. The seronostics acquisition, I know you were expecting genetic test coding like today or soon. Anything else on update with seronostics?
spk02: Yes, so there is a draft ELSI that I think is finalized either today or tomorrow, but they're already in the billing article there. So the seronostics program overall, we really like the gastroenterology channel, I guess you would say. We really like the tissue cipher test for Barrett's esophagus. As you know, we think there's around 384,000 patients who are getting endoscopies every year and could be eligible for a tissue cipher test. That's more than our melanoma and our squamous cell carcinoma test potential combined. So we like that from that standpoint. We also think that over the next couple of years we'll be able to either find or develop through seronostics or through our current approach with RNA some additional tests so that we can turn around in 25 maybe and say, gee, Just like in dermatology, you went from having a foothold to having three or four tests, and you're perceived by gastroenterologists as being the leader in this kind of GI space. So I think that's our vision to get there. Now, more practically in short term, Serenostics did complete their medical evaluation review with Novitas earlier this year. and have been receiving routine payments on all their Medicare claims since that point in time. They do have an established list price on the clinical laboratory fee schedule of $25.13. So we feel like all of the checkboxes are there to say, let's go out and help support appropriate use of a test that really has had No commercial efforts so far, and if it makes a difference to patient care, we expect to have good, solid ordering uptake next year. Although, as we announced the deal last month, that our expectation here is that 22 is building revenue and 23 is when we'll see really a creative add, but we are going to see revenue next year, certainly.
spk00: And then Frank and Derek on the gross margin, it was down a bit sequentially. Anything going on in supply chain and how the spring environment on the lab tech side?
spk01: No, Paul. Fortunately, none of our consumables are sitting on a barge off Long Beach right now. Most of our consumables come out of Waltham, Mass., and we've had no issues there. And the modest impact on gross margin is really just because of, honestly, the success of the two new products. You know, we've got almost – we had over 1,800, almost 1,900 products that the majority of which we didn't accrue any revenue for, but we did obviously have to book the costs associated with it. So that's what we're seeing there is just the impact of the number of tests that we're not accruing revenue for.
spk00: Thank you. Thank you, Paul.
spk07: Thank you, Mr. Knight. There are no additional questions waiting at this time, so I'll pass the conference over to Derek Maitzold for closing remarks.
spk02: Thank you, Operator. This concludes our third quarter 2021 earnings call. Thank you, Ken, for joining us today and for your continued interest in Castle Biosciences.
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