Castle Biosciences, Inc.

Good afternoon and welcome to Castle Biosciences' fourth quarter and full year 2021 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 Camila Zuccaro, Executive Director of Investor Relations and Corporate Communications. Please go ahead.

Thank you, operator. Good afternoon, everyone. Welcome to CASEL Biosciences' fourth quarter and full year 2021 financial results conference call. Joining me today is CASEL's founder, president, and chief executive officer, Derek Matzold, and chief financial officer, Frank Stokes. Information recorded on this call speaks only as of today, February 28, 2022. 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 statements made today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our financial outlook and other matters referenced in our earnings release issued today, and statements containing projections regarding future events or our future financial or operational performance, including our expectations and assumptions related to the impact of the COVID-19 pandemic. 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, 2021, under the heading Risk Factors. 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. In addition, some of the information discussed today includes financial metrics such as adjusted revenue, adjusted gross margin, adjusted operating cash flow, and adjusted EBITDA, which are non-GAAP financial measures that have not been calculated in accordance with generally accepted accounting principles in the United States for 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 in assessing our revenue and cash flow performance. Reconciliation 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 company's website. I will now turn the call over to Derek.

Thank you, Camilla, and good afternoon, everyone. Thank you for joining us today for CASEL's fourth quarter and full year 2021 earnings call. My comments today will cover our key accomplishments in 2021, as well as our plans to support continued growth in 2022 and beyond. 2021 was an exceptional year for CASEL Biosciences, and I am extremely proud of the strong execution on our growth plans by our team. We exceeded the goals we set out to accomplish and beat our revenue expectations, increasing our full-year 2021 revenue by 50% to $94.1 million and growing gene expression profile testing volumes by 55% to 28,118 compared to 2020. We successfully doubled our dermatology-facing commercial team and accelerated investments in R&D significantly advancing our scientific evidence to further demonstrate the clinical value of our tests. We executed on two strategic opportunities, acquiring and complementing areas that we believe enable long-term value creation and allow us to impact patient care in areas of unmet clinical need. We believe our success in 2021 allows us to enter 2022 with momentum, a strong balance sheet, and the potential to further position the company as an industry leader. Looking ahead, we expect full-year 2022 revenue in the range of $115 to $120 million, driven by the continued focus on our foundational patient-centric strategy. I will now discuss our dermatologic testing franchise. Our dermatologic testing franchise consists of three offerings. The first is decision DX melanoma. This test is used in patients diagnosed with invasive cutaneous melanoma to provide a personalized risk that allows clinicians and patients the ability to risk stratify decisions relating to both proceeding with a sentinel-lifted biopsy surgical procedure, as well as subsequent treatment decisions, which may include frequency of follow-up, initiation of active surveillance with advanced imaging, adjuvant therapy, and clinical trial enrollment. Our second dermatological test is DecisionDx SCC. This test is used in patients diagnosed with one or more risk factors. And similar to our DecisionDx melanoma test, it is used to risk stratify treatment plan decisions related to nodal evaluation, including central lymph node biopsy, adjuvant radiation, and clinical trial enrollment. Our third dermatologic offering is comprised of two tests, the Mitap melanoma test and the DecisionDx DiffDx melanoma test. Both of these tests are used by dermatopathologists and dermatologists when faced with difficult to diagnose melanocytic lesions, essentially to assist in ruling out or ruling in melanoma. In 2021, our overall dermatologic test volume grew by nearly 58% compared to 2020, despite the continued headwinds from COVID. As we had discussed, Chinese melanoma diagnoses were down approximately 11% in 2021, compared to pre-COVID 2019 levels. Our team delivered strong execution on our initiatives in 2021, which we believe positions us well for continued progress, further adoption of our dermatologic tests and long-term growth. These ongoing initiatives include commercial team optimization, significant R&D investments. For instance, in dermatology alone, we had 14 peer-reviewed publications published in 2021. Increasing our peer-to-peer programs, initiating our interface with the leading dermatologic medical electronic record system, modernizing medicine's MS system, and our federal supply schedule contract with the VA. As you know, we doubled our dermatology-facing commercial team in 2021 and continue to assess the optimal size of the team, but believe we could further expand by the end of 2022. We believe our representatives should spend about 50% of their time building deeper relationships with current customers, and about 50% of their time targeting new ordering clinicians. And we saw great progress in both areas, with approximately 1,900 new ordering clinicians and 5,900 total ordering clinicians for dermatologic tests. We will continue assessing data for the near term and will keep you updated on potential plans for expansion. But at this time, with three dermatologic offerings, we consider around 80 to 100 outside sales territories, a size that could make sense for us. Again, we will finalize plans based upon our ongoing assessment. I will remind you that in the fourth quarter of 2021, more than 90% of our sales calls were in person. We attribute this in part to the clinical value providers see in discussions with our sales team and the continued scientific evidence that we generate. In 2021, we conducted a collaborative patient survey with the Melanoma Research Foundation. Data from the survey was highlighted at the Winter Clinical Dermatology Conference in January 2022 and showed that 90% of patients wanted information about their tumors at the time of diagnosis. Further, patients who received melanoma testing felt that the results were useful to them and testing gave them increased knowledge, relief from uncertainty, personalized treatment options, and information for life planning. That's a fantastic response from our patients. One of our most exciting accomplishments in 2021 was the initiation of our collaboration with the National Cancer Institute, or NCI, and their SEER, Cutaneous Melanoma Registries Program. I remind you that at CASEL, a core commitment of ours is to improve the health and health outcomes of the patients that we serve through our innovative tests. In collaborating with the NCI, we were able to link patients who received decision DX melanoma test reports for those who were entered into the NCI SEER registries program database and had associated outcomes, specifically overall survival and melanoma-specific survival. We were also able to develop a matched cohort using a one-to-three ratio of patients who did not receive DecisionDx melanoma test results as part of their clinical care. That is, the clinician and the patient only have the traditional clinical and pathologic features upon which to develop a treatment plan. We matched 13 clinical, pathologic, and socioeconomic variables to ensure that those patients who had the benefit of both decision DX melanoma and traditional clinical pathologic features were matched or balanced to those who only had traditional clinical pathologic features to determine their care plan. The first analysis, which was presented at a national dermatology meeting last month, focused on the Medicare-eligible populations. That is those patients who were diagnosed between 2016 and 2018 and who were 65 years of age or older at the time of diagnosis. The results in this real world large and unselected patient population show two important results. The first relates to the performance of our test. Looking at survival outcomes, that is death from all causes or death from melanoma, we found that patients who had a low-risk class 1 or class 1A test result had actually a low risk of progression and likelihood of dying from melanoma or death from all causes. And those patients with a high-risk class 2 or 2B test result had a higher likelihood of dying from melanoma or dying from all causes. This data was similar to what we've seen published in our retrospective and prospective studies. So good confirmation that the test performs as it has before in this large unselected patient population of clinically tested patients. That's good. While the replication of prior studies in this large real-world unselected patient population is important from the standpoint of test reproducibility, the second result is far more important to our patients. Specifically, patients who received decision DX melanoma test results in addition to the traditional clinical pathologic features lived longer than patients whose clinicians relied solely upon traditional clinical pathologic factors. This is important as it shows a strong survival benefit in patients who received decision DX melanoma test results. We are looking forward to the full publication of this initial readout as well as ongoing linkages over the next several years. As we think about additional 2022 dermatology franchise catalysts, we expect a potential draft LCD for DecisionDx SCC by the end of the second quarter. You will recall that the technical assessment dossier for this test was submitted for Moldex review to Palmetto in the second quarter of 2020. And at that time, we expected a draft LCD sometime in 2021 with finalization in 2022. So that timeline has been delayed. Should we see a draft LCD in the second quarter of 2022, we would expect finalization roughly 12 months following, so sometime in the first half of 2023. We continue to see adoption of decision SDC exceed our expectations, as the unmet clinical need here is significant. And we are proud of the impact our test is having on patient care, and we will continue to what we believe is the right thing for our patients, providing test results that impact treatment decisions and improve outcomes. As part of our strategic growth plans, we began development of our gastrointestinal franchise with the acquisition of seranostics and the TissueCypher facial omics platform in December of 2021. Our TissueCypher test for Barrett's esophagus is a risk stratification test designed to predict progression to high-grade dysplasia or esophageal cancer. We previously discussed our plans to hire a gastroenterology commercial team of approximately 14 outside sales territories with additional medical science liaison and internal sales associate support. That team was hired. trained in the field in the second half of January. I will remind you that regarding M&A, we generally consider opportunities that are in complementary or adjacent areas to our foundational business and allow us to utilize our proven dermatology playbook where we have the opportunity to address areas with unmet clinical needs with scientifically supported tests. Provides the potential to create a suite of commercial tests for use by a single clinician and where we can realize early reimbursement wins. Our early progress within our GI franchise is exciting. The initial response from providers is positive, and with strong execution on our commercial strategy, our team is seeing a promising start in accessing providers. Our 2022 metric of success will focus on the number of ordering clinicians, more so than order volume. The Tissue Cypher Barrett's esophagus test is supported with eight peer-reviewed publications, and as part of our increased investments in R&D for 2022, We have initiated multiple initiatives to support adoption by providers and payers. Further, we will continue to assess the early adoption of our test, and we expect to expand the commercial team sometime between mid-year and year-end 2022. But we will continue to assess the market response and determine what that expansion will look like. Based upon our initial market research, as well as initial provider response, we would expect to end the year with approximately 30 outside sales territories. Turning to our optimization work at our new Pittsburgh laboratory, we've already seen encouraging results. Lower plan and workflow reconfigurations have increased efficiencies, with more progress expected throughout 2022. We believe that our planned CapEx investments, including expansion of the laboratory later in the year with additional headcount, should allow for further enhancements to automation, a significant increase in throughput, and provide support for the pencil for future gastroenterology tests using the TissueCypher spatialomics platform. Our expanded laboratory footprint should also enable us to use that facility to process our dermatology tests as or if needed. As you know, our DecisionDx UM test is the standard of care in the management of patients with newly diagnosed uveal melanoma. It is estimated that approximately 2,000 patients are diagnosed annually in the U.S. In 2021, we provided test results for 1,618 patients. a nearly 16% increase over 2020. We believe this increase in reports was due in part to patients making up for lost eye exams in 2020 due to COVID. Therefore, we expect a flat or even slight decrease in volume growth in 2022 compared to 2021. Further, in 2021, our Medicare rate for DecisionDx UM was $7,776, a significant increase over our 2020 rate. 2022, our Medicare rate for Decision EX UM remains at $7,776. Before I turn the call over to Frank, I want to provide an update on our inflammatory skin disease test that's in development to predict systemic therapy response. In 2021, we formed our steering committee with leading experts in the field, received IRB approvals for, and initiated the development and validation study, and enrolled our first patient. We believe we are on track to launch this test by the end of 2025. As we noted last year, if successful, this pipeline test would add an estimated $1.9 billion to our U.S. TAM. I will now turn the call over to Frank, who will provide additional detail relating to our financial results and what to expect in 2022. Frank?