Castle Biosciences, Inc.

Good afternoon and welcome to the CASEL Biosciences second quarter 2022 conference call. As a reminder, today's call is being recorded. We'll begin today's call with opening remarks and introduction, followed by a question and answer session. I would like to turn the call over to Camila Zuccaro, Vice President, Investor Relations and Corporate Affairs. Please go ahead.

Thank you, operator. Good afternoon, everyone. Welcome to CASEL Biosciences' second quarter 2022 financial results conference call. Joining me today is CASEL's founder, president, and chief executive officer, Derek Metzold, and chief financial officer, Frank Stokes. Information recorded on this call speaks only as of today, August 8, 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, estimated U.S. total addressable markets, or TAM, and similar items 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 quarterly report on Form 10-Q for the quarter ended June 30, 2022, 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 non-GAAP financial measures such as adjusted revenue, adjusted gross margin, adjusted operating cash flow, 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 in assessing business and financial 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 company's website. I will now turn the call over to Derek.

Thank you, Camilla, and good afternoon, everyone. Today, we are pleased to share that Castle Bioscience has delivered another strong quarter, growing revenue by 53%, and total test report volume by 57% when compared to the second quarter of 2021. Based on our results in the first half of the year and the momentum in our business, we've increased our full year 2022 revenue guidance to $130 million to $135 million, representing anticipated growth of at least 38% when compared to 2021. Before we discuss the quarter in more detail, I want to thank all of our CASEL employees for their hard work during the quarter and continued dedication to our mission of improving health through innovative tests that guide patient care. Today, I will take you through execution and strategy highlights from the quarter, and then Frank will provide financial highlights for the period, and then we will take your questions. Let's start with our core dermatology business. For our skin cancer test combined, we delivered a 44% increase in test report volume in the second quarter when compared to the second quarter of 2021 and a 16% increase over the first quarter of 2022, delivering 9,424 test reports. And for the six months ended June 30th, 2022, we saw approximately 1,200 new ordering clinicians and approximately 5,661 total ordering clinicians for dermatologic tests. For DecisionDx melanoma, we delivered 7,125 test reports in the second quarter, an increase of 39% over the second quarter of 2021. As we had discussed, 2022 is a year of thoughtful, strategic, and tactical investments that we believe will drive both near-term growth with our current assets and continued growth in the midterm. And we believe this quarter of strong organic growth, which led to record test report volume, is a result of the continued execution on our plan. I do want to remind you of the typical seasonality of our dermatology business for the second half of the year, where sequential growth rates typically slow down or become flat. That is, our third quarter is generally flat or down compared to the second quarter, and then the fourth quarter estimates remain flat or slightly down compared to the third quarter. Based upon our preliminary analysis from third-party diagnoses data, we believe that the seasonality trend of melanoma diagnoses is largely back to what we saw prior to COVID. However, we believe overall diagnoses continue to be below pre-COVID levels, but as we have seen throughout 2021 and the first quarter of 2022, they are trending upward. So in that context, let's talk about our performance in 2022 specifically. Well, we believe, based upon our analysis of third-party diagnoses data, that a small portion of the increase in volume compared sequentially to the first quarter of 2022 was due to an increase in the number of newly diagnosed melanomas. We believe that the most significant driver was not seasonality, but the combination of our prior commercial expansion investments coupled with meaningful new data, including our integrated DecisionDx melanoma test, or I31GEP, and the initial presentations of data from our collaboration with the National Cancer Institute linking DecisionDx melanoma clinical test report data with data from the SEER program's registries on cutaneous melanoma cases. We believe these are the key factors that drove the accelerated penetration that we observed. As we had discussed, we routinely assessed the size of our commercial team and the number of outside sales territories. In mid-2021, we increased the size of our dermatology commercial team to roughly 65 territories, and each of our outside sales representatives was equipped with all three of our skin cancer offerings. Based on our continued assessments, we plan to make some additional optimizations to our dermatology commercial team. We expect that starting mid-third quarter, our diagnostic gene expression profile offering that consists of both our MyPath melanoma and DIF DX melanoma tests will have a new dedicated sales team. The current dermatology commercial team will shift its focus to Decision DX melanoma and Decision DX SCC only. We believe adding a dedicated team for a diagnostic gene expression profiling offering allows for proper focus on the value of all of our skin cancer tests. Our target customers for the diagnostic GEP offering will remain dermatopathologists, followed by some dermatologists. We have seen that all of our markets are promotionally responsive, so we believe these optimizations to our commercial team will contribute to continued momentum in 2022 and beyond. Further, in terms of additional expenses, historically it has taken about two quarters for dermatology sales reps to reach a level of productivity to offset their additional expense. In June 2022, Palmetto and Meridian each posted a draft LCD that will provide coverage criteria for DIF DX melanoma. You may recall that my pap melanoma is already covered by full reimbursement by Medicare. Based upon benchmarking between posting of a draft LCD and the final effective date, we believe the DIF DX melanoma LCD will be final by the end of the second quarter 2023. Now let's turn our attention to our decision DXSCC test. In the second quarter 2022, following completion of a requested medical review and pricing of our DecisionDxSCC test by Novitas, we've been receiving reimbursement from Novitas on DecisionDxSCC at a rate of $3,873 per test, which is identical to Oncotype breast and Oncotype prostate pricing. On June 9th, 2022, Novitas posted a draft oncology biomarker LCD That proposes to rely upon evidentiary reviews sourced from three databases, ClinGen, OncoKB, and NCCN. Two of the databases do not review gene expression profile tests, and NCCN has not yet, to our knowledge, reviewed DecisionDxSCC. As such, if finalized as proposed, then DecisionDxSCC would not be included as a cover test in the associated billing and coding article. We cannot predict whether this draft LCD will be finalized as proposed or what the timing of any final LCD might be. Now let's switch gears to our new GI franchise. As a reminder, we completed the acquisition of Cernostics and the tissue cipher test in December 2021. We made this acquisition in alignment with our growth strategy for 2024 and beyond. Further, we expected the first six to nine months of 2022 as the period of integration where we would transition their organization to reflect what we believe is a strong CASEL culture, including building out a commercial team, improvement to the laboratory and reimbursement, and addressing the CMS 14-day rule. First quarter performed as we expected. Also consistent with our expectations, and as we have discussed, Tissue Cipher was granted Advanced Diagnostic Laboratory Test, or ADLT, status on March 24th, which accomplishes a few goals. the most important being the exemption from Medicare's 14-day rule, which simplifies the billing process for Medicare patients. With these milestones as context, we are very pleased to announce that we delivered 352 test reports in the second quarter, up from 56 reports in the first quarter, and are seeing the monthly growth trends we expected. We are still in the early stages of launch with TissueCypher. We started the third quarter with inclusion in the American Gastroenterological Association, or AGA clinical practice update. This update was published on July 1st, 2022, and states that the tissue cipher Barrett's esophagus test may be beneficial for risk stratification of patients with non-dysplastic Barrett's esophagus, which we believe represents approximately 348,000 endoscopies per year, or approximately 90% of the intended use market for tissue cipher. The purpose of the AGA's clinical practice update for Barrett's esophagus is to provide guidance to clinicians on advances and innovation regarding the screening and surveillance of Barrett's esophagus. Given our momentum from first quarter through the second and into July, we are executing on our planned commercial team investments for tissue cipher. And beginning in September, we expect to add additional territories for our tissue cipher test. Finally, as it relates to thinking about the average sales price or ASP for tissue cipher, When ADLT status was granted on March 24th, 2022, the Medicare reimbursement rate was modified to equal the initial list price for the test, which was $2,350 per test. This rate is effective through the end of 2022. Effective January 1, 2023, the rate will be based on the median private payer allowable rate from the collection period of April 1, 2022 through August 31, 2022. Finally, let's turn to our mental health franchise. We are in the early stages of integration of our acquisition of AltheaDx, which closed on April 26th. We are extremely encouraged with the initial progress and performance to date is consistent with our expectations. Specifically, we delivered 827 test reports from April 26th through June 30th. Our commercial team were approximately 20 outside sales territories, completed phase two training in June, and our lab enhancements and other integration efforts are going well, with an expectation that further integration will allow us to enter 2023 with a well-integrated team. The acquisition of IDGenX enables us to offer a test solution that we believe has the potential to accelerate our impact on patient care in an area of high unmet clinical need, significantly expanding our in-market estimated US TAM by approximately $5 billion, and offer incremental value to patients and clinicians over the standard of care trial and error approach. Medicare coverage includes depression, and IGNX is one of two PGx tests with coverage for depression. Recently, Medicare extended coverage for the following seven additional mental health conditions beyond major depressive disorder, including schizophrenia, bipolar disorder, anxiety disorders, panic disorder, obsessive-compulsive personality disorder, post-traumatic stress disorder, and attention deficit hyperactivity disorder. The IGGNX multi-panel test is currently reimbursed by Medicare at approximately $1,500. Before I turn the call over to Frank, I want to let you know that we will host an Investor Day on September 20, 2022, to provide an in-depth corporate update on our growth initiatives and plan for continued long-term value creation. More details to come. I would now turn the call over to Frank, who will provide details relating to our financial results and updated 2022 revenue guidance.