Castle Biosciences, Inc.

Good afternoon and welcome to Castle Bioscience's fourth quarter 2022 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 Camilla Zuccaro, Vice President, Investor Relations and Corporate Affairs. Please go ahead.

Information recorded on this call speaks only as of today, February 28th, 2023. 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, 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 2023 to 2025 outlook, our expectations and assumptions related to the impact of the COVID-19 pandemic and macroeconomic conditions, and the impact of our investments in growth initiatives and expanded commercial teams. 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, 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, 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 our revenue, cash flow, and operating 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. We are not providing a target for or reconciliation of anticipated 2025 adjusted gross margin to gross margin, the most directly comparable GAAP measure. because we are unable to predict certain items contained in the GAAP measure without unreasonable efforts. 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 2022 earnings call. Across the board, 2022 represents another fantastic year of execution for CASEL. Before I begin discussing the highlights of our year, I'd like to start today by personally thanking the CASEL team for their excellent execution, which enabled our fantastic results. Each and every employee contributes to our success. 2022 was a year of tremendous progress for CASEL. We delivered strong financial results. We made meaningful advances on our growth initiatives and delivered value to our customers and the patients we serve. The fourth quarter was a very strong finish, driving our full year revenue to $137 million. the top end of our guided revenue range, and a 46% increase over 2021. Our total test reports delivered were 44,419, a 58% growth over 2021. We believe our success in 2022 provides us with momentum for 2023 and expect full year 2023 revenue in the range of $170 to $180 million. I will now turn to highlights from each of our businesses, starting with our dermatology franchise. We delivered 37,331 dermatologic test reports in 2022, a 41% increase over 2021. We believe our three dermatology offerings, DecisionDx Melanoma, DecisionDx SCC, and MyPath Melanoma, despite our continued growth, represent significant future growth opportunity. We continue to see new clinicians order our dermatologic tests for the very first time. For the year ended December 31st, 2022, we saw approximately 2,312 new ordering clinicians for our dermatologic tests. And total ordering clinicians for our dermatologic tests were approximately 7,670. In developing our SCC test, we believe that in addition to addressing significant unmet clinical needs, we would see strategic opportunities for leverage, as many of the clinicians already ordering our risk stratification decision DX melanoma test would likely be the same clinicians who would be diagnosing patients with cutaneous squamous cell carcinoma with one or more risk factors, and therefore would find value in our risk stratification decision DX SCC test. We are seeing this leverage by virtue of the fact that for the year ended December 31, 2022, approximately 79% of all clinicians ordering DecisionDx SCC had also ordered our DecisionDx melanoma tests during the year. We believe the clinical value provided by our tests today, coupled with our investment and our growth initiatives, should continue to drive increased adoption. Our growth initiatives include regular commercial team assessment and evolution and R&D investments and robust peer-to-peer programs. As it relates to commercial investments, in 2022, we reestablished a dedicated sales team to focus on our gene expression profile tests to assist in the differential diagnosis of pigment lesions. This means that we have a larger team focusing on our dermatology call point, primarily supporting decision DX melanoma, and DecisionDX SCC together, and a smaller focus dedicated team focusing on the dermatopathology call point. As we have seen historically, that our target market is promotion responsive. So we believe these expanded commercial investments can contribute to continued momentum in 2023. As part of our long-term strategy, we plan to continuously assess the impact of our commercial teams including the commercial team that is now focused on DecisionDx melanoma and DecisionDx SCC, and the separate diagnostic gene expression profile commercial team focused on dermatopathology. And we'll make moderate adjustments if necessary, but ending 2023 with slightly more outside territories than we have today. In the long term, that is beyond 2023, with three dermatology offerings, we believe around 80 to 100 total outside sales territories for our dermatology commercial teams could make sense for us. As it relates to our R&D investments, in dermatology alone, we had 12 peer reviewed manuscripts published in 2022. Continuous serial publications support our educational efforts for both existing and new clinical customers. Before I turn to our gastroenterology franchise, I would like to comment on current expectations for decision DXSCC. In the late fourth quarter of 2022, CMS decided to gap fill our decision DXSCC rate. In a regular gap fill process, we would expect the outcome from this process to go into effect in January 2024. In the interim, and since we were just contractor priced in the second quarter of 2022, We expect our current rate of $3,873 to be maintained during the GAT field process in 2023. Separately, we currently have coverage through Novitas following their evidentiary review that was completed early in 2022. Separately, there is a draft broad LCD entitled DL39365, Genetic Testing for Oncology. whose purpose we believe is to streamline reviews in the future. We have no new updates from Novitas on the status of this draft LCD. Separately, Palmetto Molde X has not issued a draft LCD to date, and we have no control over timing. If and when we do receive a Molde X LCD draft, we expect it would take about 12 months to finalize, so we'd expect to have a final coverage determination from Molde X in 2024. However, as I said earlier, we have no new updates from Palmetto about a potential LCD or timing. I would now like to turn to our gastroenterology business. We delivered 2,128 tissue cipher test reports in 2022. You may recall we acquired tissue cipher in December of 2021. We have made significant progress since then with our integration efforts and look forward to the opening of our new Pittsburgh laboratory in the second quarter of 2023, which is scaled to enable us to continue processing our tissue cipher test in Pittsburgh. Additionally, we expect the Pittsburgh facility to have capacity to process our other tests as well. I will remind you that we hired the initial commercial team in early January 2022. And given the momentum that we saw in the second quarter, we added territories for our Tissue Cipher test in the late third quarter of 2022. As with our dermatology business, we will continue to assess the team and expect to add a modest number of territories as the year progresses. Finally, for Tissue Cipher, our 2023 and 2024 Medicare reimbursement rate is $4,950. As an ADLT, the Medicare rate will be recalculated for 2025 based upon payer data collection between January and June of 2023. I will now discuss our mental health business. From late April, we acquired IDGenetics. Through the remainder of 2022, we delivered 3,249 tests. As with TissueCypher, our integration efforts are progressing according to plan. And we are pleased with the momentum we are seeing. As we have stated previously, we believe the pharmacogenomic and mental health opportunity isn't just a matter of a single large market, but an opportunity to enter a series of very large markets. One of our integration objectives is to focus on those market segments where we expect the value of IDGenX will be seen by clinicians and their patients, including the value of drug-drug, and drug gene interactions with lifestyle factors all combined in a single test report. We entered 2023 with a solid commercial team in place, and we'll look to add a few territories throughout the year. One final note on our iGenX test. The iGenX multi-gene panel test is currently reimbursed by Medicare at a contract to determine price of approximately $1,500 per test. iGenX has historically been billed to Medicare using a multi-test unspecified CPT code, along with the iGenX test-specific Moldex Z code. In February 2023, Moldex notified us that as part of their annual CPT code updates, beginning in March 2023, iGenX should shift billing to a different multi-test generic gene sequencing CPT code and to continue using the iGenX-specific Z code. The new CPT code is currently contracted price at $917, while it goes through the CMS's gap-fill process in 2023. The new CPT code does not describe all the components of the Idigenics test. We therefore do not believe that the new CPT code, in conjunction with the Idigenics-specific Z code, provides additional specificity, and thus we believe the new CPT code is not appropriate for Idigenics. Now, I want to provide an update on our inflammatory skin disease pipeline test. As a reminder, the focus of this pipeline test is to be able to predict response to systemic therapy in patients who are diagnosed with inflammatory skin disease, such as psoriasis or atopic dermatitis, and are initiating therapy on a systemic therapy or are on a systemic therapy and either not receiving optimal response or experiencing treatment-limiting side effects. Development and validation of this test is occurring under the umbrella of our identity study protocols. In 2022, we presented data supporting that our noninvasive collection method had demonstrated or passed our technical thresholds. I am pleased to report that as of February 2nd, 2023, we have 54 committed sites and 507 patients enrolled in the identity study. We expect initial development data in the second half of 2023, and we believe we are on track to launch this test by the end of 2025. If successful, we believe this test would add $1.9 billion to our estimated US TAM. I would now turn the call over to Frank, who will provide additional detail relating to our financial results and what to expect in 2023.