Castle Biosciences, Inc.

Good afternoon and welcome to Castle Bioscience's first quarter 2023 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 Zaccaro, Vice President, Investor Relations and Corporate Affairs. Please go ahead.

Thank you, Operator. Good afternoon, everyone. Welcome to CASEL Biosciences' first quarter 2023 financial results conference call. Joining me today is CASEL's founder, president, and chief executive officer, Derek Mathold, and chief financial officer, Frank Stokes. Information recorded on this call speaks only as of today, May 3rd, 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 Security Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our financial outlook, CAM, 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 regarding reimbursement for our products, and the impact of our investments and 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 quarterly report on Form 10-Q for the quarter ended March 31, 2023 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. I will now turn the call over to Derek.

Thank you, Carmela, and good afternoon, everyone. As you saw from our announcement a few minutes ago, I am pleased to share that Castle Biosciences delivered another strong quarter, growing revenue by 57% and total test report volume by 73% compared to the first quarter of 2022, which we attribute to continued focus on our long-term strategy, which translates to strong near-term operational performance. We believe this performance sets us up for another excellent year. And I would like to first and foremost thank our CASEL employees. Our success is based on their dedication to our patient-focused mission. We believe if we focus on improving the outcomes of the patients that we serve, then clinicians should find value in ordering our tests. We should get paid fairly and we will therefore have a great revenue growth profile. As such, we remain confident in our business and are reaffirming our 2023 total revenue guidance of $170 to $180 million. Today, I will take you through execution and strategy highlights from the quarter, and then Frank will provide financial highlights for the period, concluding with your questions. First, I would like to put our first quarter results in the context of our long-term strategy. We entered 2020 with an estimated in-market U.S. total addressable market, or TAM, of approximately $547 million. Through thoughtful planning and executional excellence on our near and long-term growth strategy, we have seen significant organic growth in the top line, diversified our portfolio with strategic investment, and increased our estimated in-market U.S.-only TAM to $8 billion. We believe that our actions position us well for continued value creation in 2023 and beyond. What a great way to enter this year and have the opportunity to maintain focus on our long-term growth plans. Now, let's get to our first quarter results. Driven by successful execution of our growth initiatives in 2022, we saw strong year-over-year and sequential growth in our core dermatology business. We evolved our dermatology facing commercial team in the third quarter of 2022. Our dermatology facing sales team now consists of approximately 70 outside sales territories that are equally focused on DecisionDx melanoma and DecisionDx SCC. In the first quarter of 2023, test volume for these two tests combined was 9,994, growth of 39% year-over-year growth and 9% sequentially. This growth is an excellent reflection of our focus on operational execution, which we have demonstrated time after time since our IPO in mid-2019. Another pillar of our growth strategy is a continued development of evidence to support clinical use of our tests, including impacting outcomes. I think most of us are aware that the value of risk stratification tests, like decision DX melanoma, is to improve decision-making accuracy when it comes to guiding patients down, for instance, treatment pathway A versus B or A versus C, all of which in cancer are likely based on assessing an individual patient's risk of progression or metastasis. We have for years generated data with our decision to X-melanoid test that has shown clinicians who use our test clinically do in fact make changes in the selection of their patient's treatment pathways, and we have always had an indirect chain of evidence that these changes should therefore result in either less intervention, like elimination of an unnecessary similar to biopsy procedure, or more intervention, like initiation of regular imaging based upon a high-risk decision DX melanoma test result that should then enable early detection of a metastasis and then earlier initiation of immune or targeted therapy. Early initiation of therapy is significant, as the clinical studies with these agents in melanoma have shown that we get better responses if immunotherapy is initiated when the tumor burden is lower. And we find lower tumor burden when we employ routine scheduled advanced imaging protocols like CT scans and brain MRIs compared to imaging those patients only following a symptom of metastasis. A key point to reinforce here is the word indirect. It is rare for a risk stratification test to prospectively demonstrate that better treatment pathway selections result in improved survival outcomes versus net health outcomes. As you might have seen from our release earlier today, I am pleased to discuss the publication of an independent multi-center clinical study that provides a direct chain of evidence that use of decision DX melanoma test results to guide radiologic surveillance led to improved patient outcomes. The study was conducted at three National Cancer Institute designated cancer centers, the Cleveland Clinic, Northwestern University in Chicago, and Oregon Health and Sciences Center. During the study time period, there were clinicians who had adopted decision DX melanoma within each of these institutions for clinical use, and there were also clinicians who had not adopted decision DX melanoma for clinical use. These differences in adoption within each of the three institutions enabled the study authors to evaluate directly the impact of treatment pathways that were directed with decision DX melanoma test results to those patients whose treatment pathways did not have the benefit of decision DX melanoma test results. That is, patients who were not clinically tested but were managed within the same institutional setting. In addition to the opportunity to control for access to similar care opportunities by limiting the study that patients manage within their same institutions, the study officers also aimed to control for any impact on the performance of a sentinel lift node biopsy surgical procedure. Thus, the only patients evaluated were those who underwent a sentinel lift node biopsy surgical procedure and were sentinel lift node negative, meaning that they did not find any melanoma cells in the sentinel lift nodes. This meant that all patients were staged as stage one or two, which is the prime target for the clinical use of our DecisionDx melanoma test, given that greater than 90% of early stage melanoma patients are stage one or two at the time of diagnosis. Each of these institutions had treatment pathways for patients with a high risk class 2B DecisionDx melanoma test result that escalated their management plan to better align their individual patient's risk of metastasis. That is, All patients underwent scheduled, routine, advanced imaging for the purpose of detecting metastasis when tumor burden was low and not symptomatic. In comparison, the control group included patients from the same institution who did not receive decision DX melanoma test results as part of their clinical care and who were managed appropriately, according to guidelines, without a scheduled, routine, advanced imaging protocol. meaning that they were followed clinically because the population risk of progression was low enough that putting these patients in a scheduled routine advanced imaging treatment plan was not appropriate based upon guidelines. The results we would have predicted from our indirect chain of evidence, that is, patients who received a high-risk class 2B decision DX melanoma test result and had treatment plans aligned to include scheduled routine advanced imaging had their metastasis detected earlier than those who were followed with routine clinical exams only. Further, the decision to X melanoma tested group had recurrences detected approximately 10 months earlier than patients in the control group, and the average tumor burden was significantly lower, with 27.6 millimeters versus 73.1 millimeters for those in the non-tested control group, with a p-value of 0.6. This is important. As I mentioned earlier, recent studies with immunotherapy show that treatment for metastatic melanoma is more effective when treatment is initiated when the tumor burden is lower versus when the tumor burden is higher, which typically means detected asymptomatically with planned routine imaging versus symptomatically. And we saw this expected outcome in the study, specifically of patients who had a recurrent 76% of the patients with a melanoma recurrence who received a change in care decisions that was linked to a decision DX melanoma class 2B test result were alive following an average follow-up time of 45.6 months. In comparison of patients who were followed without the benefit of decision DX melanoma testing, 50% were alive following an average follow-up time of 63.3 months, The p-value here was also significant at p equals 0.027. In summary, the study found that using decision DX melanoma to risk stratify patients to guide care resulted in earlier detection of melanoma recurrence while the tumor burden was lower, leading to improved treatment pathway decisions that were directly linked to improved survival. Now, this independent study is very exciting from our perspective. It is even more exciting when you view this direct chain of evidence to the indirect chain of evidence within the large, real-world, unselected collaboration study that we have with the National Cancer Institute, or NCI, and their surveillance epidemiology and end results, or SEER programs, patient registries. As you know from prior discussion, this ongoing collaboration has demonstrated a clinically and statistically significant indirect chain of evidence that patients who received decision DX melanoma test results have improved melanoma-specific survival and overall specific survival compared to patients who were not tested, that is, who did not have the benefit of DecisionDx melanoma test results as part of their clinical care. In fact, I'm pleased to announce that the initial publication has been accepted, and we expect it to be available online by the end of the second quarter. We believe that clinicians who diagnose and manage early-stage melanoma as well as commercial payers should find these direct and indirect chains of evidence compelling. Now, let's turn to our gas neurology franchise. We delivered 1,383 tissue cipher test reports in the first quarter of 2023, up from 56 test reports delivered in the first quarter of 2022, and a 34% sequential increase. You may recall we hired the initial sales source in January 2022, spent a significant amount of time in the first quarter of 2022 in training, and also had to work through the ADLT application process and the impact on the Medicare 14-day rule. We continue to be extremely pleased with the reception of TissueCypher by the gastroenterology clinician community and associations. For example, inclusion in the American Gastroenterology Association, or AGA, clinical practice update in July 2022. Regarding reimbursement, recall that Medicare granted advanced diagnostic laboratory or ADLT status to Tissue Cipher in 2022. As part of the ADLT process, the reimbursement rate for Tissue Cipher from January 1st, 2023 through December 31st, 2024 was determined based upon the median private payer allowable rate that was received between April 1st, 2022 and August 31st, 2022, that is $4,950. Turning to our mental health franchise, we delivered 2,150 IDGenX test reports in the first quarter of 2023, a 77% sequential increase over the fourth quarter of 2022. As a reminder, no test reports were delivered by CASEL in the first quarter of 2022. We have a thoughtful integration plan, which spans five to six quarters, and we are midway through that plan. As you can expect, we are pleased with the momentum that we are seeing. As we've 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 or we expect the value of biogenics will be seen by clinicians and their patients, including the value of drug interactions and drug gene interactions with lifestyle factors combined in a single test report. Turning to reimbursement, I want to remind you that all of our proprietary tests have undergone medical review and as of today are covered by CMS for Medicare beneficiaries. Finally, we are looking forward to the official grand opening of our new laboratory in Pittsburgh, Pennsylvania, later this month. After completing a rigorous transition, I am pleased to report the lab is fully functional and we expect to have the capacity and ability to process our proprietary tests from our new laboratory location. I'll now turn the call over to Frank, who will provide details relating to our financial results.