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spk10: 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 Zuccaro, Vice President, Investor Relations and Corporate Affairs.
spk01: Please go ahead. Thank you, Operator. Good afternoon, everyone. Welcome to Castle Biosciences' third quarter 2023 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, November 2, 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 anticipated 2023 total revenue and our full year 2023 to 2025 outlook, our expectations regarding reimbursement for our products, and the impact of our investments and growth initiatives and expanded commercial team. 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 31st, 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 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.
spk06: Thank you, Camilla. And good afternoon, everyone. As you saw from our announcement a few minutes ago, CASEL delivered yet another outstanding quarter, continuing our track record of strong execution. Revenue grew by 66% to $61.4 million and total test report volume grew by 52% compared to the third quarter of 2022. We achieved these strong results while generating $5 million in cash flow from operations and $6.6 million in adjusted EBITDA. Given our consistent performance throughout the year and our confidence in the business, we are again raising our full year 2023 revenue guidance and now anticipate achieving at least $200 million in revenue, an increase of at least 45% over 2022. I attribute our continued strong performance in no small part to the culture we built at Castle, and the foundation of this culture is the people who call Castle home. I cannot thank them enough for their decision to join Castle, lean in, and help drive our success. Now, let me take you through execution and strategy highlights from the quarter, and then Frank will provide additional financial highlights for the period before we turn to your questions. Let's start with our core dermatology business, which continues to perform extremely well. For DecisionDx melanoma and DecisionDx SCC combined, test volume was 11,379, growth of 27% year over year. For the trailing 12 months as of September 30th, 2023, The combined test volume growth was 33% when compared to the preceding four quarter period. We are very pleased with a third quarter and trailing 12 months volume performance. For the three months ended September 30th, we had approximately 500 new ordering clinicians, that is clinicians ordering our tests for the very first time, and approximately 5,000 total ordering clinicians across all three dermatologic tests. As a reminder, there is significant overlap between clinicians who order our DecisionDx melanoma test and those who are now adopting our DecisionDx SCC test. In fact, during the nine months ended September 30th, 2023, approximately 75% of all clinicians ordering DecisionDx SCC had also ordered our DecisionDx melanoma test during that same period. We believe this is a result of a high unmet clinical need that our tests are designed to address, coupled with the decision-making value that is acted upon by dermatological providers and the leveraging of our sales efforts across both products effectively. As it relates to the impact on decision-making, I remind you of the results of a multicenter study published in the second quarter of this year from Cleveland Clinic, Northwestern University, and Oregon Health and Sciences Center. that showed a direct benefit in outcomes, that is survival, in patients whose early stage melanoma treatment plans were guided by the DecisionDx melanoma test results compared to those patients managed at the exact same institutions whose treatment plans did not include the knowledge of our DecisionDx melanoma test results, that is untested patients. For DecisionDx melanoma, we delivered 8,559 test reports in the third quarter. a 16% year-over-year increase, and roughly flat compared against 2Q, reflecting normal third-quarter seasonality. We are pleased by this performance. From a patient standpoint, we estimate that we have reached about 25% marker penetration, and we believe substantial growth opportunities are still ahead of us. We believe the most significant drivers of growth are the documented clinical impact our test has on improving outcomes in patients diagnosed with early-stage melanoma coupled with our prior commercial expansion investments intended to educate our customer base. One of our evidence development goals is to continue to compare the value of our test to other tools or other tests for patients diagnosed with melanoma, primarily for reimbursement purposes, but also as proactive competitive purposes with our customers. In the past, this meant focusing on comparing the independence of our DecisionDx melanoma test to the American Joint Committee on Cancer, or AJCC, staging factors, or the National Comprehensive Cancer Network's risk criteria. In addition to these two risk assessment tools, there is also the existence of nomograms. During the third quarter, we announced a new study demonstrating decision DX melanoma outperformed a nomogram that was developed at the Memorial Sloan Kettering Cancer Center. in predicting the risk of centrolifto positivity in patients with cutaneous melanoma. This study provides further evidence that using DecisionDx melanoma to help guide decisions regarding centrolifto biopsy procedures improves patient selection, potentially reducing unnecessary surgical procedures and ultimately improving the care of patients with melanoma. Similar to DecisionDx melanoma, we continue to see strong report volume momentum for our DecisionDx SCC test in the third quarter of 2023, with volumes up 72% year over year. As with our growth in DecisionDx melanoma, we believe that our strong growth and volume for DecisionDx SCC test is due in large part to the combination of the high clinical need for SCC, coupled with the value that our test provides. We continue to expand the body of evidence surrounding the test, This quarter, for example, we shared new data demonstrating the ability of our decision DXSCC test to identify patients with localized but high-risk cutaneous squamous cell carcinoma who may benefit as well as those who may not benefit from adjuvant radiation therapy. Now, let's shift our focus to our gastroenterology franchise and our tissue cipher test that was designed to predict the development of high-grade dysplasia or esophageal cancer in patients diagnosed with non-dysplastic, indefinite, or low-grade dysplasia, Barrett's esophagus disease. During the third quarter, we delivered 2,829 tissue cycle reports compared to 690 in the third quarter of 2022. As with our DecisionDx melanoma and DecisionDx SCC test, I'm pleased to share that during the third quarter, we had multiple data announcements demonstrating a significant clinical utility of Tissue Cipher in guiding risk-aligned care for patients. Turning to our mental health franchise, we delivered 2,791 ID genetics test reports during the third quarter of 2023, up from 1,208 in the third quarter of 2022. We are extremely pleased with the momentum thus far, including two consecutive quarters of triple-digit year-over-year volume growth. We believe our success is due to a differentiated test including identifying drug-drug and drug-gene interactions with lifestyle factors to help improve medication response and remission rates in a mental health market which we believe offers significant opportunity for growth. In fact, recent data from a study showed the addition of drug-drug interactions and lifestyle factors to drug-gene interactions provided by our iGenX test significantly impacted the number of drug recommendations and contribute to improved remission rates for patients with moderate to severe depression. Specifically, patients whose medication management was guided by our iGenX test were 2.65 times more likely to achieve remission of depressive symptoms compared to patients whose medication was guided by standard of care trial and error approach. That is a clinically meaningful improvement to patients suffering from moderate to severe depression. Moving to our longer-term growth initiatives, I'm excited to share some early discovery data on our inflammatory skin disease pipeline program. As you may recall, we launched the program with the goal of developing a genomic test aimed at guiding systemic therapy selection for patients with moderate to severe atopic dermatitis, psoriasis, and related conditions. We are pleased with the early discovery data, which we presented in October at the Fall Clinical Dermatology Conference. The data demonstrated that in patients with moderate to severe atopic dermatitis, we're able to show that using our noninvasive method of tissue sampling, coupled with gene expression profiling, can separate out responders from nonresponders. Furthermore, our inflammatory skin disease pipeline test could help distinguish atopic dermatitis, psoriasis, and mycoses fungoides skin lesions to ensure proper selection based upon an individual patient's molecular profile. This test has the potential to represent a significant advancement in the care of patients grappling with these debilitating skin conditions. Importantly, it could empower clinicians to tailor therapy choices by considering their molecular profiles, potentially sparing patients from undergoing numerous ineffective and costly medication trials before discovering an effective treatment to manage their specific symptoms. We are encouraged by the data we have generated to date and look forward to providing with additional development updates in 2024 with a test launch targeted for the end of 2025. Now, shifting our focus to a development related to UV melanoma, discovery data on a potential complementary test is being presented this weekend at the American Academy of Ophthalmology. As you know, UV melanoma is a rare disease with approximately 2,000 patients diagnosed annually in the U.S. Our DecisionDx UM test is standard of care for newly diagnosed patients, and we believe we test about 85% of such patients. In our ongoing dedication to this patient population, we're currently conducting a study to explore the potential for developing a test that will be tailored for individuals presenting with very small suspicious lesions with uncertain malignant potential. The current approach in deciding whether to intervene and treat these suspicious lesions is based on a watch and wait approach. where some change in the clinical characteristics of the lesion prompts the decision to definitively treat it and perform a prognostic biopsy. However, the decision to intervene is highly subjective and can lead to both undertreatment or delayed treatment of aggressive lesions and overtreatment of lesions that would probably have been fine to follow without any intervention. We are looking for a simple, minimally invasive, and objective signal that can identify aggressive biology earlier than the current clinical standards in order to allow for potentially earlier interventions. We see this potential test as a complementary test to our prognostic DecisionDx UM test. Our data is still in the early stages of discovery, but we expect additional data in 2024 indicating whether development of this type of complementary test may be possible. Lastly, I'm honored to share that Council Biosciences has recently been awarded a Top Workplaces National Industry Award, securing a third position among 84 top workplaces in the healthcare sector. People come first at CASEL, and our unique culture reflects that mindset. Our success is not possible without the entire CASEL team, and I would like to express my sincere appreciation for their contributions. I will now turn the call over to Frank, who will provide details relating to our financial results and outlook.
spk05: Thank you, Derek. Good afternoon, everyone. Third quarter revenue was $61.5 million, an increase of 66% over the third quarter of 2022. Overall, the increase primarily reflects significant growth in revenue from DecisionDx SCC and DecisionDx melanoma, driven by ASP growth and strong test adoption through robust clinical evidence. Adjusted revenue, which excludes the effects of revenue adjustments related to tests delivered in prior periods, was $60.6 million, an increase of 63% over the third quarter of 2022. Our gross margin during the third quarter was 77.9% compared to 69.8% in the third quarter of 2022. Our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions and revenue associated with test reports delivered in prior periods, was 81.3% for the quarter, compared to 76.2% for the same period in 2022. Turning to expenses, our total operating expenses including cost of sales for the quarter were $71.1 million. This compares to $58.5 million for the third quarter of 2022 and $71.3 million for the second quarter of 2023. The largest driver of the year-over-year increase in total operating expenses was SG&A expenses, which increased by $8 million compared to 2022. attributable in large part to higher personnel costs, including bonuses, stock-based compensation, salaries, primarily within the sales and marketing functions. Cost of sales expense increased by $2.5 million, primarily due to increased expenditures on supplies and higher personnel costs associated with the growth and test volume. R&D expense increased by $2 million in the third quarter of 2023 compared to 2022, which was attributable to higher personnel costs driven primarily by expansions in headcount in support of our growth and other costs associated with clinical studies. Total non-cash stock-based compensation expense, which is allocated among cost of sales, R&D expense, and SG&A expense, totaled $13 million for the third quarter of 2023 compared to $9.2 million for the third quarter of 2022. The increase was primarily attributable to our annual equity awards granted in December of 2022. Interest income increased by $1.5 million for the third quarter of 23 compared to the third quarter of 22, primarily a result of higher interest rates and our purchases of marketable investment securities beginning in the third quarter of 2022. Our net loss for the third quarter of 2023 was $6.9 million compared to a net loss of $20.2 million for the third quarter of 2022. Diluted loss per share for the third quarter was 26 cents, compared to diluted loss per share of 77 cents in the third quarter of 2022. Adjusted EBITDA for the third quarter was $6.6 million, compared to negative $9.6 million for the comparable period in 2022, an improvement of $16.2 million. The substantial year-over-year improvement reflects strong top line growth, along with continued disciplined expense management. Net cash provided by operating activities was $5 million for the third quarter, and net cash used in operating activities was $24.2 million for the nine months ended September 30, 2023. Net cash used in investing activities was $8.5 million for the nine months ended September 30, 2023, and consisted primarily of purchases of marketable investment securities of $136.7 million and purchases of property and equipment of $9.8 million, partially offset by the maturity of marketable investment securities of $138 million. Our balance sheet remains very strong. We increased our cash position by more than $4 million in the third quarter of 2023 compared to the second quarter of 2023, ending the quarter with cash equivalents and marketable securities of $229.8 million. Together with anticipated cash generated from sales of our tests, we expect that our cash operating runway will extend through 2025, at which time we expect operating cash flow positivity. As Derek mentioned, we are increasing 2023 revenue guidance to at least $200 million, up from at least $180 million. Importantly, this updated guidance represents an increase of at least $25 million compared to the midpoint of our expectations at the beginning of this year. Supporting our longer-range targets for ASP improvements, we continue to make progress for CASEL's test with commercial and state health plans and expect that to continue over time. Furthermore, there's been a growing trend of states implementing biomarker state laws with about 14 states with existing laws that will go into effect over the next 14 months. While implementation and the impact of biomarker laws are still in the initial stages, we see these developments as a strong statement on the value of biomarkers in directing treatment plans and applaud the state legislatures and governors in supporting improvements in patient treatment plan decisions as a result of biomarker test results. In conclusion, we had a great quarter from a financial perspective, highlighted by strong revenue and test volume growth, positive operating cash flow, and adjusted EBITDA and a substantial upward revision of our full year expectations. I'll now turn the call back over to Derek.
spk06: Thank you, Frank. In summary, Q3 was an exceptional quarter with continued strong execution. Additionally, we're making progress across our pipeline initiatives. We're excited about our performance through the first three quarters of the year and believe our ability to create value for our stockholders in the near and long term remains intact. I would like to conclude today by again thanking our CASEL team. Now we will have to take your questions. Operator?
spk10: Thank you. In order to allow everyone in the queue an opportunity to address the Castle Management team, please limit your time on the call to one question and only one follow-up. If you have additional questions, please return to the queue. Please stand by while we compile the Q&A roster. Our first question today comes from the line of Thomas Flatton with Lake Street. Thomas, please go ahead. Your line is open.
spk03: Thank you. Hey, guys. I appreciate you taking the questions. I was wondering if you could provide us with an update on the Pittsburgh facility and tissue cipher and whether or not that had anything to do with essentially doubling of volumes from the second quarter to the third quarter.
spk06: I think we announced at a conference in mid-September that we had had completed our scaling expectations that we thought would be completed by the end of the quarter a little early. And we're beginning to accept new orders from current customers. And as of now, everything is sort of back to normal there. So I think that the generation demand that we begin seeing in the second quarter is certainly that backlog is reported now and things are running as normal. Does that answer the question, Thomas?
spk03: Yeah, no, that's great. And then, if I might, the 500 new docs that you brought in of prescribers to the DERM business, was there kind of an even distribution of which product they were coming in for, or was it more heavily weighted towards TX melanoma?
spk06: I didn't know. look at that breakdown. Did you, Frank? I don't think so.
spk05: I didn't look at it that way, Thomas.
spk06: My assumption is we've been running with, if I think about the earlier commentary there, that about physicians who've been ordering decision DXSCC, 75% of them also order the melanoma test. I assume that ratio is pretty consistent in the third quarter.
spk03: Got it. Appreciate it. Thank you.
spk10: Thank you. The next question comes from the line of Puneet Sudha with LeeRinc Partners. Puneet, please go ahead. Your line is open.
spk07: Hey, guys. Thanks for taking the questions, and congrats on a strong quarter here. This is maybe for Frank or Derek. If you could parse out, you know, what you received in the quarter as the SP for SCC, And I recall last quarter you were expecting, you had eliminated that from the second half. You know, sort of how should we think about SEC growth in the first half or any payments that could come in the first half of 24?
spk05: We don't know if coverage will be in place in the first half of 24, so that's still to be determined. But yeah, correct, we did have coverage in place for the third quarter. And so we were appropriately reimbursed for the value of that test during the quarter.
spk07: Okay. And then maybe just a broader question for Derek. I mean, I'm sure you had some time to think about, you know, the FDA regulation and their attempt to regulate the, you know, LDT market. Maybe just walk us through what test that you think you're, you can go easily, more easily through the process versus where you need to produce more data or in order to, if that process was implemented. Thank you. That's a good question, Puneet.
spk06: Yeah, I think one, we all have to wait for a little more clarity and specifics from the FDA on their proposed rule. It's a little nebulous from my perspective. That being said, We have in the past looked at sort of the level of evidence and the FDA's approach when they were clearing or approving similar kinds of diagnostic tests. In many instances, they deferred to New York State Department of Health laboratory permitting and test approvals. Both of our laboratories and I think all of our tests but tissue cipher are approved through New York State Department of Health Tissue cipher is just a timing thing in terms of when they get around to reviewing it. So our perspective has been we believe that we have more than adequate data that once one understands if the FDA will in fact regulate the laboratory developed test industry and we were required to or submitted a PMA application that we have that each one of our tests has adequate data behind it already published in the public domain. And certainly the laboratories in both Phoenix and Pittsburgh already are New York State permitted, so I think we feel pretty comfortable that what we have will be more than adequate to go ahead and make it a smooth process for all of the tests.
spk07: Got it. Okay. Thank you.
spk06: Yep. Good to hear from you.
spk10: Our next question comes from Katherine Schultz with Baird. Catherine, please go ahead. Your line is open.
spk02: Hey, guys. Thanks for the questions. I guess first, and just can you clarify what guidance assumes regarding squamous cell reimbursement in the fourth quarter? Can you confirm you're continuing to receive payments from Novitas as of today? And then you raised guidance by $20 million, but as Puneet mentioned earlier, I don't think the prior guide included any SDC revenue in the back half. Was there any guidance raised on the non-SCC portfolio, or was it mostly upside from SCC in the third quarter?
spk05: Hey, Katherine, thanks for the question. We don't break out guidance by product. We just give total revenue guidance. And as we said, we were reimbursed appropriately for the value of the test in the third quarter. And given the feedback we've gotten, we have taken that out for our guidance going forward. So we're not assuming SCC revenue forward-looking from here.
spk02: Okay, got it. And then I know you're still waiting for the final LTD for Novitas on DecisionDx SDC, but if it turns out it's unchanged versus the draft, would that change at all your thoughts on the appropriate Salesforce side for your DERM portfolio? And would you scale back investments until you had better line of sight to reimbursement?
spk06: Yeah, I'll handle that one. Catherine Derrick here. We believe that our current Salesforce, which is sitting at around 65, 70 people today is appropriately sized for the dermatology marketplace as of today. So even if we only had one test versus two tests in the area manager's bags, that wouldn't change sizing at all from our perspective. Is that the question right? Yeah.
spk10: Okay, great. Thank you. Our next question comes from Mason Carrico with Stevens. Please go ahead. Your line is open.
spk09: Hey, guys. Thanks for the questions here. Congrats on the quarter. So on the strong tissue cipher volumes, could you give some color on maybe where capacity stands today and how that compares to your expectation of where tissue cipher volumes could be next year?
spk05: Hey Mason, thanks. Yeah, today capacity for Tissue Cipher exceeds what we're running and our expectation and plan is to make sure that that capacity exceeds what we're running all through next year. So we've got good targets on what we want to accomplish there and we're ahead of where we need to be to be able to run to satisfy demand for the test.
spk09: Okay, great. And given the demand you guys have seen there, any updated thoughts on the commercial team and how many reps you potentially want to add to that team over the next 12 months or so?
spk05: Yeah, on tissue cipher, we do think there's an opportunity to expand the sales effort there, given the strong demand for the test. I think that, as we discussed before, the reception by physicians has been as positive as we expected it to be when we were in the diligence process. And so now that we've got some improvement in the capacity of the lab, and we've got an option to expand that lab as well. So we feel good about some modest investment in an expanded sales force. Probably first half of next year is when I would target that and get those reps online and beginning to be productive. It's a great test, and the current sales team is doing a great job in explaining the clinical value to physicians, and they're obviously embracing that value. So we'll be cautious and we'll be judicious, but we do believe there'll be an opportunity to add more resources to the marketing effort in our GI franchise.
spk09: Great. Thanks, Frank. Thanks, guys.
spk10: Our next question comes from Kyle Mixon with Canaccord Genuity. Kyle, please go ahead. Your line is open.
spk04: Hi, this is Alex DeCasen. I'm live for Kyle Mixon. Great update, guys. Congrats on the good performance. I'm just kind of getting back to Disinject SEC and the reimbursement there. So, obviously, we all recognize that the comment period for Novitas ended roughly September 9th. I was just curious regarding if you were able to successfully enter any data that you previously used with perhaps new context or any new data prior to the ending of that comment period. Thanks.
spk05: I think the question is, can we add more data since the comment period has ended?
spk04: Hi, essentially, but before the commentary, it ended, I guess. And since since the last update. Yeah. Thanks.
spk06: Yeah, so we did submit new data with our comments in early September. That was presented. to Novitas in the, I guess, earlier part of August. So new data was submitted, including, I think, the most important data set or two data sets. One of them is the benefit that we have now seen in our SCC test, being able to discern patients who are likely to have no benefit or no response to adjuvant radiation therapy and find those who may or who are likely to get a nice response to adjuvant radiation therapy. That's an important advance in the marketplace that nobody has right now for which patients, even though they might be eligible for radiation therapy, actually will receive a benefit. The other element that we also presented during the open common meeting and submitted similarly is data from a large 920 patient population study to examine within various subgroups, subgroups of patients, different risk factors, different groups of risk factor patients, how are tests performed, and it basically adds value to every one of those subgroups or sub-stages of patients, which I think is also important. clinical information to help the medical reviewers understand and appreciate the appropriate use of our tests in people with one or more risk factors.
spk04: And one other kind of hard-level question here. So, you discussed how you feel the market's roughly 25 percent penetrated currently. I was curious how you feel that this level of market penetration will evolve over 2024, At what level you could see it increasing to over time. Thanks.
spk06: Yeah, so I think in the last couple of years, we've seen. What about 3 and a half to 4% growth and penetration kind of every 12 or 13, 14 months or so. Is that right? Maybe it's maybe 3 and a half to 4, not 4, not 5. We see no reason why that kind of progress won't continue until maybe we hit, you know. 50, 60, 65% market penetration. So I think we've got a good runaway grant there. Now, what might cause that to go higher or grow more rapidly next year, I guess, is the question that we should think about, right? I believe that the more recent data that was published in the late second quarter, both from the NCI SEER paper, as well as the paper from Dylan et al. that I talked about in the prepared script, are two elements where you can say, hey, when your peers, doctor, adopted the use of our tests, their patients live longer than when they didn't test them. Now, I would ask you if that's something that you would want your patients to receive a benefit from as well. So I think that kind of data, which will take time to work into top of mind for our dermatology and surgical customers or colleagues, That might help accelerate that a bit higher than previous trends, but I think that would be what we've seen the past couple of years, to me, is what we would expect in the next year.
spk04: Got it. Thank you very much.
spk10: Our next question comes from Mark Massaro with BTIG. Please go ahead, Mark. Your line is open.
spk08: Hey, guys. Congrats on a terrific quarter. I wanted to ask about, you know, obviously there's been a lot of interesting discussions from multiple Medicare contractors, WPS, Palmetto, and Novitas. I guess it would be helpful if maybe you provided just what your expectations are on timing, especially on Palmetto and Novitas. What are the next steps, and when do you think we can get an update on any potential changes to the the current policies on SEC?
spk06: So based upon historical trends with Palmetto, we have infrequently or very rarely seen reviews go faster than what would be required by the Medicare rules. And the Medicare rules are you need to finalize and post a final LCD 365 days after it's posted or it kind of retires or just goes away. So in most cases, Palmetto, if you just track the data, a LCD is proposed and the date is finalized, that roughly is about a year. So that would mean kind of May of next year is probably the right timing for that. They could go faster, but that's out of character of how they usually have operated in the past. On Novitas, they don't have a history of really updating or developing new LCDs that's nearly as robust as Palmetto, so that's harder to get a handle around that. If you just take what they had proposed a year ago with the initial proposed LCD, that was about 11 months, 10 and a half months as well. Would they follow the same kind of pathway? That's potentially the outside number there, Mark.
spk08: Okay, that's super helpful. And then I think you indicated that you In your guidance, you're not expecting squamous cell revenue from here. What, I guess, what informs that thought process?
spk05: You know, we got significant feedback from a number of folks, Mark, some analysts and some investors as well that said, given the uncertainty around the LCD processes that are underway, that the most conservative approach would be to take that out of our guide. And so we've taken that advice.
spk08: Makes perfect sense. Last question for me. You guys are really doing a great job with Tissue Cipher. What is it? I mean, this is 300% plus growth. What are some of the drivers here? Can you maybe just talk about, in your view, what you think is driving this, and do you see a path to similar strong trends going forward?
spk06: So I would maybe break it down into three or four elements, Mark. One is that it's a large population of patients who are being seen either newly diagnosed or re-scoped every year. We think that's over 400,000 patients when we We're doing diligence. The numbers we had out of medical claim data was showing more like 300,000. So one, I just think it's a large underserved patient group that is seeing gastroenterologists on a regular basis. So patients are in either the endoscopy suite or in the office being seen for their Barrett's esophagus, either newly diagnosed or coming back for repeat surveillance. I think the patient flow is there. I think number two is that You do have FDA-approved devices, ablation tools. The most important one, or I think the highest market share one, is a tool called Barix, B-A-R-X-X, that Medtronic markets and manufactures. That has been shown in its own clinical trials to be highly effective at sort of killing off Barix esophagus lesions. And when you do that, then they don't progress to cancer, which is the goal. Now, historically, even though they have FDA approval for all grades of dysplasia, the sort of society guidelines have over the last 10 years sort of see, well, maybe we should kind of limit it to the really, really risky group, which includes people with high-grade dysplasia and even now low-grade dysplasia. The tissue cipher test is able to take people who have non-dysplastic disease, which is the lowest population risk going forward, and find people who actually have a a disease progression risk that's higher than low-grade dysplasia. So it's a fairly easy linkage for a gastroenterologist who says, I have patients in my own practice where I just was so surprised that their nondysplastic Barrett's esophagus lesion progressed to cancer in between visits. It just kills me. So they all recognize there's a need there to find those those patients in that large nondisplastic group, which makes up about 95% of the overall patient population, and most of the people who progress to cancer now because they're the ones who aren't getting treated, and say, but I have on my other hand an effective tool to eradicate the chance of that progressing. So it's an easy sort of high unmet clinical need that they've all seen, experienced, train wrecks that they'd like to catch, and they have a tool already available that can go ahead and meet the needs of their patients. So that's the second element. In terms of timing, I think if we dial back the third quarter of last year, you'll recall that we hired up initially in January of 2022 the first sales team for this product. They were largely in training in the first quarter. We were also looking at obtaining ADLT status for a variety of purposes. And so we think it takes around six months for our sales team to kind of go to be fully effective. That would have been right in the third quarter of last year. We also expanded from 14 to 24 sales reps in the fall of 2022. And so the 690 was, I think, very, very solid volume for essentially a team that was just starting and getting its feet going. And the reports this quarter just reflect just good engine and good demand from a test going forward. Excellent. I appreciate all the color.
spk10: We have no further questions, so I'll turn the call back to Derek for closing remarks.
spk06: Thank you, operator. This concludes our third quarter 2023 earnings call. Thank you again for joining us today and for your continued interest in Castle Biosciences.
spk10: Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.
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