5/5/2025

speaker
Operator
Conference Call Operator

via question and answer session. I would like to turn the call over to Camilla Zuccaro, Vice President of Investor Relations and Corporate Affairs. Please go ahead.

speaker
Camilla Zuccaro
Vice President of Investor Relations and Corporate Affairs

Thank you, operator. Good afternoon, everyone. Welcome to Castle Bioscience's first quarter 2025 results conference call. Joining me today are CASEL's founder, president, and chief executive officer, Derek Massold, chief financial officer, Frank Stokes, and senior vice president, medical, Dr. Matthew Goldberg, board certified dermatologist and dermatopathologist. Information recorded on this call speaks only as of today, May 5th, 2025. Therefore, if you are listening to the replay or reading this 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 following the conclusion of the call. 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, intended use populations, and similar items referenced in our earnings release issues today, and statements containing projections regarding future events or our future financial or operational results and performance. including our anticipated 2025 total revenue, our expectations regarding reimbursement for our products, opportunities for growth, impacts of seasonality and other trends, the size and structure of our commercial team, the timing of targeting milestones, and the impact of our investment and growth initiatives, including our ability to achieve long-term growth and drive stockholder value. 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, 2024, and its quarterly report on Form 10-Q for the quarter ended March 31, 2025, under the heading Risk Factors, and in the company's other documents and reports filed or to be 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 net loss per share, basic and diluted, 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.

speaker
Derek Massold
Chief Executive Officer

Thank you, Camilla, and good afternoon, everyone. We are off to an exceptional start of the year, building on our track record of consistent execution and strong business fundamentals. Revenue grew by 21% to $88 million, and total test report volume for our core revenue drivers grew by 33% compared to the first quarter of 2024. Additionally, we believe our strong balance sheet with $275 million in cash, cash equivalents, and marketable investment securities gives us the flexibility to continue executing on our growth initiatives as we work to maintain financial discipline. This includes strategic opportunities, as evidenced by our announcement earlier today that we signed a definitive agreement to acquire ProVise, which we believe can further benefit patients and providers alike while strengthening our position in the gastrointestinal space. Today, I will walk you through business highlights from the quarter, discuss our expected acquisition of ProVise, and then Frank will provide additional financial highlights before we turn to your questions. Before diving into our business highlights, I'd like to introduce Dr. Matthew Goldberg. Matt joined Castle in August 2020 and currently serves as our Senior Vice President, Medical. He completed his Dermatology residency at the University of California, San Francisco, followed by Dermatopathology Fellowship at the University of Texas Southwestern. Board certified in both dermatology and dermatopathology, Dr. Goldberg is the ideal person to discuss our decision DX melanoma test as we enter May, Skin Cancer Awareness Month.

speaker
Dr. Matthew Goldberg
Senior Vice President, Medical

Matt? Thank you, Derek. May is Skin Cancer Awareness Month. Our mission aligns with raising awareness about the importance of prevention, early detection, risk assessment, and personalized treatment strategies designed to improve patient outcomes, including for one of the most aggressive forms of skin cancer, melanoma. As you think about the patient journey, our decision DX melanoma test is ordered by physicians after biopsies take place and a diagnosis of invasive melanoma is made. And our test is designed to answer two important clinical questions to guide the subsequent treatment plan decisions at this point in the patient journey. First, what is the risk of sentinel lymph node positivity in order to inform decisions on the sentinel lymph node biopsy procedure? And second, what is the patient's risk of recurrence? And importantly, decision DX melanoma has been shown to be associated with improved patient survival as evidence from real-world prospective data. Therefore, I'm especially pleased decision DX melanoma recently achieved a significant milestone, surpassing 200,000 test orders since we launched the test. This is a remarkable achievement, and I'm extremely proud of my colleagues and their unwavering commitment to improving the lives of the patients we serve. With that, I'll turn it back to Derek.

speaker
Derek Massold
Chief Executive Officer

Thanks, Matt. Now we will discuss our quarterly highlights. For DecisionDx Melanoma, we delivered 8,621 test reports in a quarter, an increase of 3% compared to the first quarter of 2024 and roughly flat from the fourth quarter of 2024, as expected. As a reminder, historically, the second quarter sees growth sequentially over the first quarter. Importantly, we anticipate high single-digit volume growth for DecisionDx Melanoma for the full year 2025 compared to 2024. We believe our compelling body of evidence reinforces continued adoption. We were especially pleased with the recent publication of two papers discussing data from a prospective multicenter study demonstrating a significant impact of our decision DX melanoma test on sentinel lymph node biopsy or SLMB decision making. The first publication reported data from our DECIDE study. supporting the performance of a low-risk DecisionDx melanoma test result to predict sentinel lift node positivity rates of less than 5% who would be elected to have an SLMB. In this prospective multicenter study, no patient with a DecisionDx melanoma predicted risk of less than 5% SLM positivity, but who decided to have an SLMB procedure anyways had a positive node. That is, the actual SLMB positivity rate was 0%. The second publication shared outcomes of patients with a low-risk decision to X melanoma test result, of which approximately half the patients decided to forego an SLMB and approximately half proceeded with an SLMB despite the low-risk decision to X melanoma test result. Of clinical significance, All patients with a low-risk decision DX melanoma test result were recurrence-free. Specifically, we saw a 100% recurrence-free survival rate with a median follow-up of two years. Additionally, during the quarter, we presented new study data at the National Comprehensive Cancer Network, or MCCN, 2025 annual conference, showing decision DX melanoma as a significant predictor of mortality in a real-world cohort of nearly 7,000 patients with early-stage cutaneous melanoma. specifically as part of CASEL's collaboration with the National Cancer Institute's SEER program. This study further validated Decision EX melanoma's risk stratification performance in patients with thin or early stage cutaneous melanoma tumors, or stage 1 to 2A. In a real-world cohort of 6,892, 8th edition of the American Joint Committee on Cancer, or AJCC8, low-risk patients, the test identified individuals at higher risk of death. Importantly, multivariable analyses confirm decision DX melanoma as a significant predictor of melanoma-specific mortality and overall mortality, independent of key AJCC8 factors. These findings highlight the test's ability to refine risk assessment beyond AJCC8 staging, helping identify patients who may benefit from enhanced surveillance and management to potentially improve outcomes. Moving on to our DecisionDxSCC test, we delivered 4,375 test reports in the first quarter of 2025. Building on our six studies published in 2024, we presented new data at the NCCN 2025 Annual Conference, demonstrating DecisionDxSCC's ability to enhance risk stratification beyond traditional staging. Specifically, the study evaluated how integrating DecisionDx SCC with the Brigham and Women's Hospital or BWH staging under NCCN guidelines may improve prognostic accuracy. In a multi-center cohort of 1,412 high-risk SCC patients, DecisionDx SCC significantly enhanced metastatic risk stratification in NCCN high-risk patients. and very high risk patient populations. And the data demonstrated that the test improved BWH's staging risk prediction accuracy. When combined with BWH staging, a DecisionDx SCC Class I test result, which is considered low risk, results in a nearly two-fold decrease in metastatic risk, while a Class IIb test result, which is the highest risk reported, showed more than a five-fold increase in risk among lower-stage patients classified as BWH T1 or T2A NCC and high-risk patients. These findings demonstrate that decision DXSCC may refine individual patient risk assessment, supporting more accurate personalized treatment decisions based upon a patient's predictive metastatic risk. Now, let's turn to DecisionDX SCC reimbursement. The Novitas Local Coverage Determination Policy, or LCD, that included non-coverage language for DecisionDX SCC went into effect on April 24, 2025. We will be pursuing reconsideration requests of both the Novitas and MOLD-EX LCDs. Based upon timing, neither of these LCDs included a review of the six 2024 publications noted above, which included evidence showing that DecisionDx SCC is able to predict response to adjuvant radiation therapy, or ART, in addition to predicting the risk of progression. Given the strength of evidence of the data surrounding this use, we believe the reconsideration request could be accepted as valid. This evidence and additional studies support that the test is reasonable and necessary, which is the CMS requirement to be a covered test for patients with high-risk SCC. For now, we will be continuing to offer the test, because given the strength of evidence and decision to the SCC's ability to predict both the risk of metastasis to impact treatment pathway decisions and the ability to predict responsiveness to ART, we believe it is the right thing to do for patient care. Now, let's turn to our gastroenterology franchise. Before getting into our tissue cycle performance for the quarter and the expected revised acquisition, I want to highlight that April was Esophageal Cancer Awareness Month, a month dedicated to raising awareness about esophageal cancer, its risk factors, and the importance of early detection. Supporting key educational programs and initiatives throughout the month of April, CASEL proudly collaborated with the Esophageal Cancer Action Network, the American Foregut Society, and the Gut Doctor podcast to promote esophageal cancer prevention, education, and advocacy. As you will recall, we acquired TissueCypher in December 2021, giving us our spatial omics test designed to determine a patient's individual risk of progression from Barrett's esophagus to high-grade dysplasia or esophageal cancer. Barrett's esophagus is the only known risk factor for the development of esophageal adenocarcinoma cancer, one of the fastest-growing cancers in the US with a five-year survival rate of less than 20%. Tissue cipher have been studied in 16 peer-reviewed publications to date, and studies have consistently found that tissue cipher is the strongest independent predictor of progression with the ability to help identify non-dysplastic patients that progress at a rate similar to confirmed low-grade dysplasia. For this reason, we are thrilled with the positive reception tissue cipher has received from the gastroenterology community, particularly as a test can make a meaningful impact on patient care in an area with unmet clinical needs. In fact, in the first quarter of 2025, we delivered 7,432 tissue cipher test reports compared to 3,429 in the same period of 2024. This represents 117% year-over-year growth compared to the first quarter of 2024. As a reminder, the growth drivers we expect for tissue cipher in 2025 and beyond include, one, our recent commercial team expansion. Two, the unmet clinical need and clinical value of our tests being further accepted by clinicians. And three, a strong focus on education and awareness. We're excited about the growth prospects of the test, including the volume growth expected in 2025. And we are equally pleased by its clinical utility to determine a patient's individual risk of progression from Barrett's esophagus disease to cancer. Turning to our announcement from earlier today, we recently signed a definitive agreement to acquire Provise, a gastrointestinal health company with a primary focus on esophageal disorders. We believe this proposed transaction underscores our commitment to the GI community providers and patients alike. As part of our strategic growth initiatives, we continually assess opportunities for ones that would fit into most or all of our outlined criteria, which are complementary to our existing test disease states, adding value for our current customers, some level of existing reimbursement, and the test that could be successful utilizing CASEL's commercial playbook. With PROVISE, we found an opportunity to expand our offerings within our GI vertical beyond our spatialomics tissue-side Barrett's esophagus test furthering our position in this space. Provides us methylation technology, as well as pipeline technology, provides us with the potential to address existing unmet needs, including potential upstream opportunities. We expect the transaction to close in a matter of weeks and will continue to work through technology transfer, integration, and future R&D plans. Turning to our mental health business, as we told you on our last earnings call in February, due to changes in the market and our focus in allocating resources efficiently on profitable growth, in late 2024, we revised our commercial strategy for our IGNX test, reallocating resources to inside sales and non-personal promotions. after careful further assessment we made the decision to discontinue the test effective may 2025 as it makes the best sense for our business to put its resources towards other disease states with unmet clinical needs and with that i will now turn the call over to frank thank you derek and good afternoon everyone as derek highlighted we delivered very good first quarter financial results revenue was 88 million dollars for the first quarter 2025

speaker
Frank Stokes
Chief Financial Officer

an increase of 21% over the first quarter of 2024. The increase was driven predominantly by test volume growth for a non-dermatologic test that is 117% tissue cipher growth compared to the first quarter of 2024. Adjusted revenue, which excludes the effects of revenue adjustments in the current period related to tests delivered in prior periods, was $87.2 million for the first quarter of 2025, an increase of 22% over the first quarter of 2024. For total revenue for 2025, we are raising our revenue guidance to $287 to $297 million, up from the previously provided range of $280 to $295 million. Our revenue guide reflects DecisionDx SCC reimbursement by Medicare through April 24th only. From apples to apples comparison for 2025 revenue growth, if you exclude DecisionDx SCC revenue for both our 2024 and 2025 totals, our normalized revenue growth in 2025 would be high teens to low 20s percent. Our grace margin in the first quarter of 2025 was 49.2% compared to 77.9% in the first quarter of 2024. Our adjusted grace margin, which excludes the effects of intangible asset amortization related to our acquisitions and excludes the effects of revenue adjustments in the current period associated with test reports delivered in prior periods, was 81.2% for the quarter compared to 80.5% for the same period in 2024. The gross margin for the first quarter of 2025 was impacted in large part due to the one-time adjustment of an acceleration of amortization expense of approximately $20.1 million during the three months ending March 31, 2025, associated with the discontinuation of IV genetics that Derek mentioned earlier. For each of the remaining quarters of 2025, we expect gross margin to be in the mid-70s range. Turning to expenses, our total operating expenses, including cost of sales for the first quarter of 2025, were $115.9 million compared to $78.4 million for the first quarter of 2024. Sales and marketing expense for the quarter were $36.8 million compared to $30.5 million for the same period of 2024. The increase is mainly due to higher personnel costs, higher organizational and business development activities costs, and higher sales-related travel and other expenses. General and administrative expenses were $21.8 million for the quarter, compared to $18 million for the same period in 2024. The increase is primarily attributable to higher personnel costs, higher information technology-related costs, and higher professional fees. Higher personnel costs reflect headcount expansions in our administrative support functions, as well as merit and annual inflationary wage adjustment for existing employees. Cost of sales expenses were $16.4 million in the first quarter of 2025, compared to $13.9 million in the first quarter of 2024, primarily due to higher personnel costs, higher depreciation expense for lab equipment and leasehold improvements, and higher lab services costs. Increases in personnel costs reflect a higher headcount due to additions made to support business growth in response to growing test report volumes, as well as merit and annual inflationary wage adjustments for existing employees. Higher expense for lab services also reflects higher test report volumes. R&D expenses were $12.6 million for the quarter, compared to $13.8 million for the same period in 2024, primarily due to slightly lower personnel costs and expense for clinical studies. Total non-cash stock-based compensation expense, which is allocated among cost of sales, R&D expense, and SG&A expense, was $11.2 million for the first quarter of 2025, down slightly from $12.7 million in the first quarter of 2024, despite a 23% year-over-year increase in total headcount. Interest income was $3.1 million for the first quarter of 2025, compared to $3 million in the first quarter of 2024, primarily a result of higher average balances of marketable investment securities and slightly higher interest rates. Our net loss for the first quarter of 2025 was $25.8 million, compared to $2.5 million for the first quarter of 2024, And net loss per share, basic and diluted, was $0.90, and adjusted net loss per share, basic and diluted, was $0.20 compared to $0.09 and $0.09 respectively for the same period in 2024. Adjusted EBITDA for the first quarter was $13 million compared to $10.5 million for the comparable period in 2024. Net cash used in operating activities was $6 million for the first quarter of 2025. do impart to annual cash bonus payments and certain healthcare benefit payments that do not recur to the remaining three quarters of the year. We continue to expect to deliver positive net cash flow from operations for the full year of 2025. Net cash used in investing activities was $22.4 million for the first quarter and consisted primarily of purchases of marketable investment securities of $48.4 million, purchases of debt securities classified as held to market of $5.6 million, It purchases a property equipment of $4.7 million, partially offset by the maturity of marketable investment securities of $36.3 million. As of March 31st, 2025, we had cash equivalents and marketable securities of $275.2 million. In conclusion, I'm pleased with our strong execution and results in the first quarter and look forward to maintaining that momentum for the rest of 2025. I'll now turn the call back over to Derek.

speaker
Derek Massold
Chief Executive Officer

Thank you, Frank. In summary, we had an excellent start to the year, building on our strength and momentum from 2024, underpinned by robust business fundamentals. We look forward to continuing to work to achieve the goals we set for 2025, as our focus remains on driving both near and long-term stockholder value. Thank you for your continued interest in Castle. We will now be happy to take your questions. Operator?

speaker
Operator
Conference Call Operator

In order to allow everyone in the queue an opportunity to address the CASEL management team, please limit your time on the call to one question and one follow-up. If you have any additional questions, please return to the queue and please stand by while we compile the Q&A roster. The first question is from the line of Sungjin Nam with Deutsche Bank. You may proceed.

speaker
Sungjin Nam
Analyst, Deutsche Bank

Hi, thanks for taking the questions. Just, Frank, just a clarification, the mid-70% gross margin guidance, is that GAAP or non-GAAP? And also, does that include Decision DX to SCC contribution or impact?

speaker
Eric
Senior Executive (name unspecified in the call)

That's adjusted gross margin, Sanjeev, and it does include the fall-off of reimbursement for SCC.

speaker
Sungjin Nam
Analyst, Deutsche Bank

Okay, got it. And then just on Previz, sorry, just didn't have a chance to go through their website carefully, but do they offer the methylation technology they offer? Is that mostly tissue-based? Do they offer liquid biopsy-based technology as well? And then do you anticipate immediate contribution in terms of sales from this technology? acquisition or is it just largely complementary in terms of providing additional insight to your TissueCypher product? Thank you.

speaker
Derek Massold
Chief Executive Officer

So, they have a product that is available commercially today that is tissue-based. So, it's similar to TissueCypher, but it uses a methylation platform or technology platform. They also have a non-endoscopic sponge-based technology. And from our perspective, we look forward to seeing if we could potentially combine both methodologies going forward into both tissue-based testing as well as non-endoscopic or non-pitch biopsy tissue specimens. As you know, we have indicated in the last several quarters we've been looking for Other opportunities, both in dermatology and in gastroenterology to complement our current offerings and build the strength of both of those franchises provides happens to be 1 of the. Opportunities that we were able to pull the trigger on this point in time, but there are other ones after that, that we will hopefully be able to discuss in the future.

speaker
Eric
Senior Executive (name unspecified in the call)

Great, thank you. And Sunji, we wouldn't expect a meaningful impact on revenue or EBITDA this year, but those impacts will be more downstream.

speaker
Sungjin Nam
Analyst, Deutsche Bank

Got it. Appreciate it. Thank you.

speaker
Operator
Conference Call Operator

The next question is from the line of Kyle Mixon with Canaccord Genuity. You may proceed.

speaker
Kyle Mixon
Analyst, Canaccord Genuity

Hey guys, thanks for the questions about some quarter and the acquisition. So just on provides maybe just walk through Derek where Easter predicts it's in the very tough. This workflow relative to tissue Cypher is wondering if they compete at all. And then could you also talk about the test Medicare payment rate, the mix and the annual volume of possible?

speaker
Derek Massold
Chief Executive Officer

So the. The provides test as a predict is a methylation based. The current use is for predicting progression of Barrett's esophagus disease, so similar to Castle's test of tissue cipher. The tissue cipher data set is more robust. Our interest is to see, one, how can this enhance our tissue cipher franchise? Can the combination reporting of both Tissue cipher from a spatial omics standpoint and DNA methylation from a. Provide standpoint and get us to a, a, a, um. A stronger clinical clinical offering to our patients today and tomorrow. And then, of course, can we also use the. The non endoscopic sponge phase technology to really push forward a little more upstream.

speaker
Kyle Mixon
Analyst, Canaccord Genuity

Got it. That's helpful. Thanks, Derek. And then on the, I guess, like the continuation of IDGenetics, can you talk about how you will reinvest the spending associated with the personnel and the marketing for that product and maybe like how much that business was burning and if there's any like, you know, run rate savings, net of severance that you can talk about?

speaker
Eric
Senior Executive (name unspecified in the call)

Yeah, not a lot of severance or changes. We were, as we said, we had changed the marketing support for that test We continue to believe it is a very good test. And of course, it's just a, unfortunately, incredibly unmet medical need. But while payers in our business are rarely rational, they've been especially difficult in that one. And so that led us to sort of the changes we made over the last couple of quarters. I think that we will see some modest impact to revenue, Kyle. but EBITDA will be benefited, positively benefited from the change as well. So not big numbers there, but, you know, there will be some revenue, some lower revenue, but at the end of the day, it'll improve the EBITDA performance of the company.

speaker
Operator
Conference Call Operator

The next question is from the line of Anita Suda with LearRink Partners.

speaker
Anita Suda
Analyst, LearRink Partners

You may proceed. Hi, guys. Thanks for taking my questions. So, first one, Derek, just wanted to understand, I think you gave a high single-digit volume growth for decision DX melanoma. I'm just trying to understand where some of the offsets are and what tissue cipher growth ought to be in, you know, in 2Q and for the full year, just trying to reconcile the growth that implied growth for tissue cipher as a result of decision DX melanoma?

speaker
Derek Massold
Chief Executive Officer

So, Frank, do you want to take that?

speaker
Eric
Senior Executive (name unspecified in the call)

Yeah, sure. What we said we need is volume growth on melanoma of mid to high single digits for the year-over-year, 25 over 24. And we reiterated or we provided an apples-to-apples number, so the rest of the growth is TC. We also think we'll see some continued benefit or improvement in ASP on melanoma. The team has done great work there, and we continue to see very slow and very deliberate, but some continued progress on the ASP side there, which will benefit numbers as well. So good solid growth for TC. Tough to keep it in the same kind of scale that we have, but good consistent linear growth from year to year.

speaker
Anita Suda
Analyst, LearRink Partners

Got it. Thanks for clarifying that, Frank. On the tissue cipher, correct me if I'm wrong, but I think you're up to 65 sales reps. Can you remind us what's the expectation for hiring for the rest of the year? And on the reimbursement side, can you just remind us where you stand with commercial reimbursement for and what, you know, in terms of the priority for commercial reimbursement, where do you stand today for tissue cipher?

speaker
Derek Massold
Chief Executive Officer

So, I think we discussed that we're around 65 sales territories with, I guess you're in earnings. So we are having training being completed getting people's feet wet. Well, it sort of takes certainly a breath and make sure that we can understand. If there are gaps in the marketplace right now, and a need or benefit to expand more in 2025 versus a little bit later. So, I don't think we discussed any public plans about near term expansion. I think we need to kind of get through the 2nd quarter here. And see, see how the expanded efforts are. Educated the marketplace producing results and then kind of go from there. At the end of the day, if we are accurate in our assumption that we believe there's around 10,000. Targetable clinicians are gastroenterologists and their associated support. then 65 still seems a little low, but we aren't quite sure, to be honest, if the larger group practice models that gastroenterologists practice in makes that number adequate or if it still needs to go up a couple of regions.

speaker
Operator
Conference Call Operator

Do we have a second question? The next question is from the line of Catherine Schultz with Baird. You may proceed.

speaker
Tom Peterson
Representative for Catherine Schultz, Baird

Hey, everyone. This is Tom Peterson on for Catherine. Appreciate you guys taking the questions. Congrats on a solid quarter. First question, I kind of wanted to get the latest on sales and marketing efforts for DecisionDx SEC and DecisionDx Melanoma. You know, you had talked about shifting the Salesforce incentives more towards Melanoma once SEC coverage came out of the model. I guess, can you just confirm that that is the strategy going forward and your thoughts on sort of the volume outlook for 25?

speaker
Derek Massold
Chief Executive Officer

Yeah, that is still the intention, Tom, is to have the field forces go from roughly kind of 50-50, I guess I would call it, splitting time between melanoma and squamous cell carcinoma to being Very heavily weighted going forward in the 2nd, half the year to melanoma. We haven't had a. Single test focus in this marketplace, I think probably since totally right. So, and we were much smaller there as a company, so it's hard to say. what kind of, I guess, lift or acceleration one could see when we go back to a solely focused or predominantly solely focused field team in dermatology. But our expectations is that we should see some lift as appropriate.

speaker
Tom Peterson
Representative for Catherine Schultz, Baird

Okay, thanks, Eric. That's really helpful. And then you mentioned reconsideration requests for both MoldDx and Novitas. I guess, what's your latest thoughts on timing here? You know, should we expect an outcome here in 2025 and just your latest thoughts there.

speaker
Derek Massold
Chief Executive Officer

Sure, so I think, I think, first of all, our recommendation or guidance, I guess, in the last year and a half of having people remove squamous cell carcinoma from revenue models was obviously a good, straightforward approach. And certainly for the remainder of 2025, I would not have anybody reinsert STC revenue assumptions. I think on timing, it's difficult to project at this point in time, and I think as we see the year progress or the quarter progress or the quarters progress, we'll go ahead and update James Moore- The group is we have material knowledge, there is no real good benchmark and to kind of give you a a evidence based target there.

speaker
Operator
Conference Call Operator

James Moore- The next question is from the line of Paul night with key bank, you may receive.

speaker
Paul Knight
Analyst, Key Bank

Paul Knight, Thanks for the question. Paul Knight, On the the. Could you talk about the distribution of your sales force by test type, just so we have an idea of where you're doing most ads this year?

speaker
Eric
Senior Executive (name unspecified in the call)

Yeah, Paul. So as you said, the GI sales force is rough and tough, middle 60s. And the DERM sales force is high 60s, maybe around 70.

speaker
Paul Knight
Analyst, Key Bank

Can we expect that build and ramp to continue this year?

speaker
Eric
Senior Executive (name unspecified in the call)

The Durham sales force are making some growth here and there as we see territories get full. You see territories become kind of Full of business and we need, we need more effort in the territory. Maybe you take a territory and make it 2 or something like that. That'll be more episodic. I think. And as Derek said earlier, I think on the TC side, we want to settle into where we are and watch how the territories progress. To see if we need to add another another handful of reps there.

speaker
Operator
Conference Call Operator

The next question is from the line of sugu Nabi with Google 9. you may proceed.

speaker
Sugu Nabi
Analyst, Google 9

Thank you for taking my question. Regarding the acquisition of device and your positioning of this as a complementary asset, the tissue cipher, this conceptually makes sense. That said, it does seem, at least on the surface, similar to what you did with the MyPath acquisition a few years ago, which, as you know, came up light of targets. And I ask not to be heavy-handed, but I want to hear what is different here and what lessons were learned that increased the probability of success? Because on paper, this definitely looks interesting.

speaker
Eric
Senior Executive (name unspecified in the call)

I think that's the last part of the very last part of the question. Yeah, I think so. So we do quite like the MyPath acquisition. We were able to pull up reimbursement for the differential diagnostic test, which was very important. We were able to add another offering to DERMs and DERM paths, which increased our value to them. We don't expect MyPath to get to the scale of CM or SCC, given the nature of that market, but we also like having an ability to point to prognostic tests in melanoma when MyPath results in a positive diagnosis scenario. from a previously indeterminate legion. Previze is a bit different, however, and we are excited about the technology that comes along with it. As Derek said, there's going to be some work done and some interesting efforts to see if we can improve the prognostic offering, potentially with a multi-omics approach at some point. But also, Previze has a very interesting pipeline in GI, and as we've said before, it's our intent and goal to have multiple offerings to the GI community, particularly around kind of the upper GI esophageal area, and this brings us several candidates there. So different motivations for the two, but a nice expansion of our pipeline as well.

speaker
Sugu Nabi
Analyst, Google 9

Thank you for that, Frank. And maybe I missed this, but how much is it getting reimbursed? As in, how does this compare to tissue cipher in terms of rate, Medicare rate? And will that play a role in decision making for doctors?

speaker
Eric
Senior Executive (name unspecified in the call)

I don't think it plays a role in decision-making. Their Medicare rate is lower than ours because ours is the ADLT, so that's a differential there. But I don't think clinicians are making decisions that way. I think TC, we've been able to grow so quickly because of the robust body of evidence supporting the clinical utility and the high actionability of the tests.

speaker
Operator
Conference Call Operator

The next question comes from the line of Mason Carrico with Stevens Inc. You may proceed.

speaker
Mason Carrico
Analyst, Stevens Inc.

Hey, guys. Thanks for the question. Frank, on the margin guide, could you give us a bit more color on that assumption? Specifically, what are your expectations for SEC volumes in the back half of this year? Are you expecting them to trend higher, flatten out, go down?

speaker
Eric
Senior Executive (name unspecified in the call)

So we would expect that as we shift promotion more fully to melanoma that we would see some certainly slowing of growth. At some point, I think that plateaus and we begin to see the demand ebb a bit. But on the other hand, Mason, it's a test that physicians are, as you can see from volumes, physicians have really embraced it. It helps their practice. It helps their patients. It helps their patient management. And, you know, it saves Medicare almost a billion dollars a year by appropriately directing patients to adjuvant radiation therapy who will benefit from it and directing patients who won't benefit away. So we formally are saying that without promotion, most high-value diagnostic tests, you know, do not grow. But this is also a test that has great value to the users and to the healthcare system.

speaker
Mason Carrico
Analyst, Stevens Inc.

No, that makes sense. And then as a follow-up, how are you thinking about the growth algorithm of DecisionDx melanoma going forward? And I guess in terms of same-store sales versus increasing the number of ordering clinicians, I mean, obviously you probably benefit from both. Both are important. But how do you have the reps, I guess, splitting their time between driving utilization or out hunting for new clinicians?

speaker
Derek Massold
Chief Executive Officer

so in uh historically i guess i would say that we looked at a combination of four looking revenue per territory as well as number of actively ordering customers i guess you would say and what we had found which i think is i don't know if there's a real industry standard here mace or not but when we have a territory get up around what Frank, two, two and a half, three million and four looking revenue, then that becomes a territory that usually if you go back and look at sort of where the representatives are spending time, it's more on maintaining existing customers and less on hunting for new clinicians. And that's kind of about the time we choose to go ahead and divide and usually success begets success. So you probably have two successful territories adjacent to each other. So you might take two and make it into three, for example. I think that rule of thumb still holds pretty well. So what that ends up doing is letting us spend hopefully roughly half our time nurturing and educating current clinicians about where they could appropriately expand the use of our tests in our patient population, and then roughly half their time moving people from and awareness or no awareness to awareness and hopefully usage and adoption.

speaker
Operator
Conference Call Operator

The next question is from the line of Thomas Flan with Lake Street. You may proceed.

speaker
Thomas Flan
Analyst, Lake Street

Hey, good afternoon. Good afternoon. I appreciate you taking the questions. Derek, probably a difficult question to answer, but you said in your prepared remarks that you would continue offering SCC for now. Do you have a sense of how for now, how long for now will last, given that there's a bit of a black box around the reconsideration requests and the timelines there?

speaker
Derek Massold
Chief Executive Officer

No, I don't really have more information or insight to go ahead and guide, unfortunately. I think for now is that we need to understand how our interactions play out with Medicare, and that'll help make a determining factor of how we want to approach that. I think from a purely ethical perspective today i guess you would say we have a test here which when used properly can help a patient and their clinician care team from their dermatological or mo surgeon to their radiation colleges identify people who may be considering uh adjuvant radiation therapy and probably take about 60 plus of them out of that therapy course because they will receive based on our data no clinical benefit, but substantial side effects and at a great cost to Medicare. So for the time being, we feel obligated to make sure that those patients are benefiting. Now, Medicare benefits between around $2.4 million per day and avoiding unnecessary radiation therapies, and that's net at the cost of our tests. So we're going to have to kind of wait and see how we work through the reconsideration process and make a call as that becomes clear.

speaker
Thomas Flan
Analyst, Lake Street

And then any update on atopic dermatitis?

speaker
Derek Massold
Chief Executive Officer

Not since the end of the year in earnings. We are still moving through market research to appreciate both the interest in our clinicians regarding the product profile as well as the reimbursement strategy. And we believe we are still on track to achieving our milestone. We said that a couple of years ago, which was commercial availability by year end.

speaker
Operator
Conference Call Operator

The next question is from the line of Mark Massaro with BTIG. You may proceed.

speaker
Mark Massaro
Analyst, BTIG

Hey, guys. Thank you for taking the questions. On the acquisition that you just announced, was there any stock included in the deal or was it cash? And if you're not willing to share the terms of the deal, is it safe to say that any level of cash would be immaterial to your cash balances?

speaker
Eric
Senior Executive (name unspecified in the call)

There was no stock market. We've not disclosed the value of the transaction.

speaker
Mark Massaro
Analyst, BTIG

Okay. For investors on the line that might be thinking this question, you know, the timing of the acquisition sort of coincides with, you know, your decision to shut down the ID genetics business, which you admittedly did telegraph, or I believe you did. And then it also coincides with the lapping of the SEC payments from your Medicare contractor for the time being. To what extent does the timing of this deal influence your probability of winning sort of SEC reimbursement back? Because optically, this almost could look like your ability to win in a... Medicare reconsideration request might be smaller than it might have been a quarter ago or could you just speak to that because obviously the you know you announce a new deal the timing of these other two going away completely unrelated okay and then last quick question I know you were asked about um you know what you acquired um What I don't understand is how much revenue this asset was producing in 2024. And then for the sponge technology, this does look similar to another test on the market called EsoGuard. Is it safe to say that the sponge technology or the non-endoscopic technology in the EsoGuard test have some similarities in the marketplace? And then if you could, where does that stand in terms of Um, data and Medicare coverage.

speaker
Eric
Senior Executive (name unspecified in the call)

So revenue is not material to castle for the year. This is a technology opportunity for us in a pipeline opportunity. 1st, and foremost, as well as a nice way to potentially improve our prognostic offering for Barrett's. And and the Medicare process for non endoscopic. uh diagnosis uh there there there is there are policies draft policies out there i believe but um uh this technology is is is not at the point of of seeking medicare coverage yet um although and and just a note mark there are of course more than just one other there are a couple of non-endoscopic um methods for for diagnosis not only for barrett's other other conditions as well so um In that respect, there's some similarity to those other technologies.

speaker
Operator
Conference Call Operator

Next question is from the line of Kyle Mixon with Canaccord Genuity. You may proceed.

speaker
Kyle Mixon
Analyst, Canaccord Genuity

Thanks for the follow-up. I just want to ask about the acquisition of the pipeline and keep talking about it. Derek, can you talk about the timing of the pipeline launches and how large those opportunities are? And then just secondly, you know, since you're getting access to the Johns Hopkins PCR-based methylation technology, have you ruled out using that tech to develop, like, an early detection or screening test for DR cancers?

speaker
Eric
Senior Executive (name unspecified in the call)

I haven't ruled it out, Kyle. I haven't ruled it in, to be clear, but not – certainly wouldn't have stopped any opportunities there. I think that the opportunity we have is to accelerate the development of the pipeline that the company had with additional resources, but also our broader expertise in GI and our somewhat deeper history of R&D. So we're way down on the pipeline technology, so I don't know that we're ready to put our put a pin in the ground on where, what the timelines would be. But we certainly think we can accelerate them from what they might otherwise have been.

speaker
Kyle Mixon
Analyst, Canaccord Genuity

OK, thanks for that.

speaker
Operator
Conference Call Operator

There are no additional questions waiting at this time, so I would like to pass the call back over to Derek for any closing remarks.

speaker
Derek Massold
Chief Executive Officer

Thank you, operator. This concludes our first quarter 21.5 earnings call. We thank you again for joining us today and for your continued interest in Castle Biosciences.

speaker
Operator
Conference Call Operator

That concludes today's call. Thank you for your participation and enjoy the rest of your day.

Disclaimer

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