Castle Biosciences Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 3, 2023

Key Takeaways

  • Castle Biosciences reported 57% year-over-year revenue growth ($42 M) and 73% test volume growth in Q1 2023, and reaffirmed full-year 2023 revenue guidance of $170–180 M.
  • DecisionDx Melanoma and SCC test volume reached 9,994 reports in Q1 (+39% YoY, +9% sequentially), supported by a 70-territory dermatology sales force.
  • An independent multicenter study demonstrated that using DecisionDx Melanoma to guide scheduled advanced imaging led to 10-month earlier metastasis detection and significantly improved survival (p=0.027) versus untested controls.
  • The TissueCypher (gastroenterology) and IDgenex (mental health) franchises gained momentum, delivering 1,383 and 2,150 test reports in Q1 (+34% and +77% sequentially), with TissueCypher covered at $4,950 under Medicare’s ADLT program through 2024.
  • Castle ended Q1 with a $232 M cash, cash equivalents and securities balance, which management expects will fund operations through 2025.
AI Generated. May Contain Errors.
Earnings Conference Call
Castle Biosciences Q1 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

Afternoon, and welcome to Castle Biosciences 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.

Speaker 1

Thank you, operator. Good afternoon, everyone. Welcome to Castle Biosciences First Quarter 2023 Financial Results Conference Call. Joining me today is Castle's Founder, President And Chief Executive Officer, Derek Masold and Chief Financial Officer, Frank Stokes. Information recorded on this call speaks only as of today, May 3, 2023.

Speaker 1

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 3 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 For 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 in 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.

Speaker 1

A number of factors and risks and could cause actual results to differ materially from those contained in these forward looking statements. These factors and other risks and uncertainties or 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 We believe these metrics provide useful supplemental information in assessing our revenue, cash flow and operating performance.

Speaker 1

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 2

Thank you, Camilla, and good afternoon, everyone. As you saw from our announcement a few minutes ago, I am pleased to share that Castle BioSigns has delivered another strong quarter, Growing revenue by 57% and total test report volume by 73% compared to the Q1 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 1st and foremost thank our Castle employees. Our success is based on their dedication to our patient focused mission.

Speaker 2

We believe if we focus on improving the outcomes of the patients that we serve, And 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 $170,000,000 to $180,000,000 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 Q1 results in the context of our long term strategy. We entered 2020 with an estimated in market U.

Speaker 2

S. Total addressable market or TAM of approximately $547,000,000 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 $8,000,000,000 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.

Speaker 2

Now let's get to our Q1 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 Q3 of 2022. Our dermatology facing sales team now consists of 70 outside sales territories that are equally focused on the CisionDx melanoma and the CisionDx SCC. In the Q1 of 2023, test volume for these two tests combined was 9,994, Growth of 39% year over year growth and 9% sequentially.

Speaker 2

This growth is an excellent reflection of our focus on operational execution, which we have demonstrated time after time since our IPO in mid-twenty 19. 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 CisionDx 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 the ex melanoin test that has shown clinicians to 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 somewhat a biopsy procedure For more intervention, like initiation of regular imaging based upon a high risk DecisionDx melanoma test result That should then enable early detection of a metastasis and then earlier initiation of immune or targeted therapy.

Speaker 2

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 Lead to improve patient outcomes. The study was conducted at 3 National Cancer Institute designated cancer centers: The Cleveland Clinic, Northwestern University in Chicago and Oregon Health and Sciences Center.

Speaker 2

During the study time period, There were clinicians who had adopted the CisionDx melanoma within each of these institutions for clinical use, and there were also clinicians who had not adopted DecisionDx Melanoma for Clinical Use. These differences in adoption within each of the 3 institutions Enable the study authors to evaluate directly the impact of treatment pathways that were directed with CisionDx melanoma test results To those patients whose treatment pathways do not have the benefit of decision DX melanoma test results, that is patients who were not clinically tested, But we're managed within the same institutional setting. In addition to the opportunity to control for access to similar care opportunities by limiting the study The patients managed within their same institutions. The study officers also aim to control for any impact on the performance of a sentinel inflow biopsy surgical Thus, the only patients evaluated were those who underwent a semilutinib biopsy surgical procedure and were sentinel lymph node negative, Meaning that they did not find any melanoma cells in the sentinel lymph nodes. This meant that all patients were staged as stage 1 or 2, Which is the prime target for the clinical use of our DECISION DX Melanoma test, given that greater than 90% of early stage melanoma patients are stage 1 or 2 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 patients' risk of metastasis.

Speaker 2

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 CisionDx melanoma test results as part of their clinical care and who are 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 DecisionDx melanoma test result that 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 the ex melanoma tested group Had recurrence 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 0.027. This is important.

Speaker 2

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 DecisionDx melanoma Class 2b test result were live following an average follow-up time of 45.6 months. In comparison, a patient 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.

Speaker 2

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 As you know from prior discussions, this ongoing collaboration has demonstrated a clinically And statistically significant indirect chain of evidence that patients who received the CisionDx 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 a 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 Q2. 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.

Speaker 2

Now let's turn to our gastroenterology franchise. We delivered 1383 TissueCipher test reports in the Q1 of 2023, up from 56 test reports delivered In the Q1 of 2022 and a 34% sequential increase. You may recall, we hired the initial sales force In January 2022, we spent a significant amount of time in the Q1 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 TissueCipher by the gastroenterology clinician community and associations. For example, inclusion in the American Gastroenterology Association or AGA clinical practice update in July 2022.

Speaker 2

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 1, 2023 through December 31, 2024 Was determined based upon the medium private payer allowable rate that was received between April 1, 2022 August 31, 2022, That is $4,950 Turning to our mental health franchise. We delivered 2,150 ID Genex test reports in the Q1 of 2023, A 77% sequential increase over the Q4 of 2022. As a reminder, no test reports were delivered by Castle in the Q1 of 2022. We have a thoughtful integration plan, which spans 5 to 6 quarters, and we are midway through that plan.

Speaker 2

As you can expect, we are pleased with the momentum that we are seeing. As we have stated previously, we believe the pharmacogenomic and mental health opportunity It 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, but we expect the value of iGenx 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 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 test I'll now turn the call over to Frank, who will provide details relating to our financial results.

Speaker 3

Thank you, Derek, and good afternoon, everyone. 1st quarter revenue was $42,000,000 an increase of 57% over the Q1 of 2022. Overall, the increased revenues primarily reflect an increase in revenues from DecisionDx SCC and DecisionDx Melanoma. We are pleased to see our non dermatologic revenue continue to grow in the Q1 as a percent of revenue in line with our expectations. Adjusted revenue, which excludes the effects of revenue adjustments related to tests delivered in prior periods, was $43,400,000 An increase of 65% over the Q1 of 2022.

Speaker 3

Our gross margin during the Q1 was 70.5% compared to 71.7 percent in the Q1 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 76.5% for the quarter compared to 77.4 percent for the same period in 2022. Our total operating expenses, including cost Sales for the quarter ended March 31, 2023 were $73,600,000 compared to $51,400,000 for the Q1 of 2022. The largest driver of the increase was higher SG and A, which increased by $16,300,000 compared to 2022. Attributable in large part to higher personnel costs associated with our increased headcount, which include expenses related to stock based compensation, salaries, bonuses and benefits.

Speaker 3

These higher personnel costs were primarily attributable to the expansion of our sales and marketing teams as well as administrative support functions. The remainder of the increase in sales and marketing expenses was primarily associated with travel, training events and conference fees. R and D expense increased by $3,600,000 in the Q1 compared to the Q1 of 2022 and was primarily associated with additional to manage and run our clinical studies and increases in other expenses associated with increased clinical study activity. Total stock based compensation expense, which is allocated among cost of sales, R and D expense and SG and A expense, Total $13,500,000 for the Q1 compared to $8,400,000 for the Q1 of 2022. The increase was primarily attributable to the effect of our annual equity awards granted in December 2022.

Speaker 3

In the Q1 of 2022, operating expenses included change in fair value of contingent consideration of $2,600,000 or $0.10 per diluted share and was related to the remeasurement of the liability for earn out payments in connection with our acquisition of Sarnostics. There was no comparable expense in the Q1 of 2023. We had amortization of acquired intangible assets for the 3 months ended March 31, 2023 $2,200,000 an increase of $600,000 compared to the 3 months ended March 31, 2022. The increase is primarily associated with the amortization of developed technology attributable to the acquisition of AlphiaDx in April of 2022. Interest income increased by $2,300,000 for the Q1 of 2023 compared to the Q1 of 2022.

Speaker 3

The increase primarily reflects higher interest rates earned on our cash equivalents and our purchases of marketable investment securities during the Q3 of 2022. Our net loss for the Q1 of 2023 was $29,200,000 compared to net loss of $24,600,000 for the Q1 of 2022. Diluted loss per share for the Q1 was $1.10 compared to diluted loss per share of $0.97 in the Q1 of 2022. Adjusted EBITDA for the Q1 was negative $15,100,000 Compared to negative $11,400,000 for the comparable period in 2022. Net cash used in operating was $25,400,000 for the 3 months ended March 31, 2023, of which $17,700,000 It was related to payout of annual bonuses as well as certain healthcare benefit contributions that are not expected to recur during the remainder of 2023.

Speaker 3

Net cash provided by investing activities was $16,600,000 for the 3 months ended March 31, 2023, And consisted primarily of the maturity of marketable investment securities of $50,000,000 partially offset by purchases of marketable investment securities $30,100,000 and purchases of property and equipment of $3,300,000 Finally, we had cash, Cash equivalents and marketable securities at March 31, 2023 of $232,000,000 which we expect together with anticipated cash generated from sales of our tests Will be sufficient to operationalize our business through 2025. I'll now turn the call back over to Derek.

Speaker 2

Thank you, Frank. In summary, we are off to a great start in 2023, delivering strong year over year growth in revenue and total test support volume, Driven by our continued execution on our long term growth plans. I'd like to conclude today by thanking our Castle team. I also thank you for your continued interest in Castle. Now we will be happy to take your questions.

Speaker 2

Operator?

Operator

Thank Our first question today comes from Thomas Flaten with Lake Street Capital Markets. Thomas, please go ahead.

Speaker 4

Hey, good afternoon, guys. Congrats on a great quarter. Derek, particularly in light of this morning's Press release with that study that was showing a real impact on outcomes and even costs like the lower use of immunotherapy In the DX Melanoma patients, can you just walk us through kind of the status of your current health economic argument that you're making to payers and Maybe give us a sense of how that's stacking up?

Speaker 2

Yes. So we have, I guess data is being analyzed for additional publications first. So I'll give you qualitative answers only, Thomas. So let's kind of maybe take a macro from public data sets that we know about. So if you look at people so we have 2 uses of our tests as you know.

Speaker 2

One use is to rule out a similar to surgical biopsy procedure, Which is done without our test that's based upon tumor thickness, ulceration status or other adverse features. And as you You may recall, if you send 100 patients who qualify for that procedure to a surgeon, he'll perform 100 Surgical procedures, but only 12 of those people will actually have a positive sentinel lymph node, meaning 88 could have avoided that procedure if only you knew how to find them. And so we've generated data which shows that we can likely eliminate or find about 75% of people who Would have a likelihood of having a low likelihood of having a positive node under current guidelines and therefore you would avoid that procedure. So if you take those numbers and say, okay, so 3 to 4 patients roughly speaking, who meet the sort of sweet spot of the Castle Test could avoid a procedure, what's that procedure cost? And there's different data points floating around.

Speaker 2

The most impressive ones probably are From a couple of years ago, which shows that a sentinel to a biopsy surgical procedure, including the cost of The surgical costs, the surgeon's costs, the ambulatory care center data, some dollars in there for complications, etcetera, It can run anywhere from kind of $21,000 to $24,000 The difference being is it an inpatient procedure, outpatient. So maybe take a haircut on that and

Speaker 3

call it

Speaker 2

$20,000 If you just take our PrecisionDx melanoma, split between Medicare and non Medicare, that's a very, very substantial savings just on avoiding Unnecessary surgical procedures. And that's good from a health extraction reduction of really hard money in the short term. On the other hand, You then look at the use of our test in risk of recurrence. And as you just pointed out, if you can figure out which patients who might be even eligible For adjuvant immunotherapy today because of their thickness of tumor or their normal status, but say actually, even though you might have a thicker tumor, Your actual likelihood of progressing is really pretty low. And as a patient and a clinician in this day and age in oncology, you basically talk about Shared decision making where you lay out in front of a patient all the information and the pros and cons by the way of going down a certain pathway in the case of immunotherapy for example, You've got significant toxicities that aren't reversed with the continuation of therapy.

Speaker 2

So if you have a low chance of having a benefit Because you have a low chance of metastasizing, those are patients who I would agree with you could probably go ahead and avoid automatically going on adjuvant immunotherapy, Knowing full well that you just don't go off in the woods and high because no test is perfect, but if you happen to go ahead and detect early that you're one of the ones that have a low risk but actually metastasize, you can Correct. I'll adjust that. So I think the economic story for Castle is quite strong. I think from a payer perspective, We will see how this year wise that especially in response to the article that we talked about earlier this morning with our separate press Does that answer your question, the qualitative nature?

Speaker 4

Yes. No, I think that's great. Appreciate that. And then finally, On the last call, we had some conversation about the ID Genetics code switching and you thought you might have more commentary on this call. So I'm just curious if you have any updates for us.

Speaker 2

No is the quick answer. We have things in process, but no updates today.

Speaker 5

All right. Thanks guys. Appreciate it.

Speaker 2

Thank you, Thomas.

Operator

Thank you. Our next question comes from Puneet Souda with SVB. Please go ahead, Puneet.

Speaker 6

Yes. Hi, Derek, Frank. Thanks for taking the question. So just a clarification on the guide. I mean, you beat here by, I think close to about €5,000,000 from our expectations.

Speaker 6

And just wondering what's the conservatism in the guide? You didn't change the guide. So just wondering, if anything related to SEC or a different assumption. And we're just wondering, What are you modeling for SCC in the guide for the full year?

Speaker 3

Our view on the guide, Puneet, is to be conservative and make sure that we're putting out guidance that investors can rely on and That we can be confident in without being overly worried about disappointing. So yes, we do have revenue from squamous cell in the guidance.

Speaker 6

Okay. And then, Derek, could you just I didn't hear about this, so I just wanted to Clarify if you could update us on the latest from the Novitas, the other efforts you have ongoing for the SEC assay? And just overall, what's your expectations? I think we were we should have heard about some updated news right around May, But maybe just give us the latest there. Thank you.

Speaker 2

Yes. So, no update since the year end earnings in March. We still believe that they will likely want to finalize the draft that they put out there about a year ago, I guess, A year, a couple of weeks now, a year ago. And so we should hopefully all be expecting something that doesn't this is not a CorSoCastle story. This is just a generalized Update to LCD and oncology biomarker story.

Speaker 2

So I think we would still expect that to happen. We haven't heard anything Through official channels that they've decided to let that expire. Maybe that was a choice. I think that's unlikely, to be honest, but that's just my opinion, not based on any fact, by the way. I still think based upon conversations that we've heard through third parties and consultants that their intention Was to try and streamline review processes with that LCD.

Speaker 2

That is if they feel that somebody else has reviewed it, who they Value has reviewed a certain test and they value, they would try and reduce their workload by just adopting that inclusion. And it wasn't meant to go ahead and be exclusionary. Now that's not quite how That was drafted as we know, but that would still be our expectation as of today is that based upon the third party conversations that we've heard about That we would expect them to probably finalize that for the benefit of streamlining their time to review tests that have already been reviewed by somebody else, but not to abdicate Their responsibility for reviewing tests have not been reviewed by somebody else. So I think that's how we see that playing out. But timing, you're right.

Speaker 2

I would have thought by sort of Early to mid May, of course, it's really early May right now. We would have heard something.

Speaker 6

And can you update us on your other efforts, ADLTs and other MAX That you've been that you had contemplated earlier, is that still the pathway you're thinking about as sort of 2nd options for this assay going forward for reimbursement. Thank you.

Speaker 2

Yes. So our expectation from, I guess, 4, 5, 6 months ago was that Palmetto was reviewing our application. The last detailed focus call we had with them Suggested that they were reading the application because they were very topical questions that wouldn't have come from general knowledge. So that's I think that's positive for us. We haven't heard anything formal or informal recently that we haven't talked about since I think the end of year end earnings.

Speaker 2

I think in terms of the ADLT status, we do think we meet the PAMA related requirements that are out there, but We've chosen just based upon the timing that CMS is taking to kind of turn around ADLT applications that we Should not comment if we have submitted our intent to submit and just see that, outcome mature, it become public, it becomes public.

Operator

Our next question comes from Catherine Schulte with Baird. Please go ahead, Catherine.

Speaker 7

Hey, guys. Thanks for the questions. I guess, first, can you just talk about the National Society For Cutaneous Medicine PAMPA report that came out in March Recommending DecisionDx Melanoma, how much weight does this body carry in the dermatology community? And do you think there's any potential to this way NCCN. And related to that, are you still expecting the publication of the NCIC year study before the NCCN submission deadline?

Speaker 2

Yes, good. Let me write down these 2 questions here or two answers. So last one first maybe. So we did talk about on A few minutes ago, of course, you might have got lost in what I talked about, I guess, so that will be on me. That the NCI, at least the first paper has been accepted.

Speaker 2

And based upon that publication's track record, it should be out certainly ahead of the end of the Quarter, I mean, in the Q2. So I think that would likely go in as well as still an article I talked about it, but more at length on the conference call. So Yes to both those. Well, Dylan and the NCI paper should be part of the submission and part of the review cycle, I would say. Going stepping back to the guideline publication, so that is an organization which is made up Of a number of significant players in dermatology, I want to say many, I want to say more than half, but I could be wrong On the Board perspective, more than half of them were prior American Academy of Dermatology Presidents and many of them have Steeped histories in publishing and reviewing and writing in melanoma.

Speaker 2

So a good group of experts that practice clinically And have had significant leadership positions within the sort of dermatology world. I don't know of any impact that would have on NCC. And I guess I would If you see other guideline groups or consensus panel groups coming to a literature review that says based upon this literature, we think This test has achieved evidence of X and it's appropriate to use in positions of Y. I think that has to have an influence somewhere there. I do believe that will help, especially with the weight of the authorship there, taking us into individual physicians, dermatologists, MPs or PAs who might have been fence sitters waiting for somebody else to give them the okay.

Speaker 2

So it should be useful there in helping to Continue to improve our penetration in the marketplace. And we think there's a number of payers that look for guideline And don't just limit themselves just to one guideline committee. And so we would expect over time to have these kinds of support mechanisms from other Committees, expert panels or societies to have an impact of the weight of evidence, but that's not going to turn everybody overnight on July 1, by the way. But I think that's our expectation here is that Those 3 of an audience will continue to have a benefit from a penetration standpoint and hopefully coverage lives turning over in a positive manner.

Speaker 7

Okay. And then maybe on Rhema Sol, you saw just over a 30% sequential volume growth increase. And can you just talk to what you're seeing there given you seem to be seeing a pretty nice inflection point?

Speaker 3

I think we're just continue to be pleased with the clear clinical utility of the test, and it's one that I think is Readily and quickly identified and recognized by clinicians. And so, it is a larger patient population, And it's a cancer that clinicians are thinking about more often, even though we're not Targeting all of them, there's about $1,000,000 a year. And so even though they aren't all eligible for our testing or appropriate for our testing, it is something that clinicians think about very regularly. And so we're excited to see it. And we knew when we developed it that we had a test that Physicians we're looking for, I think this validates that, the

Speaker 2

traction validates that. And you couple that with the Q1, remember back in kind of, I guess it was maybe August or September, We shifted from kind of 80% of the dermatology sales team focusing on DecisionDx melanoma To roughly fifty-fifty between CisionDx Melanoma and CisionDx SCC. And if If you think about hiring a new representative, it takes we think 2 quarters to kind of really see the output of that new hire. So if you want to view this change and focus From 80,810, 10000 to 50,050 approximately beginning call October 1, then the Q1 should have been the time we would begin to sort of see the benefits of that. And Although we didn't emphasize it really in this call here, one of the things we measure internally is for the dermatology group is not melanoma separate from SCC.

Speaker 2

It's the same body Promoting the same 2 tests, the same customer base 90% of the time. So our metric of success is trying to move towards Combining both melanoma and SCC into a productivity growth line. So it's very, very nice to go ahead and see strong growth in melanoma. And as you pointed out, really, really nice robust growth in the SEC test.

Operator

Our next question comes from Mason Caraco with Stephens. Please go ahead, Mason.

Speaker 8

Okay, thanks. This is Jake Kranbyl on for Mason. Thanks for taking our questions and congrats on the quarter. I guess first here, I know you guys aren't I think TissueCypher or ID Genetics to really have a material impact on the top line until 2024, 2025 timeline. But just given the new pricing for TissueCypher Sales teams reaching optimal productivity in the 2nd quarter.

Speaker 8

It seems like tissue cipher is really set up to have a strong year. So I guess I'm just kind of wondering What you see as a risk or limitations that could hinder tissue type of growth in 2023?

Speaker 2

I think that both those products, tissue cipher as well as iGeotix are moving along very nicely. I would say, I guess, ahead of our forecast maybe is the way I would call that when we kind of did diligence a year ago, a year and a half ago on them. So I think to have us see the acceptance by clinicians being ahead of maybe plan Feels like, man, we got we really got 2 horses in our stable to really have a fantastic 4 or 5 years. And I would concur with you, I think based momentum that we were seeing in the Q1, speaking about tissue cipher here specifically coupled with the fair change in reimbursement rate That this could have an opportunity to have a more significant impact on revenue in the last half of the year, obviously, Then we would have anticipated 3 to 4 or 5 months ago, right? So I think that's that I think you're on the right track there.

Speaker 2

A lot of moving parts between Early May, of course, in late December, but it seems to me that we're there. So in terms of impediments from a kind of commercial or an adoption standpoint, We aren't hearing of any from a customer standpoint. I think we have this the gastroenterologists are a little more Complex to deal with compared to a dermatologist because unlike a dermatologist who takes their biopsies in the office setting, So they have their nurse, their MA there. They know where the tissue has gone to. The diagnosis goes back to the same people we're talking to in a dermatology office.

Speaker 2

In the case of gastroenterology, all of those biopsies are occurring in an ambulatory care center or some other kind of Operating room environment, which is not where the gastroenterologist sees our patients clinically. So there's a little more complexity in sort of making sure the office staff No is about tissue cipher, so when the path report comes back, the gastroenterologists can be reminded about saying, oh yes, I did want to order 2 separate in that test because In the operating suite, of course, they think they might see Barrett's Esophagus, but they don't really know until it comes back later. So that adds a slight Impact on the kind of complexity. So I think with that being said, that's just walk and tackle work, right? So I think we feel very, very happy about We've seen in the Q1, especially over Q4 and Q3 last year, I think Q1 comparison, while you're obviously we have to do it, but I would because we were just getting started.

Speaker 2

You had the Medicare 14 day rule that was impeding appropriate ordering of our tests and those all got solved On April 1, of course. So, very pleased, lots of upside, don't see impediments from adoption standpoint of doctors, but it's a little Complex sale that we see in dermatologists because we've got different locations where GI doctor works.

Speaker 8

Okay. Thanks. That's helpful. So then on the ramp of that GI sales team, just given the strong demand you have seen in Q1 and So far in Q2 here, any updated thoughts on how many reps could be added to that team this year?

Speaker 3

We're evaluating that right now. We want to be a little careful and balance disrupting the territories that are out there. But also you're right, we See that the test is again similar to what my comments on SCC, we knew when we looked at the test that it was very clinically relevant. We knew the physicians were looking for a solution like TissueCipher and we were really excited when we got the opportunity. And so it's nice to see That bear out.

Speaker 3

So we'll kind of balance, try not to disrupt territories too much with also recognizing we've got some more opportunity there that we could take advantage of.

Operator

The next question comes from Mark Massaro with BTIG. Please go ahead, Mark.

Speaker 5

Hey guys, congratulations on another great quarter. One of the numbers that seem to jump off the Page to me was the ID Genetics volumes, which grew 77% sequentially. Can you give us a sense for what It caused the substantial growth in that product. Was it sales execution or maybe More salespeople or do you think it's broader awareness of all the multiple indications in mental health? Would love to just get a sense For what drove the growth and how should we think about that going forward from here?

Speaker 3

Thanks, Mark. Yes. So similar to my last two comments, we knew when we looked at tissue cipher, it was a great test. We were very excited about it. We knew it was a tremendous opportunity.

Speaker 3

We wanted to be really careful and make sure we got the messaging correct and that we got the support For the messaging developed and developed well. And so we as we've said before, we didn't want to try to rush that and Have a misstep. We wanted to make sure we kind of got our full launch done correctly. And so I think we've talked in the past that We got to the end of the year. We were really excited about the team on the field.

Speaker 3

We were really excited about the support materials they have, about the ability to tell the story. And I think what we're seeing is The results of a really, really good test in a really large and underserved market. Yes.

Speaker 2

We did not increase number of territories over the 3rd Q4. Our plan was to sort of as you may recall from last quarter, even 4th, I mean, maybe the 3rd quarter, our approach to both, iGenx and Tissue Cypho was to really Take 5 or 6 quarters and rate these things as we should, not necessarily slowly, but not necessarily running crazy. And I think, tissue cypher is a good 2 quarters ahead of iGenx and we're seeing the fruits of that labor beginning last fall in the spring. I think you're right. We We anticipated that we were seeing a very, very solid test that was competitively differentiated in a large market, as Frank said, that had huge demand.

Speaker 2

It's a matter of just organizing things and executing well. I don't want to say carefully from a careful standpoint, but just moving forward here where you were quite Pleased to go ahead and see iGenx respond to the messaging that was kind of finalized and refined in the Q4 with a really, really nice strong team out there. But the team size Do not change quarter to quarter, which just tells you the kind of demand that's out there when you get the message right.

Speaker 5

Okay, great. And apologies, I've been bouncing around calls, so I haven't heard your prepared remarks yet. But The tissue cipher test, can you just remind me when the ADLT rate of 49.50 went effective? And maybe just remind folks, is that somewhere around 40% to 45% of your volume? So if those things are true, Your ASP should probably be hovering in the almost 2,000 range.

Speaker 5

Any clarity there would be helpful.

Speaker 2

Yes, we discussed some of those on prior calls. So ADLT rate went into effect, January 1st this year. Because of when it was granted, it will be that same rate through the end of 2024. So it's in this Single 2 year period is a 2 year rate. And then 2025 is based upon the first half of this year's rate.

Speaker 2

So the rate is consistent for 2 years. You can see it transparently. In terms of, oh, crud now. Oh, yes, mix, pay up mix. So volume is still a little low In terms of definitively saying what the mix of sort of 65 years of age and older may settle out at versus under.

Speaker 2

But I think, what we're seeing right now is it looks like the patient base is pretty close to cutaneous melanoma. So maybe kind of a 45% of the patients are over age 65, which would mean most of them are Medicare, Medicare Advantage, not all, of course, but most. And then The remaining 55% or below the age 65 years of age. So I think that's where we'll probably settle out, but I would give ourselves some wiggle room about that around that number until we get through 2023 and get to a bigger base, so we can be more confident kind of in the outlying year, Looks like so your calculation, I think in terms of average ASP, if you assume no commercial payment is certainly not reasonable and of course Not unreasonable at this point in time.

Operator

Our next question comes from Sung Ji Nam with Scotiabank. Please go ahead.

Speaker 9

Hi. Thanks for taking the questions and congratulations on the quarter. For the study that you published or you're referring to This morning with the DecisionDx melanoma guiding radiological surveillance, just could you remind us if that's kind of the first of such And then are there plans for additional studies that you guys might support going in the future?

Speaker 2

Yes, excellent question. So let's see here. I think one, Maybe 6 or 7 years ago, we had put together and used with clinicians an indirect chain of evidence As we would call it, right? So our test does risk stratifies patients. If you use it within current guidelines, then people should be We have improved treatment pathway selection process.

Speaker 2

People who look like they're low risk on pathology, But high risk on the Castle test, get an escalation of care, but within an existing pathway and the reverse happens. And if you follow the indirect chain of evidence, then the evidence shows that if you are actually in a high risk treatment pathway, Then you are the First Care impact is really being undergoing routine scheduled Imaging, which in melanoma is sort of pelvis to neck CT scans, maybe 4 times a year and then brain MRIs a couple of times a year, but that varies slightly depending on So that you can pick up metastatic spread earlier when it's asymptomatic and The sort of Phase 3 trials for the immune therapy agents within melanoma as well as the targeted therapies all show consistently that Patients who get a better response are those where you detect a lower tumor burden of disease when they go on drug, I. Detected by imaging versus the patient has a seizure in the OR and you image them then and they have a huge brain metastasis. So That's that indirection of evidence we've used for a long time. And most clinicians get that I think, although it's always better to have a direct Shame, but on the other hand, we're just a test, right?

Speaker 2

We aren't a therapy. You've got to act with our data to have that benefit doctor. I think that the paper that we discussed this morning and I spent some time on the conference call here walking through is really Impactful because it shows you that 3 large NCI centers across the U. S, who centers who had employed If we put our test within their treatment pathways compared to patients in the same centers who weren't tested, they actually live longer. I That's fantastic, right?

Speaker 2

So you have a pickup metastatic disease when it was a smaller volume, you got them on therapy and they actually have a higher survival rate. I mean, I mean, outside of a randomized controlled trial for a drug, you can't get much better data despite there being limitations, of course, by the way. Now going forward, I think that the National Cancer Institute study, which will come out here in a few weeks, is a powerful data set that is indirect in nature. And we also have other studies ongoing where that might be an output that we go ahead and see. So clinical utility studies Almost like this article this morning by Dillem and colleagues where we looked at, do you use our test clinically?

Speaker 2

Yes. So let's enroll you in a study. You make changes that are within your own little pathway, which are largely the same, Then you will follow the outcome. So I would expect us to go ahead and see reporting on those kinds of studies that we have had ongoing through COVID another year or 2 to provide again additional data showing, wow, Not only do you have a test that you know risk stratifies, but you actually have multiple publications now Showing a direct link of evidence that when you use our test, patients get put in the right pathway, they get disease picked up earlier when it spreads, They go on effect of therapies and they live longer. That is the ultimate goal, of course, of treating cancer or any disease for that matter.

Speaker 2

So yes, expect more of that That similar kind of data sets coming out, that will be Castle sponsored versus independent.

Speaker 9

Got it. That's great to hear. And then just on the patient volume trends, the first Full year without any hopefully any pandemic impact here. Just kind of curious if you're seeing patient volumes kind of Is there any benefit from the delay of patients that were delaying their Treatment or whatnot coming back and potentially improving benefiting the volumes you're seeing?

Speaker 2

That's a good question. I think the answer is no. I mean, the 3rd party vendors and their data sources Do fluctuate via their contract changes year over year. So it's hard to say, was the 2018 or 2019 data set The exact same sort of number of doctors and patients as 2023, I would say that I'm unaware of any sort of Underlying rise in melanoma diagnoses that have kind of recovered, I guess that is the case. So I believe that most if not all of the growth We're seeing across our melanoma test squamous cell, you could even say tissue side, although those are very low penetration, is due to just Increase physician adoption because they see the value of our test clinically.

Speaker 2

I do think That the one trigger that might change that on a macro level might be when we decide to cut the profit margins of telemedicine versus in person medicine and the subsequent impact that will have on patients being seen by clinicians, for things like high blood pressure Or hypertension or diabetes and somebody picks up the mole on the back of their ear or the back of their neck that the patient didn't see beforehand. Those That's the I think that's the major shift I would think about saying when do you see across skin cancer that visual diagnosis I think the major boulder to roll down the hill is going to be, people are not motivated for telehealth, they are motivated for in person visits

Operator

We have no further questions. I'll turn the call back to Derek for closing remarks.

Speaker 2

Thank you, operator. This concludes our Q1 earnings call. Again, I thank you for joining us today and for your continued interest in Castle Biosciences.

Operator

Thank you everyone for joining us today. This concludes our call and you may now disconnect your line.

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