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Good 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

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 Maetzold; and Chief Financial Officer, Frank Stokes. Information recorded on this call speaks only as of today, May 3rd, 2023. Therefore, if you are listening to the replay or reading the transcript of this call, any time-sensitive information may no longer be accurate. A recording of today's call will be available on the Investor Relations page of the company's website for approximately three weeks. Before we begin, I would like to remind you that some of the statements made today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our financial outlook, TAM, and similar items referenced in our earnings release issued today and statements containing projections regarding future events or our future financial or operational performance, including our 2023 to 2025 outlook, our expectations regarding reimbursement for our product, and the impact of our investments in growth initiatives and expanded commercial teams. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties, and there can be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's quarterly report on Form 10-Q for the year ended March 31, 2023, under the heading Risk Factors and in the company's other documents and reports filed with the Securities and Exchange Commission. These forward-looking statements speak only as of today, and we assume no obligation to update or revise these forward-looking statements as circumstances change. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue, adjusted gross margin, and adjusted EBITDA that have not been calculated in accordance with Generally Accepted Accounting Principles in the United States or GAAP. These non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue, cash flow, and operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website. I will now turn the call over to Derek.

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

Hey, Derek, and good afternoon, everyone. First quarter revenue was $42 million, an increase of 57% over the first quarter 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 continued to grow in the first quarter 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 $43.4 million, an increase of 65% over the first quarter of 2022. Our gross margin during the first quarter was 70.5% compared to 71.7% in the first quarter of 2022. Our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions and revenue associated with test reports delivered in prior periods was 76.5% for the quarter compared to 77.4% for the same period in 2022. Our total operating expenses, including cost of sales for the quarter ended March 31, 2023, were $73.6 million compared to $51.4 million for the first quarter of 2022. The largest driver of the increase was higher SG&A, which increased by $16.3 million compared to 2022. Attributable in large part, the higher personnel costs associated with our increased headcount, which include expenses related to stock-based compensation, salaries, bonuses and benefits. 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&D expense increased by $3.6 million in the first quarter compared to the first quarter of 2022 and was primarily associated with additional headcount 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&D expense and SG&A expense, totaled $13.5 million for the first quarter compared to $8.4 million for the first quarter of 2022. The increase was primarily attributable to the effect of our annual equity awards granted in December 2022. In the first quarter of 2022, operating expenses included a change in fair value of contingent consideration of $2.6 million or $0.10 per diluted share and was related to the remeasurement of the liability for earnout payments in connection with our acquisition of Cernostics. There was no comparable expense in the first quarter of 2023. We had amortization of acquired intangible assets for the three months ended March 31, 2023, of $2.2 million, an increase of $0.6 million, compared to the three months ended March 31, 2022. The increase is primarily associated with the amortization of developed technology attributable to the acquisition of AltheaDx in April of 2022. Interest income increased by $2.3 million for the first quarter of 2023 compared to the first quarter of 2022. The increase primarily reflects higher interest rates earned on our cash equivalents and our purchases of marketable investment securities during the third quarter of 2022. Our net loss for the first quarter of 2023 was $29.2 million, compared to a net loss of $24.6 million for the first quarter of 2022. Diluted loss per share for the first quarter was $1.10 compared to diluted loss per share of $0.97 in the first quarter of 2022. Adjusted EBITDA for the first quarter was negative $15.1 million compared to negative $11.4 million for the comparable period in 2022. Net cash used in operating activities was $25.4 million for the three months ended March 31st, 2023, of which $17.7 million was related to payout of annual bonuses as well as certain health care benefit contributions that are not expected to recur during the remainder of 2023. Net cash provided by investing activities was $16.6 million for the three months ended March 31st, 2023, and consisted primarily of the maturity of marketable investment securities of $50 million, partially offset by purchases of marketable investment securities of $30.1 million and purchases of property and equipment of $3.3 million. Finally, we had cash, cash equivalents and marketable securities at March 31st, 2023, and of $232 million, 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.

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 report 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, Operator?

Thank you. [Operator Instructions] Our first question today comes from Thomas Flaten with Lake Street Capital Markets. Thomas, please go ahead.

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.

Yeah. So we have -- I guess, data is being analyzed for additional publications first. So I'll give you a qualitative answer to 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 two uses of our test, as you know. One uses to rule out a similar to a surgical biopsy procedure, which is done without our test is based upon tumor thickness, ulceration status or other adverse features. And as 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 ADA could have avoided a procedure if only he 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 three to four patients roughly speaking, who meet the sweet spot of the Castle test could avoid a procedure, what's that procedure cost. And there's different data points floating around, the most impressive ones probably from a couple of years ago, which shows that a sentinel lymph biopsy surgical procedure, including the cost of anesthesia, the surgical cost, the surgeons cost, the ambulatory care center data, some dollars in the air for complications, et cetera can run anywhere from $21,000 to $24,000, a difference being an inpatient procedure or outpatient. So maybe take a heir on that, call it, $20,000. If you just take our DecisionDx-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 thickest, their tumor or an old status, that 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 in 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 new age therapy. 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 immune therapy, knowing for well that you just don't go off the woods and high because no test is perfect. But if you happen to go ahead and detect early that you were one of the ones that have a low risk but actually metastasize, you can correct and 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 winds out especially in response to the article that we talk about earlier this morning with our separate press release. Does that answer your question, the qualitative nature?

Yeah. I think that's great. I 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?

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

All right. Thanks guys. Appreciate it.

Thank you, Thomas.

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

Hi, Derek, Frank. Thanks for taking the question. So just a clarification on the guide. I mean, you beat per by I think, close to about $5 million from our expectations. And just wondering, what's the conservatism in the guide that you didn't change the guide. So, just wondering if anything related to SEC or a different assumption, and just wondering what are you modeling for SCC in the guide for the full year?

We were -- 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.

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 the Novitas, the other efforts you have ongoing for the SCC 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.

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 and a couple of weeks now, a year ago. And so we should hopefully all be expecting something that doesn't -- this is not, of course, a castle store. This is just the gentle update to LCD in oncology biomarker story. 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 face 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 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 conclusion, and it wasn't meant to go ahead and be exclusionary. Now that's not quite how it 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. 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.

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 second options for this assay going forward for reimbursement? Thank you.

Yes. So our expectation from -- I guess, four, five, six months ago was that Palmetto was reviewing our application. Last detailed focused 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 I think that's positive for us. We have anything formal or informal recently that we hadn't talked about since, I think, the end of year-end earnings. I think in terms of the ADLT status, we do think we meet the PAM-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 come and if we have some at their antennas to it and just see that outcome material become public and it goes to public.

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

Hey, guys. Thanks for the questions. I guess, first, can you just talk about the National Society for Cutaneous Medicine panel report that came out in March recommending decision ex-melanoma, how much weight does this body carry in the dermatology community? And do you think there's any potential to sway NCCN. And related to that, are you still expecting the publication of the NCI SEER study before the NCCN submission deadline?

Yeah. Good -- let me write these two questions here or two answers. So last one first, maybe. So we did talk about in the script a few minutes ago. Of course, you might have got lost and what I talked about, I guess, so that will be on me that the NCI, at least the first paper has been accepted and based upon that publication track record, it should be out certainly ahead of the end of the first quarter -- I mean, in the second quarter. So I think that would likely go in as well as still an article. I talked about it more at length on the conference call. So yes to both those well, and the NCI paper should be part of a submission and part of the view cycle, I would think. 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 on the Board perspective, more than half of them were prior American Academy Dermatology, Presidents. And many of them have had steep histories in publishing and reviewing and writing in melanoma. 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 have any impact that would have on NCCN. And I guess I would say that you see other guideline groups or consensus panel groups coming to a literature review that as based upon this literature. We think this test has achieved evidence of X, and it's appropriate to use and positions of Y. I think that has to have an influence somewhere there. I do believe that will help, especially with the way to the authorship there, taking this into individual physicians, dermatologists, MPs or PAs who might be in fence-sitters waiting for somebody else to give them the okay -- 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 support and don't just limit themselves just to one guideline committee. And so we would expect over time to have these kinds of support mechanism 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 three audiences will continue to have a benefit from a penetration standpoint, hopefully, coverage lives turning over in a positive manner.

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

I think we'll 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 is about $1 million 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 were looking for and I think this validates that the traction validates that.

And you couple that with the first quarter, 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 50-50 between DecisionDx-Melanoma and DecisionDx-SCC. And if you -- if we think about hiring a new representative it takes, we think two quarters to kind of really see the output of that new hire. So if you want to view this change in focus from 80:10:10 to 50-50 approximately beginning, called October 1, then the first quarter 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 set from SCC. It's the same body promoting the same two 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 SCC test.

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

Okay. This is Jake [indiscernible] on for Mason. Thanks for taking our questions. I guess first here, I know you guys aren't expecting TissueCypher ID Genetics to really have a material impact on the top line until '24, '25 time line. But just given the new pricing for TissueCypher and sales teams reaching optimal productivity in the second quarter, it seems like TissueCypher 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 TissueCypher growth in 2023?

I think that both those products, TissueCypher as well as IGX 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, 1.5 years 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 two horses in our stable to really have a fantastic four, five years. And I would concur with you, I think, based upon the momentum that we were seeing in the first quarter, speaking about TissueCypher here specifically, coupled with the fair change in the reimbursement rate that this could have an opportunity to have a more significant impact on revenue. In the last half of the year, obviously, than we would have anticipated three to four or five months ago, right? So I think that -- I think you're on the right track there. A lot of moving parts between early May, of course, and 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 Gastroenterology 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 dermatology office. In the case of gas neurology, all of those biopsies are occurring in an ambulatory care center, or some other kind of operating room environment, which is not worthy gastrologist sees or patients clinically. So there's a little more complexity in sort of making sure the office staff now is about TissueCypher. So when the pathwork comes back. The gastrologist can be reminded about saying, oh, yes, I did want to or up on that test, because in the operating suite, of course, they think they might see bear to outages, but I 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 block and tackle work, right? So I think we feel very, very happy about we've seen in the first quarter, especially over fourth quarter and third quarter last year. I think first quarter comparison well, you're obviously -- we have to do it, but I would almost throw out the window, because we were just getting started. You have the Medicare 14-day rule was impeding appropriately 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 more complex sale than we see in dermatology, just because we've got different locations where GI doctor works.

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?

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 my comments on SCC, we knew when we looked at the test that it was very clinically relevant. We knew that physicians were looking for a solution like TissueCypher and we were really excited when we got the opportunity. And so it's nice to see that bear out. So we'll kind of balance try not to disrupt territories too much, but also recognizing we've got some more opportunity there that we could take advantage of.

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

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 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?

Thanks, Mark. Yes. So similar to my last two comments, we knew when we looked at TissueCypher, it was a great test. We were very excited about it. We knew it was a tremendous opportunity. 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. We're 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. We did not increased number of territories over the third and fourth quarter. Our plan was to sort of as you may recall from last quarter or even the fourth -- I mean, even in the third quarter, our approach to both IDgenetix and TissueCypher was to really take five quarter or six quarters to integrate these things as we should, not necessarily slowly, but not necessarily running crazy. And I think TissueCypher is a good two quarters ahead IDgenetix. So we're seeing the fruits of that labor beginning last fall in the spring. I think you're right. We anticipated that we were seeing a very, very solid test that was competitively differentiated in a large market as Frank that has huge demand. It's a matter is organizing things and executing well. I don't want to say carefully from a careful standpoint, but just moving forward here, where we were quite pleased to go and see IDgenetix respond to the messaging that was kind of finalized and refined in the fourth quarter with a really, really nice strong team out there. But the team size did not change quarter-to-quarter, which just tells you the kind of demand that's out there when you get the message right.

Okay. Great. And apologies, I've been bouncing around calls so I haven't heard your prepared remarks yet. But the TissueCipher test, can you just remind me when the ADLT rate of $49.50 went effective? And maybe just to 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. Any clarity there would be helpful.

Yes. We discussed some of those on prior calls. So ADLT rate went into effect January 1 of this year. Because when it was granted, it will be that same rate through the end of 2024. So in this single two-year period, it's a two-year rate, and then 2025 is based upon the first half of this year's rate. So the rate is consistent for two years, you can see it transparently. In terms of credo yes, mix mix. So volume is still a little low in terms of definitively saying what the mix of sort of years of age and older may settle out at versus under. 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 45% of the patients are over age 65, which I mean most of them are Medicare, Medicare Advantage, not all of course, of most. And the remaining 55% are below the age 65 years of age. So I think that's where it'll probably settle out. But I would give ourselves some legal room about that around that number until we get through 2023 and get to a bigger base. We can be more confident kind of in outlying years 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 reasonable

Not reasonable.

Unreasonable, at this point in time.

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

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

Yes, excellent question. So let's see here. I think one, maybe 6 or 7 years ago, we had put together and use with clinicians, an indirect chain of evidence, as we would call it, right? So our test does risk ratifies patients, if you use it within current guidelines, then people should be -- had improved treatment pathway selection process. People who look like they're low-risk on pathology, but high risk on the Castle test, get an escalation of care 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 than you are -- the first care impact is really being undergoing routine scheduled imaging, which in melanoma sort of pelvis to neck CT scans, maybe four times a year and then brain MRIs, a couple of times a year, but that varies slightly depending on the institution or medical oncologist. 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.e., hector by imaging versus a patient who 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 that -- and most clinicians get that, I think, although it's always better to have a direct chain. But on the other hand, we're just a test, right? We are in 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 three large NCI centers across the US, who -- centers who had employed – and who had put our test within their treatment pathways compared to patients in the same centers who weren't tested, they actually live longer. I mean that's fantastic, right? So you're able to pick up metastatic disease when it was a smaller volume, you got them on therapy and they actually have a higher survival rate. I mean you can't get almost -- 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 clinically utility studies, almost like this article, this morning by Dilmen Colleagues [ph], where we looked at -- do you use our test clinically? Yes. So let's enroll you in a study. You make changes that are within your own little pathway, which are largely the same. And then you'll follow the outcome. So, I would expect us to go ahead and see reporting on those kinds of dies that we have had ongoing through COVID another year or two to provide, again, additional data showing not only do you have a test that you know risk stratifies. But you actually have multiple publications now on 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 got on effective therapies and they live longer. That is the ultimate goal, of course, of treating cancer or any disease that matter. So, yes, expect more of that that similar kind of data that's coming out that will be Castle sponsor versus independent.

Got it. That's great to hear. And then just on the patient volume trends, just the first full year without and hopefully a 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?

That's a good question. I think the answer is no. I mean the third-party vendors and their data sources do fluctuate via their contract changes year-over-year. So, it's hard to say, is it 2018 or 2019 data set the exact same sort of number of doctors and patients in 2023. I would say that I'm not aware 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 at all of the growth we're seeing across our melanoma test, squamous cell, she you could even say tissue site for those are very low penetration is due to just position increased physician adoption because they see the value of our test clinically. 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 the 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 being picked up. 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, and that will pick up these incidental diagnoses.

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

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