Good afternoon, and welcome to Castle Biosciences Second Quarter 2020 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 Frank Stokes, Chief Financial Officer. Please go ahead..

Thank you, operator. Good afternoon, everyone. Welcome to Castle Biosciences' second quarter 2020 financial results conference call. Joining me today is Castle's Founder, President and Chief Executive Officer, Derek Maetzold. Information recorded on this call speaks only as of today, August 10, 2020.

Therefore, if you're 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 information discussed today may contain projections or other forward-looking statements regarding future events or the future financial performance of the company, including expectations and assumptions related to the impact of the COVID-19 pandemic and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties and there can be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements.

These factors and other risks and uncertainties are described in detail in the company's Annual Report on Form 10-K for the year ended December 31, 2019 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. I'll now turn the call over to Derek..

Thank you, Frank and good afternoon, everyone. We, thank you for joining us today. This afternoon, I'll discuss COVID's impact in our results, the recent trends we've seen and our performance for the quarter, then Frank will provide more detail on the second quarter results and our financial position.

While our second quarter results reflect impact from COVID-19. Thanks for the strong execution by our employees, we're successfully navigating these challenging times. We're pleased that we maintain strong gross margins, saw a year-over-year increase in revenue and deliver positive operating cash flow.

Additionally, we're making strong progress on our near and long-term strategic growth plans. And importantly, in order to serve patients who have been diagnosed with melanoma and the clinicians who treat them.

We maintain uninterrupted access to our proprietary DecisionDx-Melanoma test and our DecisionDx-UM test with normal churn around times for delivery of test reports. As you would expect second quarter 2020 revenue and report volume were impacted by COVID-19.

Specifically in the second quarter of 2020, revenue was $12.7 million, an 18% increase from $10.7 million in the second quarter of 2019. DecisionDx-Melanoma test report volume decline 19% in the second quarter of 2020 compared to the second quarter of 2019. Let me provide some color here on this decline and the positive recovery trends we have seen.

Well test report volume remains a key test performance metric. I feel it's important to discuss test order trends as well, as they provide traditional insight in the current demand and our expectations for increased test report volume.

We believe second quarter 2020 year-over-year decline in DecisionDx-Melanoma test volume is due to the closing of dermatology practices and delays and/or cancellations in patient visits resulting a reduced diagnostic biopsies and thus reduced diagnoses of cutaneous melanoma.

Let me remind you, our DecisionDx-Melanoma test is ordered by physicians after biopsy take place and the diagnosis of melanoma is made. Third party data suggest the largest decline in biopsies due to the pandemic occurred in April. We also saw our largest monthly declines in orders to-date in April.

Since April, throughout the second quarter we have seen monthly sequential improvement in DecisionDx-Melanoma orders leading to a year-over-year increase in June which continued year-over-year gains in July. To further illustrate this improvement and demand trends. I'll outline data points of orders by month for the second quarter.

In April DecisionDx-Melanoma orders decreased 45% year-over-year. In May, orders decreased 39% year-over-year and then in June orders increased 10% year-over-year. We also saw positive year-over-year orders in July.

We believe the improvement in DecisionDx-Melanoma test orders since April is driven in part by the reopening of dermatology practices and reschedule patient visits which have generally coincided with the easing of state and local government restrictions.

And according to data published by the common wealth fund for the week of June 14, business to dermatology clinics have returned to their February 2020, baselines. Further since April, we have seen the rate of DecisionDx-Melanoma orders outpace melanoma diagnoses. We believe this is partly attributable to our commercial team successful pivot.

With its promotional efforts which we anticipate will support further recovery. We expect the near-term positive trends we've seen in test orders to continue and as such we believe our third quarter DecisionDx-Melanoma test report volume will increase closely approaching pre-COVID levels.

These expectations are primarily driven by the pandemic's severity and the impact of state and local government restrictions on the US healthcare system. Turning to our DecisionDx-UM test for patients diagnosed with UV melanoma. We delivered 306 reports in the second quarter of 2020 compared to 376 reports in the second quarter of 2019.

As it relates to the impact of COVID-19 on our UM test monthly year-over-year comparisons are difficult to interpret due to the low incidents of UV melanoma.

This being said we believe the year-over-year decrease is due to the pandemic and we believe that the majority of UV melanoma diagnoses are made incidental to a routine eye exam and we expect recovery in the incidents of UV melanoma and thus our order volume to be time shifted relative to the recovery that we observe for DecisionDx-Melanoma test.

On our first quarter earnings call after buying some thoughts about how we're investing in the company in order to facilitate our strategic growth plans and remain in the position of strength as we move through the current COVID-19 situation. As well as lay a foundation for execution for the remainder of 2020 and 2021.

I will discuss our recent progress on these plans now which includes significant evidence development, advancement of our pipeline test and expansion of our commercial team. In the second quarter, we saw a great progress to the publication of evidence to support appropriate use of our test and coverage by commercial payers.

For example, two systematic reviews and meta-analyses were published, demonstrating that the DecisionDx-Melanoma test is an independent significant predictor of recurrence and metastatic risks in patient with invasive cutaneous melanoma achieving with the highest strength of recommendation in taxonomy or SORT level for a prognostic biomarker that is level one evidence.

The SORT system is used by the American Academy of Dermatology than other organizations to evaluate the quality, quantity and consistency of evidence to support in test such as DecisionDx-Melanoma this brings the total number of peer reviewed publications that support one or both of the current clinically actionable uses of DecisionDx-Melanoma test to 25.

The first clinical use of our test is inform decisions on sentinel lymph node biopsy in patients when the tumor thickness is less than or equal to 2.0 millimeters and the second use is to guide subsequent treatment plan decisions.

As previously stated, we believe our continued investment in evidence development is key to supporting both market penetration and coverage by commercial payers.

Turning to our pipeline, we're pleased with continued progress of our pipeline test which importantly allow us to expand our services for patients who are diagnosed with early stage skin cancers.

We're on plan for our pipeline test, DecisionDx-SCC for use in patients with high-risk squamous cell carcinoma to become commercially available at the beginning of September.

DecisionDx-SCC is design to identify patients' risk of metastasis in order to able more informed risk appropriate, clinical decisions regarding adjuvant therapy and other management options. In the second quarter, we saw three peer review publications supporting our DecisionDx-SCC test.

This includes development and validation data which were published in Journal of American Academy of Dermatology of JAAD. The results demonstrate the DecisionDx-SCC is not only independent predictor of metastatic risk.

But our test was also shown to be the strongest predictor of metastatic risk relative to current staging systems and can complement clinical pathologic risk factors to better stratify risk of metastasis and thus subsequent treatment plan decisions in patients with high-risk SCC.

We anticipate hosting a public webcast for investors in September to discuss our DecisionDx-SCC test concurrently with its commercial availability. Additionally, our team completed the clinical validation of work needed to launch our second pipeline test. This one for use in suspicious pigmented lesions.

As we previously stated, we expect this test to become commercially available in the second half of 2020. This test is designed to assist [indiscernible] pathologist to make a more informed diagnoses for a suspicious pigmented lesions that cannot safely be ruled out as benign or rule in as melanoma.

We estimate that combined our three skin cancer products, DecisionDx-Melanoma test, DecisionDx-SCC and our test for suspicious pigmented lesions will have a total addressable US market of approximately $2 billion, a $1.4 billion increase over our current total addressable US market.

And lastly, we're moving forward with our plan to expand our commercial team in the second half of 2020. We're moving forward with these plans primarily to support the continued growth of DecisionDx-Melanoma our lead product but also to support the loss of DecisionDx-SCC.

You may recall that in 2019, we more than doubled our commercial team and despite the pandemic. We remain in position to continue to execute on our strategic plans for further commercial expansion. In order to facilitate near term and long-term growth.

On June 29, we successfully completed a public offering for 2 million shares of our common stock with net proceeds to us of approximately $69.5 million and additional net proceeds of approximately $10.4 million on July 2 as a result of the underwriters' full exercise of their option to purchase an additional 300,000 shares.

We plan to use a portion of these proceeds to further support and accelerate our research and development activities including two important studies that we've implemented to support of DecisionDx-Melanoma test. The first is the personalized study in which we evaluate DecisionDx-Melanoma for interactions of adjuvant therapies.

The second is the CONNECTION [ph] study which will collect long-term outcomes for up to 10,000 patients who've been test to clinically with DecisionDx-Melanoma. We will provide more information on these studies as we make progress. I will now turn the call back over to Frank who will provide additional detail relating to our financial results..

Thank you, Derek. We're pleased with our execution and the progress we made on our strategic growth plans in the second quarter. And the main message I want to take away from today's call is that the long-term fundamentals of Castle's business remain strong and our expectation of where the business is heading is not changed.

In the second quarter of 2020, we reported revenue of $12.7 million and 18% increase from $10.7 million in the second quarter of 2019 primarily due to higher per unit revenues and partially offset by reduced test volume and reduced revenue adjustments related to prior periods.

In addition to in period test revenue, our second quarter revenue includes positive adjustments related to test delivered in prior periods of $2.3 million compared to $3.3 million in the second quarter of 2019.

Looking forward, we anticipate significant declines in these prior period revenue adjustments particularly in the third quarter of 2020 due to lagging impacts of the pandemic.

We're also pleased with our ability to maintain strong gross margins and during the second quarter of 2020, our gross margin was 83% compared to 81% for the second quarter of 2019. With the improvement primarily result of increased operating leverage on the higher revenues.

Our net operating expenses for the quarter ended June 30, 2020 were $11.2 million compared to $8.1 million for the same period last year.

The increase was driven by higher SG&A of $3.6 million and increased R&D expense of $1.4 million what was partially offset by the benefit of $1.9 million and pandemic relief funds automatically distributed to healthcare providers that we received from the US Department of Health and Human Services pursuant to the CARES Act.

These increases in SG&A and R&D were primarily the result of higher personnel cost particularly due to the expansion of our sales and marketing organization.

But also due to the expansion of administrative support functions in R&D as well as increases in administrative expenses associated with our growth although these increases were partially offset by lower spending on travel and conferences during the quarter due to pandemic related cancellation and restrictions.

With regard to our R&D expense, we expect further increases as we fill critical roles further the clinical studies Derek discussed earlier and continue to invest in activities that support our products and position us well for continued growth.

As a percentage of revenue, our SG&A expense was 82% for the second quarter of 2020 compared to 64% for the second quarter of 2019 reflecting impacts on re venue growth due to COVID-19.

Interest expense decreased $0.9 million for the second quarter of 2020 compared to the second quarter of 2019 primarily due to interest on the convertible promissory notes that were outstanding last year. As a reminder these notes converted in the common stock in connection with the IPO in July 2019.

Our net loss for the three months ended June 30, 2020 was $1.4 million compared to $1.3 million for the three months ended June 30, 2019. Diluted loss per share attributable to common stock holders for the three months ended June 30, 2020 was $0.08 compared to a $1.05 for the three months ended June 30, 2019.

We generated positive operating cash flow for the second quarter 2020 and Castle's net cash provided by operating activities was $13.5 million compared to net cash provided by operating activities of $0.5 million in the prior period year. In the first half of 2020, we generated $13.3 million of operating cash flow compared to $1.8 million last year.

Our operating cash flow for the second quarter benefited from an advance payment of $8.3 million from CMS which will be applied against future Medicare claims that we submit for reimbursement later in 2020 as well as previously mentioned one-time payment of $1.9 million in relief funds automatically allocated to Medicare providers under the CARES Act, excluding these payments are adjusted operating cash flow a non-GAAP measure was $3.3 million for the second quarter of 2020 compared to $0.5 million for the second quarter of 2019.

Finally, we had cash and equivalents at June 30, 2020 of approximately $179.8 million which includes net proceeds of approximately $69.5 million from our June 2020 public offering of 2 million shares of common stock.

Additionally on July 2, 2020 the underwriters of public offering exercised in full their option to purchase an additional 300,000 shares of common stock. The additional net proceeds were approximately $10.4 million. As a reminder, we withdrew our full-year 2020 revenue guidance on May 10, 2020 in light of the COVID-19 pandemic.

While we're expecting continued commercial recovery in the second half of the year, we recognize that uncertainty remains and will not reissue guidance at this time. We believe our current cash position along with cash generated from sales of our products will be sufficient to fund our operating expenses for the foreseeable future.

We remain confident in our ability to invest in the business and execute on our growth plans as we build the company from near and long-term growth. I'll now turn the call back over to Derek..

Thank you, Frank. Before we move onto Q&A. I want to express my gratitude to our employees as we recently marked our one-year anniversary as a public company. Castle's strong foundation begins with their dedication to improving the lives of people with skin cancer. During the second quarter despite the COVID-19 impact.

We continue to execute on our strategic growth plans and remain focused on current and future success. Thank you for your continued support and interest in Castle. This concludes our remarks. Operator, we're now ready for Q&A..

Thank you. [Operator Instructions] our first question comes from the line of Puneet Souda with SVB Leerink. Your line is open, please go ahead..

Derek and Frank, thanks for taking the question. First one is, it's great to see first of all the improvement that you're seeing here across the quarter and that you're expecting to reach pre-COVID levels in the third quarter. And I totally get that you're not providing guidance just yet.

But given the improvement should we assume that it potentially could be in line with the first quarter pre-COVID levels. Obviously, there was a two - week impact there in March so is that a reasonable point to work off with or if anything else you can provide there in terms of improvement and totally recognizing that we're not out of COVID yet..

Thanks for calling in. like I said, we're not ready. I don't think we have enough visibility to reissue guidance yet. But I Just as it relates to Q1 just do keep in mind there, that there is a lag between orders and report and the test report is what actually triggers revenue.

So you're correct there was certainly some impact in Q1 because of the early days of COVID. But we still believe that natural cycle between order and report means that most of that revenue impact was pushed over in Q2..

Okay, that's helpful. And in terms of the SCC launch. Can you maybe just provide us given the timing right around the corner? Tell us in terms of the sales reps capability you have there - assumed that at this point they're trained and ready to go on that product. And also, how should we think about the potential volumes there again given the timing.

It appears that most of that is going to land in the fourth quarter..

So from a long standpoint we expect to make that available clinically as we talked about in the call in the September time period. We did have awareness of caution I guess, go ahead and switch our national sales or national training meetings that launched have a virtual format here.

But we expect based upon the adjustments our team has made in commercial where they'll be highly effective in training up both our sales representatives and our medical science liaisons and the rest of the customer focused team to be ready to launch this first pipeline test effective in September.

I would concur I think on volumes I'd almost, I'd rather not comment here. I think new product forecasting is tough anyways. But you're right I would expect nothing material in the sort of third quarter of 2020 because if we get that out in early September, by the time we would get issue [ph] from orders coming in, the quarter is almost maybe over.

So I think the first indication anything probably you're right is at the end of the fourth quarter.

But I would probably say, our forecasting expectation is that we will be well staffed to handle a nice launch, an effective launch and we'll kind of look our forecast to re-challenge probably at the end of the first quarter next year after a couple quarters of uptake..

Okay, that's great. And if I could ask on, in the current quarter as you're seeing pick up across as you pointed out in July you were continuing to see improvements across the business.

Can you elaborate to us whether some of that demand was due to extended work hours at the dermatology practice or was it essentially in line with normal work hours and do you expect or would you expect that to normalize and sort of August and September.

I'm largely asking that because we were hearing some of the derm practices that they were trying to accommodate a [indiscernible] list of patients..

Yes, so one I wish I had quantitative data to share with you and I don't have that, so I apologize for that. As you may recall either at the year-end or maybe the 1Q call, we had done a proprietary survey of our own customers and they suggested that, whenever they could reopen their practices or whatever that meant on localized basis.

They were planning on going from working in average of four days a week to five days a week to catch up and they were hoping to go ahead and fit in the deferred or delayed or cancelled appointments obviously and they also indicated they would try and position biopsies earlier ahead of other kinds of normal clinical follow-up visits presumably because that's probably the more medically concerning aspect and also procedures drive a higher income for practices as well.

I don't have a sense to be honest if the sort of pick up that we saw between April and May, and May and June, and June being over last year, and July being over last year's volume as well if that's an indication of more volume. I mean if that yesterday [ph] coming through or not.

I think it all points to hopefully patients getting treated properly at the right cycle that would lead subsequent orders and reports by us. So we feel good about that, but I can't point to is that going from four to five days at work or is that actually seeing more patients in same period of time.

I don't have any quantity of data on that one to help, guide you..

Okay, that's fair. Just last one if I could squeeze it on the personalized study for adjuvant therapy.

Does that increase your TAM maybe could provide some details around that and for the other 10,000 patient melanoma study what is the duration of that study and is that a prospective study, would you expect that study to be sort of the practice changing, outcomes of study, if you can elaborate on that? Thank you so much. Thanks for taking questions..

Sure. So we'll go in more details that, little later in the quarter I think separately. But the personalized study is really focused on assessing the value of our test and helping to direct our guidance, decisions around adjuvant therapy as you heard. I think those patients are largely baked into our overall TAM to be honest.

However the majority of our test orders come from same or less negative patients, thinner patients where they're really concerned as a clinician and patient about undergoing a semblance of biopsy procedure and/or how I do follow the patient afterwards and imaging etc.

So we might be able to see a more rapid penetration of our TAM but I would not add that on top of current TAM calculation we have that already in there stage one, two, three market basket [ph] for us. On the CONNECTION [ph] study, that protocol is being lot on clinically tested patients.

I think we're hoping to have around half of the patients true [ph] prospective and half the patients recent retrospective clinically tested patients.

So we can get some data out earlier rather than later, that's going to be nice very, very large data set for us to really establish clinical use and also realize outcomes at a level that hasn't been seen certainly in the skincare diagnostic business ahead of us..

Great, thanks..

Thank you. And our next question comes from the line of Sung Ji Nam with BTIG. Your line is open. Please go ahead..

Thanks for taking the questions and congratulations on all the progress that you're making. Maybe a follow-up on the Decision SCC, Dx-SCC launch.

Could you remind us again kind of the go-to-market strategy? Is that initially target your existing customer base and also leveraging your current salesforce to kind of we'd love to hear some initial plans there?.

Excellent, Sung Ji. One is that, our existing salesforce which is a reminder is 32 outside sales territories and they're paired with an inside sales associate group of I think seven or eight individuals and then our medical science liaison staff will be the ones launching this test clinically to clinicians.

The target audience for this test based upon our market research and our advisory interactions with our current community of clinicians suggest that it will be essentially a customer base that largely lines up with our current cutaneous melanoma customer base.

So dermatologist who have a higher practice level in medical dermatology versus say cosmetic and maybe within the medical dermatologist those that are more interested in skin cancer management versus not.

And then the most surgeons which is a subset of dermatologist these are individuals that are fellowship trained or trained in most surgery are sort of skin cancer pinnacle with given practice and so we expect most surgeons and medical [indiscernible] dermatologist who are current customers to be our initial uptake orders of this test and it fits their exact focus and need directly.

So our expectation is to walk in there with a dialog around our cutaneous melanoma assay to reinforce the value of what they get out of that test to try and show our clinicians where they can perhaps get more used and then they quickly turn the page and say, by the way, we know you have a similar question to answer and people who already have one and more risk factors with cutaneous squamous cell carcinoma.

Our R&D team listen to some of your peers. We were successful in developing an assay, let's walk through that data and see if you guys can benefit.

So that's kind of the thinking right now as we would target predominantly our current DecisionDx-Melanoma customer base which will be dermatology as a focus and a sub-focus will be to most within that group. You want to add anything, Frank? Or is that, just okay..

Great, thank you for that. And then just on the commercial payer side. Obviously, you guys will continue to generate more evidence around your products especially DecisionDx-Melanoma. And also, I'm seeing and I'm not sure if I'm reaching too much into it. But from your higher per unit revenue this quarter.

There's the modest increase sequentially as well obviously year-over-year.

With curious, if you're gaining more traction on the commercial payer side or just in this kind of pandemic environment, if the conversations with the private payers, just kind of curious how that's progressing, if there might be the more thinking outside of the box just given what's going on in the world..

Yes, I'll add maybe a couple comments and Frank can adjust I guess, correct is such a harsh word. With the exception of one or two plan interactions early in sort of late March, April time period where we had couple of medical directors say hey, I'm overwhelmed right now trying to get our COVID-19 testing policy organized properly.

I haven't perceived more managed care group that we've seen a significant sort of stiff arm by most accounts in terms of the review cycles they would do for our DecisionDx-Melanoma test. As you may recall from the IPO last year, we have a number of plans that we expect to complete the review cycle in sort of the third quarter this year.

Most of them I think are set up in the first quarter of every year. I'm aware of some positive interactions ongoing right now, that should lead to some changes from negative to positive coverage. I don't think that's related to COVID though. Well I don't think it is, I think it's more related to maturation of our data.

I think the publication certainly of the initial and the subsequent system review meta-analysis net level of evidence is hard to ignore I think because that represents the highest-level potential level of evidence for test like ours.

So I'm thinking as caught off move into the third quarter here we'll have an opportunity to at least unveil or discuss publicly some of the coverage policy decisions, what lead to a change from a negative or no coverage to coverage as we go through the quarter at the close of the third quarter..

Great and then just lastly from me. On new deal melanoma obviously a small part of your business now just kind of curious given the volume declines, pretty comparable to the declines you saw for melanoma.

Obviously, that makes sense given if physician offices shutdown or how sales are prioritizing other things there's delayed diagnoses etc., we're curious from a recovery standpoint, you would expect that business to recover at a faster rate potentially just given the urgency associated with that particular information provided..

Yes, I was hoping for that actually. I think we're going to see it just to reverse happen Sung Ji.

As you may recall from the early [ph] COVID commentary, when we did a review looking at how our patients with melanoma first detected of potentially having melanoma and at least US based literature if you can trust because it was all done by dermatologist would suggest that 80% people who end up getting diagnosed with melanoma usually self-protect that mole first either they do or their spouse or friend say hey, that spot in the back of your neck is getting worse now, get it checked out.

So our internal models suggest that we would think that the sort of post-COVID in terms of patients being anxious about not going to a doctor would go away a bit quicker in melanoma of the skin because it's a visible lesion.

In comparison, the information we've able to glean from our ocular oncology customers which are those retina specialists that really treat eye tumors is that, the majority of their patients that they end up managing or diagnosing with UV melanoma are usually found [indiscernible] optometry or routine ophthalmology visit.

So I think given ophthalmology practices were largely closed down for the second quarter. Well we don't have a good handle on just to be frank. If you had a patient who is going in for their annual eye exam for a prescriptional [ph] lens change in April and that appointment was cancelled.

They're going to rush back in September or August because what it gets, if they felt their prescription was off maybe so, so I think we'll see a slightly slower recovery of that.

So all that being said it's also difficult to believe that somebody with a UV melanoma that's accelerating from a gross standpoint is not going to have a visual disturbance sooner rather than later. So I think that the end of the time, we will see kind of delayed issue behind the [indiscernible] melanoma test.

But given the volume is so low and the rare cancer. I'm not sure we can discern the actual facts behind that.

Do you want to add anything, Frank?.

I think the key there is, just the small patient numbers here make that a little bit more difficult to try to trend out..

Okay, great. Thank you so much..

Thanks, Sung Ji..

Thank you and our next question comes from the line of Catherine Schulte with Baird. Your line is open. Please go ahead..

This is actually Tom on for Catherine. Appreciate the color on the quarter in terms of how orders trended. I'm just curious I know you guys have said you still a year-over-year increase in July. I was curious even just directionally versus June.

How to trend it? Specifically just trying to dig into whether you guys are kind of seeing some pull back given the COVID is sort of flared up in early July, I think we've seen that consistently from peers just curious if you're seeing same thing?.

Yes, thanks for the question. We do want to be careful and avoid trying to make monthly disclosures here on some of these topics just because it is more effective, I think to look at things on a quarter-by-quarter basis. But I don't think we have seen the tightening up in some areas I guess or the retightening in some areas.

We've not seen that effect physician encounters for dermatologist and their patients. And I think contrast with early days in the COVID crisis when physicians and healthcare providers didn't, they were cautioning people not to visit. Don't come in for a variety of reasons.

Now I think what you hear in most parts of the country where providers are saying hey, don't put off your healthcare, don't put off your care needs. We'll find a way to treat you safely. We'll make sure you're comfortable. We'll make sure we're comfortable.

But if you have healthcare needs you need to be treated for those and that's one of the lagging impacts of this. I think a lot of people will find had things that maybe more acute then they could have been if they've gotten treatment in a normal post-COVID cadence.

We're cautious, we don't know what's going to happen so that's why we can't yet really make good solid predictions. But at least so far it looks like the healthcare provider community is continuing to continue to practice its care in a normal fashion..

Okay, thanks for the color on that and then just one more if I could dig in a little bit more to kind of your thoughts or strategy behind. The pipeline launches in the back half specifically just around physician access and the ability to sort of get it front of reps so just curious I know you guys had mentioned you had done some training virtually.

But just any thoughts on how that launch sort of looks like in a COVID environment sort of compared to what we would typically think as a new product launch?.

I guess I would say typical new product launch, our commercial team I think would have a mix year or relying upon confidently train sales representative and medical science liaisons, speaking to clinicians one-on-one or in small groups.

We would normally would have trained up a group of speakers most of them being investigators to develop squamous cell carcinoma test to maybe some other individuals who couldn't participate as investigators but are excellent speakers from a peer-to-peer standpoint, be it ideal that to train those people in small group in-person setting, so that not only become a understanding information but as there's question and discussions around the use of our test maybe some data, strong points or weak points you can learn from a group dynamic.

Those in-person meetings have had to be largely cancelled because of concerns about what that means going back to my practice for example, when I could have been exposed [indiscernible] for training opportunity.

So I think compared to a normal product launch we're going to see a little more resilience in the first couple of months on in-person and some virtual sales calls and calls by medical science liaisons to individuals.

I think we will see peer-to-peer opportunities kind of grow up a little slower in the COVID environment that you might expect in the non-COVID environment. As we talked with Puneet earlier. I think at the end of the day we're - if we look back sort of at the end of the first quarter end of the second quarter next year.

I think we won't be able to see that as a negative or positive.

But otherwise we feel pretty good about the levels of the engagement that we're getting from our customers today on our cutaneous melanoma test and I think adding the squamous cell test to that dialog given it has a very similar use, you might say is going to be easily worked in the normal sales call cycle.

But I think the one thing if you're asking, what might be different is probably a little less reliance on having certainly peer-to-peer opportunities as you would expect, if the major meetings in the fall like the American Society of Dermatological Surgeons was maintained as in-person meeting, we would have add a lot of local programs there because that really would be the target audience, our customer base and with that being virtual/cancelled.

Those are big opportunities are sort of taken away in nearly fall this year..

Thanks. That's it from me. Appreciate the color guys. Thanks..

Thank you. And our next question comes from the line of Max Masucci with Canaccord Genuity. Your line is open. Please go ahead..

To start, can you offer any additional detail just around the recovery of new doc ads specifically over recent weeks or months? What sort of virtual customer targeting initiatives than yourself for is there are resonating with dermatologist in the current environment?.

Yes, two actual questions, Max. I think one is that, we did see common with our sales expansion that occurred December 1, 2019 a nice acceleration I guess you would say new ordering doc growth in 1Q, 2020 over 1Q, 2019 as you saw on the release of the script that got - that was reduced compared to our growth we saw last year.

I think that's a direct result of having less face-to-face visits and of course having a lot of dermatologist saying nobody in late March to maybe mid-May for example across the country.

We did see commensurate with the increase in order flow going from minus 43, to minus 39 to plus 10%, a similar kind of re-growth in terms of new order in doc, so I think that feels pretty good that we're able to, in the time period we had just virtual interactions with clinicians.

We have a number of clinicians who began ordering off of a virtual interaction which I think is positive about that kind of Zoom call or that kind of go-to-meeting small group call being effective in terms of having physicians to think about, the data that's being shared and think about the potential value and actually acting upon that.

I don't think that's effective as in-person just because you don't have a really good chance of reading behind the language and being able to go deep on questions. But that's just part of where we're at. So I think a recovery of that of new ordering doc growth it feels like it was coming in parallel to the recovery overall order growth.

So that feels good I think for the third and fourth quarter, in terms of where we expect the business to be.

Frank, do you want to?.

I concur. I wouldn't anything to that..

Great, so now your balance sheet is fortified. I know you're investing and your cumulatively announced trials and studies.

Are there any other internal investments that you plan to accelerate following the financing and any change to your view on potential M&A or complementary tuck-ins?.

So I won't talk about M&A, Frank can do that. So certainly fortifying the balance sheet with the follow-on raise there in late in June and I guess issue in early July was quite positive for us.

As we've talked about going into that, the most important thing Frank and I had sat down with the management team in early January 2020 was, when we get 12 months down from this point in time. We think we're going to be investing again in our cutaneous melanoma test to both drive utility and drive offensive data generation.

We expected by the end of the year to have two successful product launches with the squamous cell carcinoma test and the test for pigmented lesions that we also planned on being able to initiative one, two or maybe three additional pipeline programs before December 31, 2020 turns the corner and the most important commentary we had was, we didn't want to reach the end of 2020 and this is pre-COVID, mind you.

In being a position to say, we have to make a choice because we didn't go back and take care of our job properly and so we felt it was exactly wrong to have us say, rather than starting two pipeline programs, we're going to start one because we don't have enough capital in the bank.

So part of our goal of that raise was to make sure we can invest aggressively and proactively for the business in 2022, 2023, 2024 and COVID just happens to be kind of negative factor. Of course it's all the more reason to push forward. So I think that's quite positive.

So specific initiatives, we talked briefly about the DecisionDx-Melanoma large protocols that we initiated earlier this spring, so part of the proceeds will undoubtedly be used for R&D in cutaneous melanoma. I think as we've seen the data progress, published for squamous cell carcinoma of the skin.

I wouldn't say we weren't excited before but I mean the impact of that test can have population is probably what nearly twice the size of our melanoma population is just all fantastic.

And so you can bet that we'll be increasing both commercial investments as well as R&D investments, so that we can have patients and clinicians to the full value of that test as soon as possible and of course in subsequent pipeline program. You want to add further..

Yes, sure.

And Max we certainly - our open minded M&A opportunities and happy to take a look, having said that I would note that we're still maybe 15% penetrated in our melanoma product which is a $500 million TAM and we're just about to launch two new products, so it's another $1.5 billion [ph] and so we've got so much runway ahead of us in the area we're in and so much opportunity for growth.

We don't spend too much time looking outside of that. We will of course look at ideas and if it makes sense for shareholders, we certainly are positioned to do something. But we're just excited about the space we've got and the path ahead for the existing portfolio..

Great, that's it from me. Thanks..

Thank you and I'm showing no further questions at this time and I would like to turn the conference back to Derek Maetzold for any further remarks..

Thank you, operator. This concludes our second quarter 2020 earnings call. Frank and I in person want to thank you again for joining us today and for your continued interest in Castle Biosciences..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day..