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00:05 Good afternoon and welcome to Castle Biosciences Fourth Quarter and Full-Year 2021 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.

00:19 I'd like to turn the call over to Camilla Zuckero, Executive Director of Investor Relations and Corporate Communications. Please go ahead..

00:27 Thank you, operator. Good afternoon, everyone. Welcome to Castle Biosciences fourth quarter and full-year 2021 financial results conference call. Joining me today is Castle's Founder, President and Chief Executive Officer, Derek Maetzold; and Chief Financial Officer, Frank Stokes.

00:45 Information recorded on this call speaks only as of today, February 28, 2022. 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. 01:08 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 and other matters referenced in our earnings release issued today.

And statements containing projections regarding future event or our future financial or operational performance, including our expectations and assumptions related to the impact of the COVID-19 pandemic.

01:41 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.

01:58 These factors and other risks and uncertainties are described in detail in the company's Annual Report on Form 10-K for the quarter ended December 31, 2021 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.

02:24 In addition, some of the information discussed today includes financial metrics such as adjusted revenue, adjusted gross margin, adjusted operating cash flow and adjusted EBITDA, which are non-GAAP financial measures that have not been calculated in accordance with Generally Accepted Accounting Principles in the United States or GAAP.

02:44 The non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue and cash flow 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. 03:11 I will now turn the call over to Derek..

first relates to the performance of our test.

10:33 Looking at survival outcomes that is death from all causes or death from melanoma, we found that patients who had a low risk Class 1 or Class 1A test result had actually a low-risk of progression and likelihood to dying from melanoma or death from all causes and those patients with a high risk Class 2 or 2B test result had a higher likelihood of dying from melanoma or dying from all causes.

This data was similar to what we've seen published in our retrospective and prospective studies, a good confirmation that the test performs as it has before in this large unselected patient population of clinically tested patients. 11:15 That's good.

While the replication of prior studies in this large real world unselected patient population is important from a standpoint of test reproducibility, the second result is far more important to our patients.

Specifically patients who received DecisionDx melanoma test results in addition to the traditional clinical pathologic features lived longer, been patients whose clinicians relies solely upon traditional clinical pathologic factors. This is important as it shows a strong survival benefit in patients who received DecisionDx melanoma test results.

11:51 We are looking forward to a full publication of this initial readout, as well as ongoing leakages over the next several years. As we think about additional 2022 dermatology franchise catalysts, we expect the potential draft LCD for DecisionDx-SCC by the end of the second quarter.

You will recall that the technical assessment dossier for this test was submitted from all DX review to PALMETTO in the second quarter of 2020. 12:18 And at that time, we expected to draft LCD sometime in 2021 with finalization in 2022. That timeline has been delayed.

Do we see a draft LCD in the second quarter of 2022? We would expect finalization roughly 12 months following, but sometime in the first half of 2023.

We continue to see adoption of the DecisionDx-SCC exceeded our expectations as the unmet clinical need here is significant, and we are proud of the impact our test is having on patient care and will continue to what we believe is the right thing for our patients, providing test results that impact treatment decisions and improve outcomes.

12:56 As part of our strategic growth plans, we begin development of our Gastroenterology Franchise with the acquisition of Cernostics and the TissueCypher spatialomics platform in December of 2021.

Our TissueCypher test for use in Barrett’s esophagus is a risk stratification test designed to predict progression to high-grade dysplasia or esophageal cancer.

13:18 We previously discussed our plans to hire a Gastroenterology commercial team of approximately 14 outside sales territories with additional medical science liaison and internal sales associate support. That team was hired, trained in the field in the second half of January.

I will remind you that regarding M&A, we generally consider opportunities that are in complementary or adjacent areas to our foundational business and allow us to utilize a proven dermatology playbook where we have the opportunity to address areas of unmet clinical need [indiscernible] supported tests.

13:52 [Technical Difficulty] provides a potential to grade a [indiscernible] commercial tests released by single clinicians and what we can realize early reimbursement wins. Our early progress within our GI franchise is exciting.

Initial response from providers is positive and with strong execution on our commercial strategy, our team is seeing a promising start in accessing providers. 14:13 Our 2022 metric has successful focus on a number of ordering clinicians, more so than order volumes.

The TissueCypher Barrett ’s Esophagus test is supported with 8 peer reviewed publications, and as a part of our increased investments in R&D for 2022, we have initiated multiple initiatives to support adoption by providers and payers.

14:33 Further, we will continue to assess the early adoption of our test and we expect to expand the commercial team sometime between mid-year and year-end 2022, but we will continue to assess the market response and determine what that expansion will look like based upon our initial market research, as well as a provider response, we would expect to end the year with approximately 30 outside sales territories.

14:56 Turning to our optimization work in our new Pittsburgh laboratories, we've already seen encouraging results. Floor plan and workflow reconfigurations of increased efficiencies was more progress expected throughout 2022.

We believe that our planned CapEx investments, including expansion of laboratory later in the year with additional headcount should allow for further enhancements to automation, a significant increase in throughput, and provide support for potential for future Gastroenterology test using the TissueCypher spatialomics platform.

15:26 Our expanded laboratory footprint should also enable us to use that facility and process our dermatology test as or if needed. As you know, our DecisionDx-UM test is the standard of care and managing the patients with newly diagnosed uveal melanoma. This estimated at approximately 2,000 patients are diagnosed annually in the U.S.

15:49 In 2021, we provided test results for 1,618 patients, a nearly 16% increase over 2020. We believe this increase in reports was due in part, the patients making up for lost [indiscernible] in 2020 due to COVID. Therefore, we expect to flat or even slight decrease in volume growth in 2022, compared to 2021.

16:11 Further, in 2021, our Medicare rate for DecisionDx-UM was $7,776, a significant increase over our 2020 rate. For 2022, our Medicare rate for DecisionDx-UM remains at $7,776. 16:29 Before I turn the call over to Frank, I want to provide an update on our inflammatory skin disease tests that's in development to predict systemic therapy response.

In 2021, we formed our steering committee with leading experts in the field, received [indiscernible] approvals for and initiated the development and validation study and enrolled our first patient. 16:49 We believe we are on track for launching this test by the end of 2025.

As we noted last year, if successful that the pipeline test would add an estimated $1.9 billion for U.S. TAM.

17:01 I will now turn the call over to Frank, who will provide additional detail relating to our financial results and what to expect in 2022? Frank?.

17:09 Thank you, Derek and good afternoon everyone. I want to reiterate Derek’s thanks to the Castle team. Their consistent execution led to a strong 2021 that positions us well to continue creating value for patients, customers, and investors.

17:22 In the fourth quarter of 2021, we delivered total revenue of $25 million, a 45% increase over the fourth quarter of 2020, but we delivered $94.1 million for the full-year 2021, a 50% increase over 2020.

17:38 Overall, the increased revenues are primarily attributable to dermatologic test revenues, reflecting an increase in test report volume, and higher per unit revenues.

Our 2021 per unit revenues benefited from having the expanded LTV for our DecisionDx-Melanoma test effective December of 2020, which resulted in a higher Medicare reimbursement rate for the test.

18:01 For 2022, our Medicare rate for DecisionDx-Melanoma is $7,193, also contributing to the revenue increase with a significantly higher Medicare rate for DecisionDx-UM of $7,776 that became effective January 1, 2021 and which will continue unchanged for 2022.

18:24 For the fourth quarter of 2021, we recorded net negative revenue adjustments of $0.8 million and for the year-ended December 31, 2021, we recorded net positive revenue adjustments of $3.3 million related to test delivered in previous periods. 18:42 I will remind you that these revenue adjustments result from key things.

The first is revenue from tests that we recorded on a cash basis. For example, our newer tests, for which we don't have sufficiently reimbursement history or coverage. And second, other adjustments up or down from revenue we previously include, due to changes in estimates and final adjustments upon settlement of claims.

19:04 Revenue adjustments related to test delivered in prior periods will fluctuate from quarter-to-quarter and over time. Our adjusted revenue, excluding the effects of revenue adjustments related to test delivered in prior periods was $25.8 million for the quarter, and $90.8 million for the full-year 2021.

19:22 In 2022, we anticipate generating between $115 million and $120 million in total revenue, driven by further consistent execution on our growth plans. Additionally, we anticipate our growth rate from the port volume to exceed our growth rate for revenue in 2022 and it is there for obtaining reimbursement coverage.

19:41 In order to continue to support and execute on our growth plans, we successfully scaled the organization in 2021 in alignment with our goals and headcount increased from 201 on December 31, 2020 to 345 on December 31, 2021, representing growth of approximately 70%.

20:00 For 2022, we expect further increases in total headcount, which we expect to be approximately 50% over our December 31, 2021 number. As of February 17, 2022, we had 382 employees. I will discuss our expectations for 2022 expenses in a moment and our expected increase in headcount is a key driver in increased expenses in 2022.

20:25 Our gross margin during in the fourth quarter was 77.6%, compared to 84.5% in the fourth quarter of 2020 and our gross margin for the full-year was 81.1%, compared to 84.5% in 2020.

20:41 Our adjusted gross margin, which excludes the effects of intangible asset amortization related to our two acquisitions and revenue associated with test reports delivered in prior periods was 82.2% for the quarter, and 82.6% for the year, compared to 80.6% and 84.5% for the same period in 2020.

21:03 As we previously discussed, in the near-term, we expected our gross margin percentage will decline, likely in the range of mid-to-high single-digits as we ramp up our investments to facilitate and support anticipated growth in report volumes that advance in obtaining reimbursement coverage.

21:19 These investments include additional laboratory personnel and related resources. Additionally, as we discussed, our GAAP gross margin will also continue to be negatively impacted by amortization of intangible assets associated with the recent acquisitions.

21:34 Our total operating expenses, including cost of sales for the quarter ended December 31, 2021 were $40.2 million, compared to $20.3 million for the prior year, and a $144.2 million for the full-year, compared to $69.2 million for the full-year 2020.

21:54 The largest driver of the 2021 increase was higher SG&A, which increased by $38.6 million compared to 2020, attributable to large part to higher personnel costs associated with our increased headcount, which includes expenses related to salaries, bonuses, benefits and stock-based compensation.

These higher personnel costs were primarily attributable to the expansion of our sales and marketing teams, as well as through administrative support functions.

22:20 The remainder of the increase in SG&A was primarily associated with the return of in-person and hybrid conferences increased peer-to-peer promotional programs and training events, as well as a returns to normalized travel costs.

22:34 R&D expense increased by $4.9 million in the fourth quarter, and by $16.4 million for the full-year 2021, compared to 2020, and it's primarily associated with increases in personnel costs, including increases in stock-based comp, attributable to additional headcount to manage and run our clinical studies and increases in other expenses associated with increased clinical study activity.

22:58 Total non-cash stock based compensation expense, which is allocated among cost of sales, R&D expense and SG&A totaled $21.7 million for the year ended December 31, 2021 compared to $8.3 million for the year ended December 31, 2020.

23:16 Looking forward to 2020, we are confident on our growth plans, designed to enable long-term value creation and driven by our investments to support our plans, we expect the following increases in expenses over 2021.

23:30 We expect our cost of sales, excluding amortization of acquired intangible assets to increase by 65% to 75% as we continue scaling in our Pittsburgh lab, as well as further prepare for our anticipated increase in volume for TissueCypher DecisionDx-SCC, and DecisionDx-Melanoma.

23:50 We expect to our R&D expense to increase by 50% to 60% as we continue to accelerate our plans to generate support for our Derm, GI, and pipeline tests. This increase includes additional clinical research and headcount. We expect SG&A expense to increase by 30% to 35%, as we continue to optimize our commercial teams in Derm and GI.

24:13 Expense increases in all prudence categories include significant increases in non-cash stock-based compensation, which we expect to be around $35 million to $40 million in 2022, driven by higher post IPO stock option valuations and additional awards outstanding due to growth in headcount.

24:31 Income tax benefit for the year ended December 31, 2021 was $8.7 million. The large non-recurring and non-cash income tax benefit was directly attributable to the acquisition of Cernostics.

Specifically, due to deferred tax liabilities associated with Cernostics, we were required to release a significant portion of our existing valuation allowance on deferred tax assets during the fourth quarter of 2021. 25:00 Our net loss for the fourth quarter of 2021 was 6.4 million, compared to net loss of 4.9 million for the fourth quarter of 2020.

And our net loss for the full-year of 2021 was $31.3 million, compared to net loss of $10.3 million for 2020. Diluted loss per share in the fourth quarter was $0.25, compared to diluted loss per share of $0.23 in the fourth quarter of 2020.

25:26 Diluted loss per share for the full-year 2021 was $1.24, compared to the diluted loss per share at $0.54 for 2020. Adjusted EBITDA for the fourth quarter and full-year 2021 were negative 6.9 million and 14.9 million, respectively, compared to positive 0.1 million and 2.6 million for comparable periods in 2020.

25:51 For the 12 months ended December 31, 2021, net cash used in operating activities was $19 million, compared to a positive $9.9 million for the same period in 2020.

It was primarily attributable to our net loss, as well as recruitment of the Medicare advance payment of $8.4 million, partially offset by non-cash charges in changes and working capital.

26:14 Investing cash flows during the 12 months ended December 31, 2021 was $66.7 million attributable to the acquisitions of the Myriad myPath Melanoma lab and myPath Melanoma test assets, and Cernostics for an aggregate of $63.2 million and purchases of property equipment of $3.5 million.

26:37 In 2022, as we further our position as a leader in the diagnostic testing, our near and long-term capital allocation priorities allow us to continue creating shareholder value.

These priorities include continued acceleration of our R&D efforts, to build on our expensive body of evidence that supports our marketing test, as well as develop our pipeline test. The continued optimization of our Derm and GI sales and marketing teams and opportunistic [indiscernible] bolt-on M&A.

27:08 Finally, we had cash and cash equivalents at December 31, 2021 of $330 million and no debt. With this strong balance sheet in mind, a reminder that in 2021, our net cash used in operating activities was $19 million and our adjusted operating cash flow was a use of $13 million.

I want to outline what we believe is our line of sight to cash flow neutrality, the detail [indiscernible] that could impact that. 27:35 As the macro environment continues to evolve, we understand the shift taking place in the sector from primarily top-line growth focus to include a better understanding of a path to profitability.

27:45 As you know, we continue to deliver very strong gross margins, demonstrating an effective pricing strategy, and efficient use of our resources to maintain COGS even with our significant increase in testing volume.

We're a growth company and believe in our 2022 growth plans and the investments we’re making in our infrastructure, including in the areas of commercial teams, accelerated R&D initiatives, reimbursement, and we will continue to build our foundation for future growth and profitability.

28:12 However, we will closely monitor our investments and assess our performance and we'll pull back these levers as warranted and appropriate to secure our future growth and profitability. 28:20 With that, I'll turn the call back over to Derek..

28:23 Thank you, Frank. I would like to conclude today by thanking our Castle team. Our excellent progress in 2021 is due to their accomplishments. We look forward to continuing this momentum in 2022. 28:35 This concludes our remarks. Thank you for your continued interest in Castle. Operator, we are now for Q&A..

28:46 Absolutely. [Operator Instructions] Our first question goes to Mason Carrico with Stephens. Mason, your line is open. You can go ahead..

29:31 Hi guys. This is Jacob on for Mason. Thanks for taking the questions. Just a quick one for us.

For your GI sales force, how much of the [indiscernible] clinicians do you think you can reach with the 13 or 15 reps you currently have? I was wondering maybe there is a high volume subset that you've have identified and our targeting initially?.

29:55 Yes, excellent question. They certainly have targeted list and of course, it's a wide open opportunity here since there really wasn't commercial effort at Cernostics before the acquisition.

There are a sort of referral group within Gastroenterology, you could call them sort of [indiscernible] or clinicians who do more of the ablation work, which is kind of a limited sub-set, maybe 15%, 20%, maybe 10% of Gastroenterologist, they might represent a slightly higher patient throughput of seeing diagnosed patients with Barrett’s esophagus, but the majority of any Gastroenterologist who is not specializing in lower GI work will, kind of be a reasonable target for us.

Hope that answered that question?.

30:47 Yeah. That did. Thank you..

30:52 Thank you, Mason. Our next question goes to Catherine Schulte with Baird. Catherine, your line is open. You can go ahead..

31:01 Hey guys thanks for the questions.

I guess first on the revenue guide, where are the assumptions in there for TissueCypher and for the core business, what does that assume in terms of trends and web access and a recovery in melanoma diagnoses?.

31:19 Hey Catherine. Thanks. So, as you know, we give guidance based on conditions as they exist today. We're not in the business of predicting COVID trends or resurgence or [BA2] [ph] or whatever the new flavor is, but as we see it today, we've got good access. There's still a lag in diagnoses, but it feels like it's slowly closing the gap maybe.

And we do have a little bit in there from TissueCypher, but we're not being too aggressive on that. 31:49 It's a great test and we're excited about the commercial team, but it's early days yet. So, we want to see how the conversions go before we get too much baked in for TissueCypher..

32:07 Okay, got it.

And you talked about I think 90% of calls being in person in the fourth quarter, but how does the overall number of sales calls or maybe calls per rep just given your expansion, how does that compare to pre-COVID levels? I’d just be curious how much of a rebound do you think there’s still to be in terms of calls, pop volume from here?.

32:30 Yes. So, I think back to pre-COVID, it almost seems like pre-historic, right. If you think back to pre-COVID levels, we had just expanded to 32 sales representatives in December 2019 and we were – went-up from 15 to 23 territories in February 2019 just before we went public.

So, the 2019 comparison pre-COVID is probably off of the base of probably 23 FTEs for the course of the year. And as the listeners will recall, we went from 32 dermatology sales representatives to the mid-60s in the middle of 2022. 33:10 So, maybe the FTE was of the course of the year, probably 50-ish maybe just for the whole year.

So, with that kind of, compares to mine, 23-ish to 50-ish we certainly had more calls than we've had in the fourth quarter of 2021 and the same with third quarter of 2021. 33:31 And we are seeing of course more than 90% being in-person in those two in the second half of 2021.

We are still a little bit below our, sort of pre-COVID levels in terms of number of customer calls per day. I think we reported that around 20%. We were shy in the third quarter of this year. I didn't think we did release the fourth quarter, but it improved a bit there. 33:57 So, not quite back to pre-COVID levels there for say now.

What I don't know is that a reflection of COVID or is that a reflection of having essentially 3x number of sales representatives across the U.S. marketplace and that just sort of reduced the opportunities for calls per day. 34:16 So, that I don't point out to answer. So, we feel that there probably is still room to improve.

In 2022, the number of customers we're seeing per day, but it won't be that dramatic and the fact that we continue to see throughout the fourth quarter interest in our clinicians to see us in person, I think it's a mixture of having in this case, three different products or test solutions to [indiscernible] to a single customer.

34:44 And I think the way we look for our representatives to manage their territory, which is that you are the clinical expert when it comes to genomic testing for these conditions and they present viable information to our customers. I think that's why we have good access throughout 2021 certainly..

35:04 Alright, very helpful. Thank you..

35:08 Thank you, Catherine. Our next question goes to Puneet Souda with SVB Leerink. Puneet, your line is open. You can go ahead..

35:19 Yeah. Derek, Frank thanks for taking the question. So, I have two and I'm going to wrap that into sort one question, and get back into the queue. So first one, really it seems like based on what Frank has provided, this is going to be an investment year for you.

So, maybe could you just update us your cash burn expectations overall for 2022 and wondering we should expect a moderation from that in 2023? And does this change your long-term sort of gross margin expectations and when thinking about profitability, I mean, do you see maybe DecisionDx-Melanoma being cash flow breakeven at some point? 36:00 And the last one, around the EMR system that you mentioned, maybe Derek at the high level if you could talk to what that means for ordering patterns among the dermatology practices and how broad is the use of this EMR for the Derm practices? Thanks for taking those questions guys..

36:20 So, I think I'll take the last one first and Frank can handle the cash [indiscernible]. Okay. Thanks Puneet. So, our understanding is that the largest EMR system in dermatology by market share is modernizing medicines MS System from an EMR perspective.

And that's largely because I think it's a system built towards office based procedures and as we know, the vast majority of are dermatologists are office basis private practice individuals. So, that fits their model. 36:55 We have all of our dermatology cash flow to the end of system.

The location certainly must take just DecisionDx-Melanoma as an example is that when a clinicians sees a patient who's then diagnosed with melanoma, one of the sort of dropdown down menus that you'd expect to go ahead and see in any EMR System is what you do next, i.e.

what's the treatment plan options and one of those options that now pops up is the Castle Biosciences DecisionDx-Melanoma test. 37:24 So that's where it sits. It makes ordering easier.

It's a couple of clicks to go ahead and say yes that want to order the Castle test on there’s patient and that kind of sends off to us, both a sign a physician form from that doctor, as well as the associated pathology reports. That's a smooth system.

So, what does that mean in terms of potential upside? 37:47 I think we're just rolling that out now with the agreement being signed in December.

So, it's too early to say, we have this impact, but our expectations would be, if we have a current customer who's using DecisionDx-Melanoma for appropriate patients in their practice, I would expect that we would see less, sort of loss customers might be seen on a Friday afternoon, for example.

And so, we have some reminder advertising gains, in that sort of a customer just because we know that there were always appropriate patients who might fall through the cracks here or there. So, that's one area of improvement.

38:28 I do see, we do believe based upon interactions with some of our dermatology customers who are [dabblers] [ph], you might say it or you know there is use it here or there, but they don’t see melanoma that frequently or our actions is a bit limited to maybe they aren't thinking about our test all the time.

I think having that sort of drop down on the treatment plan page enables us to have a reminder opportunity that's right there in front of the doctor to ignore as opposed to having them to recall.

38:57 So, I do think we should expect to see some improvements in terms of tests of number of appropriate test orders coming out of individual, kind of a dabbler or just getting adopted clinician who may not have DecisionDx-Melanoma test in the forefront of his or her mind all the time.

39:13 I think that a clinician who either had zero access to or maybe has reviewed our test and doesn't want to use it, I think it's a far stretch to think that sort of a reminder advertising opportunity like that will actually drive initiation, but I look forward to be proving wrong.

Does that kind of get a hand of what you're thinking about?.

39:38 Yes, I will add and finish the question Puneet. So, you’re right. This will be an investment year and we did try to get some granularity to what we see as increases in the various categories down the P&A.

You'll see volumes certainly – volume growth certainly exceed revenue growth due to the delay in the Medicare reimbursement cycle that Derek referenced earlier.

40:05 However, we still have, as I mentioned, very good line of sight on cash flow neutrality, and when you look at the volumes we report for squamous cell, for example, you can see what the impact would be to cash flow if we were getting paid by Medicare on that. 40:23 So, we're going to continue to deliver those reports.

We think it's important to serve patients with them and we want to have that test offering be at a run – full run when we do have reimbursement appropriately in place. 40:36 And then on the gross margin, as you know, we have begun to break out an adjusted gross margin to take out the amortization.

There's intangibles associated with both myPath and Cernostics and that flows through the COGS line. So, we've taken that out to offer a better view of how the business is performing. We will see the gross margin continue to be impacted by these tests we're delivering without reimbursement in place, but as we've said, I think this is the key.

41:07 All of our Derm tests, all three Derm tests run on exactly the same instrumentation with the same people and very, very similar consumables. So, the COGS difference for those three tests is really just a handful of dollars. And so, the gross margin for Melanoma is very durable. It gives what it was prior to our launch of our new tests.

And will be – and the impact is nearly the test reports that we're providing without being – without accruing revenue brings that down.

41:44 Now, so that's a little bit of [money] [ph] in the water right now, but what's important to remember, I think is when we do get reimbursed on those tests, that cash drops all the way down to operating income, because we've already reflected the COGS for the test to deliver the tests, and we've already reflected the sales and marketing effort to generate the order that resulted in the report.

42:05 So, when we do have that reimbursement in place, that will drop all the way down and we'll have a big impact. And as we go through the year, I mean sort of proforma what it would look like if we were in a reimbursed environment on that test..

42:25 Thank you, Puneet. Our next question goes to Paul Knight with KeyBanc. Paul, your line is open. You can go ahead..

42:34 Hey guys. This is Harrison on for Paul. I was wondering if you guys could just kind of talk a high level as to how Omicron impacted your business in 4Q. It seems like we – there’s good momentum in terms of overall volumes and I think you called out growth in the call volume as well over 3Q.

So, just kind of wondering how Omicron affected you guys in the quarter, kind of what you're seeing there so?.

43:06 Yes. So let me have a thought out here. So, maybe sort of thinking that top down, so we did not see any sort reversal in sort of representative access or sort of number of calls per day that were achieved. So nothing on sort of a promotional responsiveness perspective from that perspective.

43:28 We did see overall, I think in 2021, we had about 11% reduction in the overall diagnoses rates of melanoma compared the 2019 and that was 9% below 2019 for the fourth quarter.

So, we saw continued improvement in terms of return of diagnosed skin cancer patients in the fourth quarter, compared to the other three quarters in 2021, just by that 9% versus [indiscernible] ratio.

43:58 So, I don't know patient flow was impacted by Omicron I have to believe it probably was, because that had been 6% down or 3% down perhaps and it came in at 9% down that probably is the only tangible part I can see there Harrison in terms of the impact of Omicron in the fourth quarter..

44:19 Got it. And if I could just kind of follow-up as well.

Just kind of following up on the overall headcount in trends that we're seeing here in OpEx, how do you guys think about the headcount increasing in the outer years and where OpEx might find a place to generally settle?.

44:42 So, maybe I’ll cover salesforce area or commercial side, and you can cover the rest Frank. I think in terms of, sort of the sales and marketing investments, as Frank mentioned earlier, I think response to Stephen’s question, we think that we may end up peeking out in dermatology over time, It maybe 80 to 100 representatives.

We’re kind of in the mid-60s right now. 45:15 Most dermatology companies have that range and when they sort of fully matures, that’s probably a number to think about in dermatology, if we have a single line of representatives there.

45:25 Gastroenterology is a little bit lighter it appears, and maybe part of that is because they're in a little bit larger groups overall. So, you can perhaps catch more customers at a single call point. It could be at a Gastroenterology over time ends of picking out.

What do you think Frank between [16-18] [ph] is probably a reasonable number, but I think that's over time and over the number of products we have in our bag, that we can offer up.

45:49 So, those are sort of sales and you have associated medical science, the liaison support inside sales associate marketing personnel as the fraction of those multipliers. Can you comment on the rest of the organization..

46:02 Yes. So, what you see there, Harrison as most of the growth is in R&D and in marketing. In terms of the cost center part of the business or the non-revenue generating part of the business, the increases are much lower. So that's where most of that growth is, is in those drivers of the business that will drive revenue in [2023, 2024, 2025] [ph].

And I guess the last thing I would just say is, as we sit here today, we have a tremendous market opportunity and we're excited to keep expanding our penetration of each of these areas now, each of the three Derm tests and as we begin to penetrate on the GI side and the possibilities are certainly exciting and we're committed to that..

46:53 Thanks guys..

46:55 Thank you, Harrison. Our next question goes to Kyle Mikson with Canaccord. Kyle, your line is open. You can go ahead..

47:05 Thanks. Hey, guys, thanks for taking the questions, congrats on the quarter. And I just apologies in advance, if I touch on anything that was already covered, but had a few questions for you. So, again on Omicron, obviously it kind of hit hard in the first quarter or in the first quarter.

So, in January, I was wondering if you could talk about like the percentage of Melanoma diagnoses, how far below based on, was that, like that [indiscernible] below the 4Q level? I think that was 9%. And then how do you think that baseline sort of relative thought process will come above all throughout the year? Thanks..

47:41 So, no, no, no is the short answer. So, we purchased our third quarter, a third party diagnostic data from Symphony Health. They run anywhere from 4 weeks to 6 weeks after close of a month before the sort of diagnoses in that month of interest are kind of sold out.

So, we're nearing what it should look like, but to be honest, there's a little [indiscernible] still. So, I'm uncomfortable getting you a number in January. I don't think it be a worsening to be honest in terms of what we saw in the fourth quarter of 2021.

48:18 The only exception might be is, there were a couple of snow day issues, and you've got a couple of holiday issues in January, but if you average the fourth quarter maybe a little different there. So, we would have to do kind of diagnosis per day analysis.

We typically see that first week of January is quite variable based to upon on the January 1, December 31 New Year's Day pops over. 48:42 So, when we don't have a data that we'd be able to cite this. I don't think personally that I’ve heard any sort of a patients weren't showing up, people were canceling in January because of Omicron for example.

So, I think we would see nothing that would be sort of COVID related and probably more just to your typical mid-winter seasonality impacts..

49:06 Okay. Thanks, Derek, that was helpful. And you guys have 330 million on balance sheet and the [indiscernible] in 2021, which was great. And I heard the investments you are going to be picking up this year, I saw the guidance for the expenses, that will make sense, I guess.

I'm just curious of what – if you're ready for the next deal, would you strengthen the Derm side, like you do with myPath or would you guys think about the GI side like you did with Cernostics? And obviously I noticed the, kind of [indiscernible] things like the kind of components of the slides earlier.

So, I’m just curious like what you're thinking about in terms of like strategic capital deployment for this year and next year, going forward?.

49:43 Yeah. So, maybe I’ll talk in terms of what we've been thinking about pre-IPO in the last couple of years, that's been a little not hampered, but impacted by COVID mind.

So, we have a very strong balance sheet to, I think number one, as you pointed out earlier to make the right investments in 2022 without worry, about having us being a corner from a balance sheet perspective. So that's a great place to be in.

50:10 My hope, call it in 2025 is to put a time with [around staff] [ph], my hope in 2025 is that we have two or three of our dermatology pipeline programs come to successful completion and we're looking at five or six or six seven dermatology products or tests that we offer that dermatology commercial call point.

Those could all be organic if they're only pipeline, it could be that refined additional assets like myPath to kind of fold-in to our current commercial investments. So, those are areas that we look at all the time.

50:44 In Gastroenterology, our interest in Gastroenterology wasn't just a one trick pony and Barrett’s esophagus, but it was really thinking through on a commercial call point perspective of do we believe there are a number of interesting call points in Gastroenterology that clinicians could be making better more informed decisions if they had access to advanced diagnosis like we offer in dermatology, and our conclusion was, yes.

51:13 And from there, the question became, well do you want to go and build this internal only or actually look for some interesting assets out there and that's where Cernostics came along.

So, from my perspective, in 2025, I would – our expectation here is that we'll have hopefully not just one product, but will have two or three or three or four tests for use in Gastroenterology – in the Gastroenterology marketplace that will be well received by that customer base. Now, those might come from internal opportunities.

They might come from acquisitions. So that's something that we're looking at.

51:46 And of course, the other question is that our interest in Gastroenterology was to say, do we feel comfortable there are other areas in the marketplace of diagnostics where we should acquire, we should build out organically a test or a business and yet we have dermatology, we believe Gastroenterology will reflect dermatology in a couple of years, is there another one that looks like that and those are certainly cards on table at this point in time..

52:18 Okay, great. And then I just want to confirm, using, kind of spatialomics platform from TissueCypher and Cernostics, going forward is that going to be the GI test are leveraging that or could you expand to, I mean oncology or dermatology, kind of using spatial stuff for that as well. I just want to be clear about that..

52:37 That's an excellent question. I should have answered that first time around. So, the other nice, I guess you will call it asset from Cernostics is that as a company, we focus predominantly on discovery using AI tools using gene expression profiling as our platform of interest.

52:56 I think we could all look ourselves in mirror and say we really had limited expertise or certainly limited experience looking at a spatialomics approach. So, I think one of the nice sort of pickups for free, you might call it, is that additional technology platform. I would not limit that just to Gastroenterology opportunities.

We think there may be opportunities in dermatology space to potentially leverage that.

53:21 And as we go through with our additional pipeline programs internally, that certainly is one expertise area that we now kind of own and can make a pretty quick call saying, let's go ahead and think about both pathways, gene expression profiling, and let's look at spatialomics to answer this specific question and we'll take the right platform because we have the expertise in-house..

53:46 Great. Sounds promising. Thanks for the questions. Appreciate it..

53:51 Yes..

53:54 Thank you, Kyle. Our last question is to Thomas Flaten with Lake Street Capita. Thomas, your line is open. You can go ahead..

54:04 Hi, thanks Good afternoon guys. Just two quick questions.

With respect to the SEER data, I know you in your prepared comments you mentioned that you're looking forward to a publication, would that be based on the data that's been run so far or are you going to hold off until you do additional linkage with more recent data? How should we think about that?.

54:23 Excellent question. So, we purposely presented just an initial analysis of the SEER data at that dermatology in the earlier January looking at a subgroup of the overall dataset. So, our expectation here is that with the recent linkage updates is that we’ll have a fuller complete population analyses as part of the primary publications going out..

54:50 Got it. And then one on the DiffDx, myPath.

So, if you guys run myPath initially and you get an indefinite result and you reflex to [DiffDx-Melanoma] [ph], is that blinded to the provider? Is it done kind of at your cost just to keep the results at that 99% level? I'm just trying to think of how you guys think about the economics of that and kind of the service level of it?.

55:17 Yes. So, we do indicate – so in that situation where we processed myPath first, it came back with an intermediate score from myPath, and we run a subsequent, the same sample on the DiffDx-Melanoma on that report, we do alert the clinician that this with an intermediate result from myPath, so they have that perspective with them.

55:41 Now, while we could say that because you're issuing two results, you should go and yield for both test, we don't do that at this point in time, we don't think that's appropriate..

55:52 Got it. Appreciate the clarity. Thank you..

55:55 Thanks Thomas..

55:57 Thank you, Thomas. There are no further questions registered at this time. So, I will pass the conference back over to the management team for any closing remarks..

56:12 Thank you, operator. This concludes our fourth quarter and full-year 2021 earnings call. Thank you again for joining us today and for continued interest in Castle Biosciences..

56:28 That concludes today's call. Thank you for your participation. And you may disconnect your lines..