Castle Biosciences Inc Q2 FY2020 Earnings Call

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 appreciate you joining us today. This afternoon, I'll discuss COVID's impact on 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 the impact of COVID-19, thanks to the strong execution by our employees, we're successfully navigating these challenging times. We're pleased that we maintained strong gross margins, saw a year-over-year increase in revenue, and delivered positive operating cash flow. Additionally, we're making strong progress on our near and long-term strategic growth plans. Importantly, to serve patients diagnosed with melanoma and the clinicians who treat them, we maintained uninterrupted access to our proprietary DecisionDx-Melanoma test and our DecisionDx-UM test, with normal turnaround 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 declined 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. While 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 into the current demand and our expectations for increased test report volume. We believe the second quarter 2020 year-over-year decline in DecisionDx-Melanoma test volume is due to the closure of dermatology practices and delays and/or cancellations in patient visits, resulting in reduced diagnostic biopsies and thus reduced diagnoses of cutaneous melanoma. Our DecisionDx-Melanoma test is ordered by physicians after a biopsy takes place and a 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, but since April, we have seen monthly sequential improvement in DecisionDx-Melanoma orders, leading to a year-over-year increase in June, which continued with year-over-year gains in July. To 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 rescheduled patient visits, which have generally coincided with the easing of state and local government restrictions. According to data published by the Commonwealth Fund for the week of June 14, business to dermatology clinics has returned to their February 2020 baselines. Additionally, since April, we have seen the rate of DecisionDx-Melanoma orders outpace melanoma diagnoses. This is partly attributable to our commercial team's 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. 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 for the impact of COVID-19 on our UM test, monthly year-over-year comparisons are difficult to interpret due to the low incidence of UV melanoma. That said, we believe the year-over-year decrease is attributable to the pandemic, and we expect recovery in the incidence of UV melanoma and thus our order volume to be time-shifted relative to the recovery we observe for the DecisionDx-Melanoma test. On our first quarter earnings call, I shared some thoughts about how we’re investing in the company to facilitate our strategic growth plans and remain in a position of strength as we move through the current COVID-19 situation, as well as laying a foundation for executing for the remainder of 2020 and 2021. I will discuss our recent progress on these plans now, which include significant evidence development, advancement of our pipeline test, and the expansion of our commercial team. In the second quarter, we saw great progress in publishing evidence to support the 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 patients with invasive cutaneous melanoma, achieving 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 and other organizations to evaluate the quality, quantity, and consistency of evidence to support tests 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 the DecisionDx-Melanoma test to 25. The first clinical use of our test is to 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 the continued progress of our pipeline test, which will allow us to expand our services for patients diagnosed with early-stage skin cancers. We are on track 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 designed to identify patients' risk of metastasis to enable more informed risk-appropriate clinical decisions regarding adjuvant therapy and other management options. In the second quarter, we saw three peer-reviewed publications supporting our DecisionDx-SCC test. This includes development and validation data which were published in Journal of the American Academy of Dermatology (JAAD). The results demonstrate that DecisionDx-SCC is not only an 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 work needed to launch our second pipeline test 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 pathologists in making more informed diagnoses for suspicious pigmented lesions that cannot safely be ruled out as benign or ruled 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. 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 launch of DecisionDx-SCC. You may recall that in 2019, we more than doubled our commercial team, and despite the pandemic, we remain well positioned to continue executing on our strategic plans for further commercial expansion 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 have implemented to support the 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 study which will collect long-term outcomes for up to 10,000 patients who have been tested 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. 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 unchanged. In the second quarter of 2020, we reported revenue of $12.7 million, an 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 tests 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 the result of increased operating leverage on 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, which was partially offset by the benefit of $1.9 million in 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 costs, 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 cancellations and restrictions. Regarding our R&D expense, we expect further increases as we fill critical roles for 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 revenue 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 to 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 stockholders for the three months ended June 30, 2020, was $0.08 compared to $1.05 for the three months ended June 30, 2019. We generated positive operating cash flow for the second quarter of 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-year period. 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, our 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 the 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 for near and long-term growth. I'll now turn the call back over to Derek.

Thank you, Frank. Before we move on to 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 continued 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. Our first question comes from 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. 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, 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 just as it relates to Q1, just keep in mind there that there is a lag between orders and reports, 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 the natural cycle between order and report means that most of that revenue impact was pushed over into 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. I assume 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.

From a launch standpoint, we expect to make that available clinically as we talked about in the call in the September timeframe. We did have the awareness of caution, I guess, to go ahead and switch our national training meetings that launched to have a virtual format. However, we expect, based upon the adjustments our team has made in commercial, that they'll be highly effective in training up both our sales representatives and our medical science liaisons, as well as the rest of the customer-focused team, to be ready to launch this first pipeline test effectively in September. I would concur; I think on volumes I'd almost rather not comment. I think new product forecasting is tough anyways. But you're right; I would expect nothing material in the third quarter of 2020 because if we get that out in early September, by the time we would get orders coming in, the quarter is almost over. So I think the first indication probably is at the end of the fourth quarter. Our forecasting expectation is that we will be well-staffed to handle a nice and effective launch, and we'll look to refresh our forecast probably at the end of the first quarter next year after a couple of quarters of uptake.

Okay, that's great. And if I could ask on, in the current quarter, as you're seeing pickup across, as you pointed out in July, you were continuing to see improvements across the business. Can you elaborate on 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? Do you expect or would you expect that to normalize in August and September? I'm largely asking that because we were hearing some of the dermatology practices that they were trying to accommodate a backlog of patients.

Yes, 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 Q1 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 a localized basis, they were planning on going from working an average of four days a week to five days a week to catch up. They were hoping to accommodate the deferred or delayed or canceled appointments, and they also indicated they would try and prioritize biopsies earlier ahead of other kinds of normal clinical follow-up visits, presumably because that's probably the more medically concerning aspect. I don’t have a definite sense if the sort of pickup that we saw from April to May, and from May to June, and June showing over last year, and July being over last year's volume as well, is an indication of more volume due to these extended hours. I mean if that's being seen coming through or not, I think it all points to patients hopefully being treated properly at the right cycle that would lead to subsequent orders and reports for us. So we feel good about that, but I can't point to whether it's due to extended work hours or just a general increase in patient load. 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 you 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 practice-changing outcomes? If you can elaborate on that. Thank you so much. Thanks for taking questions.

Sure. We'll go into more details on that a little later in the quarter, I think separately. But the personalized study is really focused on assessing the value of our test in 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 stage 1 or stage 2 patients where they're really concerned as a clinician and patient about undergoing a semblance of biopsy procedure and/or how to follow the patient afterwards concerning imaging, etc. So, we might see a more rapid penetration of our TAM, but I would not add that on top of our current TAM calculation since we already have that included for stage one, two, and three. On the CONNECTION study, that protocol is being looked at on clinically tested patients. We're hoping to have around half of the patients true prospective and half the patients sourced from recent retrospective clinically tested patients. This will provide a significant dataset for us to establish clinical use and also realize outcomes at a level that hasn't been seen, certainly in the skincare diagnostic business.

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 targeted at your existing customer base and also leveraging your current sales force? I'd love to hear some initial plans there.

Excellent, Sung Ji. Our existing sales force, 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, suggests that this will largely align with our current cutaneous melanoma customer base. So we expect most surgeons and medical dermatologists who are current customers to be our initial uptake orders for this test, as it fits their exact focus and need directly. Our expectation is to walk in there with a dialogue around our cutaneous melanoma assay to reinforce the value of what they get out of that test, and then show our clinicians where they may also benefit from the new test. So that's kind of the thinking right now as we would target predominantly our current DecisionDx-Melanoma customer base.

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. I'm seeing, and I'm not sure if I'm reading too much into it, but from your higher per unit revenue this quarter, there seems to be a modest sequential increase as well. Obviously, year-over-year, I'm curious if you're gaining more traction on the commercial payer side or just in this pandemic environment, if conversations with private payers are evolving, I’m curious how that’s progressing, if there might be more thinking outside the box given what's going on in the world.

Yes, I'll add maybe a couple of comments and Frank can correct me if I'm wrong. With the exception of one or two plan interactions early in late March, early April, where we had a 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 most managed care groups as offering significant resistance in terms of the review cycles they would conduct for our DecisionDx-Melanoma test. As you may recall from the IPO last year, we had a number of plans that we expected to complete the review cycle in the third quarter this year. Most seem to set up in the first quarter of every year, and I am aware of some positive interactions ongoing right now that should lead to some improvements over coverage. I don't think that this trend is related just to COVID, but rather it’s maturation of our data. The publication of both the initial and subsequent systematic reviews and meta-analyses providing level one evidence is hard to ignore.

Great, and then just lastly from me, on UV melanoma, it's obviously a small part of your business now. Just curious, given the volume declines were pretty comparable to the declines you saw for melanoma, it makes sense given physician office shutdowns or how sales are prioritizing other things, there's delayed diagnosis, etc. We're curious from a recovery standpoint, do you 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, and I think we'll see the recovery happen. As you may recall from the early COVID commentary, when we reviewed how patients with melanoma are typically first diagnosed, US-based literature suggests that around 80% of patients end up getting diagnosed with melanoma through self-detection, either by themselves or by a family member or friend. Our internal models suggest that after COVID, patients will become less anxious about visiting their doctors more quickly for visible lesions like melanoma. We’ve gleaned data from our ocular oncology customers, the retina specialists treating eye tumors, and based on that, I think we'll see a slightly slower recovery for that UV melanoma test because many of these patients are being diagnosed incidentally during routine eye exams which were largely shut down for the second quarter. I can't ascertain the exact timeline on that, but I think ultimately we'll see a delayed issue behind melanoma tests—a challenging endeavor given the rarity of UV melanoma.

I think the key there is just the small patient numbers make that a little bit more difficult 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 see a year-over-year increase in July. I was curious even just directionally versus June, how has it trended? Specifically, I'm trying to dig into whether you guys are seeing pullback, given that COVID has sort of flared up in early July. I think we've seen that consistently from peers, just curious if you're seeing the 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 to look at things on a quarter-by-quarter basis. However, I don't think we have seen the tightening up in some areas or the retightening in some areas. We haven't observed that effect on physician encounters with dermatologists and their patients. In contrast to the early days when physicians and healthcare providers hesitated to see patients, most parts of the country now are actively encouraging patients to not delay their healthcare needs. We recognize uncertainty remains, but we haven't seen indications of any significant pullback in demand so far.

Okay, thanks for the color on that. Just one more, if I could dig in a little bit more to your thoughts or strategy behind the pipeline launches in the back half, specifically just around physician access and the ability to get the product in front of reps. I'm just curious; I know you guys had mentioned you had done some training virtually, but just any thoughts on how that launch looks in a COVID environment compared to what we would typically think of as a new product launch?

I guess I would say, compared to a typical new product launch, our commercial team would usually rely upon in-person training sessions as a primary learning experience. We would have developed a group of speakers, most of them being investigators who developed the squamous cell carcinoma test, who would be excellent peer-to-peer speakers. Those in-person meetings have largely been canceled due to COVID-19. I think while we see resilience in our current customer engagement levels on our existing product, the reliance on in-person supplies for training and peer-to-peer opportunities will be limited. So it may not have the same immediate impact that we would expect in a non-COVID environment. However, we do feel confident that engaging customers to enhance the dialogue around current products helps integrate new products into their clinical decision-making.

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 have you implemented and how are they resonating with dermatologists in the current environment?

Yes, two actual questions, Max. I think we did see some commonality in our sales expansion that occurred December 1, 2019, a nice acceleration in new ordering doc growth in Q1 2020 over Q1 2019 as you saw the release of the script that got reduced. This was a direct result of lower face-to-face interactions. However, our recovery efforts seem to match the recovery flow of overall orders, which feels pretty good for the third and fourth quarters. We have a number of clinicians who are beginning to engage through virtual interactions, which we view positively. While it’s not as effective as in-person meetings, physicians are still able to grasp the data being shared, driving new orders. So I think the recovery of new ordering doctors is aligning with the overall orders, which bodes well for the future.

I concur. I wouldn’t add anything to that.

Great, so now your balance sheet is fortified. I know you're investing in 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?

I won't discuss M&A; Frank can elaborate on that. Fortifying the balance sheet with the follow-on raise that we executed in late June was a positive development for us. In early January 2020, Frank and I sat down with the management team to discuss where we wanted to see ourselves in 12 months. We wanted to ensure that by the end of the year, we could continue our investment in our cutaneous melanoma test to enhance utility and drive data generation. We aim to initiate several timeline-based pipeline programs, and COVID has not changed our strategy to do so. We will be aggressive in our focus to capitalize on our R&D initiatives and properly execute our growth plans. Specific initiatives include the DecisionDx-Melanoma studies that we initiated earlier this spring. A portion of the proceeds will undoubtedly be used for R&D in cutaneous melanoma.

Yes, we’re certainly open-minded about M&A opportunities and happy to consider them. However, I would note that we’re still only about 15% penetrated in our melanoma product, which represents a $500 million total addressable market, and we’re about to launch two new products that provide access to another $1.5 billion in opportunities. We believe we have enough runway ahead of us that spending excessive time looking outside of our current trajectory would be unwise.

Great, that's it from me. Thanks.

Thank you. And I’m showing no further questions at this time. 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 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.