Castle Biosciences Inc Q2 FY2022 Earnings Call

Good afternoon, and welcome to the Castle Biosciences Second Quarter 2022 Conference Call. As a reminder, today’s call is being recorded. We will begin today's call with opening remarks and introductions, followed by a question-and-answer session. I would like to turn the call over to Camilla Zuckero, Vice President, Investor Relations and Corporate Affairs. Please go ahead.

Thank you, operator. Good afternoon, everyone. Welcome to Castle Biosciences' second quarter 2022 financial results conference call. Joining me today is Castle's Founder, President and Chief Executive Officer, Derek Maetzold; and Chief Financial Officer, Frank Stokes. Information recorded on this call speaks only as of today, August 8, 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. 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, estimated U.S. total addressable market or TAM and similar items referenced in our earnings release issued today and statements containing projections regarding future events or our future financial or operational performance, including our expectations and assumptions related to the impacts of the COVID-19 pandemic. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties, and there can be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's quarterly reports on Form 10-Q for the quarter ended June 30, 2022, under the heading Risk Factors and in the company's other documents and reports filed with the Securities and Exchange Commission. These forward-looking statements speak only as of today, and we assume no obligation to update or revise these forward-looking statements as circumstances change. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue, adjusted gross margin, adjusted operating cash flow and adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP. These non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing business and financial performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website. I will now turn the call over to Derek.

Thank you, Camilla, and good afternoon, everyone. Today, we are pleased to share that Castle Biosciences delivered another strong quarter, growing revenue by 53% and total test report volume by 57% when compared to the second quarter of 2021. Based on our results in the first half of the year and the momentum in our business, we've increased our full year 2022 revenue guidance to $130 million to $135 million, representing anticipated growth of at least 38% when compared to 2021. Before we discuss the quarter in more detail, I want to thank all of our Castle employees for their hard work during the quarter and continued dedication to our mission of improving health through innovative tests that guide patient care. Today, I will take you through execution and strategy highlights from the quarter, and then Frank will provide financial highlights for the period, and then we will take your questions. Let's start with our core dermatology business. For our skin cancer test combined, we delivered a 44% increase in test report volume in the second quarter when compared to the second quarter of 2021 and a 16% increase over the first quarter of 2022, delivering 9,424 test reports. And for the six months ended June 30, 2022, we saw approximately 1,200 new ordering clinicians and approximately 5,661 total ordering clinicians for dermatologic tests. For DecisionDx-Melanoma, we delivered 7,125 test reports in the second quarter, an increase of 39% over the second quarter of 2021. As we had discussed, 2022 is a year of thoughtful, strategic and tactical investments that we believe will drive both near-term growth with our current assets and continued growth in the midterm. And we believe this quarter of strong organic growth, which led to record test report volume, is a result of the continued execution on our plan. I do want to remind you of the typical seasonality of our dermatology business for the second half of the year, where sequential growth rates typically slow down or become flat. That is, our third quarter is generally flat or down compared to the second quarter, and then the fourth quarter estimates remain flat or slightly down compared to the third quarter. Based on our preliminary analysis from third-party diagnoses data, we believe that this seasonality trend of melanoma diagnoses is largely back to what we saw prior to COVID. However, we believe overall diagnoses continue to be below pre-COVID levels, but as we have seen throughout 2021 and the first quarter of 2022, they are trending upward. So in that context, let's talk about our performance in 2022 specifically. While we believe, based upon our analysis of third-party diagnoses data, that a small portion of the increase in volume compared sequentially to the first quarter of 2022 was due to an increase in the number of newly diagnosed melanomas, we believe that the most significant driver was not seasonality but the combination of our prior commercial expansion investments, coupled with meaningful new data, including our integrated DecisionDx-Melanoma tests or i31-GEP and the initial presentations of data from our collaboration with the National Cancer Institute linking DecisionDx-Melanoma clinical test report data with data from the SEER program's registries on cutaneous melanoma cases. We believe these are the key factors that drove the accelerated penetration that we observed. As we have discussed, we routinely assess the size of our commercial team and the number of outside sales territories. In mid-2021, we increased the size of our dermatology commercial team to roughly 65 territories, and each of our outside sales representatives was equipped with all three of our skin cancer offerings. Based on our continued assessments, we plan to make some additional optimizations to our dermatology commercial team. We expect that starting mid-third quarter, our diagnostic gene expression profile offering that consists of both our myPath Melanoma and DiffDx-Melanoma test will have a new dedicated sales team. The current dermatology commercial team will shift its focus to DecisionDx-Melanoma and DecisionDx-SCC only. We believe adding a dedicated team for our diagnostic gene expression profiling offering allows for proper focus on the value of all of our skin cancer tests. Our target customers for the diagnostic GEP offering will remain dermatopathologists, followed by some dermatologists. We have seen that all of our markets are promotionally responsive, so we believe these optimizations to our commercial team will contribute to continued momentum in 2022 and beyond. Further, in terms of additional expenses, historically, it has taken about two quarters for our dermatology sales reps to reach a level of productivity to offset their additional expense. In June 2022, Palmetto and Noridian each posted a draft LCD that will provide coverage criteria for DiffDX-Melanoma. You may recall that myPath Melanoma is already covered for reimbursement by Medicare. Based upon benchmarking between posting of a draft LCD and the final effective date, we believe the DiffDX-Melanoma LCD will be final by the end of the second quarter 2023. Now let's turn our attention to our DecisionDx-SCC test. In the second quarter of 2022, following completion of a requested medical review and pricing of our DecisionDx-SCC test by Novitas, we've been receiving reimbursement from Novitas on DecisionDx-SCC at a rate of $3,873 per test, which is identical to Oncotype breast and Oncotype prostate pricing. On June 9, 2022, Novitas posted a draft oncology biomarker LCD that proposes to rely upon evidentiary reviews sourced from three databases; ClinGen, OncoKB, and NCCN. Two of the databases do not review gene expression profile tests, and NCCN has not yet, to our knowledge, reviewed DecisionDx-SCC. As such, if finalized as proposed, then DecisionDx-SCC would not be included as a covered test in the associated billing and quoting article. We cannot predict whether this draft LCD will be finalized as proposed or what the timing of any final LCD might be. Now let's switch gears to our new GI franchise. As a reminder, we completed the acquisition of Cernostics and the TissueCypher test in December 2021. We made this acquisition in alignment with our growth strategy for 2024 and beyond. Further, we expected the first six months to nine months of 2022 as a period of integration, where we would transition their organization to reflect what we believe is a strong Castle culture, including building out a commercial team, improvement to the laboratory and reimbursement, and addressing the CMS 14-day rule. First quarter performed as we expected. Also consistent with our expectations and as we have discussed, TissueCypher was granted advanced diagnostic laboratory test or ADLT status on March 24, which accomplishes a few goals, the most important being the exemption from Medicare's 14-day rule, which simplifies the billing process for Medicare patients. With these milestones as context, we are very pleased to announce that we delivered 352 test reports in the second quarter, up from 56 reports in the first quarter and are seeing the monthly growth trends we expected. While we are still in the early stages of launch with TissueCypher, we started the third quarter with inclusion in the American Gastroenterological Association or AGA Clinical Practice Update. This update was published on July 1, 2022, and states that the TissueCypher Barrett's esophagus test may be beneficial for risk stratification of patients with non-dysplastic Barrett's esophagus, which we believe represents approximately 348,000 endoscopies per year or approximately 90% of the intended use market for TissueCypher. The purpose of the AGA's clinical practice update for Barrett's esophagus is to provide guidance to clinicians on advances to innovation regarding the screening and surveillance of Barrett's esophagus. Given our momentum from the first quarter through the second and into July, we are executing on our planned commercial team investments for TissueCypher. And beginning in September, we expect to add additional territories for our TissueCypher test. Finally, as it relates to thinking about the average sales price or ASP for TissueCypher. When ADLT status was granted on March 24, 2022 the Medicare reimbursement rate was modified to equal the initial list price for the test, which was $2,350 per test. This rate is effective through the end of 2022. Effective January 1, 2023, the rate will be based on the median private payer allowable rate from the collection period of April 1, 2022, through August 31, 2022. Finally, let's turn to our mental health franchise. We are in the early stages of integration of our acquisition of AltheaDx, which closed on April 26. We are extremely encouraged with the initial progress, and performance to date is consistent with our expectations. Specifically, we delivered 827 test reports from April 26 through June 30. Our commercial team of approximately 20 outside sales territories completed Phase 2 training in June, and our lab enhancements and other integration efforts are going well with an expectation that further integration will allow us to enter 2023 with a well-integrated team. The acquisition of IDgenetix enables us to offer a test solution that we believe has the potential to accelerate our impact on patient care in an area of high unmet clinical need, significantly expanding our in-market estimated U.S. TAM by approximately $5 billion and offer incremental value to patients and clinicians over the standard of care trial-and-error approach. Medicare coverage includes depression, and IDgenetix is one of two PGx tests with coverage for depression. Recently, Medicare extended coverage for the following seven additional mental health conditions beyond major depressive disorder, including schizophrenia, bipolar disorder, anxiety disorders, panic disorder, obsessive-compulsive personality disorder, post-traumatic stress disorder, and attention deficit hyperactivity disorder. The IDgenetix multi-panel test is currently reimbursed by Medicare at approximately $1,500. Before I turn the call over to Frank, I want to let you know that we will host an Investor Day on September 20, 2022, to provide an in-depth corporate update on our growth initiatives and plans for continued long-term value creation. More details to come. I will now turn the call over to Frank, who will provide details relating to our financial results and updated 2022 revenue guidance.

Thank you, Derek, and good afternoon, everyone. The disciplined execution of our strategy has enabled us to deliver another quarter of strong organic growth, and we have raised our outlook for anticipated total 2022 revenue to $130 million to $135 million from the previous guidance of $118 million to $123 million. Second quarter revenue was $34.8 million, an increase of 53% over the second quarter of 2021. Overall, the increased revenues primarily reflect higher revenue from dermatologic tests, primarily DecisionDx-Melanoma and DecisionDx-SCC. The increase in dermatologic revenue was primarily attributable to a 44% increase in test volumes with higher test reports delivered across each of our dermatologic offerings, which we believe was due to a combination of the effects of our dermatologic sales force expansion in mid-2021 and increased patient flow potentially attributable to the easing of COVID-19 restrictions. The higher revenues also reflect Medicare payments on DecisionDx-SCC, as Derek discussed earlier, and the effect of higher positive revenue adjustments related to tests delivered in previous periods associated with changes in estimated variable consideration, which were $0.6 million for the three months ended June 30, 2022, compared to a negative $0.2 million for the three months ended June 30, 2021. The increase in revenue from our other tests, non-dermatologic tests, was $0.6 million and was primarily attributable to our acquisitions of Cernostics and AltheaDx. Excluding the effects of revenue adjustments related to tests delivered in prior periods, adjusted revenue was $34.3 million, an increase of 49% over the second quarter of 2021. Our gross margin for the second quarter was 71.9% compared to 82.6% in the second quarter of 2021. Our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions and revenue associated with test reports delivered in prior periods, was 77.6% for the quarter compared to 83.9% for the same period in 2021. As we discussed, our GAAP gross margin will continue to be negatively impacted by amortization of intangible assets associated with recent acquisitions for the remainder of 2022. For the quarter ended June 30, 2022, our net operating expenses, including cost of sales and a contingent consideration fair value adjustment were $38.8 million compared to $31.6 million for the second quarter of 2021. Total selling, general and administrative expenses increased by $16.7 million for the three months ended June 30, 2022 compared to the same quarter last year. This increase included higher sales and marketing expenses of $9.7 million attributable to higher personnel costs, including salaries, bonuses and stock-based compensation. Personnel costs have increased through the expansion of our dermatology-facing commercial team headcount to the mid-60s in 2021 and through our acquisitions of Cernostics in December '21 and AltheaDx in April of 2022. Higher personnel costs also reflect higher pay rates. The remainder of the increase in sales and marketing expenses was primarily associated with training events, meetings and travel, reflecting the continuing return of our customers and business to in-person conventions and events. We expect sales and marketing expenses to increase in future periods as we intend to expand our outside sales territories and commercial team during 2022, as Derek discussed earlier, though I will reiterate that we expect the expanded team to offset increased expenses through increased volume and revenue after about two quarters. General and administrative expenses increased by $7 million for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. This increase is primarily attributable to higher personnel costs, including salaries, bonuses and stock-based compensation. The higher personnel costs reflect expanded headcount in our administrative support functions, including related to the acquisitions of Cernostics and AltheaDx as well as higher rates of pay. R&D expense increased by $5.1 million in the second quarter compared to the second quarter of 2021, roughly half of which is attributable to higher personnel costs, primarily due to expansions in headcount in support of our growth, higher salaries and wages and higher stock-based compensation expense and also attributable to higher costs for clinical studies. Cost of sales, exclusive of amortization of acquired intangible assets, for the three months ended June 30, 2022, increased by $4 million compared to the three months ended June 30, 2021, primarily due to higher personnel costs, which have increased with additions in headcount in our laboratory testing operations, including increased headcount attributable to the acquisitions of Cernostics and AltheaDx. The increased personnel costs also reflect higher pay rates. The increase is also attributable to the cost of supplies and third-party services, reflecting higher laboratory activity, which is attributable to higher test volumes. Total stock-based compensation expense, which is allocated among cost of sales, R&D and SG&A, totaled $8.8 million for the second quarter compared to $4.8 million for the second quarter of 2021. Operating expenses this quarter also include a change in fair value of contingent consideration of $20.4 million or $0.78 per diluted share and is primarily related to the remeasurement of the liability for earn-out payments in connection with our acquisition of Cernostics and reflects changes in management's projections regarding attainment of certain commercial milestones in 2022. This gain or loss could vary from quarter to quarter, though most likely not to a degree, depending on any changes and assumptions in valuation results. Further, amortization of acquired intangible assets for the three months ended June 30, 2022, increased by $1.8 million compared to the three months ended June 30, 2021, which is related to the developed technology we acquired in May 2021, December 2021, and April 2022 related to our myPath Melanoma, TissueCypher and IDgenetix tests, respectively. Moving to income taxes. We recorded a tax benefit of $2 million for the three months ended June 30, 2022, which was primarily attributable to a reduction in our valuation allowance on deferred tax assets resulting from our acquisition of AltheaDx. Our net loss for the second quarter of 2022 was $1.6 million compared to a net loss of $8.8 million in the second quarter of 2021. Basic and diluted loss per share for the second quarter was $0.06 a share compared to basic and diluted loss per share of $0.35 a share in the second quarter of 2021. Adjusted EBITDA for the second quarter was negative $10.9 million compared to negative $3.4 million for the comparable period in 2021. Net cash used in operating activities was $30.4 million for the six months ended June 30, 2022, and was primarily attributable to the net loss of $26.3 million, the change in fair value of contingent consideration of $17.8 million, increases in accounts receivable of $5.6 million and deferred income taxes of $1.8 million, which were partially offset by non-cash stock compensation expense of $17.2 million and depreciation and amortization of $4.8 million. Finally, we had cash and cash equivalents at June 30, 2022, of $273 million. We believe that with our current momentum, we will reach operating cash flow neutrality by 2025. As we stated, 2022 is an investment year in alignment with our mid to long-term growth strategy, we continually assess our focused use of cash and will make any necessary changes based on the needs of our business. This assessment includes factors in the macro environment. I'll end today by saying that based on our strong balance sheet, focused investments, and diversified portfolio of tests, we believe we're uniquely well positioned for growth as we remain focused on meeting the needs of patients and clinicians. I'll now turn the call back over to Derek.

Thank you, Frank. In summary, we delivered another strong quarter with record test volume and revenue, and we believe we're entering the second half of 2022 in a comfortable position. I would like to conclude today by thanking our Castle team, those who have been with us for many years as well as those who are newer to the team. We would not be where we are if it weren't for the individual and combined efforts of those individuals who call Castle home. I thank them for their commitment to improving the lives of the patients that we serve. Thank you again for your continued interest in Castle. Now we'll be happy to take your questions.

The first question comes from Mason Carrico of Stephens, Inc. Please go ahead.

Hey, everyone. I appreciate you taking my questions. I wanted to follow up on the SCC reimbursement discussion. I apologize for missing some of the details, as I'm juggling a few things tonight. Could you please go over the Novitas commentary again? It appears they are making payments. You mentioned a rate, but what percentage of tests are you currently being compensated for? Also, you referenced the draft LCD. Is there a risk that this reimbursement might be withdrawn? Any additional high-level insights on this would be greatly appreciated.

Sure, Mason. This is Derek here. Good to hear from you. I think I have noted your questions. From a payment perspective, we have two main categories of payers: Medicare and Medicare Advantage plans, which primarily cover individuals over 65 years of age, so there's a clear distinction between those 65 and under. We are still seeing significant growth in volumes for DecisionDx-SCC, so the ratio may change. Currently, about 55% of patients are over 65, and that may increase slightly. For context, the average age for squamous cell diagnoses in the U.S. is around 70 to 71 years, which seems appropriate. However, we lack clear published data on whether individuals with high-risk squamous cell carcinoma are generally younger or older. So, in terms of eligibility, approximately 65% or more of the patients are Medicare eligible, with the remainder being under that threshold, which is a bit higher than the melanoma test. Since we completed a positive medical review with Novitas early in the second quarter, we have been receiving payments for nearly all of our Medicare Advantage claims during this period. That's a comprehensive quarter of activity. As you may know, we also bill commercial insurance due to our validated clinical use assets, and we occasionally receive payments from certain private payers for individuals under 65. That summarizes where we stand and the early trends in reimbursement. Does that address your questions, Mason?

Yeah. That covers it. Thanks. I may have a few more, but I can follow up off-line. And maybe just one more follow-up here, expanding some outside sales territories. And again, I'm sorry if I missed it but initial thoughts on the size of the team supporting the CDO offering. And now that you are starting to get paid on the SCC test, are you expecting to start shifting some of the economics to incentivize your legacy derm team to start pushing the SCC test more?

We have announced two expansions but have not disclosed exact numbers as we are still working through the details. When we launched the DiffDx-Melanoma test in November 2020, we started with a small sales force of about 10 to 12 individuals targeting dermatopathologists. In mid-2021, we increased our dermatology sales team from 32 to the mid-60s and integrated that group back in. While we have seen strong adoption, it's become clear that managing three different tests within a single sales effort is challenging, as it can lead to some tests not receiving adequate educational and sales attention. Therefore, we are creating a dedicated group to focus specifically on dermatopathology, particularly on myPath Melanoma and DiffDx-Melanoma, while also addressing the DecisionDx-Melanoma and SCC test for that audience. This change is intended to ensure that we provide sufficient support for myPath Melanoma and the DiffDx test going forward, with implementation expected in the third quarter. We anticipate seeing the impact of this initiative by the end of the first quarter next year. This allows our dermatology team to concentrate fully on the melanoma and squamous cell carcinoma tests. We will also evaluate the need for further expansion based on performance in the third and fourth quarters. Additionally, we are expanding our gastroenterology sales team and medical science liaison team. We achieved the growth we anticipated in the second quarter compared to the first, although we recognize that we are still in the early stages. Given the resolution of the 14-day rule by Medicare, the granting of ADLT status, and positive momentum trends, we decided to move forward with expanding the sales force, which aligns with our plans.

Got it. That makes a lot of sense. Thanks guys.

Thank you. Next question comes from Catherine Schulte of Baird. Please proceed.

Yeah, hey guys. This is Tom Peterson on for Catherine. Joined a little bit late as well, so apologies if I repeat anything here. But maybe I want to stick to TissueCypher and just get an update on the commercialization there as you get a better look. Just what's kind of the feedback from providers? Momentum here seems to be pretty solid. But if you could give us any sort of feedback on what you're getting from these early adopters, that would be great.

Sure. Qualitatively, we started out with 14 territories in January and trained the sales force, most of whom had prior gastroenterology experience with other companies. While they had a reasonable amount of connections with GIs, they were new to TissueCypher. We recognized that the first quarter would mainly focus on training and getting people accustomed to educating physicians about a diagnostic test as opposed to discussing pharmaceuticals or devices. This requires a different communication approach. Additionally, we needed to address the Medicare 14-day rule, which impacts the billing practices of hospitals. We anticipated that this issue would be resolved by the end of the first quarter, and it was. We were eager to observe the trends in the second quarter, even on a month-to-month basis compared to the first quarter, and we are very pleased with our observations so far. In terms of feedback regarding the market for patients diagnosed with Barrett's esophagus, there is a grading system for the severity of Barrett's disease, ranging from non-dysplastic Barrett's esophagus to high-grade dysplasia, which can lead to esophageal cancer. The current practice standard in the U.S. is to offer all patients with high-grade dysplasia, and many with low-grade dysplasia, some form of esophageal eradication therapy, with ablation therapy being the most common option along with some surgical procedures focusing on high-risk patients. Most of the individuals, around 90%, are considered part of the non-dysplastic group. In the U.S., the standard practice has involved rebiopsying or rescoping these patients approximately every three to five years throughout their lives to monitor any progression from non-dysplastic to a higher dysplasia grade. This is due to the relatively low risk for this population. However, it is concerning because, given the large number of patients, a significant portion can progress to high-grade dysplasia or esophageal cancer. Feedback from the marketplace indicates that the ideal target for this test is primarily the non-dysplastic Barrett's esophagus patient population, which represents about 90% of our total addressable market. This group is where we are focused on identifying hidden risks that still present as a largely benign condition. This insight aligns with our market research from the summer and fall of 2021. It is reassuring to see that clinicians recognize the test's value in this specific patient group, which reflects our findings that around 9 out of 10 Barrett's esophagus patients fall within this category. The other positive development in early July was the American Gastroenterology Association publishing their best practices and clinical overview regarding new technologies for Barrett's esophagus disease, which included a review of TissueCypher in that update. It was particularly encouraging that their review focused on the value of the TissueCypher test for non-dysplastic patients. This is crucial since we need to determine if they are non-dysplastic due to a potential sampling error in a biopsy or if they might be harboring more aggressive disease after a brief wait, potentially shifting from low grade to high grade. This represents a significant marketplace opportunity. From our perspective, it is essential for us to carefully, cautiously, and appropriately educate our gastroenterology customer base and expand our efforts over the next few years. We aim for this test to become an integral part of the initial evaluation for newly diagnosed patients.

Okay. Great. That's good. Great. Thanks for the review. And then maybe on the balance sheet, Frank, it's good to hear reiteration of the operating cash flow neutrality by 2025 following a more acquisitive period over the last nine months to 12 months and the general focus around cash balances in a new higher interest rate environment. I guess how do you feel about the cash balance going forward? And how should we think about capital allocation priorities and spend going forward? I know 2022, more of an investment year, but just kind of trying to think more beyond '22. Thanks.

Yeah. Sure. So we're very comfortable with where we are from a balance sheet perspective. Our priorities for allocation of that capital remain supporting our on-market products and continuing to advance our pipeline products. I think from a strategic perspective, I think that's down the list of capital priorities. And so we're excited about what we have in the bag now and in the pipeline here at Castle. And that's where we're going to focus that capital is pushing those sales and advancing those programs.

Hello, Derek and Frank. Thank you for answering the questions. My first question is about the guidance. It's great to see the guidance increase, but could you clarify what assumptions you have for the growth of DecisionDx-Melanoma volume in that guidance? Also, can you quantify how much of the guidance increase is attributable to AltheaDx and for the entire year?

Hey, Puneet. Hope you're doing well. We don't break out revenue by product. So the guidance includes the entire portfolio. As Derek mentioned in his opening remarks, we are very pleased with the traction we've observed in all three therapeutic areas. However, as you might expect, our dermatological portfolio, particularly our cutaneous melanoma product, will primarily drive revenue this year. We are very satisfied with the volumes in the first half, and we are looking forward to the second half. Nevertheless, we aren't providing specific volume breakdowns or guidance.

Okay. Fair. In terms of commercial payers, given where DecisionDx-Melanoma is today, what are some of the efforts that are ongoing? And how should we think about the ASP for that product given the significance of the volume for that product to your overall model and to your growth?

The commercial landscape remains challenging for companies in our sector. However, we have a strong team focused on market access, which is dedicated to sharing the extensive data we have regarding our melanoma tests with payer groups and overseeing their medical and technical reviews. We're making progress each quarter, though it's slow and requires significant effort. We believe the body of evidence supporting our tests is compelling, and we often find ourselves discussing how, with such strong evidence, physicians would choose not to use our tests. We agree with that sentiment and are confident that, over time, payers will recognize the benefits as well. Unfortunately, this is a lengthy process. Our team is dedicated and works diligently every day.

Okay. Got it. And then just last one on SCC. I mean, what is your, ultimately, expectation there? I think you gave a number on the call for $3,873 per test. But sort of how should we think about potential for an ADLT or other avenues? And how should we think about ultimately for the ASP for this test? Thank you so much.

Sure. The price of $3,873 was determined by Novitas after a medical review we requested. From a modeling perspective, that would be a reasonable price to use, considering a 2% sequestration fee in the near term. We believe our DecisionDx-SCC test will qualify for ADLT status according to CMS regulations. However, it's important to note that this acknowledgment comes from CMS, not Castle. Therefore, I wouldn't incorporate ADLT status into short-term projections, but we are certainly looking at that as a possibility and will move forward if we think it's the right approach. Timing experiences for ADLT reviews have varied among companies. Some companies see reviews completed in as little as 90 days. For example, we submitted our application for ADLT status for TissueCypher in January 2022 and received that status by the end of March 2022. In contrast, our experience with DecisionDx-UM took a couple of cycles a few years back, although we did also see some success in the first year with that process. Overall, I think we should expect that the review will take at least a quarter or two going forward. I hope that provides a clear background.

Yeah. No, super helpful. Thanks again and congrats on the quarter.

Thank you. This concludes our second quarter 2022 earnings call. I want to thank you again for joining us today and for your continued interest in Castle Biosciences.

That concludes the conference call. Thank you for your participation. You may now disconnect your lines.