Castle Biosciences Inc Q1 FY2024 Earnings Call

Good afternoon, and welcome to Castle Biosciences First Quarter 2024 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' First Quarter 2024 Financial Results Conference Call. Joining me today is Castle's Founder, President, and Chief Executive Officer, Derek Maetzold; and Chief Financial Officer, Frank Stokes. Information recorded on this call speaks only as of today, May 2, 2024. 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 3 weeks following the conclusion of the call. 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 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 anticipated 2024 total revenue and our 2025 outlook, our expectations regarding reimbursement for our products, and the impact of our investments in growth initiatives and expanded commercial team. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties and there can be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's quarterly report on Form 10-Q for the quarter ended March 31, 2024, under the heading Risk Factors, and in the company's other documents and reports filed or to be filed with the Securities and Exchange Commission. These forward-looking statements speak only as of today, and we assume no obligation to update or revise these forward-looking statements as circumstances change. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue, adjusted gross margin, and adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States, or GAAP. These non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue and operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the table 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. Building on our strength and momentum from 2023, I'm pleased to share that Castle delivered a strong start to the year, growing first-quarter revenue by 74% and total test volume by 40% compared to the first quarter of 2023. With our team's consistent execution and successful track record of building a differentiated portfolio of tests across our therapeutic areas, we remain confident in our business and are raising our full year 2024 revenue guidance to $255 million to $265 million, up from the previously reported guidance of $235 million to $240 million. Now let me take you through some strategy highlights in the first quarter, and then Frank will provide additional financing highlights before we turn to your questions. Starting with our core dermatology business. For DecisionDx-Melanoma and DecisionDx-SCC combined, test reported volume was 11,961 for the first quarter of 2024, a 20% increase over the same period in 2023. We believe our core dermatology offerings continue to present a long-term growth opportunity for us. Studies have shown that these 2 tests can positively impact patient outcomes and help reduce healthcare costs. For DecisionDx-Melanoma, we delivered 8,384 test reports in the first quarter, an 11% year-over-year increase. As we've discussed, driving test adoption through robust clinical evidence remains a priority for us, and this quarter was no exception. As you know, our DecisionDx-Melanoma test has 2 clinical uses: ruling out a sentinel lymph node biopsy surgical procedure and predicting risk of recurrence, so that patients can have their treatment pathways adjusted to be more aligned with their biological risk of progression. While one could view these 2 uses as separate in parallel, the use of our test to rule out a sentinel lymph node biopsy surgical procedure must be accompanied with evidence that avoiding this procedure will not put them in harm's way—that is, that they have an excellent prognosis should they choose to avoid the sentinel lymph node biopsy surgical procedure. To this end, I am pleased to review data from an oral presentation that took place at the March 2024 meeting of the Society of Surgical Oncology. At this meeting, data was presented from one of our multicenter prospective U.S.-based studies. The data examining the performance of DecisionDx-Melanoma in safely ruling out a sentinel lymph node biopsy surgical procedure showed that patients with a T1 or T2 melanoma and predicted to have less than a 5% likelihood of a positive sentinel lymph node by our test, no patients, as of the date of a data pull for this presentation predicted to have a less than 5% likelihood of a positive node, actually had a positive node. That's a negative predicted value of 100% for this use of our test. But as I noted earlier, and is clinically important, the study also examined the recurrence of patients who are predicted to have a less than 5% likelihood of a positive node and chose to forgo that surgical procedure, as well as patients who were also predicted to have less than 5% likely to have a positive node, but who, for personal preference, chose to undergo that surgical procedure anyway. I'm pleased to say that both of these groups were recurrence free during the follow-up period, which had a median follow-up of 2 years. That is, in these 2 patient populations, our tests had a negative predicted value of 100% for the risk of recurrence. This is powerful data that shows the exceptional clinical value that DecisionDx-Melanoma brings to improving patient care decisions and outcomes. Separately, in February, we announced a peer-reviewed publication of study data showing that DecisionDx-Melanoma provided significantly better risk stratification than the current American Joint Committee on Cancer staging system in patients with Stage 1 melanoma. This is an important patient group as it represents the largest group of melanoma patients. This publication reports the results of 2 large Stage 1 cohort studies, including 5,561 patients from the National Cancer Institute's SEER program. This study supports the use of our DecisionDx-Melanoma test in Stage 1 melanoma to obtain more precise information about a patient's risk of disease progression to, again, inform more personalized, risk-aligned treatment. Looking ahead, we will certainly focus our educational effort on these highly compelling data, along with the findings from our 2 publications in 2023 that highlighted the fact that the clinical use of our DecisionDx-Melanoma test correlated to improve patient outcomes, as patients live longer compared to those patients who did not have DecisionDx-Melanoma included as part of their clinical care. Moving on to our DecisionDx-SCC test. We continue to see strong report volume momentum with 3,577 test reports delivered in the first quarter, an increase of 48% compared to the same period in 2023. DecisionDx-SCC continues to be supported by a robust and growing body of evidence. We are particularly excited about a study that was published in March of this year that showed, in addition to providing risk stratification information, our DecisionDx-SCC test identified patients most likely to benefit from adjuvant radiation therapy, or ART for short, and those who can consider deferring treatment, given the lower likelihood of benefit. This ART response data is of high clinical importance for a couple of reasons. First, ART has been shown to be an effective adjuvant intervention in patients with high-risk SCC. However, some high-risk SCC patients are either not responsive to ART, or the likelihood of metastasis is lower than predicted by their clinical pathologic risk factors. In either case, these patients can be subject to ART, which carries both significant complications, as well as cost. So the ability of our DecisionDx-SCC test to assist in identifying those who are likely not to benefit from ART from those who are likely to benefit from ART has high clinical actionability. Furthermore, based on our 3-year real-world data, more than 98% of the patients that we test clinically are eligible for ART consideration under one or more of the existing guidelines. Importantly, this was the third peer-reviewed study published since the start of 2024 demonstrating DecisionDx-SCC's clinical and/or economic value in guiding ART decisions in the high-risk cutaneous squamous cell carcinoma patient population. Now let's turn to our gastroenterology franchise. During the first quarter of 2024, we delivered 3,429 TissueCypher test reports compared to 1,383 in the first quarter of 2023, which is 148% growth. As a reminder, we believe the total market opportunity encompasses approximately 415,000 patients annually who meet the intended use criteria for this test, representing an estimated U.S. addressable marketplace of approximately $1 billion. As such, we believe our TissueCypher test represents a significant long-term growth opportunity as we're in the very early stages of market penetration. We're excited about the growth prospects of the test, and we are equally pleased by the clinical utility to determine a patient's individual risk of progression from Barrett's esophagus to cancer. Turning to our mental health business, we delivered 4,078 test reports in the quarter, compared to 2,150 in the first quarter of 2023, which is 90% growth year-over-year. We believe the ongoing momentum we're experiencing is in part driven by our unique value proposition. In fact, data shows that using our test, which considers a combination of drug gene, drug-drug, and lifestyle factors contributed to greater remission and greater relapse control in patients with major depressive disorder and anxiety than the trial and error method of therapy selection. Further, we recently announced new data showing that while two-thirds of IGX recommendations for patients aged 65 and older were due to drug gene interactions, one-third were due to drug-drug or lifestyle factor interactions, highlighting the value of the IGX 3-in-1 approach to providing tailored guidance for neuropsychiatric medication selection. Moving on to our pipeline, we're making good progress on our inflammatory skin disease pipeline initiative and expect to provide you with additional updates in the second half of this year. This pipeline genomic test for patients with moderate to severe atopic dermatitis, psoriasis, and related conditions is targeted for launch by the end of 2025, assuming a positive outcome of our discovery, development, and validation efforts. Lastly, I'm honored to share that for the third year in a row, Castle has earned a top workplace USA award, underscoring our position as a leader in creating an exemplary workforce culture. I want to thank each and every member of the Castle team for their continued hard work. I will now turn the call over to Frank, who will provide details relating to our financial results.

Thank you, Derek, and good afternoon, everyone. As Derek highlighted, we delivered excellent financial results to start the year. Revenue was $73 million for the first quarter of 2024, an increase of 74% over the first quarter of 2023. The increase was driven by higher average selling prices (ASPs) and test volume growth. I'd note that first quarter 2024 volume reflects our historical quarter-over-quarter seasonality that is flat over the fourth quarter. Further impacting our first quarter 2024 volume is the timing of our national sales meeting, which occurred in the first quarter this year compared to the third quarter in previous years. Historically, the second quarter sees growth sequentially over the first quarter, and we expect the second quarter 2024 to follow our typical second quarter volume trend. Adjusted revenue, which excludes the effects of revenue adjustments in the current period related to tests delivered in prior periods, was $71.3 million for the first quarter of 2024, an increase of 64% over the first quarter of 2023. Our gross margin during the first quarter of 2024 was 77.9% compared to 70.5% in the first quarter of 2023, and our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions and excludes the effects of revenue adjustments in the current period associated with test reports delivered in prior periods, was 80.5% in the quarter compared to 76.5% for the same period in 2023, an improvement of 400 basis points. Turning to expenses, our total operating expenses, including cost of sales for the first quarter of 2024 were $78.4 million compared to $73.6 million for the first quarter of 2023. Sales and marketing expenses were $30.5 million compared to $29.9 million for the same period in 2023. The increase is mainly due to higher expenses for training events and speaker conferences and expenses for salary and wages, partially offset by lower expenses for travel and lower stock-based compensation expense. General and administrative expenses were $18 million compared to $16.8 million for the same period in 2023. The increase is primarily attributable to higher expenses for professional services, higher general administrative costs, and higher salaries and wage expenses, partially offset by lower stock-based compensation expense. Cost of sales expenses were $13.9 million in the first quarter of 2024 compared to $10.2 million in the first quarter of 2023, an increase of $3.7 million, primarily due to higher personnel costs and increased expenditures on supplies. The increase in personnel costs primarily consists of higher salaries and wages, employee benefits, and bonuses, reflecting headcount additions made to support business growth, as well as merit and annual inflationary wage adjustment for existing employees. Supply and service expenses increased largely due to our higher test volumes. R&D expenses were $13.8 million in the quarter compared to $14.4 million for the same period in 2023, primarily consisting of lower clinical studies expenses and advisory board services, partially offset by higher personnel costs. Total noncash stock-based compensation expense, which is allocated among cost of sales, R&D, and SG&A, totaled $12.7 million for the first quarter of 2024, down from $13.5 million for the first quarter of 2023. Interest income increased by $0.7 million for the first quarter of 2024 compared to the first quarter of 2023. The increase primarily reflects higher interest rates earned on our cash equivalents and our purchases of marketable investment securities beginning in the third quarter of 2022. Our net loss for the first quarter of 2024 was $2.5 million compared to a net loss of $29.2 million for the first quarter of 2023. Diluted loss per share for the first quarter of 2024 was $0.09 compared to diluted loss per share of $1.10 in the first quarter of 2023. Adjusted EBITDA for the first quarter of 2024 was $10.5 million compared to negative $15.1 million for the first quarter of 2023, an improvement of $25.6 million. The substantial year-over-year improvement primarily reflects strong top-line growth along with continued disciplined expense management. Net cash used in operating activities was $6.8 million for the first quarter of 2024, due in part to annual cash bonus payments and certain healthcare benefit payments that are not expected to recur during the remaining 3 quarters of 2024. Net cash used in investing activities was $19.7 million for the first quarter and consisted primarily of purchases of marketable investment securities of $60.8 million and purchases of property and equipment of $9.2 million, partially offset by the maturity of marketable investment securities of $50.2 million. Net cash provided by financing activities was $10.6 million for the 3 months ended March 31, 2024, and consisted primarily of $10 million of proceeds from issuance of long-term debt and $1.1 million of proceeds from contributions to our 2019 employee stock purchase plan, partially offset by the $0.5 million payment of employee taxes attributable to the vesting of restricted stock units. We ended the quarter with cash, cash equivalents, and marketable securities of $239.2 million. As Derek mentioned, we are raising our 2024 revenue guidance to $255 million to $265 million, up from $235 million to $240 million, reflecting strong first quarter execution. In conclusion, we're very pleased with our execution in the first quarter of 2024, highlighted by strong revenue and test volume growth and an upward revision of our full year revenue expectations. I'll now turn the call back over to Derek.

Thank you, Frank. In summary, the first quarter marked an excellent start to the year with strong execution across the company. I'd like to conclude today by thanking our Castle team. Thank you for your continued interest in Castle. Now we will be happy to take your questions. Operator?

First question comes from Subbu Nambi with Guggenheim.

Could you provide initial thoughts on how should we think about Q2 across the different products, the typical seasonality for derm, but how should we think about TissueCypher, IDgenetix? And we should still assume no revenue for SCC, right?

Yes, Subbu. The guidance only includes SCC through this month, May. We're still in the early stages for TC and IDgenetix, so we haven't really observed seasonality in those two products yet. For TissueCypher, we might need one more quarter to refine our modeling since we had a pause in orders during the second and third quarters of last year. We're starting to see that normalize, and while we are optimistic about the trends, we can’t accurately model any potential seasonality just yet.

Got it. And then on LTT final rule, I think we all have clarity, but just any additional thoughts given that all your current marketed proprietary tests are all approved under New York. Could you provide any additional color just specifically on TissueCypher, which has conditional approval? And my understanding is it still is under coverage, but any thoughts there?

Yes. So our Pittsburgh laboratory, which is where TissueCypher is run out of, has past that, I guess, that's the New York City inspection as a permanent laboratory. The conditional approval for TissueCypher is a timing process with New York State as I understand that. So given the FDA language of New York State Department Health approval of initial approval, I think all of our marketed proprietary tests are in good shape.

Our next question comes from Kyle Mikson with Canaccord Genuity.

Congrats on the quarter. I guess, Frank, why the decision to exclude SCC past May? Why is May the right month, I guess, in June to think about that? And then maybe for Derek, does the recent publication and the guidelines for SCC make a difference with reimbursement over time, like maybe like post this like any aftermath of the decision?

Sure. I'll go first, Kyle. We could choose any month, but we are aware of our current position. We have visibility on May, and considering the uncertainty in timing, that's why we decided to focus on that month.

Regarding the publications we discussed earlier, we had four different releases related to SCC, including primary publications and an expert panel recommendation on the clinical use of the test. I emphasized the manuscript that focuses on using our test to predict therapy response to adjuvant radiation therapy. This is a significant publication because over 98% of the patients we test clinically today qualify for adjuvant radiation therapy according to various guidelines, including NCCN. This is our target population, and the ability to identify a large number of patients who are unlikely to benefit clinically has a major impact on patient care by reducing complications from unnecessary procedures. It also represents substantial savings for the Medicare Trust Fund, as these patients are predominantly Medicare recipients. Therefore, from a coverage standpoint, if these articles are not included in any final local coverage determinations, they would certainly be relevant for reopening discussions or initiating a reconsideration process.

Okay. That was great guys. Just a quick one. The dermatologic ASP increased 40% year-over-year. I think that makes sense given I think recent SCC ASP trends were pretty good, but it's also a 13% sequential increase from the fourth quarter. So what's driving some of these movements? And can we see similar double-digit increases quarter-over-quarter going forward?

I wouldn't model that level of increase going forward. We had some good progress on collections, and we did have some earlier claims, prior period claims that we collected at a higher rate than we had anticipated, which accounted for some of the out-of-period or prior period revenue. But we're continuing to make progress, but my expectation is it's slow and steady rather than accelerating.

We now turn to Sung Ji Nam with Scotiabank.

This is Corey Rosenbaum on for Sung Ji. So regarding the final rule on the FDA's LDT regulations, I recognize your existing products are not affected. Obviously, the rule will take multiple years to be phased in and make base hurdles along the way. But does this change your strategy or the timeline for your development pipeline, specifically for the inflammatory skin disease products? I know it might be too early to tell, but any insight here would be great.

That's a great question, Corey. Our guidance indicates that we are on track to launch the initial version of our tests for predicting therapy response in inflammatory skin disease by the end of 2025. The FDA has mentioned clarifications regarding the final rule that are expected soon, but it's unclear when that will happen—whether in 2 months, 2 days, or 6 months. We plan to discuss the implications for future marketed tests, as there’s no way they will be launched by May 6 of this year. However, given the time frame leading up to 2025, I can't say that the timing will change at this point. As we navigate the final rule and determine how to manage new tests, we will provide more clarity in future quarters.

Great. That's great insight. Appreciate it. And also, you previously mentioned potential expanded market opportunity for uveal melanoma in the early detection of the disease. Are there any updates in terms of the development timeline there and we might be able to get some updates on that initiative?

Not on this call here, but that's a good question there. So I can't recall the internal milestones that provide clarity on that, but let's get back to you guys in the summertime.

Our next question comes from Thomas Flaten with Lake Street.

On the fourth quarter call, you mentioned that in early 2Q, you would be evaluating a sales force expansion for TissueCypher. Do you have any updates for us on that?

Yes. So we've actually expanded our sales force for TissueCypher. The majority of the expansion territories were filled, I think, effective April 1st, and there are a couple that have come in in the last week or two. So the initial expansion efforts in 2Q are essentially done. We do plan on watching the expand the territories once we have the representatives trained up in the field full time, see how the response in this is, and may look to do an additional expansion here in the second half of 2024, depending on what we're seeing in terms of territory productivity growth. But otherwise, though, that expansion, you could say, was largely completed by now. So you're really talking about sort of beginning to see, I think, an impact of that, we estimate 5 to 6 months from the date of hire to when we begin to see good productivity coming out of a new area manager. So I would think towards the end of the third quarter, fourth quarter, we should be able to see publicly a nice impact kind of expansion.

Got it. And then, Frank, the updated 2024 guidance is within the range of your 2025 original long-term plan—like how should we think about 2025 in the context of having increased the guidance to this level for 2024?

We'll recall that our guidance, Thomas, assumes that, even though the evidence is, in our view, clear that our SCC test has great clinical utility, we are assuming that, that comes out of our revenue in the back half of this year in '25. So we would have that headwind there. But you're right, we're close to there as we sit here today.

We now turn to Paul Knight with KeyBanc.

Derek, a question on the TissueCypher and IDgenetix, you're seeing obviously big growth there. Are you kind of pull through? Or are you really putting in a focused marketing effort on those 2 tests?

Thank you for the question, Paul. We certainly market all of our tests in a thoughtful and deliberate manner. We do observe strong demand for these tests, but the challenge in realizing that demand lies in educating physicians. Our marketing efforts are primarily focused on this education, ensuring that targeted healthcare providers understand the benefits of our tests for their patients. For both tests, once healthcare practitioners grasp these benefits, we see good adoption rates; they quickly become users. However, reaching that point requires education. These tests target a specific subset of patients, so our first task is to show physicians which patients will benefit and explain that benefit. Many then want to confirm their understanding, asking us to present data to ensure we can deliver on our promises. Our approach is very detailed and thorough. The team has done an exceptional job creating physician-facing materials that are highly effective. We have a large, dedicated team working diligently on this, but it's essential to engage directly with physicians, making personal interactions very important.

On SCC, are physicians ordering that test? Are they also ordering more and more Dx-Melanoma tests as well? Is there a halo effect of having them see better utility for both disease states you mean?

We do think there's a nice halo or pen action there. The clinical utility for the 2 tests is very similar. So once you illustrate to a healthcare practitioner the benefits of the SCC test to that group of patients, it's a fairly easy adjacency to demonstrate the benefit to melanoma patients and our melanoma test. So it's very similar clinical utility just for 2 different distinct groups of patients, and your instinct is right. That's a short step to the adjacency there.

Our next question comes from Mason Carrico with Stephens.

I'll actually just keep it to 1 here. There's been a lot of questions in past quarters on how you guys will shift around resources if DecisionDx-SCC happens to lose coverage. I want to ask about the capital allocation strategy if coverage were to remain in place and cash generation was to remain elevated. How would you rank order your priorities in terms of organic investments if that was to play out? How would you think about sales team additions across the franchise? And what other investments would you prioritize if that happens to play out?

I will begin by saying that we have plans in place assuming we maintain coverage for SCC. Once we have better clarity, we can execute those plans with greater confidence based on the opportunities for cash generation. I believe we are nearing the right size for our dermatology sales team focused on skin cancer. Even with our recent expansion reaching the mid-30s for TissueCypher, we project about a 60% increase overall. We would consider accelerating some territory expansions, but we also need to balance this with our existing customer relationships, ensuring they don’t face too many changes with new area managers. Regarding our IGX sales and marketing teams, we have been cautious about scaling up as we want to ensure our targeting is effective and we receive the expected responses. There are areas where we could increase our capital to enhance the penetration of our existing tests without significantly altering the core teams for DecisionDx-Melanoma and SCC dermatology. Internally, we may be ready to advance some R&D initiatives that we haven’t yet discussed publicly, while also considering the potential impacts of upcoming FDA guidelines on new tests. We will thoughtfully evaluate our options and weigh what is known and unknown. Additionally, we are considering acquisition targets and would ideally like to have two or three marketed reimbursed tests in gastroenterology within a couple of years. These could stem from our internally generated assays, but we’re also open to acquiring tests that already have coverage and are successfully marketed, as these could integrate quickly into our portfolio. Looking towards 2027, we aim to have two or three clinically actionable tests that are valued by our gastroenterology clients, similar ambitions exist for our mental health initiatives. At the same time, we are assessing whether an inflammatory skin disease test or a series of tests for the dermatology market should be supported by a dedicated sales force or whether it makes more sense to expand our existing dermatology team to cover multiple products for the same customers. We need to evaluate what will be the least confusing for our clients. To summarize, our priorities will focus on commercial expansion efforts, internal R&D activities, and identifying external opportunities developed by others.

Our next question comes from Catherine Schulte with Baird.

First, for MolDX, I think we're coming up on the 1-year mark from the squamous cell draft LCD at the beginning of next month. Have you had any additional conversations with them? And what do you think the likelihood is that they could reverse their decision in the final LCD?

We are in continual communication with the MolDX medical records and other Medicare contractors. They are aware of recent publications supporting the clinical use of our test, particularly in terms of risk stratification and predicting responses to adjuvant radiation therapy. Our risk stratification table has significantly expanded, with more patients studied and published. We hope these publications will influence their decisions. According to the Medicare manual, publication takes about 365 days, and we have noticed that MolDX sometimes requires an additional month or two. We believe June and July are appropriate timeframes for consideration. Regarding the likelihood of their decision, I would say that MolDX has consistently indicated their intent to review the literature from an evidence-based standpoint. If they overlook something, they are open to public feedback and willing to make adjustments rather than sticking rigidly to past decisions. A recent example of this is the Cypher LCD, which transitioned from noncoverage to coverage between its draft and final versions. There are similarities between the data development for Cypher and SCC, though not necessarily identical for MolDX. I am optimistic that as they review the new data, including our responses to their inquiries and the recent findings on ART, they will recognize that our test significantly enhances care within existing treatment frameworks based on risk stratification and the new data on radiation therapy responses.

Okay. Great. And then on TissueCypher, just with volumes flat sequentially here. You mentioned you're still figuring out that seasonality. So do you think that was seasonality? Or were there other dynamics going on there beyond that in the national sales meeting?

Yes, I believe there is likely some seasonality involved, and there might also be a slight pull forward effect. It's possible that some patients were waiting while we paused order taking, and those orders ended up coming in during the fourth quarter, which could indicate a shift from what would have been third quarter orders to the fourth quarter. Unfortunately, we can't confirm that for certain. After this quarter, we should have a clearer view of what a normalized cadence looks like and will be better positioned to assess our progress in the penetration pathway.

Our final question today comes from Mark Massaro with BTIG.

This is Mark, and I apologize if this has already been discussed as I had some technical issues. Recently, we have noticed an increase in opportunistic mergers and acquisitions. Given that you have a very strong balance sheet, I was curious about your thoughts on how to deploy that balance sheet in light of recent competitor valuations, particularly in relation to adding to your portfolio in dermatology.

Yes, you're correct. Many assets are facing valuation challenges. We're continuously exploring other opportunities, but at this moment, pursuing inorganic growth is not a top priority as we consider the value of our existing assets and our internal capabilities. We consistently assess potential options and take an objective look at them, but currently, external growth is not at the forefront of our priorities.

This concludes our Q&A. I'll now hand back to Derek Maetzold for closing remarks.

Thank you, operator. This concludes our first quarter 2024 earnings call. Again, I thank you for joining us today and for your continued interest in Castle Biosciences.

Ladies and gentlemen, today's call has now concluded. We'd like to thank you for your participation. You may now disconnect your lines.