Good afternoon, and welcome to Castle Biosciences' third quarter 2021 conference call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions, followed by a question- and- answer session. I would now like to turn the call over to Camilla Zuccaro, Executive Director of Investor Relations and Corporate Communications. Please go ahead.
Thank you, operator. Good afternoon, everyone. Welcome to Castle Biosciences' third quarter 2021 financial results conference call. Joining me today is Castle's Founder, President, and Chief Executive Officer, Derek Maetzold, and Chief Financial Officer, Frank Stokes. Information recorded on this call is only as of today, November 8, 2021. Therefore, if you are listening to the replay or reading a 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 quarterly report on Form 10-Q for the quarter ended September 30, 2021, 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 financial metrics such as adjusted revenue and adjusted gross margin, which are non-GAAP financial measures. We believe these metrics provide useful supplemental information in assessing our revenue and cash flow performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today and have 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. Thank you for joining us today for Castle's third quarter 2021 earnings call. We are pleased to discuss with you this afternoon another strong quarter, including a 54% increase in revenue and a 71% increase in adjusted revenue year-over-year, despite the lingering impact of decreased cutaneous melanoma diagnoses of 16% compared to historical pre-COVID numbers from 2019. In August, we raised our 2021 revenue guidance to $89 million-$93 million. We are pleased to say that we are on track to meet this increased range. As I just noted, third quarter 2021 cutaneous melanoma diagnoses were down 16% compared to the pre-COVID third quarter 2019. It is too soon to know the impact on fourth quarter diagnoses.
We can tell you that October was solid and similar to third quarter trends, but I would note that all else being equal, fourth quarter volume is typically flat and slightly lower than Q3 due to the holidays and fewer working days. However, we may see some positive offsets to these factors in the fourth quarter from successes in our growth initiatives, including our expanded commercial team and recent publications of evidence supporting our tests. I'll discuss this in more detail in a moment. You may recall from the onset of the pandemic, we made the strategic decision to create investments in our growth initiatives, including expanding our commercial team as well as our R&D programs, both for our commercial and pipeline tests.
We made these decisions as we believed they would ensure we remain in a position to impact patient care, ensure our resiliency, and continue creating value for stockholders in the near and long term. Further, we identified two additional areas of strategic growth that we believe complement our existing business and align with our focus of addressing indications with unmet clinical needs to improve patient care. The first is our acquisition of the Myriad myPath, LLC and the associated myPath Melanoma test, and more recently, the pending acquisition of Cernostics. We are seeing excellent progress across these initiatives, which I will discuss today, followed by Frank providing additional detail on our financial results. As always, it is important to begin with a special thank you to the Castle team.
I'm proud of their commitment to patients and their consistent execution, which enable us to deliver another strong quarter and further our position as the leader in dermatologic diagnostics. We delivered 7,727 total gene expression profile test reports in the third quarter of 2021, compared to 4,779 in the same period of 2020. This includes 5,505 DecisionDx Melanoma test reports delivered, 25% growth compared to 2020 and 33% growth compared to 2019. Despite cutaneous melanoma diagnoses remaining below historical 2019 levels by approximately 16% based on our analysis of third-party data. As we've discussed, we expanded our sales team to around 60-65 dermatology-facing representatives in the second quarter of 2021, and they completed training and were on the ground beginning on July 1st.
With this expansion, each of our sales representatives is now promoting and educating on all three of our proprietary skin cancer test offerings, utilizing our existing sales channels and calling on dermatologists as their primary call point. The team grew their experience and territory knowledge in the third quarter, and we expect them to continue toward optimal productivity, which we believe takes about two quarters. During the quarter, approximately 90% of our sales calls were in person, which is consistent with what we saw in the second quarter of 2021. Importantly, we have significantly increased our in-person group peer-to-peer program compared to the third quarter of 2020, and these continue to be widely attended. We believe this reinforces the high value that our tests provide to clinicians and their patients.
At the beginning of the pandemic, we actively searched for methods to increase our engagement with clinicians to counteract the limited in-person access to offices. We determined that accelerating our plans to integrate our ordering process with the electronic health record systems our customers use would be beneficial for a variety of reasons even once offices reopened. We began integrating our ordering process with electronic medical records platforms on an individual practice-by-practice basis earlier last year. Last week, we announced our agreement to establish an interface with Modernizing Medicine's electronic health record system, EMA. Our interface with this system is expected to streamline the ordering process. The EMA platform has been ranked number one by dermatologists for the past eight years by Black Book.
The interface is designed to enable dermatologic clinicians to order Castle's DecisionDx skin cancer tests and then receive and review results from directly within a patient's electronic medical record. We expect our interface with EMA to be complete by the end of this year. As we look ahead, we have seen that our market is promotionally responsive. We expect that our sales force expansion efforts, along with our increased clinical evidence supporting our tests, we have 33 peer-reviewed publications now for DecisionDx Melanoma alone, should position us well for growth across our suite of dermatologic tests in 2022. Turning to our DecisionDx SCC test for patients diagnosed with cutaneous squamous cell carcinoma and one or more risk factors, we delivered 930 reports in the third quarter of 2021.
We first introduced this test to the market on August 31st, 2020, and early adoption of this test continues to exceed our expectations. We've discussed the value of leveraging our established dermatologic commercial channels for SCC as well as for our comprehensive diagnostic offering. For the nine months ended September 30th, 2021, approximately 76% of clinicians who order DecisionDx SCC also order DecisionDx Melanoma during that same time. As we previously discussed, the technical dossier for our DecisionDx SCC test was submitted for MolDX review to Palmetto and Meridian in the second quarter of 2020, and we received confirmation of acceptance of the submission as being complete in the third quarter of 2020. As of today, the MolDX program has not posted a second Open Comet period for 2021.
Given the timing, we believe it's likely that the next Open Comet for MolDX LDTs will be in the first quarter of 2022. Moving on to our comprehensive diagnostics offering for difficult to diagnose melanocytic lesions. We delivered 913 test reports for MyPath Melanoma and DecisionDx- diffDx- Melanoma combined for the third quarter of 2021. You may recall that a few years ago, we began development of our diffDx Melanoma test to address this unmet medical need to provide improved clarity around difficult to diagnose lesions. In developing a test with high sensitivity and specificity, our target product profile included the criteria of having both a low technical failure rate and intermediate test result rate. That is, being able to report out a clinically actionable, likely benign or likely malignant test result on more than 95% of orders.
We succeeded in achieving our target product profile. As I said earlier, as part of our strategic growth plan, we identified two additional areas we believe complement our existing business and align with our focus of addressing indications with unmet clinical need, with the acquisition of MyPath Melanoma being the first. We determined that housing both gene expression profile tests for use in difficult to diagnose lesions and providing structure to the ordering process could enable us to serve more patients with the strongest evidence and highest clinically actionable test results possible. The question is, did we accomplish our objective or not? The answer is yes, and let me explain. We presented data that I will review here at the American Society of Dermatopathology annual meeting last month.
This study reviewed order data from June 3rd, 2021 through August 31st, 2021. Essentially, the first three months that we were able to offer both MyPath Melanoma and DecisionDx Melanoma under the comprehensive diagnostic offering workflow. In just this time period alone, we're able to increase the reporting of actionable test results of either likely benign or likely malignant from 78% for MyPath Melanoma alone to 99% when used in conjunction with DecisionDx Melanoma and the comprehensive diagnostic offering workflow, thus enhancing diagnostic confidence and delivery of clinically actionable results to healthcare providers and their patients. In addition, we saw significant growth in our CDO revenue during the third quarter, and with MyPath being covered under existing MolDX LCD, we're able to significantly advance or pull forward reimbursement timing of our CDO business compared to DecisionDx Melanoma alone.
The second area of strategic growth we identified that complements our and aligns with our focus of addressing indications of unmet clinical need is the pending acquisition of Cernostics and its TissueCypher platform, including the first to market TissueCypher Barrett's esophagus test. We expect to close the deal before the end of 2021. We are excited about the potential our combined teams have to accelerate our impact on patient care and address the unmet clinical needs in Barrett's esophagus. The TissueCypher test is designed to objectively and accurately predict progression from non-dysplastic indefinite for dysplasia and low-grade dysplasia in Barrett's esophagus to high-grade dysplasia or esophageal cancer. This is critical as esophageal cancer carries a high mortality rate, with five-year survival rates under 20%.
While specific intervention in patients with Barrett's esophagus, that is esophageal eradication therapy, which includes ablation and other interventions, has been proven to reduce progression to cancer. Unfortunately, the incidence of esophageal cancer is increasing at one of the fastest rates of all cancers in the U.S. We need new clinical tools to reverse this growth trend in the diagnosis of esophageal cancer. What do we like about Cernostics? And what are the factors that influence our decision to acquire them at this time? TissueCypher for Barrett's esophagus serves an indication of high clinical need by improving risk stratification for patients that have been diagnosed with non-dysplastic, indefinite for dysplasia, and low-grade dysplasia Barrett's esophagus. In other words, it parallels the risk stratifications we offer with our DecisionDx Melanoma, DecisionDx SCC, and DecisionDx-UM tests.
This is also a large market for patients that fall within the current intended use, equating to 384,000 new patients on an annual basis. When assuming the current Medicare rate, the current TissueCypher intended use population alone expands our in-market estimated U.S. total addressable market by approximately $1 billion. We also like the GI market in general. With approximately 13,000 or so targetable clinicians, this market is a similar size to the skin cancer dermatology-focused market. We have demonstrated that we know how to effectively educate and promote a customer base of this size. Finally, we are adding another innovative technology platform to our R&D and clinical laboratory groups, expanding beyond multi-analyte gene expression profile tests to multi-analyte spatial biology tests.
For our near term, we see TissueCypher and the GI market as a parallel to our experiences in the dermatology market. Despite not having any field team presence, Cernostics has been successful in generating interest and usage from a number of GIs. We expect to build an initial sales group of 13-15 representatives in addition to MSLs and internal sales associates. Before I close, I'm excited to share with you that we published our inaugural ESG report today. Castle was founded on the guiding principle of doing the right thing at the right time. Although we are still early in our journey as a public company, our focus on ESG factors began with our guiding principle in 2008. We laid the cornerstones of integrity, transparency, collaboration, and innovation.
We believe having a strong ESG program that is relevant to our core business and our stakeholders will be essential for success. The launch of this inaugural report marks an important milestone in our journey and demonstrates our desire to move Castle forward and progress our ESG goals. Additionally, it reinforces our commitment to improve the lives of patients, positively impact our communities, and ensure Castle remains a great place for our valued employees to learn and grow. I'll now turn the call over to Frank to provide additional detail relating to our financial results. Frank?
Thank you, Derek, and good afternoon, everyone. With a strong third quarter, Castle continues to deliver on our stakeholder commitments and made considerable progress on our growth initiatives. In the third quarter of 2021, we delivered total revenue of $23.5 million, a 55% increase over the third quarter of 2020. Overall, the increased revenues reflect higher test volumes for both DecisionDx Melanoma, DecisionDx-UM and higher per unit rates, partially offset by lower positive revenue adjustments related to tests delivered in prior periods. Higher per unit rates reflect our expanded Medicare LCD for our DecisionDx Melanoma test that went into effect in December of 2020, as well as a higher Medicare rate for DecisionDx-UM that went into effect at the beginning of this year.
Our adjusted revenue, excluding the effects of revenue adjustments related to tests delivered in prior periods, was $23.6 million, a 71% increase over the third quarter of 2020. Our gross margin during the third quarter was 78% compared to 84% in the third quarter of 2020. Our adjusted gross margin, excluding the effects of intangible asset amortization and revenue associated with tests delivered in prior periods, was 81%, compared to 82% for the same period in 2020. Our total operating expenses, including cost of sales for the quarter ended September 30, 2021, were $35.3 million compared to $19.1 million for the same period last year.
The largest driver of the increase was higher SG&A, which increased by $10.9 million for the three months ended September 30, 2021 compared to the same period in 2020, attributable in large part to higher personnel costs associated with our increased headcount, which includes salaries, bonuses, benefits and stock-based compensation. These higher personnel costs are primarily attributable to the expansion of our sales and marketing teams as well as administrative support functions. The remainder of the increase in SG&A is primarily associated with the return of in-person and hybrid conferences, in-person peer-to-peer promotional programs and training events, as well as a partial return to more normalized travel costs.
R&D expense increased by $4.4 million in the third quarter of 2021 compared to 2020 and is primarily associated with increases in personnel costs attributable to additional headcount to manage and run our clinical studies, increases in other expenses associated with increased clinical study activity. As we continue to support our commercial products as well as our pipeline initiatives and continue to expand our body of evidence, we expect our R&D expense to increase further. Total non-cash stock-based compensation expense, which is allocated among cost of sales, R&D and SG&A, totaled $5.2 million for the quarter ended September 30, 2021, compared to $2.1 million for the quarter ended September 30, 2020.
We expect further increases in stock-based compensation expense in future periods, reflecting both higher post-IPO stock option valuations as well as additional awards outstanding due to growth in our headcount. Our net loss for the third quarter of 2021 was $11.8 million, compared to a net loss of $4.6 million for the third quarter of 2020. Diluted loss per share attributable to common stockholders for the third quarter of 2021 was $0.47, compared to a loss of $0.23 for the third quarter of 2020.
Operating cash flow for the nine months ended September 30, 2021 was negative $16.2 million, compared to a positive $10.3 million for the same period in 2020 and is primarily attributable to the net loss as well as the recoupment of a portion of the Medicare advanced payment and increases in working capital requirements, partially offset by non-cash charges. If you recall that the prior year operating cash flow benefited from the receipt of $2.3 million associated with the Medicare advanced payment. This year, beginning in April, recoupment of the advanced payment began. As of September 30, 2021, $5.3 million has been applied to the balancing recoupment. Investing cash flows during the nine months ended September 30, 2021 was primarily associated with the $33 million payment for the acquisition of MyPath Melanoma.
Finally, we had cash and cash equivalents as at September 30, 2021 at $363 million and no debt. I'll now turn the call back over to Derek.
Thank you, Frank. As always, none of our achievements are possible without the hard work and strong execution of the Castle team, whose dedication enables us to deliver on our commitments to our stakeholders and importantly, continue to impact patient care. Our progress on our growth initiatives in the third quarter, including expansion of our dermatologic commercial team and our R&D programs, both for our commercial and pipeline tests, positions us well for continued value creation. This concludes our remarks. Thank you for your interest in Castle. Operator, we are now ready for Q&A.
Thank you. If you would like to ask a question, please press star four then one on your telephone keypad. If for any reason you would like to remove that question, please press star four then two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will call you briefly as questions are registered. The first question comes from Puneet Souda with SVB Leerink. Please proceed.
Thanks for taking questions. Maybe, Derek, can you talk about, you know, now it's been a year, right, since we've seen delays in terms of melanoma diagnosis. Are you seeing any change on the ground in terms of potential impact that's been having as far as, you know, the stage of diagnoses, you know, or whatnot that you might be hearing?
We have heard a number of informal comments that I think will be publicly available shortly about what oncologists are seeing around the U.S. I don't think we're gonna see any kind of increase dramatically in terms of people diagnosed with melanoma that's already spread either regionally or distantly to so-called stage III or IV. What we are seeing in a couple of different meetings this fall is that things like the thickness of a tumor called Breslow thickness in melanoma appears to be creeping up, which shows that patients are not being diagnosed necessarily ancillary to other healthcare visits for their primary care physicians, for example. They're actually only going in because a mole has gotten big enough that they're concerned that could be melanoma.
I think that's what the risk for the patient population is. My summary, I think, is that since the impact of COVID pushed so many people to be comfortable with telehealth or just prescription renewals over the phone in the last 18 months, those 20% of the patients that weren't being seen in person and having that mole on the back of their neck or the side of their ear be picked up incidentally are the ones that are being missed. When they're coming in, our perception now is that they're coming in with a little more worsened or a little more adverse melanoma in terms of thickness.
Now what that means for Castle, I think one, is that certainly there are some patients who have very, very thin melanomas, like 0.1 mm, 0.2 mm thick, where we have difficulty generating data showing that we actually add value in tumors that are that thin, in terms of the use of our DecisionDx-Melanoma test. There are also patients that are coming in with invasive melanoma. So a thickness of, you know, 0.1mm, 0.2mm, 0.3mm or thicker, who might have gotten diagnosed earlier with what we would call in situ or non-invasive melanoma, which is really just on the epidermal layer of the skin. We don't test those with our test.
Over time, it's our belief that as these patients begin to come back, either to see their primary care doctor in person on a more routine basis or work their way into a dermatology practice, we'll be seeing more patients diagnosed who will actually hit the sweet spot of our test. That hasn't happened at least yet, but it has to happen sometime because melanoma continues to go ahead and progress and evolve.
Gotcha. That's helpful. I do have one follow-up. Are there any updates in terms of your non-skin cancer programs that are underway? You know, if there are any changes in terms of the timeline of what you have to test in that?
No. We've seen. I think we discussed this maybe at the conference here in the fall. We had yet to disclose a couple of our other targets, but all of our programs right now are running ahead of our internal estimates forecast. I believe that what we're seeing is that most of our pipeline programs are being executed at more high research organizations that are community-based versus hospital-based and are seeming to have sort of come out of COVID ready to start new protocols, I guess you would say, and they're seeing patients. We don't see any delay in terms of timelines over our earlier estimates earlier this year.
Great. Thank you so much.
Thank you, Puneet Souda. The next question comes from Kyle Mikson with Jefferies. Please proceed.
Thanks. Hi, guys. Thanks for taking the questions. I wanted to start with the guidance. If I'm doing the math, it looks like a sequential decline in revenue, and so I'm just surprised you're assuming, you know, the same level of third quarter access, like 90% in-person calls will have the same type of, you know, melanoma diagnoses trends as 16% below baseline. I'm just a little bit surprised given the upside the additional reps could provide. Can you talk about maybe some of the conservatism or type of expectations you're baking in there? Thank you.
Me first or me?
Yeah.
Yeah, sure. Sure, Kyle. I guess maybe the most important thing is that we began seeing, I guess, recovery is a funny word. Nice changes in growth trends in sort of the May and June time period, and those carried over quite well to the third quarter, and October started out very strong. We do know that in November, there were a few working days because of the Thanksgiving holiday as well as in December. I don't wanna say we're being overly conservative, but maybe put it that, in that respect, like typically speaking in a non-COVID year, you know, 2016, 2017, 2018, 2019, you would typically see fourth quarter diagnoses of melanoma being flat as the third quarter as part of a normal seasonality.
Now that being said, I do agree with you that we are very pleased with the field force expansion that occurred on July 1st of this year and see that being too conservative in hindsight, as you mentioned here. We certainly don't see any negative trends through October that would cause concern, but we also felt that our guidance was adequate for the rest of the year. Frank, do you want to comment or touch on it?
Sure. Thanks, guys. No, that's all I understand. I noticed in your presentation that the potential for FDA for LCD and Dx-SCC is now officially 2023. Not a huge surprise there.
I'm just curious if you could talk about the expectations for private payer and commercial payer coverage in 2022 for, you know, the rest of your tests. And are there any products that are kind of better positioned to receive insurance network coverage sooner than others and maybe kind of too with this growing portfolio and data or some of the timeline for tests as well? Thanks.
Yeah. I'll try to add a little bit here. One is that given it's already November 8th, I think it's highly likely that we will see an open comment post that might come out early, Noridian, in the weeks of Christmas holidays or between Christmas and New Year's. I think the likelihood of obviously a 2021 COPACOM meeting and LCD, especially with that occurring before year-end is unlikely.
Our view is that they must be working towards the first quarter 2022 hosting a meeting set, which would push by definition out about a year or so between then versus when they could have to limit the time to turn a draft LCD to a final and formal one. It could have come earlier certainly, but I think it's better to be upfront and conservative than assuming a faster term. In terms of coverage on the commercial side of the business. We certainly are seeing some revenue coming in for our other newer launch tests, predominantly the DecisionDx SCC test. We expect that to go and continue in modest amounts during 2022. I don't think we can expect a guideline change or update in 2022 for squamous cell carcinoma.
I think that group meets in the fall, I think, of every year. I think that would be probably the earliest towards the end of 2022 we would see an update, which wouldn't have much effect on passing that through on the commercial payers. On the sort of combined diagnostic or comprehensive diagnostic offering, this combined offering of MyPath Melanoma and DecisionDx Melanoma, we did see earlier this year, earlier in 2021, a change in NCCN guidelines that recognize a gene expression profile test that assists in these diagnoses of a difficult to diagnose cutaneous lesion are included there.
We would hope to see some forward movement with some of the payers in 2022, since a number of them could see an NCCN guideline inclusion as sort of a final litmus test to then pull through from a normal reimbursement vendor coverage. I think we have expectations for a number of things going forward in 2022 that will hopefully build on our revenue expectations throughout the year. As it relates to the DecisionDx-Melanoma test, we did see some progress with payer plans in the second and third quarter of 2021. We would expect that to go ahead and continue as we have additional evidence being published later this year and into next year as well.
That was very, very helpful. Can I just ask one quick question before I pass it off?
It was nice to see the EHR integration news. I just have two questions about that. Basically, number one, could you talk about your current electronic ordering rate, if you can kind of quantify that or maybe qualify that? I mean, do you plan on expanding to the other kind of ambulatory EHRs like NextGen, Epic, and athenahealth over time?
You're talking about the integration with Modernizing Medicine and the EMA platform?
Correct.
I mean, Modernizing Medicine has a well-known qualification, then for the rest. Thanks.
Yeah. Yeah. One is we haven't disclosed the online ordering in the past. I just will look at that and maybe add it in the future here.
It's a small but important part of the business through our current online ordering portal with physicians who want it electronically. That's been going on, but I would say that's less than half of the volume because there are a number of customers who still value fax machines going over with laboratory reports and that's just how they operate as a practice. However, that being said, the opportunity to integrate both ordering processes for all of our tests, by the way, as well as having reports received through EMA, I think is very exciting. Throughout 2021, we did test with a number of practices an individual practice by practice solution. When they were interested, Matt, we saw them kind of converting business from being fax-based to EMA-based ordering.
We expect that over the course of 2022, you will see practices, and it could be on a practice level, it could be on an individual clinician level, go from, you know, 0% to 100% online ordering through EMA and receive results. I believe that's going to reduce the number of times that we might miss appropriate patients because the doctor was kind of busy that day. It's a Friday afternoon. By the time they go ahead and come back in on Monday or Tuesday, they forgot. Do they order the test or not? This should make that much easier and smoother from a convenience standpoint. The fact that we are able to load in all of our test offerings, I think we will expect to see nice lift throughout the year as that becomes more integrated into our customer solutions.
We certainly are entertaining talks with the other minority medical record companies to work with. While just keeping in mind, of course, that we believe that about 90%+ of patients with melanoma are initially diagnosed and managed by community-based private practice individuals. Some of the services, I'm thinking about, Epic and others who really have a much more command in hospital-based systems don't really fall into our EMR interest, per se. We are looking forward to kind of seeing the sort of national rollout through Modernizing Medicine, see the impact it has in the business, and then going from there.
That's really interesting to hear. I'll leave it there. My questions. Thanks so much for taking them.
Thank you, Mr. Mikson. The next question comes from Thomas Flaten with Lake Street. Please proceed.
Great. Thank you guys for taking the question. I wanted to follow up on a comment both from the prepared remarks and also the press release with respect to the two quarters of time to get to sales reps with non-optimal productivity. I think you had put some caveats around that there can have calls that it might take longer because of access, et cetera. Are we or have you seen an acceleration there? Can we expect that they're fully productive by year-end? Have you seen just two quarters from now? Coming into the first half of next year? I just wanted to clarify that.
Good question. No, I don't think it's gonna take a year to have them set up and running. We've had good access to about 90% of our calls have been in-person, both second and third quarter, and we had CDC worsening through October. I wouldn't count that as something there. I do think in hindsight that you know we had earlier questions during the third quarter, are we sort of seeing an impact at Delta? If we were seeing it, I think it was covered up because of the effectiveness of our new sales force expansion. My expectation is that we'll hit the ground running with sort of you know a fully effective expansion sales force at the beginning of the year.
Got it. Speaking of commercial teams, I think on the last call, you had talked about having a team ready to go for January 1. Is that still the plan to support that product commercially?
Yes. Yes, I think interviews are being completed this week. We expect to have offers go out, and people start during early December and given the profile of the individuals that we believe will go ahead and come on board at Castle, they nearly all have a really nice structural gastroenterology experience set. We would hope they hit the ground running post-training in the early January timeframe. That remains on track.
Then just a quick one on the dermatitis psoriasis program. You guys had put out the study design and sort of poster, I think it was a few weeks back. It sounds like you've set it up as a, like a treatment selection path. But given the non-invasive sampling platform, is there an opportunity to extend that into response monitoring as well? Or how are you guys thinking about combining those two opportunities if you are?
I guess you read the poster well, didn't you? I think the first objective is to really look at which biologic or which systemic therapy of patients, how they're likely to get clearance from. By clearance, we really mean partial. We're hoping to end up with nearly 100% clearance in our responders. We expect just the opposite to go ahead and find therapies that, you know, this patient can have a modest to minimal response to. A physician and a patient can really, you know, take six off the table and put two on.
However, as you noted in that poster, there are serial collections over time, and so by response monitoring, you know, we may be able to pick up three months in advance, for example, before a patient begins to lose response. I guess it's too early to comment on that, but that might be a great value for patient care, and obviously it creates a better per patient annuity for the company going forward if, in fact, we can demonstrate that.
Great. I guess you answered my question. Thank you so much.
Thank you, Mr. Flaten. The next question comes from Catherine Schulte with Baird. Please proceed.
Hey, guys. Thanks for the questions. I guess firstly, for a little bit more granularity there. How much of this sequential growth came from your new cohort of reps, and how much more do you think you could contribute in the fourth quarter?
We haven't analyzed those at my level per se. Maybe importantly is that, we had no areas in the country and we had only 32 dermatology facing representatives with wide-open areas. I mean, we covered the whole U.S. with body. So when we went from 32 dermatology focused people to roughly the mid-60s, it wasn't sort of covering areas that we hadn't covered before where you could say you had sales of zero and you went to something. So I don't think we can accurately answer that question with any integrity. We were quite pleased with seeing the growth in terms of productivity of the overall sales groups over the course of July, August, September and October.
As I mentioned earlier to I think it was Kyle's question, didn't wanna come out and be overly conservative on the fourth quarter here, but we are quite pleased with the triangulation that we were seeing in August, September, October with the expanded sales organization, and actually going bleep has scored quite well in this quarter too.
Okay, great. Can you give us an update on the personalized study, how enrollment is going and when we could get early data there? Any additional details on the DECIDE study highlighting from your point of view on excellence in decision making outcome?
Sure. We've seen a little slower progress maybe in 2020 and early 2021 in terms of centers coming on board. I think that was largely the sentiment. Most of the early placements were with academic centers and then kind of slowed down in terms of IRB contracting for observational studies of our sort. That's been a nice improvement over the last quarter or so. I expect to see some initial data, probably by maybe the end of next year. I think that might be aggressive, but I think that's reasonable.
The number of patients that we could say, "Hey, here are patients who really benefited from the use of a PD-1 inhibitor who had stage III disease, and here are patients who didn't need it." That may be fantastic to help improve patient selection for Posafang. I'm gonna wait and watch and nobody gets these therapies because the data is not that strong enough to have a statistic change or they're all gonna get it just by the number of patients who wouldn't benefit. That, that's a helpful timing. You may have seen there was data presented at ESMO, I think, by Merck back in late September of this year, September 2021, you know, KEYNOTE-716 study that was focused on stage IIB and IIC patients.
Those are people who are sentinel node negative, but a little thicker, not severe tumors and thinner patients. The data there, as you expect, showed a treatment effect, but it was quite modest. We presented data at the same conference that Thomas talked about a couple of weeks ago, showing the value of our tests, especially our integrated model in stage IIB and IIC, and can identify people who really will likely not benefit from PD-1 therapy because they have a very slow likelihood of metastasizing. We found those who are essentially train wrecks going forward. For me, those two elements make that they make a quite positive story moving into 2022. As it relates to the study, that's enrolling quite well.
I don't think we really had a slowdown in 2021 in terms of enrollment, largely because we had cleared up the running kind of in the earlier COVID period in 2020. Data on that study that, of course, is looking at patients who are looking to have our test guide a use of a clinical biopsy procedure or not, and then tracking those same patients long-term outcomes, which is similar to some other publications we had come out this spring. I mean, this fall. We should also be able to see top line data, although it'll be preliminary with shorter follow-up time later next year.
Okay. Thank you.
Thank you, Catherine Schulte. Next question comes from Puneet Souda with SVB Leerink. Please proceed.
Thanks for taking the questions. The first one is really, I mean, this has been covered, I'm sure, but in terms of the derm practices, are you seeing anything different today? Let me ask it maybe differently. Are you seeing any permanent change in their behavior, how they're interacting with the sales reps in terms of the time that they're allowing the sales rep interaction, traditionally that's been more longer in dermatology? Any type of trends that you're seeing for post-COVID that gives you a little bit of pause in this market? I'm just, you know, looking in terms of the volumes and the impact that you saw here. We were expecting, obviously, a little bit stronger pickup.
You know, just if you can qualify what you're seeing in the market as of currently November, that would be super.
On a macro basis, I have not heard of any sort of structural changes or trend changes. Certainly on a practice by practice basis, we are aware that as kind of Delta moved through, that there were some practices in certain locations that, you know what? Let's go ahead and put off seeing you back in person for another month or two until we're comfortable. That's expected, right, Vinny? I think I look at sort of our data to have 90% of sales calls in person now for two quarters running, second quarter and third quarter this year, to be interesting when I compare that to, I guess, what I'm hearing some of our other market diagnostic peers who are seeing, you know, 75%, 40% in-person calls.
There's something different about, I think about Castle and Dermatology. I wanna believe that the fact that we have three product offerings that are all highly clinical, actionable to pathologists who are diagnosing early-stage skin cancer, be it melanoma or squamous cell carcinoma, is getting to something differently than those other companies who have molecular diagnostic tests but are finding much more resistance towards getting back in person with customers. I don't know. I wanna perceive that the Castle difference in terms of the value of our tests and the level of educational value that our representatives bring to an office versus other companies. That's certainly a dynamic which is different.
I can say from a Castle standpoint, we aren't seeing some kind of a long-term shifting that we're aware of on a macro systemic basis. It might be happening on a practice by practice case, but nothing I can point to nationally and say, "You know, this is something to be concerned about going forward.
Got it. Then, touching on the Medicare prior quarter adjustment, Frank, how should we think about that going forward? Just wanted to clarify. In terms of data readouts, given the contract effect, Derek, could you just maybe lay out for us what are some of the things that we ought to watch out for the next couple of months? Thanks. Any more questions?
Yeah, so, the prior period relates to all payer categories. We'll continue to see that. It'll bounce around. We'll have some positive and some negative. I think what's important is we've gotten much better at accruing a rate per test that's putting us closer to our actual collection experience. You know, the same quarter last year was north of $1 million. In this quarter, I think it was $90,000 difference on, you know, $24.5 million. That's a nice improvement there. But it'll. You know, of course, you obviously see this in the other companies you cover. All the companies are gonna have some prior period adjustments from time to time. We're.
Also, as we said before, if squamous and GPS really grow quickly, eventually we should see some benefit from the appeals process, and that might pick up the prior period a little bit.
This relates to sort of milestone timing in 2022. There are a couple of meetings in the January time period that have shorter abstract submission dates. That might be something to look at in terms of the milestone of data presentation. AAD this year, I think, is in March. They offer a late-breaking opportunity that we would hope to have some data go in there as well. I think around the AAD time period is an area where you'd expect to go and see some activity. The next kind of spring meeting that's of importance to us target market-wise is the American College of Mohs Surgery or ACMS, and that's always kind of late April, early May. ASCO, as you know, is in June, but we really operate in early-stage skin cancer.
We might have activity there, but to be honest, that's not the concentration we would care about. It's really dermatology for us as a company. Those are the ones I would line up there earlier that we would expect to be able to have some important data from a penetration driving perspective to be presented.
Okay. Sorry.
Thank you, Mr. Souda . The next question comes from Paul Knight from KeyBanc. Please proceed.
Derek, thanks again. The Cernostics acquisition, I know you were expecting genetic test coding, like, today or soon. Anything else on an update with Cernostics?
Yes. There is a draft LCD that I think is finalized either today or tomorrow, but they're already in the billing article there. The Cernostics program overall, we really like the gastroenterology channel, I guess you would say. We really like the TissueCypher test for Barrett's esophagus. As you know, we think there's around 385,000 patients who are getting endoscopies every year and could be eligible for a TissueCypher test. That's more than our melanoma and our squamous cell carcinoma test potential combined. We like that from that standpoint.
We also think that over the next couple of years, we'll be able to either find or develop, through Cernostics or through our current approach with RNA, some additional tests so that we can turn around in 2025 maybe and say, "Gee, just like in dermatology, you went from having a foothold to having three or four tests, and you're perceived by gastroenterologists as being the leader in this kind of GI space." At least that's our vision to get there. Now, more practically in short term, Cernostics did complete their medical evaluation review with Novitas earlier this year and have been receiving routine payments on all their Medicare claims since that point in time. They do have an established list price on the clinical laboratory fee schedule of $2,513.
We feel like all of the check boxes are there to say, let's go out and help support appropriate use of a test that really has had no commercial efforts so far, and if it makes a difference to patient care, we expect to have good, solid ordering uptake next year. Although we, as we announced, the deal last month and our expectation here is that 2022 is building revenue, with 2023 is when we will receive really accretive add, but we are gonna see revenue next year, certainly.
Brandon, Derek's on the gross margin. It was down a bit sequentially. Anything going on in supply chain and how the, maybe on the lab tech side?
No, no, Paul. Fortunately, none of our consumables are sitting on a barge off Long Beach right now. We most of our consumables come out of Waltham, Mass., and we've had no issues there. The modest impact on gross margin is really just because of the honestly the success of the two new products. You know, we had over 1,800, almost 1,900 tests that the majority of which we didn't accrue any revenue for, but we did you know we did obviously have to book the costs associated with it. That's what we're seeing there, is just the impact of the number of tests that we're not accruing revenue for.
Thank you.
Thank you, Paul.
Thank you, Mr. Meigh. There are no additional questions waiting at this time. I'll pass the conference back to Derek Maetzold to conclude and wrap up.
Thank you, operator. This concludes our third quarter 2021 earnings call. Thank you again for joining us today and for your continued interest in Castle Biosciences.