Good afternoon. Thanks for joining us at the 23rd annual Needham Healthcare Conference. I'm Mike Matson, and I lead the MedTech and Diagnostics Equity Research Team at Needham & Company. I'm pleased to introduce Castle Biosciences. Presenting from Castle today, we have President and CEO Derek Maetzold, CFO Frank Stokes, and Vice President, Investor Relations and Corporate Affairs Camilla Zuckero. They're gonna do a presentation on Castle, and there may be time at the end for questions. If you do have any questions that you would like me to ask, you can submit them through the conference website, or feel free to email them to me at mmatson@needhamco.com, and I'll try to fit them in. So with that, I'll turn it over to Derek.
Hi, Mike. Thanks for the introduction. I thank you and Needham for inviting us to participate in this virtual healthcare conference on April 9, 2024. It's a pleasure to be here, ladies and gentlemen. Next slide, Camilla. Encourage everybody to read through our forward-looking statements as well as our on the next slide here, non-GAAP financial measures that are contained here as well as in the presentation on our website. So let's talk about Castle Biosciences. We are a molecular diagnostics company which focuses on improving health through innovative tests that guide patient care. And that mission we've held close to our breasts since 2008. And today, I'm thankful that we have not only developed and acquired but offer multiple proprietary tests that actually serve that mission.
Through that, we hope that we are able to transform the lives of people, our patients, our clinicians who treat our patients, our employees, and our investors. Next slide. There are a few different ways one can think about organizing thoughts around strategy. This is how we look at this topic at Castle. We think the first and most important step is to really have a focus, a focus on looking at unmet clinical needs, areas of clinician decision making, patient decision making which are not served well or served optimally by whatever current tests that they currently use or employ in clinical practice. And when we do that, we make the decision of saying, do we think we wanna build a first-in-class test, or do we think we have an opportunity to acquire also maybe a best-in-class test? And we go forward from that standpoint.
Once we've decided and we've locked in on that focus point, we then commit our time to really building and continuing to build a robust level of clinical evidence that both lets us serve to penetrate both physician adoption appropriately for what our tests can offer or what they can do to transform disease management of their patients, but also secure appropriate pay or reimbursement, both government programs like Medicare and the VA systems as well as the commercial payer marketplace. And by staying focused on these three elements, we believe we've been able to accomplish what we've had in the past that sets us forward on our 2024 goals and going forward and beyond 2024. Next slide, Camilla. So as you sit here today, we actually have six proprietary tests available, five of which are in a growth mode opportunity.
The one test which is not here is a very mature test called DecisionDx-UM which we believe currently tests around 80%-85% of patients diagnosed every year with a rare disease called uveal melanoma. But the remaining five tests have lower levels of penetration, which we believe are growth engines for not only 2024 but 2025 and beyond. I'll walk you through these in a little detail. But all combined, we believe these current five growth opportunity tests push us into roughly a $8 billion U.S. total addressable marketplace just on the commercial tests we have today. So let's start on the right-hand on the left-hand side here. We have three tests focused towards the dermatology customer base, which includes dermatologists, some surgeons who are working around dermatological skin cancer excisions or sentinel lymph node biopsy procedures, some radiation oncologists, and some dermatopathologists.
Those combined, we think, in dermatology probably represents around 14,000-15,000 targetable doctors that our tests go ahead and attempt to solve unmet clinical needs for them. Our DecisionDx-Melanoma test, we believe, addresses about 130,000 patients a year who are diagnosed with either localized stage 1 or stage 2 disease or regional stage 3 disease. And that's our intended use population. What that test does is it helps predict a risk of metastasis. What's that patient's risk of recurring? And that could be distantly or it could be locally, such as in the sentinel lymph node bed near the tumor. Our second skin cancer test has a similar kind of function.
It also was developed as a risk of recurrence or risk of metastasis test, but only in patients diagnosed with squamous cell carcinoma and the presence of one or more high-risk features. So a subset of the overall squamous cell carcinoma, which we think is probably 2-3 million patients a year, whereas patients with high-risk disease pathologically or clinically are about 200,000 patients a year. We believe if you take our current reimbursed rate and where we think we're gonna get to at peak, this is roughly $820 million U.S. TAM as it stands today. And finally, we have our tests for patients who present to a dermatologist with a mole that's suspicious enough or concerning enough that it's biopsied to rule out melanoma.
And in this case, this test is used in those roughly 300,000 patients a year that the dermatopathologist is kind of scratching his or her head. It's got some features that look like melanoma, but it's not a clear diagnosis of melanoma. So I go ahead and overdiagnose the patient as having melanoma, which sets them down a whole treatment pathway. Or do I underdiagnose them? Our test helps a dermatopathologist make a more accurate, a more clear diagnosis for that patient. Combined, our dermatological product offerings, we think, represent roughly a $2 billion+ opportunity to that targeted base of around 15,000 clinicians. Our TissueCypher test, which came through an acquisition in December 2021, is our first entrance into the gastroenterology marketplace.
We think there's roughly 10,000 gastroenterologists who are clinically practicing and clinically seeing patients and performing upper gastroenterology endoscopies day in, day out. In this case of TissueCypher, this is a test which is used on people who are already diagnosed with a disease condition called Barrett's esophagus. Think about those patients who have a lot of chronic burping, a lot of gastrointestinal irritation. Maybe they're chomping down five or 10 Tums a day. They're chomping down Pepcid like it's coming out of their ears. And they still have these symptoms. That's likely a patient who has a Barrett's esophagus disease problem. Or hopefully not, it may even be esophageal cancer. And so those patients work their way to a gastroenterologist. They get referred into the endoscopy suite, have an upper gastro upper GI endoscopy performed.
Upon pulling out that pinch biopsy tissue, a pathologist says, "Thank goodness you don't have esophageal cancer, but you do have this disease called Barrett's esophagus," which is the precursor, the only known precursor, actually, to people developing esophageal cancer. Today in the U.S., like in squamous cell carcinoma, we treat people who are perceived to have a lower risk of progressing to esophageal cancer differently than those at a higher risk. For instance, if you have a lower risk on pathology, typically speaking, those patients undergo a repeat endoscopy every three to five years for the rest of their lives, looking really to see if that Barrett's esophagus has progressed from a low-grade disease to a higher-grade disease, in which case they would intervene with that patient.
Alternatively, if you have a higher-grade Barrett's esophagus diagnosis, those patients today in the U.S. marketplace have that Barrett's lesion removed either surgically or more commonly by something called ablation, where you're basically killing off that Barrett's lesion so it can't progress to esophageal cancer. The beauty of our TissueCypher test, as our melanoma test does and our SCC test does, is it pulls out those bad-acting Barrett's esophagus lesions so that a gastroenterologist and their patient can make the decision of saying, "The biology of this disease is more aggressive than pathology would suggest. Do we want to intervene, ablate, or remove that Barrett's lesion so it doesn't have a chance to progress in esophageal cancer, or do you wanna wait and hope maybe the test is wrong?" Again, great impact from a patient care standpoint.
We believe there's around 415,000 esophageal upper GI endoscopies performed a year in the U.S.. And if you roll that up under a mature ASP, we think it represents roughly a $1 billion U.S. opportunity, again, focusing on sort of these 10,000 clinically practicing gastroenterologists. And finally, on the right-hand side here, we see our more recent acquisition, which is our first foray into pharmacogenomic testing. This is a test, IDgenetix, which came to us and actually does kind of three things at once. Most pharmacogenomic tests really only test drug-gene interactions to see if a drug a patient is considering going on for a mental health condition, think depression and anxiety most commonly, does that patient have a drug-gene interaction potential that that drug may not be as effective as it would be in another patient?
And if so, that medical provider can choose a different therapy to treat depression, for example, or chose to adjust the dose so the patient gets on the right drug the first time as opposed to going through trial and error. Our test does that, but it also packages in the same report information about drug-drug interactions and the impact on certain lifestyle factors. So when our customers get this test result from IDgenetix, they get a roll-up of both drug-gene, drug-drug, and lifestyle factors, which we think makes this a best-in-class testing opportunity. We think the pharmacogenomic category is the largest category of all, roughly $5 billion. So you roll all those things together, and we think we're facing an estimated $8 billion U.S. TAM with our commercially available tests on market today. Next slide, please.
So thinking about how we build evidence, I'll just summarize some of these slides here. So DecisionDx-Melanoma, this is a test which I'll go into a bit more detail in a slide or two here. But this is a very interesting opportunity here to say, "Hey, you can predict the risk of recurrence in patients, the risk of their disease of their melanoma spreading from a local tumor either regionally or distantly." What does that mean? Well, as I go into it to a minute here, it means that doctors can not only rule out a sentinel lymph node biopsy surgical procedure, which is prognostic only in nature today, or they can go ahead and adjust how they wanna follow and manage that patient so you can pick up disease spread early.
That's important because in melanoma, we have found that all of our newer therapies work better, potentially even reaching a cure with some people with melanoma if those drugs are started earlier when the metastatic tumor burden is smaller, i.e., picked up asymptomatically on imaging than if it's picked up symptomatically and it's a larger tumor burden. And that translates to a better response to that therapy and, again, hopefully not only a longer life, but also potential cure rates. We published two studies last year, which demonstrated that the use of DecisionDx-Melanoma clinically compared to matched patients who did not receive our test as part of the clinical management resulted in those patients actually living longer. That's the goal in cancer care anyways, right? Living longer, helping patients get to a farther endpoint.
In the case of our DecisionDx-SCC test, this is a test which we also saw substantial gains in evidence not only last year but earlier this year, in fact, which is to really say that our newest study demonstrates that not only are we a risk stratification test like we have in melanoma, but we've also now published data showing that when you take matched cohorts of patients who are eligible for adjuvant radiation therapy, we can find the majority of patients who, unfortunately, don't appear to have a clinical therapeutic response to that therapy and thus rule them out of an unnecessary intervention. At the same time, we can find people who seem to have a fantastic potential response to adjuvant radiation therapy by demonstrating a five-year reduction in metastatic rate of over 50% progression rates. That's a tremendous impact on patient care.
Our TissueCypher test I mentioned earlier regarding how it's used clinically to help determine which patients we should consider ablating or wiping out their Barrett's lesion before they progress versus not. We also have data from a new pooled analysis and a systematic review and meta-analysis, which is the highest level of evidence for risk stratification or prognostic tests that, again, show that the results of TissueCypher in patients with Barrett's esophagus is actually the strongest predictor of the patient's likelihood of progressing or not progressing. That makes that test highly usable in figuring out who to intervene with versus who we can watch and wait with more safely. Next slide.
So to delve down just a little bit more on DecisionDx-Melanoma as an example of the kinds of evidence that we build, I turn you to the left-hand slide of this slide first. So our test report reports out two uses of our test. One is what's the individual risk of that patient having a positive sentinel lymph node? Why is that important? Based upon current national guidelines, if you have a predicted likelihood of having less than a 5% chance of being sentinel lymph node positive, the national guidelines say you probably shouldn't be performing a sentinel lymph node biopsy surgical procedure because that means 95% of the time or greater, the patient doesn't have any melanoma cells there.
That sort of one to 19 ratio or one to 20 ratio kind of sets up that expectation of what is an appropriate surgical intervention to do versus what's not. The second report factor on our test looks at that patient's individual risk of progressing after that first decision is made, do I do a node biopsy or not? Now, that's important because if you're gonna use a test like ours to go ahead and rule out a sentinel lymph node biopsy surgical procedure, you want to make darn sure you have evidence as a clinician and a patient who's foregoing that procedure that the result of that low risk of that sentinel lymph node positivity also translate directly to a low likelihood of progressing.
So you're doing the right thing both short term, avoiding unnecessary surgical procedure, but also you have a very benign course in your disease if nothing else is done. As I mentioned on a previous slide, what's important here is we've been able to not only take the gene expression profile test of DecisionDx-Melanoma, but now combine it in two separate algorithms. One to really focus on predicting sentinel lymph node biopsy outcomes or the i31-SLNB in the middle of this slide, but also predicting by combining clinical pathologic and GEP factors and i31 risk of recurrence or ROR disease state. So what does that mean from a patient care standpoint? I'll point you to the right-hand slide and these two bolded paragraphs.
Basically, the top paragraph summarizes a study published in the second quarter of 2023, which was done in collaboration with the National Cancer Institute's SEER registry program. What this did was it basically took patients from the SEER registry cohort, which are clinically managed patients, by the way, and their outcomes, data, and their diagnoses of cancers reported up into the SEER registry program. We basically matched people. We took people who actually had a DecisionDx-Melanoma test result as part of their clinical care. Using the SEER matching protocol, we matched patients who did not receive a DecisionDx-Melanoma test report as part of their patient care.
And what we found was that in the course, if you look at three-year melanoma-specific survival as an endpoint, we found that people who received the DecisionDx-Melanoma test had a 29% improved or lower melanoma-specific mortality rate compared to those that were not tested. That's fantastic in terms of showing that if you use our test clinically, not only can you avoid an unnecessary sentinel node biopsy surgical procedure, but you're put on a better care path where that leads to an improvement in survival outcomes. That is really nice data. On the heels of that NCI collaboration study with Castle, there was a second paper published that was a multi-institutional study that was independent of Castle, published by three centers. One was Cleveland Clinic in Ohio, Northwestern University in Illinois, and the Oregon Health & Science University in Portland, Oregon.
Those three academic institutions combined their data in which some physicians in those institutions had adopted our test early on for helping to guide melanoma management care, and some physicians had not. It gave you a perfect opportunity of saying, "Here are patients." We'll take Northwestern as an example. "Here are patients in the Chicago referral area that came through the front door of Northwestern. Some patients received our test results, and those were acted upon according to a pathway protocol they established in terms of increasing or decreasing intensity of follow-up depending upon the DecisionDx-Melanoma test result. Some patients walked in that exact same door, same access to care, but they saw a clinician who had not adopted our test yet, i.e., they were not tested by our DecisionDx-Melanoma test.
After matching for people who were tested versus untested in those exact same three institutions, what they also found was that patients had the recurrence picked up about 10 months earlier because they were under active imaging. They had CT scans, brain MRIs. And when they picked up earlier, they had a substantially reduced tumor burden. And at the end of the study, we saw an improvement in overall survival. That's a fantastic outcome from a patient care standpoint, again, replicating the NCI SEER study I just mentioned above that. Next slide. So what does all this mean from building evidence? It means we are able to move towards improving penetration, both in terms of volume and in terms of reimbursement opportunities here.
So we had in the last year or so publications that were reflective of both expert consensus and guidelines for our DecisionDx-Melanoma test, our SCC test, and TissueCypher test, all seeing progress of expert groups reviewing the evidence, making recommendations that, in fact, these tests add value to patient care. Great outcome of building evidence, by the way. And we take that and use that to not only improve our reimbursement status by payers, but also take it to our customer physicians and say, "Hey, experts that you look to, experts that have reviewed our literature in a categorical fashion, have come to the conclusion that this is the test you should be considering using in certain patient populations clinically." That also moves us over to our reimbursement strategy.
As I mentioned at the outset, our mission and vision really are to innovate and find first-in-class tests that have an opportunity to really meet high unmet clinical needs. This means, for example, that in the case of the Medicare's Advanced Diagnostic Laboratory Test Program, we actually have five of our tests, including most recently DecisionDx-SCC last summer, having been reviewed by CMS and awarded Advanced Diagnostic Laboratory Test Status. That's a fantastic testament to the innovative focus that Castle brings to the table, builds the evidence, and demonstrates at the end of the day that we actually are providing innovative tests that provide patient care decision-making that's not available through any other combination of tests.
Of course, finally, over on the right-hand side here, what you translate into is both an improvement in our commercial playbook in terms of our commercial team structure, but also reimbursement support and a very, very nice growth story in test volume in 2021, 2022, and 2023, as you can see in the bar chart over there. Next slide. Sort of wrapping up my part of this presentation, what do we expect in 2024 from a catalyst perspective?
I think as it relates to melanoma, we expect to really have the first full year of both of these two outcomes that I talked a bit in depth through a couple of slides ago to really have an impact on letting clinicians and patients think about, "Do I want to be tested, have my melanoma treatment pathway guided by the Castle test, and be part of the patients who actually live longer or do not want to be tested?" So the first full year of that promotional activity effort is ongoing now, at least through the first three months of this year. We also are continuing our commercial expansion. The predominant one that we've talked about publicly is really a substantial expansion in our TissueCypher gastroenterology sales team.
That's ongoing now with the next class expansion coming in actually to Houston next week or two for their first week of sales training. We did recently publish our adjuvant radiation therapy data here in the last month, which actually demonstrates that our DecisionDx-SCC test, as I mentioned earlier, not only stratifies patients relative to the risk of metastasis, but we've now demonstrated in this study that we have an opportunity to find people who have a substantial and significant clinical response to squamous cell to radiation therapy in the squamous cell carcinoma setting from those who have minimal clinical response therapeutically.
That allows dermatologists and radiation oncologists and patients to make a much more informed decision about, "Do I want to proceed forward with this intervention that's part of standard of care, or do I want to maybe take a more watchful waiting approach?" We also published earlier in 2024 a health economic study just looking at the direct costs. If you take the cost of radiation therapy as estimated in the 12 months ending, I think it was June 2022, you add in the cost of our DecisionDx-SCC test.
If physicians would not use radiation therapy in patients with a Class 1 or a Class 2A test result, but use it in patients with a Class 2 B test result, then our demonstration model indicated that we could perhaps have an impact on reducing overall outlays from the Medicare Trust Fund of above $900 million per year. That's a fantastic direct healthcare savings if this test is applied to help guide adjuvant radiation therapy, just looking at those who received radiation therapy in a 12-month period.
And finally, we expect to announce in the second half of 2024 additional advances and updates on our inflammatory disease pipeline program, which is essentially a test or series of tests, depending on how you want to conceptualize this, of patients who are going from topical therapy to systemic, so oral or injectable biological therapy to treat their moderate to severe psoriasis or moderate to severe atopic dermatitis. We've released a couple of posters in the last year or two on that exciting ongoing large prospective study trial set, and we expect to update you as investors in the second half of this year. So with that, I'll turn it over to Frank on a financial update.
Thank you, Derek. So as we look at the financial picture for Castle, a couple of themes here to keep in mind. For continued value creation, keys for us are going to be continuing to drive our test volume growth. Derek showed the chart a couple of slides ago, the impressive growth to date, and that continues to be a key to the business is growing penetration within each of our disease categories, both in terms of the number of patients we are testing as well as the number of eligible physicians who are using our test. We continue to have very strong gross margins. Gross margin cost of goods for us for our sector includes the lab space where our tests are run. It includes the consumables that go into the testing, and it includes the techs who run the tests.
Our labs are based in Phoenix and in Pittsburgh, so we have an attractive cost structure with those labs, particularly as it relates to real estate. We expect to continue to have very, very strong gross margins relative to our sector. In 2022, September of 2022, we put forward a goal to be operating cash flow or adjusted EBITDA positive. By the end of 2025, we continue to have that goal. Given our strong balance sheet, we think that's imminently achievable, and we've been able to do it without sacrificing inordinate amounts of growth. We continue to follow disciplined capital allocation. We finished the year at about $240 million of cash. We certainly believe that's adequate to get us to the cash flow positivity in 2025 that we referenced with plenty of excess there.
So we continue to be very disciplined as it relates to our cash. Key to understanding the performance of the business is the test volume growth, and you can see it tracks nicely with revenue. An important factor here is the percentage of our revenue that does come from non-dermatology products. So that includes our legacy product, our DecisionDx Uveal Melanoma test, which is for an orphan indication called uveal melanoma, smaller disease state, about 2,000 patients a year. And we think we test about 85% or 90% of those patients, but also includes our TissueCypher Barrett's esophagus test and our IDgenetix test for pharmacogenomics and mental health. And you can see for the fourth quarter of our total revenue, almost $13 million came from those non-derm products.
You see a similar performance on the right as you see the growing percentage of our volume that comes from products other than our core derm franchise. I referenced our strong gross margin earlier. We refer to or direct you to an adjusted gross margin. That is a non-GAAP measure, but it backs out non-cash amortization of intangibles associated with the acquisitions we've completed. We have completed three acquisitions, and there are intangibles that hit the gross margin at a GAAP gross margin. So we look at a gross adjusted gross margin as a better metric of the financial performance of the company.
In addition, you see on the right here is as we continue to grow into the P&L, good discipline on the spending side with particularly SG&A being relatively flattish through the year as we continue to see revenue grow at a higher level than our expense categories. R&D has been somewhat variable through the year as programs have come online in our various R&D programs, but we continue to think that's an important piece of the investment for the company, not only for the existing products that are on the market, but also our pipeline product, which we've referred to in the past for inflammatory skin disease. We have seen our cash performance improve through recent years.
A reminder here for investors that know the company, the first quarter, we do see a higher level of cash outflow than other quarters. That's driven by one-time annual incentive compensation payments that are made to the company, as well as some benefit expenses that are made, such as HSA funding and healthcare premiums, et cetera. So the first quarter is not necessarily indicative of the rest of the year as it relates to cash, although many of those expenses are accrued through the year. Similar dynamic with adjusted EBITDA for the past several quarters on the right. I referred to our capital allocation earlier. Our first priority is commercial optimization. That includes investment in our sales and marketing team in terms of the people, the personnel that run those efforts.
Also supportive programs that we have, including peer-to-peer programs, physician speakers, conference attendance, et cetera. That's our first priority. And those that's the key to driving that continued volume growth and improvement that we've talked about a couple of times this morning. Our next priority is our focused R&D efforts, and those are both focused not only on our pipeline product for inflammatory skin disease, but also supporting the products that are on the market now. It's critically important to continue to generate evidence, to continue to convert non-testing physicians, to continue to drive physicians to test more of their patient population. It's an important competitive barrier. Our melanoma test has something north of 50 published studies, publications supporting clinical utility and outcomes as well as economic benefit for our melanoma test. And we continue to support all the tests in our portfolio.
Even one like melanoma, which is relatively mature for us. And then finally, as a lesser priority, strategic opportunities. Particularly in past years, we've been extraordinarily successful in deploying some capital for strategic opportunities. TissueCypher and IDgenetix both came to us through acquisitions from external sources, and so that's been very successful in the past. I think today it's a less important priority down the scale here in terms of focus. So finally, we believe we've got a proven playbook or a proven strategy here to continue to drive value for stakeholders in the company. Our first priority is to offer best in class or first in class tests that have a high unmet clinical need and large market opportunities.
We see that as each of our newer tests has come online, we've addressed successively larger opportunities in terms of patients to address, and that's an important driver for value. We've talked about it this morning, but robust clinical evidence is critically important across the board. Uptake, payer activity, competition. It's something we spend significant dollars on and a lot of internal energy around building that wall of data, building that dossier of evidence to support our tests, to demonstrate that they are best in class to all the stakeholders that are involved. And finally, driving additional penetration. We're still very, very underpenetrated in each of our tests.
We believe that, based on our estimates, our melanoma tests may be at a run rate of 25% or 26% penetration in terms of potential or eligible patients. So lots of room to go for that test yet before we begin to see penetration slow or top out or plateau. And our other tests are just very, very early, so lots of room to go yet. So this is a bit of the playbook here to drive value for all the stakeholders that are involved with Castle. Mike, with that, I think we have just a minute or two, and we'd be happy to take a couple of questions.
Yeah, sure. So I guess, first of all, you haven't reported your first quarter results yet, but can you qualitatively comment on what you typically see for volume seasonality in the first quarter?
Sure. I'll take that one. Generally speaking, let's look maybe think about our more mature products in terms of DecisionDx-Melanoma probably is the best one to think about that. Generally speaking, we see 1Q compared to 4Q relatively flattish in terms of any kind of volume growth quarter-over-quarter. We think that's predominantly linked to a few shorter business days in first quarter versus fourth quarter, but aggravated or supplementally, I guess you would say by sort of December slash January vacation and holiday times where we do see a reduction in sort of the number of dermatologists working days that generates biopsies. We see a slowdown in patients not necessarily wanting to go in and have a biopsy on their nose or their face or ear taken just before a holiday celebration or a vacation.
So that's just sort of, I think, mutes sort of quarter-to-quarter growth. So I would think that we would see a strong quarter for Castle overall would be recognizing seasonality in 1 Q versus 4 Q and kind of assuming volumes overall are going to be hopefully slightly up, but I wouldn't say that's a big quarter. Typically speaking, in melanoma, the second quarter of each year is sort of when we see a new plateau in diagnosis that we think is not necessarily related to Castle's efforts.
It's partly the largest number of working days, business days in the category coupled with as people sort of enter the spring and early summer months and they're wearing less parkas, less hoodies, more short-sleeve shirts and shorts, people are all of a sudden saying, "Gee, that thing in the back of your neck, I didn't see that last October or November. Get that checked out." So we think that drives a sort of new plateau diagnosis. So I would have expectations that 1Q should probably settle out ahead, but not fantastically different from the fourth quarter, which has been what we've seen the last few years anyways.
Okay. Got it. And then you did generate positive cash flow from operations in the third and fourth quarters of 2023. How should we think about this in 2024 and beyond?
Frank?
Thanks, Mike. We were pleased to see the operating cash flow in the second half of 2023 as we continue to grow into the P&L here and leverage the investment we're making across the board, particularly in marketing and R&D. As I referenced earlier, first quarter should be a cash use quarter based on the factors I talked about. We continue to believe we'll hit our target of 25 in terms of operating cash flow and adjusted EBITDA positivity. Between here and there, the outcome and the performance will depend on some reimbursement dynamics that, you know, potentially could be clarified into this quarter, early third.
So I think the important takeaway there, Mike, is we've got ample cash to get to that 2025 target of cash flow break even and positivity. And we think we're doing it in a way that's prudent and measured and the competitive advantage and lead we have across the board.
Okay. Got it. And then, you know, speaking of cash, I think you have over $240 million of cash. So what's your capital allocation priority for 2024?
Yeah. We continue to be focused most on our commercial team and developing our marketing effort. We've got, I think, in the melanoma on the derm side, we've got a fairly close to adequately sized sales force. Certainly some tweaks here and there that can be made and some fine-tuning, but we're probably getting close to where we need to be there. On our TissueCypher business and GI and our IDgenetix business, we're still very undersized. And we've seen clearly the responsiveness of those tests to incremental marketing and the opportunity to educate physicians on the data and the clinical utility. So we want to continue to in a very measured fashion expand those sales forces and get closer to optimizing them.
So that's our first priority. R&D is critically important here. And you know, it's important to get payers to move. It's important for physicians that, you know, physicians are incredibly interested in understanding the data behind the tests, and they're not willing to. You won't find many that'll just accept a black box. Of course, we don't have that, but they want to understand what's going on in the box. They want to understand what's driving the answer. And then they want to understand what to do with the information and how does this change how I treat my patients? And those are all focuses of our R&D efforts.
You know, a lot of times you think of R&D as new product development, and we certainly have investment there as we continue to move our inflammatory skin disease test down the runway. But it also includes R&D to support existing tests and even our uveal melanoma tests where we have, you know, we think potentially 85%-90% of the market being tested. We continue to support that test with additional data as we go forward. So those are our primary focuses, primary priorities. And as you noted, we've got ample cash to achieve our long-term target there.
Okay. Got it. I think we're out of time, so we're going to have to wrap up there. But thanks for coming to our conference. Hope you have some good meetings.
Thanks, Mike. Appreciate it.
Bye.