Good morning. My name is Derek Maetzold. I'm the CEO and President of Castle Biosciences, and with me today is Frank Stokes, our Chief Financial Officer. I want to start out by thanking Piper Sandler for inviting us to this healthcare conference and having the opportunity to present here publicly. So I'll go into a couple of slides about Castle's core business and where we are, where we're going, and then Frank can go ahead and close out with the financial update through the third quarter of 2024. I encourage everybody to review the financial disclaimer statements both in this presentation as well as contained on our website. So Castle Biosciences is focused on developing or offering or commercializing innovative tests that really change the course of treatment of diseases, with the output being hopefully transforming what patients are facing today and what will happen to them tomorrow.
We have a model in terms of how we try and build our business investment decisions, which essentially starts with first focusing on, is there a significant clinical unmet need that we believe a proprietary, innovative, first-in-class diagnostic test will have an impact on changing and improving decisions made between a clinician and their patient and therefore their outcomes after that. If we find those needs, then we focus on building the evidence pathway needed to not only discover and validate that we have a test, but also how that test can be used clinically to impact patient care decision-making processes.
We continue, and we continue, and we continue to make those investments as we commercialize products because our belief is that in order to have adequate penetration, that is, both adoption by clinicians to use their test clinically as well as coverage by commercial payers and appropriate reimbursement, we would need to go ahead and keep generating a large, robust piece of data set in order to help us penetrate both clinician use and adoption as well as reimbursement penetration. We hopefully do that cycle again and again, hopefully by picking the right clinical need inputs, developing or discovering or acquiring the right proprietary test to answer those needs, and then going forward again. Overall, business-wise, we have really three kind of pillars, I guess you would say, of commercial investments today. Our largest area of both volume and revenue is within our dermatology product offerings.
We offer two tests for risk stratification and other treatment decision-making processes. One of them is DecisionDx-Melanoma. The other one is our DecisionDx-SCC test. The DecisionDx-Melanoma test actually has two clinical needs. It is used in patients who are diagnosed with cutaneous melanoma or skin-based melanoma who have an invasive component, which is the patients have at least a level of invasion beyond just the epidermal layer of the skin. We believe there are about 130,000 patients in the U.S. that are addressable in this category every year. And our test actually informs two significant treatment decisions. One of them is that, is this patient who could be eligible for a procedure called the sentinel lymph node biopsy surgical procedure, should they actually undergo that because they have a likelihood of having a positive sentinel lymph node that's greater than 5%, which is the national threshold standard?
Or can they avoid that procedure because they have a likelihood of having a less than 5% sentinel lymph node positivity? Positivity being defined as the lymph nodes being removed and you find even one melanoma cell. The other use of our test is beyond that first surgical decision, which is to say, is this patient facing a very low likelihood of ever having a recurrence between the date of diagnosis and five years out, which is when most recurrences occur? Or does this patient have a higher likelihood of recurring, in which case I will change my care. I'll change my imaging centers. I'll change if I'm a dermatologist and I have a patient with a high-risk Castle test score, I may be co-sharing that patient with medical oncology so they get the appropriate imaging and follow-up and catch metastatic disease early.
Our DecisionDx-SCC test, we believe, is addressing about a 200,000-patient population, which is diagnosed not with the run-of-the-mill squamous cell carcinoma of the skin, but rather a high-risk-defined squamous cell carcinoma. Still localized, no evidence of spread or metastasis, but basically the presence of one or more clinical or pathologic factors saying this is a high-risk squamous cell carcinoma with the majority of squamous cell carcinomas actually being low-risk. We only really test the high-risk patients. We again have two uses for that test. One of them is a broad use of risk stratification. If you overlay our test results on top of staging criteria, we re-stratify patients in a very, very strong form such that we can take a patient who's high risk who actually might be low risk for progressing in reality because the biology of the squamous cell is quite muted.
And we can find patients who have a higher risk of disease progression where they can go ahead and be upstaged, I guess you could say, or escalated in care. We also published in 2024, earlier this year, two seminal papers showing that our test also predicts response to adjuvant radiation therapy. Now, why is that important? Well, it turns out in national guidelines, patients who have high-risk but localized squamous cell carcinoma, one of the interventions, in fact, I would say the only intervention really being considered for those patients is, do I send this patient to a radiation oncologist to undergo adjuvant radiation therapy, or do we watch and wait?
What we demonstrated in two separate publications this year was that if you look at propensity-matched patients who did not receive adjuvant radiation therapy compared to those that did, we can identify the majority of patients who get no discernible clinical benefit, meaning you can consider removing them from adjuvant radiation therapy. We find a small percentage of patients who see a great benefit, a more than 50% reduction in the metastatic rate at five years compared to patients who did not receive adjuvant radiation therapy in those same matched cohort studies. That's fantastic clinical use, again, being able to go and demonstrate that if you use our test in SCC patients, not only can we help you decide what's the right follow-up scale, do I do imaging, do I do a sentinel biopsy procedure, but radiation therapy is expensive.
We estimate the Medicare population is around $60,000 for a course of therapy and direct cost only. And being able to identify the majority of patients who would be eligible for ART but would receive no predicted benefit is a really, really fantastic gain in clinical use. We think the melanoma test at its current average ASP is sitting at around $540 million ASP in the U.S. marketplace. The SCC test just over $800 million. And then we have MyPath Melanoma. I'll skip over for the sense of time. This is a test which is used in patients who've had a biopsy taken of a mole, essentially a pigmented lesion which looks to the dermatologist that this may or may not be melanoma. So we'll go ahead and remove that, send it to a pathologist for review, but they see this as a head-scratcher. Is this melanoma or not melanoma?
In the case of safety, almost all dermatologists will go ahead and err on the side of, "I'll call it melanoma," which leads to too many patients being diagnosed with melanoma when they could be in the benign nevi category. This test helps to go ahead and genomically figure out where that test is lying. I'll skip over to our gastroenterology division. We launched a test that we acquired through acquisition of Cernostics in January 2022 called TissueCypher. This is a test which is used in a disease state called Barrett's esophagus disease. This is the only known precursor to esophageal adenocarcinoma. The exciting part about this test is that we believe it addresses a large unmet category of patients. We think there are around 415,000 endoscopies performed per year, which would be the sweet spot of TissueCypher test ordering.
A large patient population that's more than double our SCC population and nearly four times that of melanoma. A nice marketplace. The TissueCypher test clinically is used to help a gastroenterologist and their patient decide, "Does this patient need to be considered to go towards an intervention or ablation or surgical eradication, or can we wait and just do repeat endoscopy surveillances over the next three or five years on a repeat basis?" Why that's important is because today pathology is graded for Barrett's esophagus disease. You have the disease. A pathologist looks for certain kinds of dysplasia, and they fall into about four categories. They fall into non-dysplastic disease, which is no dysplasia evidenced in this Barrett's sample, all the way over to high-grade dysplasia.
Now, that's important because in the U.S. today, we typically recommend ablation therapy or removal of a Barrett's lesion in people with high-grade dysplasia as well as low-grade dysplasia, but we do not recommend that in patients with non-dysplastic disease. That's because as a population, the likelihood of progressing is so low that those patients don't warrant a population-based approach to intervention therapy. What our TissueCypher test does, especially in that non-dysplastic Barrett's esophagus disease space, which is the majority of patients, over 90% of patients are diagnosed with NDBE, is we can find people with our high-risk TissueCypher score, which have a higher likelihood of progressing to cancer than the patients with low-grade disease, which you're already ablating. And so it's a very nice opportunity for gastroenterologists to essentially identify high-risk patients who in the non-dysplastic case who would benefit from consideration of ablation therapy.
We think based upon current ASP projections that this is roughly a $1 billion U.S. marketplace. And we're in our, I guess we're in our second and a half year of marketing that test. So I'll spend a couple of seconds on some data recently presented at the ASDS conference, the American Society for Dermatologic Surgery Conference back in October of this year from a large U.S. prospective study that we have ongoing. And this data set here talks about the use of our test and that first use I mentioned earlier, use of our test to rule out a sentinel biopsy procedure using, again, the national standard of 5% threshold. Now, what we demonstrated here in this presentation was that in this prospective study, if you look at the patients that we predicted to have less than a 5% risk, they actually had a 1.6% risk.
That's nicely below that 5% national standard. So good confirmation of previously published data. But we also looked and said, "Well, what about the patients who avoided a sentinel biopsy procedure but still got it anyways because either they wanted it or their surgeon ignored our data set, but still underwent that procedure? How do they do?" So if we call a patient low risk for likelihood of sentinel positivity and you take action on that as a doctor, are you going to harm your patient by putting your patient at a risk of having a higher likelihood of recurring than you would think going on?
The other part of the presentation essentially demonstrated that in patients who had a low likelihood of an SLNB but underwent that procedure anyways, either for patient preference or other purposes, so kind of ignored that part of our test result, how those patients do. In this same study, what we found was that patients had a 99.5% three-year recurrence-free survival rate for two patients out of 367. That is a very, very low-risk melanoma group.
The takeaway here is we market this to our clinician customers as to say, "Hey, we have documented in now over 54 peer-reviewed publications the consistent performance of our test." In this most recent presentation of an ongoing prospective data set, we demonstrated again that not only does our test find people who are below 5% if we say they should be below 5%, but those patients who also skip that biopsy procedure, they have a very, very good, strong, healthy outcome. Those are two good things to gain a one test from respect. The next slide I'll put up here is going through just an update on our publication, our evidence-building pathway for DecisionDx-SCC. We initially completed validation of this test during the fall of 2019. We published our validation studies in the spring and summer of 2020 and launched the test during that part of COVID period.
What you can see here is that we have consistently demonstrated a growing base of publications. In fact, year to date, we have six new publications on DecisionDx-SCC. And I'll just highlight a couple of those. One of them is the Wysong et al. paper in the upper left-hand side there. This was a paper that we really generated to address some of the criticisms by the Palmetto MolDX team regarding they'd like to see additional cuts of the data of how we add value to existing staging systems. So very seminal to us in terms of having that discussion with the Palmetto MolDX team regarding an LCD change. The other two studies on the right-hand side is Arron et al. up on the top right, and then Ruiz et al. on the top right. These are the two studies I referred to earlier.
They are independent cohort studies, multi-center, largely U.S.-based for the Arron study, one site in Spain, only U.S.-based for the Ruiz study, and what they demonstrated was that, again, if you match for clinical and pathological factors and you look at outcomes in patients who received adjuvant radiation therapy and who did not receive it despite being matched, i.e., eligible, that our test was successful in finding people who gained no discernible benefit from radiation therapy in more than half of the patients we tested and a small group of people who had a greater than 50% reduction in metastasis compared to people who did not receive ART therapy. Again, two studies back to back.
It happens to be that the Arron study is the single largest study ever published on the effectiveness of adjuvant radiation therapy in squamous cell carcinoma, and the Ruiz study is the second largest study ever published. So we think these are two significant pieces of evidence that should help us move forward in terms of both educating clinicians to treat patients differently and in terms of impacting, hopefully, Medicare coverage for our test going forward. With that, Frank.
Thanks, Derek. Excuse me. So again, we believe the company's well-positioned for value creation here. The drivers of that continue to be volume growth across the portfolio of our tests, modest ASP growth, particularly in our cutaneous melanoma test. We're seeing some improvement there on the commercial insurer side. And we have very strong adjusted gross margins. Our labs are located in relatively low-cost areas. Our primary lab is in Phoenix.
Our second lab is in Pittsburgh, and those are less expensive real estate and staffing markets than the markets many of our peers are in. In 2022, we guided that we would be adjusted cash flow positive by 2025. Obviously, we're there at this point, but even with the reimbursement challenge that overhang Derek mentioned on our squamous cell test, even with the removal of that test, we still expect to be EBITDA positive for 2025. Our balance sheet is very strong. We finished the quarter, third quarter with $280 million, and we continue to be disciplined in how we allocate our capital and our expense line. Quarterly revenue here is represented here. As a reminder, we do see seasonality in our business, particularly in the derm business. Q2 is the largest quarter in terms of physician practice days.
There are more patient interactions in Q2 than any other quarter, driven by industry meetings in the first quarter of the year, summer vacations in the third, and December holidays in the fourth. So this is a very predictable seasonality pattern that we've seen all the way back since really since 2021. Obviously, COVID impacted 2020. And our test volume growth is here on the right. Again, this is a key KPI for us is the volume growth of each of these tests. And we saw nice growth across the board in the quarter. I referenced our gross margin, but our operating expenses, we've continued to be very disciplined at the operating expense line. I think going forward, we would expect to see most of the increase in our operating expense to be in the S part of SG&A.
I think we've grown into the P&L nicely and are leveraging the expense categories. And we'll continue to see that discipline as we move toward that 2025 expectation of staying profitable. And with that, we'll conclude. Thank you.
Great. We're going to get started with our next presenting company. My name is Ted Tenthoff. I'm a senior biotech analyst at Piper Sandler. And before I begin, I'm required to point out certain disclosures regarding the relationship between Piper and our next presenting company, Regulus, which are posted in the back of the room and also at the registration desk. What an exciting time for the company. Victor Ambros and Gary Ruvkun were awarded the 2024 Nobel Prize for Medicine for the discovery of microRNAs. And Regulus recently reported positive phase I data on RGLS 8429 in autosomal dominant polycystic kidney disease at ASN.
There's a lot going on at the story. Jay's going to be better at telling you it than I am, so I'm going to hand it over to him.
Thanks, Ted. And thanks to everyone at Piper for having us. We appreciate the opportunity to present. This slide indicates that my colleague, Dr. Preston Klassen, a board-certified nephrologist, would be presenting with me, but he's ill, so you're stuck with me instead. So we'll keep the Q&A to a minimum. I will be making forward-looking statements. Actual results may vary materially from those expressed or implied. I encourage you to read our risk factors and our SEC filings. So Regulus, we are a leading antisense oligonucleotide company. We were founded as a joint venture between Ionis and Alnylam, where we are their exclusive licensee to all of their technology and intellectual property to design oligos directed against microRNA. And they keep their respective rights in designing oligos against messenger RNA.
And that relationship, while it involved them owning the majority of the equity of the company, is now based solely on small single-digit royalties for anything that's commercialized. We're amidst a phase 1B study wrapping it up, actually, early next year with our lead molecule dubbed RGLS 8429. It's an antisense oligo directed to inhibit miR-17 or microRNA-17. And it holds the potential to be the first disease-modifying approach for the treatment of autosomal dominant polycystic kidney disease. We'll get into the disease in a minute. Our platform, though, we've evolved over time since our inception to discover a motif that is preferentially distributed to the kidney, specifically what we call short miRs. And because we only need eight nucleotides to recognize and bind the seed sequence of a microRNA, we can make short oligos.
It turns out that they preferentially distribute to the kidney, and we're pursuing a kidney disease. We'll show you some of the distribution data in a bit here. We have earlier stage development programs and research targeting additional kidney and CNS disorders, all based upon the assumption around haploinsufficient disease. And our team is quite experienced in nephrology drug development. In addition to Preston, several of our leaders in the company have significant experience in the space. In terms of just quickly, high level, what we've seen to date, 8429, importantly, in this phase 1B study in patients as well as healthy volunteers was safe and generally well tolerated at all dose levels tested that we've completed. We've completed one, two, and three million.