Good afternoon, and welcome to the Castle Biosciences Second Quarter 2022 conference call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introduction, followed by a question and answer session. I would like to turn the call over to Camilla Zuckero, Vice President, Investor Relations and Corporate Affairs. Please go ahead.
Thank you, operator. Good afternoon, everyone. Welcome to Castle Biosciences second quarter 2022 financial results conference call. Joining me today is Castle's Founder, President, and Chief Executive Officer, Derek Maetzold, and Chief Financial Officer, Frank Stokes. Information recorded on this call speaks only as of today, August 8, 2022. Therefore, if you are listening to the replay or reading the transcript of this call, any time-sensitive information may no longer be accurate. A recording of today's call will be available on the investor relations page of the company's website for approximately three weeks. Before we begin, I would like to remind you that some of the statements made today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include, but are not limited to, statements about our financial outlook, estimated U.S. total addressable market, or TAM, and similar items referenced in our earnings release issued today, and statements containing projections regarding future events or our future financial or operational performance, including our expectations and assumptions related to the impact of the COVID-19 pandemic. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties, and there can be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements.
These factors and other risks and uncertainties are described in detail in the company's quarterly report on Form 10-Q for the quarter ended June 30, 2022, under the heading Risk Factors, and in the company's other documents and reports filed with the Securities and Exchange Commission. These forward-looking statements speak only as of today, and we assume no obligation to update or revise these forward-looking statements as circumstances change. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue, adjusted gross margin, adjusted operating cash flow, and adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States for GAAP. These non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing business and financial performance.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the investor relations page of the company's website. I will now turn the call over to Derek.
Thank you, Camilla, and good afternoon, everyone. Today, we are pleased to share that Castle Biosciences delivered another strong quarter, growing revenue by 53% and total test report volume by 57% when compared to the second quarter of 2021. Based on our results in the first half of the year and the momentum in our business, we've increased our full-year 2022 revenue guidance to $130 million-$135 million, representing anticipated growth of at least 38% when compared to 2021. Before we discuss the quarter in more detail, I want to thank all of our Castle employees for their hard work during the quarter and continued dedication to our mission of improving health through innovative tests that guide patient care.
Today, I will take you through execution and strategy highlights from the quarter, and then Frank will provide financial highlights for the period, and then we will take your questions. Let's start with our core dermatology business. For our skin cancer tests combined, we delivered a 44% increase in test report volume in the second quarter when compared to the second quarter of 2021, and a 16% increase over the first quarter of 2022, delivering 9,424 test reports. For the six months ended June 30, 2022, we saw approximately 1,200 new ordering clinicians and approximately 5,661 total ordering clinicians for dermatologic tests. For DecisionDx-Melanoma, we delivered 7,125 test reports in the second quarter, an increase of 39% over the second quarter of 2021.
As we had discussed, 2022 is a year of thoughtful, strategic, and tactical investments that we believe will drive both near-term growth with our current assets and continued growth in the midterm. We believe this quarter of strong organic growth, which led to record test report volume, is a result of the continued execution on our plan. I do want to remind you of the typical seasonality of our dermatology business for the second half of the year, where sequential growth rates typically slow down or become flat. That is, our third quarter is generally flat or down compared to the second quarter, and then the fourth quarter estimates remain flat or slightly down compared to the third quarter. Based upon our preliminary analysis from third-party diagnoses data, we believe that the seasonality trend of melanoma diagnoses is largely back to what we saw prior to COVID.
However, we believe overall diagnoses continue to be below pre-COVID levels, but. As we have seen throughout 2021 and the first quarter of 2022, they are trending upward. In that context, let's talk about our performance in 2022 specifically. While we believe, based upon our analysis of third-party diagnoses data, that a small portion of the increase in volume compared sequentially to the first quarter of 2022 was due to an increase in the number of newly diagnosed melanomas. We believe that the most significant driver was not seasonality, but the combination of our prior commercial expansion investments coupled with meaningful new data, including our integrated DecisionDx-Melanoma test, or i31-GEP, and the initial presentations of data from our collaboration with the National Cancer Institute linking DecisionDx-Melanoma clinical test report data with data from the SEER program's registries on cutaneous melanoma cases.
We believe these are the key factors that drove the accelerated penetration that we observed. As we had discussed, we routinely assess the size of our commercial team and the number of outside sales territories. In mid-2021, we increased the size of our dermatology commercial team to roughly 65 territories, and each of our outside sales representatives was equipped with all three of our skin cancer offerings. Based on our continued assessments, we plan to make some additional optimizations to our dermatology commercial team. We expect that starting mid-third quarter, our diagnostic gene expression profile offering that consists of both our MyPath Melanoma and DecisionDx-Melanoma tests will have a new dedicated sales team. The current dermatology commercial team will shift its focus to DecisionDx-Melanoma and DecisionDx-SCC only.
We believe adding a dedicated team for our diagnostic gene expression profiling offering allows for proper focus on the value of all of our skin cancer tests. Our target customers for the diagnostic GEP offering will remain dermatopathologists, followed by some dermatologists. We have seen that all of our markets are promotionally responsive, so we believe these optimizations to our commercial team will contribute to continued momentum in 2022 and beyond. Further, in terms of additional expenses, historically, it has taken about two quarters for our dermatology sales reps to reach a level of productivity to offset their additional expense. In June 2022, Palmetto and Noridian each posted a draft LCD that will provide coverage criteria for DecisionDx-Melanoma. You may recall that MyPath Melanoma is already covered by full reimbursement by Medicare.
Based upon benchmarking between posting of a draft LCD and the final effective date, we believe the DecisionDx-Melanoma LCD will be final by the end of the second quarter 2023. Now let's turn our attention to our DecisionDx-SCC test. In the second quarter of 2022, following completion of a requested medical review and pricing of our DecisionDx-SCC test by Novitas, we've been receiving reimbursement from Novitas on DecisionDx-SCC at a rate of $3,873 per test, which is identical to Oncotype DX Breast and Oncotype DX Prostate pricing. On June 9, 2022, Novitas posted a draft oncology biomarker LCD that proposes to rely upon evidentiary reviews sourced from three databases, ClinGen, OncoKB, and NCCN.
Two of the databases do not review gene expression profile tests, and NCCN has not yet, to our knowledge, reviewed DecisionDx-SCC. As such, if finalized as proposed, then DecisionDx-SCC would not be included as a covered test in the associated billing and coding article. We cannot predict whether this draft LCD will be finalized as proposed or what the timing of any final LCD might be. Now let's switch gears to our new GI franchise. As a reminder, we completed the acquisition of Cernostics and the TissueCypher test in December 2021. We made this acquisition in alignment with our growth strategy for 2024 and beyond.
Further, we expected the first 6-9 months of 2022 as the period of integration where we would transition their organization to reflect what we believe is a strong Castle culture, including building out a commercial team, improvements in laboratory and reimbursement, and addressing the CMS fourteen-day rule. First quarter performed as we expected. Also consistent with our expectations and as we have discussed, TissueCypher was granted Advanced Diagnostic Laboratory Test, or ADLT status on March twenty-fourth, which accomplishes a few goals, the most important being the exemption from Medicare's fourteen-day rule, which simplifies the billing process for Medicare patients. With these milestones as context, we are very pleased to announce that we delivered 352 test reports in the second quarter, up from 56 reports in the first quarter, and are seeing the monthly growth trends we expected.
While we are still in the early stages of launch with TissueCypher, we started the third quarter with inclusion in the American Gastroenterological Association, or AGA, Clinical Practice Update. This update was published on July 1, 2022, and states that the TissueCypher Barrett's Esophagus Test may be beneficial to risk stratification of patients with non-dysplastic Barrett's Esophagus, which we believe represents approximately 348,000 endoscopies per year, or approximately 90% of the intended use market for TissueCypher. The purpose of the AGA's Clinical Practice Update for Barrett's Esophagus is to provide guidance to clinicians on advances in innovation regarding the screening and surveillance of Barrett's Esophagus. Given our momentum from first quarter through the second and into July, we are executing on our planned commercial team investments for TissueCypher. Beginning in September, we expect to add additional territories for our TissueCypher test.
Finally, as it relates to thinking about the average sales price or ASP for TissueCypher, when ADLT status was granted on March 24, 2022, the Medicare reimbursement rate was modified to equal the initial list price for the test, which was $2,350 per test. This rate is effective through the end of 2022. Effective January 1, 2023, the rate will be based on the median private payer allowable rate from the collection period of April 1, 2022 through August 31, 2022. Finally, let's turn to our mental health franchise. We are in the early stages of integration of our acquisition of AltheaDx, which closed on April 26. We are extremely encouraged with the initial progress and performance to date is consistent with our expectations.
Specifically, we delivered 827 test reports from April 26th through June 30th. Our commercial team of approximately 20 outside sales territories completed phase 2 training in June, and our lab enhancements and other integration efforts are going well, with an expectation that further integration will allow us to enter 2023 with a well-integrated team. The acquisition of IDgenetix enables us to offer a test solution that we believe has the potential to accelerate our impact on patient care in an area of high unmet clinical need, significantly expanding our end market estimated US TAM by approximately $5 billion, and offer incremental value to patients and clinicians over the standard of care trial and error approach. Medicare coverage includes depression, and IDgenetix is one of two PGx tests with coverage for depression.
Recently, Medicare extended coverage for the following seven additional mental health conditions beyond major depressive disorder, including schizophrenia, bipolar disorder, anxiety disorders, panic disorder, obsessive-compulsive personality disorder, post-traumatic stress disorder, and attention deficit hyperactivity disorder. The IDgenetix multi-panel test is currently reimbursed by Medicare at approximately $1,500. Before I turn the call over to Frank, I want to let you know that we will host an investor day on September twentieth, 2022 to provide an in-depth corporate update on our growth initiatives and plan for continued long-term value creation. More details to come. I will now turn the call over to Frank, who will provide details relating to our financial results and updated 2022 revenue guidance.
Thank you, Derek, and good afternoon, everyone. The disciplined execution of our strategy has enabled us to deliver another quarter of strong organic growth, and we have raised our outlook for anticipated total 2022 revenue to $130 million-$135 million from the previous guidance of $118 million-$123 million. Second quarter revenue was $34.8 million, an increase of 53% over the second quarter of 2021. Overall, the increased revenues primarily reflect higher revenue from dermatologic tests, primarily DecisionDx-Melanoma and DecisionDx-SCC.
The increase in dermatologic revenue was primarily attributable to a 44% increase in test volumes, with higher test reports delivered across each of our dermatologic offerings, which we believe was due to a combination of the effects of our dermatologic sales force expansion in mid-2021 and increased patient flow, potentially attributable to the easing of COVID-19 restrictions. The higher revenues also reflect Medicare payments on DecisionDx-SCC, as Derek discussed earlier, and the effect of higher positive revenue adjustments related to tests delivered in previous periods associated with changes in estimated variable consideration, which were $0.6 million for the three months ended June 30, 2022, compared to -$0.2 million for the three months ended June 30, 2021.
The increase in revenue from our other tests, non-dermatologic tests, was $0.6 million and was primarily attributable to our acquisitions of Cernostics and AltheaDx. Excluding the effects of revenue adjustments related to tests delivered in prior periods, adjusted revenue was $34.3 million, an increase of 49% over the second quarter of 2021. Our gross margin for the second quarter was 71.9% compared to 82.6% in the second quarter of 2021. Our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions and revenue associated with test reports delivered in prior periods, was 77.6% for the quarter compared to 83.9% for the same period in 2021.
As we discussed, our GAAP gross margin will continue to be negatively impacted by amortization of intangible assets associated with recent acquisitions for the remainder of 2022. T he quarter ended June 30, 2022, our net operating expenses, including cost of sales and a contingent consideration fair value adjustment, were $38.8 million compared to $31.6 million for the second quarter of 2021. Total selling, general, and administrative expenses increased by $16.7 million for the three months ended June 30, 2022 compared to the same quarter last year. This increase included higher sales and marketing expenses of $9.7 million attributable to higher personnel costs, including salaries, bonuses, and stock-based compensation.
Personnel costs have increased through the expansion of our dermatology-facing commercial team headcount to the mid-60s in 2021 and through our acquisitions of Cernostics in December 2021 and AltheaDx in April 2022. Higher personnel costs also reflect higher pay rates. The remainder of the increase in sales and marketing expenses was primarily associated with training events, meetings, and travel, reflecting the continuing return of our customers and business to in-person conventions and events. We expect sales and marketing expenses to increase in future periods as we intend to expand our outside sales territories and commercial team during 2022, as Derek discussed earlier. Though I will reiterate that we expect the expanded team to offset increased expenses through increased volume and revenue after about two quarters.
General and administrative expenses increased by $7 million for the three months ended June 30, 2022, compared to the three months ended June 30, 2021. This increase is primarily attributable to higher personnel costs, including salaries, bonuses, and stock-based compensation. The higher personnel costs reflect expanded headcount in our administrative support functions, including the related to the acquisitions of Cernostics and AltheaDx, as well as higher rates of pay. R&D expense increased by $5.1 million in the second quarter compared to the second quarter of 2021, roughly half of which is attributable to higher personnel costs, primarily due to expansions in headcount in support of our growth, higher salaries and wages, and higher stock-based compensation expense, and also attributable to higher costs for clinical studies.
Cost of sales, exclusive of amortization of acquired intangible assets for the three months ended June 30, 2022, increased by $4 million compared to the three months ended June 30, 2021, primarily due to higher personnel costs, which have increased with additions in headcount in our laboratory testing operations, including increased headcount attributable to the acquisitions of Cernostics and AltheaDx. The increased personnel costs also reflect higher pay rates. The increase is also attributable to the cost of supplies and third-party services, reflecting higher laboratory activity, which is attributable to higher test volumes. Total stock-based compensation expense, which is allocated among cost of sales, R&D, and SG&A, totaled $8.8 million for the second quarter compared to $4.8 million for the second quarter of 2021.
Operating expenses this quarter also include a change in fair value of contingent consideration of $20.4 million or $0.78 per diluted share and is primarily related to the remeasurement of the liability for earn-out payments in connection with our acquisition of Cernostics and reflects changes in management's projections regarding attainment of certain commercial milestones in 2022. This gain or loss could vary from quarter to quarter, though most likely not to this degree, depending on any changes in assumptions and valuation results. Further amortization of acquired intangible assets for the three months ended June 30, 2022, increased by $1.8 million compared to the three months ended June 30, 2021, which is related to the developed technology we acquired in May 2021, December 2021, and April 2022, related to our MyPath Melanoma, TissueCypher, and IDgenetix tests, respectively.
Moving to income taxes, we recorded a tax benefit of $2 million for the three months ended June 30, 2022, which was primarily attributable to a reduction in our valuation allowance on deferred tax assets resulting from our acquisition of AltheaDx. Our net loss for the second quarter of 2022 was $1.6 million, compared to a net loss of $8.8 million for the second quarter of 2021. Basic and diluted loss per share for the second quarter was $0.06 per share, compared to basic and diluted loss per share of $0.35 per share in the second quarter of 2021. Adjusted EBITDA for the second quarter was -$10.9 million, compared to -$3.4 million for the comparable period in 2021.
Net cash used in operating activities was $30.4 million for the six months ended June 30, 2022, and was primarily attributable to the net loss of $26.3 million, the change in fair value of contingent consideration of $17.8 million, increases in accounts receivable of $5.6 million, and deferred income taxes of $1.8 million, which were partially offset by non-cash stock compensation expense of $17.2 million and depreciation and amortization of $4.8 million. Finally, we had cash and cash equivalents at June 30, 2022 of $273 million. We believe that with our current momentum, we will reach operating cash flow neutrality by 2025. As we've stated, 2022 is an investment year in alignment with our mid to long-term growth strategy.
We continually assess our focused use of cash and will make any necessary changes based on the needs of our business. This assessment includes factors in the macro environment. I will end today by saying that based on our strong balance sheet, focused investments, and diversified portfolio of tests, we believe we are uniquely well-positioned for growth as we remain focused on meeting the needs of patients and clinicians. I'll now turn the call back over to Derek.
Thank you, Frank. In summary, we delivered another strong quarter with record test volume and revenue, and we believe we're entering the second half of 2022 in a comfortable position. I would like to conclude today by thanking our Castle team, those who've been with us for many years, as well as those who are newer to the team. We would not be where we are if it weren't for the individual and combined efforts of those individuals who call Castle home. I thank them for their commitment to improving the lives of the patients that we serve. Thank you again for your continued interest in Castle. Now we're happy to take your questions. Operator?
If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your questions. We will pause here briefly as questions are registered.
The first question comes from Mason Carrico of Stephens Inc. Please proceed.
Hey guys. Thanks for taking the questions here. Just wanted to circle back on the SCC reimbursement commentary. Sorry for not catching it all, bouncing between a few tonight. Could you just walk through that Novitas commentary again? It seems like they're paying for it. You gave a rate, but what percentage of tests are you currently getting paid on? You also brought up a draft LCD, but is there risk to this, you know, reimbursement going away or any high level, additional high level commentary there would be really helpful.
Sure, Mason. This is Derek here. Good to hear you. I think I've got your questions written down here. From a payment perspective, we've got two kind of major categories of payers, right? We have Medicare Advantage plans, which are really individuals over the age of 65, so makes it kind of a 65 or under 65 breakout. I think we'll be. We're obviously still growing quite rapidly in terms of the volume for DecisionDx-SCC, so the ratio might change. I think we're running north of 65% of patients are more than 65 years of age, and that may end up setting a bit higher. As background, the average age of squamous cell diagnoses in the U.S. is about 70, 71 years of age. That feels about right.
We don't have a good handle on, based upon published data, just to be honest, you know, do the individuals with high-risk squamous cell carcinoma tend to be younger or tend to be older? That's the breakout, about 65% or greater in terms of being Medicare eligible from Advantage standpoint, and the remaining being less than that, so a little higher than our melanoma test. Since we completed a favorable medical review with Novitas early in the second quarter, we've been paid for, I think, probably nearly all of our Medicare Advantage claims to date in the second quarter. That's a fairly full quarter of activity.
We had previously, as you know, we do bill commercial insurance because we have a validated assay for good clinical use, and we do get paid, additionally occasionally from some private payers for people less than 65 years of age. T hat's a number one we can't accrue to and two, we're in the early trends of reimbursing for that. Does that cover the questions a little bit maybe?
Yeah, that covers it. Thanks. I may have a few more, but I can follow up offline. Maybe just one more follow-up here. Expanding some outside sales territories, and again, I'm sorry if I missed it, but initial thoughts on the size of the team supporting the derm offering and now that you're starting to get paid on the SCC test. Are you expecting to start shifting some of the economics to access, incentivize your legacy derm team to start pushing the SCC test more?
We've announced two different expansions, I guess you would say. Haven't provided exact numbers since we're working through details right now. As you may recall, when we launched our DecisionDx-Melanoma test in November 2020, we started out with a small dedicated sales force of, I think, around 10 or 12 individuals focused really on introducing that test to dermatopathologists as a predominant customer base. Then in mid-2021, when we went from 32 dermatology sales focused individuals to the mid-60s, we folded that group back in. While we have been quite pleased with the adoption uptake, what's clear to us is it's difficult to really have three different tests or three products in an individual sales bag.
That just leaves, you know, one or two out of the three not getting reasonable educational and sales activity. We are splitting back out a small dedicated group that will focus predominantly on dermatopathology and predominantly on the combination of MyPath Melanoma and the DecisionDx-Melanoma test. They'll also, of course, be able to communicate on our DecisionDx-Melanoma and DecisionDx-SCC test to that dermatopathology call point, but it's really predominantly on making sure we have appropriate and adequate support and presence for our MyPath Melanoma and DecisionDx tests going forward. That'll occur, I think, sometime over the third quarter in terms of hiring moving forward. We should begin to see an impact on that, you know, maybe end of second, end of the first quarter next year is our thinking.
What that does for us on the rest of the dermatology team is it lets the dermatology team now focus 100% on a combination of the melanoma test and the squamous cell carcinoma test going forward. It will obviously assess needs to expand out in a more structured fashion as we kind of see how the third and fourth quarter go forward. We are also expanding our gastroenterology sales team and medical science liaison team. We saw the kind of growth we expected in the second quarter over the first quarter, although we're still quite early, of course.
Based upon having the fourteen-day rule resolved by Medicare with the granting of ADLT status coupled with the momentum trends that we saw in terms of report volume from the first quarter, second quarter, we decided we would make that call, which is close to our plan to go ahead and expand that sales force as well.
Got it. That makes a lot of sense. Thanks, guys.
Thank you.
Thank you. Next question comes from Catherine Schulte of Baird. Please proceed.
Yeah. Hey, guys, this is Thomas Peterson on for Catherine Schulte. Joined a little bit late as well, so apologies if I repeat anything here, but may wanna stick to TissueCypher and just get an update on the commercialization there as you get a better look. W hat's the feedback from providers? You know, momentum here seems to be pretty solid. If you could give us any sort of feedback on what you're getting from these early adopters, that'd be great.
Sure. Qualitatively only, of course, 'cause I don't have any quantity to give you. We started out with 14 territories in January, trained up the sales force, most of which had had prior gastroenterology experience at other companies, so they kind of had some. They had a reasonable amount of GIs who they knew, I guess you would say, but new to TissueCypher, certainly. We knew going in that the first quarter was to be a quarter of training, I think largely speaking, and sort of getting people oriented to educating physicians about a diagnostic test versus, say, a pharmaceutical or device product, and that's a slightly different communication call point.
We also knew going into the first quarter that we still had to work with CMS to address this old Medicare 14-day rule, which affects the Medicare billing practice policy with hospitals. We were assuming that that would be resolved by the end of the first quarter, which it was. We were on a planning standpoint really looking forward to seeing what the trends would look like between second quarter and even a month-on-month basis versus first quarter. We're very, very pleased with what we've seen so far. In that backdrop, in terms of feedback, the marketplace for patients diagnosed with Barrett's Esophagus is. The sort of grading system of severity of Barrett's disease goes from the sort of most benign group or the sort of less risky group called non-dysplastic Barrett's Esophagus to indefinite to low-grade and to high-grade.
High-grade after that form of Barrett's usually is diagnosed as esophageal cancer. The practice standard today in the U.S. is that all patients or generally all patients with high-grade dysplasia, and many with low-grade dysplasia, are offered some sort of esophageal eradication therapy. The most common would be sort of ablation therapy, but there is some surgical work as well. That's focused on the high risk of high-grade dysplasia than the low-grade dysplasia patients. T he bulk of the people, 90% or so, we believe fall into this non-dysplastic group, where the standard of care in the U.S. has been sort of rebiopsying or rescoping the patients maybe every three to five years for their entire lifetime to see if they've progressed at all from non-dysplastic to a higher dysplasia grade.
That's because as a population, the risk is quite low. On a concerning basis, because the pool is so large, that's a very significant proportion of patients who actually go on to progress to high-grade dysplasia or to esophageal cancer because there's so many of them. What we have heard back from the marketplace is that the sweet spot for this test really is that patient population represents about 90% of our TAM, which is this non-dysplastic Barrett's Esophagus patient group. That's because those are the ones where you're really trying to find the bad biology that's masking itself still as a fairly, you know, benign pathology observation period. That's the one feedback that we've seen, which matches the market research and docs that we did in the summer and fall of 2021.
From a marketplace support standpoint, it's very encouraging to see that clinicians are seeing the sweet spot value of the test as being exactly what we saw, which is about where nine out of ten Barrett's Esophagus patients live. That's good. The other area that was quite positive in the on July 1st of this year was the American Gastroenterological Association had published their best practices or their clinical overview in terms of new technologies for Barrett's Esophagus disease and included a review of TissueCypher in that best practice update.
What was very, very encouraging is that where they focused their review of the value of the TissueCypher test was, again, on those non-dysplastic patients, where you're trying to figure out, were they non-dysplastic because maybe I had a sampling error in a biopsy, or were they non-dysplastic but harboring more aggressive disease 'cause I just biopsied them on the first of the month, and if I waited two months, maybe they would have already shifted to low-grade or high-grade. That's the encouraging part of the marketplace opportunity.
From our perspective, it's really up to us to, you know, be carefully and cautiously and appropriately educate our gastroenterology customer base and grow that over the course of the next several years into what this test will become or should become, which is a very core part of the early workup for newly diagnosed patients.
Okay. Great. That's the thing. That's great. Thanks for that overview. Then maybe on the balance sheet, you know, Frank, it was good to hear reiteration of the operating cash flow neutrality by 2025, you know, following a more acquisitive period over the last 9-12 months and the general focus around cash balances and a new, you know, higher interest rate environment. I guess, you know, how do you feel about the cash balance going forward, and how should we think about capital allocation priorities and
Spend going forward into 2022 more of an investment year, but just kinda trying to think more beyond 2022. Thanks.
Yeah, sure. We're very comfortable with where we are from a balance sheet perspective. Our priorities for allocation of that capital remain supporting our own marketed products and continuing to advance our pipeline products. I think from a strategic perspective, I think that's down the list of capital priorities. We're excited about what we have in the bag now and in the pipeline here at Castle and that's where we're gonna focus that capital is pushing those sales and advancing those programs.
Great. Thank you very much.
Thank you. The next question comes from Puneet Souda of SVB Securities. Please proceed.
Yeah. Hi, Derek. Frank, thanks for taking the questions. The first one is really on the guide. I mean, good to see the guide raised. C an you outline what are you assuming for DecisionDx-Melanoma volume growth in that guide? And you know, how much of the guide raise is, can you quantify as for AltheaDx as well and for the full year?
Hey, Puneet. Hope you're doing well. We don't break out revenue by product, so the guide is really just inclusive of the portfolio. As Derek said in his opening remarks, we're very pleased with the traction we've seen in all three therapeutic areas. A s you would expect, our dermatological portfolio and primarily our cutaneous melanoma product will be, you know, that'll be the primary driver of revenue for this year, s o, we were very pleased with the volumes through the first half and we're excited about the back half, but we aren't breaking out our guidance of volumes.
Okay. Fair. In terms of commercial payers, given where just some DecisionDx-Melanoma today, you know, what are some of the efforts that are ongoing, and how should we think about the ASP for that product given, you know, the significance of the volume for that product to your overall model and to your growth?
Yeah. As you know, Puneet, the commercial landscape continues to be challenging for all companies in our sector in particular. We do have a very good team that, we call it, market access. They're the group that's focused with explaining the wealth of data that we have around our melanoma test to the payer groups and managing the medical and technical reviews for those groups. We continue to make progress quarter by quarter. Certainly not a landslide type progress. Unfortunately, it's very plodding and very much a hand-in-hand effort. Most of all, I think we believe that the body of evidence we have is overwhelming.
You know, we talk to people and the questions we get is, you know, with this much evidence, how does a doctor not use your test? You know, how does a physician not come to the view that this is beneficial to care for their patients? We tend to agree, and we are confident that in a matter of time, the payers will all see that as well. It's just, unfortunately, it is a longer process. We got a great team there. They work very hard and they're at it every day.
Okay. Got it. Just last one on SCC. I mean, what is your ultimate expectation there? I think you gave a number on the call for $3,878 per test. H ow should we think about potential for an ADLT or other avenues, and how should we think about ultimate for the ASP for this test? Thank you so much.
Sure. I think that was $38.73, the price determined by Novitas following the medical review that we requested. I think from a modeling standpoint, that would be a safe price to put into a model, you know, less 2% sequestration fees. Going forward in the near term, we do believe that our DecisionDx-SCC test would qualify for ADLT status under the CMS regulations. As you know, though, the granting of that, or acknowledging of that, is a policy evaluation by CMS, not Castle. I wouldn't bake anything in for ADLT status in the short term, but you can bet that we're evaluating that as an opportunity, and we'll proceed as long as we feel that's the appropriate way to go.
From a timing standpoint, we've seen different experiences across companies with ADLT kind of review timing. Some of them occur as early as 90 days. For instance, we talked earlier this year about TissueCypher, and we submitted the application for ADLT status in January of 2022, and were awarded that status at the end of March of 2022 in the first cycle term. It took us a couple of cycles a few years ago with DecisionDx-UM, although maybe that was also maybe the first year of the process in place. Maybe that was more having us understand the process better as well as the CMS review group. That would at least take a quarter to our state going forward here. I hope that covers the background.
Yeah. No, super helpful. Thanks again and, congrats on the quarter.
Thank you.
This concludes our second quarter of 2022 earnings call. I wanna thank you again for joining us today and for your continued interest in Castle Biosciences.
That concludes the conference call. Thank you for your participation. You may now disconnect your lines.