Good afternoon, and welcome to Castle Biosciences Fourth Quarter 2022 Conference Call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions, followed by a question-and-answer session. I would like to turn the call over to Camilla Zuckero, Vice President, Investor Relations and Corporate Affairs. Please go ahead.
Information recorded on this call speaks only as of today, February 28th, 2023. 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, CAM, 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 2023 to 2025 outlook, our expectations and assumptions related to the impact of the COVID-19 pandemic and macroeconomic conditions, and the impact of our investments in growth initiatives and expanded commercial teams. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties. 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 annual report on Form 10-K for the year ended December 31st, 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, and Adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP. These non-GAAP items should be used in addition to, and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue, cash flow, and operating 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. We are not providing a target for or reconciliation of anticipated 2025 adjusted gross margin to gross margin, the most directly comparable GAAP measure, because we are unable to predict certain items contained in the GAAP measure without unreasonable efforts. I will now turn the call over to Derek.
Thank you, Camilla. Good afternoon, everyone. Thank you for joining us today for Castle's Fourth Quarter and Full Year 2022 Earnings Call. Across the board, 2022 represents another fantastic year of execution for Castle. Before I begin discussing the highlights of our year, I would like to start today by personally thanking the Castle team for their excellent execution, which enabled our fantastic results. Each and every employee contributes to our success. 2022 was a year of tremendous progress for Castle. We delivered strong financial results. We made meaningful advances on our growth initiatives and delivered value to our customers and the patients we serve. The fourth quarter was a very strong finish, driving our full year revenue to $137 million, the top end of our guided revenue range, a 46% increase over 2021.
Our total test reports delivered were 44,419, a 58% growth over 2021. We believe our success in 2022 provides us with momentum for 2023 and expect full year 2023 revenue in the range of $170 million-$180 million. I will now turn to highlights within each of our businesses, starting with our dermatology franchise. We delivered 37,331 dermatologic test reports in 2022, a 41% increase over 2021. We believe our three dermatology offerings, DecisionDx-Melanoma, DecisionDx-SCC, and MyPath Melanoma, despite our continued growth, represent significant future growth opportunity. We continue to see new clinicians order our dermatologic tests for the very first time.
For the year ended December 31st, 2022, we saw approximately 2,312 new ordering clinicians for our dermatologic tests, and total ordering clinicians for dermatologic tests were approximately 7,670. In developing our SCC test, we believe that in addition to addressing significant unmet clinical needs, we would see strategic opportunities for leverage, as many of the clinicians already ordering our risk stratification DecisionDx-Melanoma test would likely be the same clinicians who would be diagnosing patients with cutaneous squamous cell carcinoma with one or more risk factors, and therefore would find value in our risk stratification DecisionDx-SCC test. We are seeing this leverage by virtue of the fact that for the year ended December 31st, 2022, approximately 79% of all clinicians ordering DecisionDx-SCC had also ordered our DecisionDx-Melanoma test during the year.
We believe the clinical value provided by our test today, coupled with our investment and our growth initiatives, should continue to drive increased adoption. Our growth initiatives include regular commercial team assessment and evolution and R&D investments and robust peer-to-peer programs. It relates to commercial investments, in 2022, we re-established a dedicated sales team to focus on our gene expression profile tests to assist in the differential diagnosis of pigment lesions. This means that we have a larger team focusing on our dermatology call point, primarily supporting DecisionDx-Melanoma and DecisionDx-SCC together, and a smaller focused dedicated team focusing on the dermatopathology call point. We have seen historically that our target market is promotionally responsive, we believe these expanded commercial investments can contribute to continued momentum in 2023.
As part of our long-term strategy, we plan to continuously assess the impact of our commercial teams, including the commercial team that is now focused on DecisionDx-Melanoma and DecisionDx-SCC and the separate diagnostic gene expression profile commercial team focused on dermatopathology. We'll make moderate adjustments if necessary, but ending 2023 with slightly more outside territories than we have today. In the long term, that is beyond 2023, with three dermatology offerings, we believe around 80 to 100 total outside sales territories for our dermatology commercial teams could make sense for us. As it relates to our R&D investments, in dermatology alone, we had 12 peer-reviewed manuscripts published in 2022. Continuous serial publications support our educational efforts for both existing and new clinical customers. Before I turn to our gastroenterology franchise, I would like to comment on current expectations for DecisionDx-SCC.
In the late fourth quarter of 2022, CMS decided to gap-fill our DecisionDx-SCC rate. In a regular gap-fill process, we would expect the outcome from this process to go into effect in January 2024. In the interim, and since we were just contractor priced in the second quarter of 2022, we expect our current rate of $3,873 to be maintained during the gap-fill process in 2023. Separately, we currently have coverage through Novitas following their evidentiary review that was completed early in 2022. Separately, there is a draft broad LCD entitled DL39365, Genetic Testing for Oncology, whose purpose we believe is to streamline reviews in the future. We have no new updates from Novitas on the status of this draft LCD. Separately, Palmetto MolDX has not issued a draft LCD to date, and we have no control over timing.
If and when we do receive a MolDX LCD draft, we expect it would take about 12 months to finalize, so we'd expect to have a final cover determination from MolDX in 2024. However, as I said earlier, we have no new updates from Palmetto about a potential LCD or timing. I would now like to turn to our gastroenterology business. We delivered 2,128 TissueCypher test reports in 2022. You may recall we acquired TissueCypher in December of 2021. We have made significant progress since then with our integration efforts and look forward to the opening of our new Pittsburgh laboratory in the second quarter of 2023, which is scaled to enable us to continue processing our TissueCypher test in Pittsburgh.
Additionally, we expect the Pittsburgh facility to have capacity to process our other tests as well. I will remind you that we hired the initial commercial team in early January 2022, and given the momentum that we saw in the second quarter, we added territories for our TissueCypher test in the late third quarter of 2022. As with our dermatology business, we will continue to assess the team and expect to add a modest number of territories as the year progresses. Finally, for TissueCypher, our 2023 and 2024 Medicare reimbursement rate is $4,950. As an ADLT, the Medicare rate will be recalculated for 2025 based upon payer data collection between January and June of 2023. I will now discuss our mental health business. From late April, we acquired IDgenetix.
Through the remainder of 2022, we delivered 3,249 tests. As with TissueCypher, our integration efforts are progressing according to plan, and we are pleased with the momentum we are seeing. As we have stated previously, we believe the pharmacogenomic and mental health opportunity isn't just a matter of a single large market, but an opportunity to enter a series of very large markets. One of our integration objectives is to focus on those market segments where we expect the value of IDgenetix will be seen by clinicians and their patients, including the value of drug-drug and drug-gene interactions with lifestyle factors all combined in a single test report. We entered 2023 with a solid commercial team in place, and we'll look to add a few territories throughout the year. One final note on our IDgenetix test.
The IDgenetix multi-gene panel test is currently reimbursed by Medicare at a contract to determine price of approximately $1,500 per test. IDgenetix has historically been billed to Medicare using a multi-test unspecified CPT code along with the IDgenetix test-specific MolDX Z-Code. In February 2023, MolDX notified us that as part of their annual CPT code updates, beginning in March 2023, IDgenetix should shift billing to a different multi-test generic gene sequencing CPT code and to continue using the IDgenetix specific Z-Code. The new CPT code is currently contracted priced at $917 while it goes through the CMS's gap-fill process in 2023. The new CPT code does not describe all the components of the IDgenetix test.
We therefore do not believe that the new CPT code in conjunction with the IDgenetix specific Z-Code provides additional specificity, and thus, we believe the new CPT code is not appropriate for IDgenetix. Now, I want to provide an update on our inflammatory skin disease pipeline test. As a reminder, the focus of this pipeline test is to be able to predict response to systemic therapy in patients who are diagnosed with inflammatory skin disease, such as psoriasis or atopic dermatitis, and are initiating systemic therapy or are on a systemic therapy and either not receiving optimal response or experiencing treatment limiting side effects. Development and validation of this test is occurring under the umbrella of our IDENTITY study protocols. In 2022, we presented data supporting that our non-invasive collection method had demonstrated or passed our technical thresholds.
I am pleased to report that as of February second, 2023, we have 54 committed sites and 507 patients enrolled in the IDENTITY study. We expect initial development data in the second half of 2023. We believe we are on track to launch this test by the end of 2025. If successful, we believe this test would add $1.9 billion to our estimated US TAM. I will now turn the call over to Frank, who will provide additional detail relating to our financial results and what to expect in 2023.
Thank you, Derek. Good afternoon, everyone. We again delivered strong financial results in 2022 while continuing to make progress on our growth objectives, which we believe leaves us in a position of strength for 2023 and beyond. In the fourth quarter of 2022, we delivered total revenue of $38.3 million, a 53% increase over the fourth quarter of 2021. We delivered $137 million for the full year 2022, a 46% increase over 2021. Overall, the increased revenues are primarily attributable to dermatologic test revenues, reflecting an increase in test report volume and higher per unit revenue.
The increases in total revenue for the full year were partially offset by the effect of variations in revenue adjustments related to tests delivered in previous periods associated with changes in estimated variable consideration, which were net negative $2 million for the year ended December 31st, 2022, compared to net positive $3.3 million for the year ended December 31st, 2021. Revenue adjustments related to tests delivered in prior periods may fluctuate from quarter to quarter and over time. Our adjusted revenue, excluding the effects of revenue adjustments related to tests delivered in prior periods, was $37.5 million for the quarter and $139 million for full year 2022.
As Derek mentioned earlier, for 2023, we anticipate generating between $170 million and $180 million in total revenue, driven by further consistent execution of our growth plans. In order to support those growth plans, we increased the size of the organization in 2022, and head count increased from 345 on December 31st, 2021, to 543 on December 31st, 2022. For 2023, we expect further increases in total head count, including the modest adjustments to our commercial team Derek just discussed, but not to the same extent as our head count growth in 2022.
Our gross margin during the fourth quarter was 69.4% compared to 77.6% in the fourth quarter of 2021, and our gross margin for the full year was 70.6% compared to 81.1% in 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 74.6% for the quarter and 77% for the year, compared to 82.2% and 82.6% for the same periods in 2021. We believe this compares favorably to the margin profiles of our peer companies.
Our total operating expenses, including cost of sales for the quarter ended December 31st, 2022, were $61.2 million, compared to $40.2 million for the prior year, and were $209.9 million for the full year, compared to $134.2 million for the full year 2021. Sales and marketing expense increased by $37.6 million or 76.9% for the year ended December 31st, 2022, compared to the year ended December 31st, 2021. Approximately $23.1 million or 61.4% of the increase is attributable to higher personnel costs, including salaries, stock-based compensation, and bonuses. The remainder of the increase in sales and marketing expenses was primarily associated with travel, training events, and conference fees.
General and administrative expenses increased by $18.6 million or 49.3% for the year ended December 31st, 2022, compared to the year ended December 31st, 2021, with increases primarily attributable to higher personnel costs, including salaries, stock-based compensation, and bonuses. The remainder of the increase in general and administrative expenses was primarily associated with other general increases. R&D expense increased by $1.9 million in the fourth quarter and by $15.3 million for the full year 2022 compared to 2021, and was primarily associated with increase in personnel costs, including increases in stock-based compensation attributable to additional headcount to manage and run our clinical studies and increases in other expenses associated with increased clinical study activity.
Total non-cash stock-based compensation expense, which is allocated among cost of sales, R&D expense, and SG&A expense, totaled $36.3 million for the year ended December 31st, 2022, compared to $21.7 million for the year ended December 31st, 2021. We expect to continue granting stock-based compensation awards in future periods as we continue to grow our headcount. For 2023, we expect stock-based compensation expense to increase by approximately 30%-35% over 2022. Income tax benefit was $1.8 million for the year ended December 31st, 2022, compared to $8.7 million for the year ended December 31st, 2021.
Substantially all of the income tax benefit was attributable to a reduction of $1.6 million of our valuation allowance on net deferred tax assets resulting from our acquisition of AltheaDx in April 2022. Specifically, we took into consideration the additional deferred tax liabilities resulting from the acquisition and determined that a portion of our existing valuation allowance should be reduced. Our net loss for the fourth quarter of 2022 was $20.6 million, compared to net loss of $6.4 million for the fourth quarter of 2021. Our net loss for the full year of 2022 was $67.1 million, compared to net loss of $31.3 million for 2021.
Diluted loss per share for the fourth quarter was $0.78, compared to diluted loss per share of $0.25 in the fourth quarter of 2021. Diluted loss per share for the full year of 2022 was $2.58, compared to diluted loss per share of $1.24 for 2021. Adjusted EBITDA for the fourth quarter and full year of 2022 were - $10.4 million and n- $42.6 million, respectively, compared to - $6.9 million and - $14.9 million for comparable periods in 2021. For the 12 months ended December 31st, 2022, net cash used in operating activities was $41.7 million, compared to $19 million for the same period in 2021.
Net cash used in investing activities during the 12 months ended December 31st, 2022 was $166.5 million, primarily attributable to the purchases of marketable investment securities of $135 million and the cash portion of the acquisition of AltheaDx of $27 million. In 2023, we expect our capital allocation priorities to remain consistent. These priorities include continued acceleration of our R&D efforts to build our expansive body of evidence that supports our market as well as to develop our pipeline tests, the continued assessment and evolution of our commercial team, and to a lesser priority, opportunistic tuck-in M&A in the areas of our existing franchises.
Finally, we had cash equivalents, and marketable securities at December 31st, 2022 of $259 million, which we expect, together with anticipated cash generation from sales of our tests, will be sufficient to operationalize our business through 2025. Before I close, I wanted to remind you that in September, we hosted an Investor Day, where we outlined our three-year financial targets. We anticipate achieving total revenue in the range of $255 million-$330 million for the year ending December 31st, 2025, with adjusted gross margins in the range of 80%-85%. Combining these expectations for strong top-line growth and gross margins, along with a continued disciplined approach to capital allocation, we continue to expect to be net operating cash flow positive for 2025. I'll now turn the call back to Derek.
Thank you, Frank. We are executing well against our long-term plans and are pleased with our successes of 2022. Again, we have a people-first culture focusing on our patients, our clinician customers, and our employees. It is this people-first culture combined with offering innovative tests that drives our relentless pursuit of excellence in every aspect of our business, and we believe the momentum that we finished with in 2022 will provide us with another strong year of performance in 2023. This concludes our remarks. Thank you for your continued interest in Castle. Operator, we are now ready for Q&A.
Thank you. If you would like to ask a question, please do so now by pressing star followed by one on your telephone keypad. In order to allow everyone in the queue an opportunity to address the Castle management team, please limit your time on the call to one question and only one follow-up. If you have additional questions, please return to the queue. Please stand by while we compile the Q&A roster.
The first question comes from Sung Ji Nam with Scotiabank. Please go ahead.
Hi. Thanks for taking the questions. Maybe one for Frank. Could you talk about for your 2023 guidance, your kind of the quarterly pacing, just, you know, if there's going to be seasonality, a typical seasonality, how should we think about the first quarter?
Yeah, sure, Sung Ji. I think that what we saw with the end of 2022 is that we kind of have returned to a pre-COVID pattern of seasonality as it relates to melanoma diagnoses. I think we're assuming that same kind of progression that we saw through 2019 into 2023. The typical increased activity in the second quarter from patients identifying more lesions and more physician practice days, we would expect to see again this year.
Got it. Then just on the SCC reimbursement, could you just clarify kind of what's different from before, just trying to figure out what's changed?
On SCC?
Yeah, just trying to figure out.
From kind of third quarter earnings? I think I'll take, right?
Yeah, no, I think same assumptions there, Sung Ji. As Derek said, we are our guidance assumes that that rate is durable through the year as we go through the gap-fill process. We're assuming continued coverage. If, if something changes there one way or the other, we'll have to adjust, but that's where we anticipate going through the year.
Great. Thank you.
Thanks, Sung Ji.
The next question comes from Mason Carrico with Stephens. Please go ahead.
Hey, guys. this is Jacob on for Mason. Thanks for taking our questions. I guess first here, just on the closure of Althea San Diego lab facility, how should we think about the magnitude of those cost savings there? What are the majority of those savings gonna show up in the P&L? What quarter do you anticipate hitting the full run rate of those savings?
Yeah, thanks. I think that we did complete that close at the end of the year. The primary increases or primary benefits are of course the reduced real estate. We also have sufficient capacity in Phoenix that we don't believe that we'll have to see the staffing level increases that we might have had to see had we remained operational in Southern California. I think that not Q1, I don't think we fully see it through there. There's still some winding down going on. My expectation is probably Q2, we have the full benefit of that for San Diego. As it relates to Pittsburgh, we expect to be in that facility into second quarter.
We expect to complete build out and to be there. It'll probably take us a couple of quarters to see the full benefit from the COGS and the efficiency standpoint for the Pittsburgh transition. We'll be in a little bit of a transition period here on the COGS side through, you know, second, third quarter as we get that done. Those are reported investments and we think really will help us a significant amount on the COGS side as we move forward through the rest of 2023 and into 2024.
Okay. Got it. Then, sorry if you touched on this earlier in the call. We've been juggling a few tonight, but what's the latest update on pursuing ADLT status for the SCC test? Just kind of any updates on how you're thinking about this opportunity, on a timeline perspective? Thanks.
This is Derek, Jacob. We do believe that DecisionDx-SCC would qualify for ADLT status based upon the criteria set forth in the statutes. However, because that process can be short or long, we are not commenting upon timing of when that may or may not take place. I would put that as a question mark. As Frank mentioned earlier, during his monologue, for 2023, I would have us all model or assumes $3,873 is the price for SCC. If it happens to be modified or changed because of ADLT, that would represent upside to that. Is that fair, Frank, or?
Sure.
Our next question comes from Thomas Flaten with Lake Street. Please go ahead, Thomas.
Hey, good afternoon, guys. Thanks for taking the questions. Derek, on the IDgenetix CPT code switch, is there any recourse for you there, or is this a decision you're stuck with, or how are you guys thinking about that?
We're exploring opportunities and actions on our end. We'll probably have more information towards the end of the first quarter or first quarter earnings.
Got it. Then just out of curiosity, you mentioned that 79% of the SCC orders also ordered Dx-M elanoma. Is there something unique there? Is it a question of timing that all of those doctors have at some point ordered Melanoma or something Is there a unique selling feature to SCC that has pushed them to that product versus having adopted Melanoma previously?
That's an excellent question, Thomas. I think of a general medical dermatologist, they're going to see melanomas that will be appropriate for testing for a melanoma test and squamous cell carcinomas with high-risk features. While I don't have the numbers here to necessarily give you exact differences here, we also have a group of dermatologists that are trained in Mohs surgery. Mohs surgeons is a subspecialty of dermatology. There are a good number of Mohs surgeons who don't perform Mohs surgery techniques on invasive melanoma.
Some of that delta, I would never expect it to be 100%, because some of the physicians who have seen good value in our squamous cell carcinoma test are those Mohs surgeons who preferentially are seeing or at least performing surgical procedures on patients with squamous cell carcinoma, many of whom have a high-risk factor or more, but they would not be necessarily doing surgical excisions in people with invasive melanoma. That's part of the differentiation there.
Got it. Thank you.
The next question comes from Kyle Mikson with Canaccord. Kyle, please go ahead.
Hi, this is Alex for Kyle Mikson. I guess a good place to start would be, I'm just curious about if you'd comment on whether IDgenetix or TissueCypher could have a meaningful contribution to your assumptions for your 2023 guidance. Thanks.
It's Alex, right? Yes.
Yes.
We certainly have revenue in the 2023 guidance for both TissueCypher and IDgenetix. If we step back to 2022 and our conversations around those two acquisitions, those weren't about sort of creating lift in 2022 or 2023 in terms of revenue from a significant material perspective. Those are really about making sure that we continue to be a profitable high-growth company in the middle of this decade and beyond. We do expect and we'll receive, I guess, meaningful revenue from those combined products in 2023, but we're not expecting, I guess, what you would call a material impact probably until 2024, 2025 and beyond. That was the real goal of those acquisitions. That hasn't changed from a thesis perspective.
Got it. Apologies if you might have touched on this a little bit previously, but just on that new CPT code for IDgenetix, in the roughly $917 range, I believe, compared to the previously quoted roughly $1,500 range for the Medicare code. I was just curious, if you could elaborate on the ways in which you feel that this new code doesn't fully appreciate what the test offers. I know you stated that in your prepared remarks. I was wondering if you could elaborate on this. Thanks.
A little bit, sure. The main differences are, is that that's a sort of generic multi-gene panel test for pharmacogenomic tests or for gene sequencing tests. That includes things that might cover cardiovascular disease events, Alzheimer's events, maybe even mental health pharmacogenomic tests like ours, for example. However, what we do know is that when IDgenetix was initially built, it was built upon a combination of both drug-gene interactions that were then integrated using a annotation algorithm tool that incorporated drug-drug interactions and lifestyle factors as well. Those other components are clearly not covered in description of this generic multi-panel code, which covers a whole variety of indications and test types. Does that add clarity?
Yes. Thank you very much. Extremely helpful.
The next question comes from Puneet Souda with SVB. Puneet, please go ahead.
Hi, you have Michael on for Puneet. I kind of wanted to piggyback a little bit on the question about the guide. I was wondering, so you mentioned TissueCypher and IDgenetix maybe not a huge contributor, but how much of the guide is really driven by growth in the core melanoma versus some of the other tests like maybe SCC?
Yeah, as we've said, we believe most of our growth or a significant portion of the growth will be driven by the dermatology franchise this year. We expect to continue to grow penetration in the melanoma market and squamous cell as well. Yeah, Including that guide, our expectations were higher volumes for both tests through the year.
Got it. Thanks. I was wondering, with the SPL franchise, now that you have this dedicated sales force and it's gonna be, I think, fully productive in the second quarter, you said. You also have the LDT coming online for DecisionDx-GIST. I was wondering if you should expect any sort of meaningful growth ramps there, perhaps in the second half of the year.
In terms of personnel or in terms of volume? Volume, I'm assuming, right?
Volume primarily, yes.
Yeah. That would be our expectation. We only reestablished that dermatopathology focus group in, I guess, late September 2022. We do believe that we don't get full productivity in our sales teams until about six months after they're trained in the field. We obviously are seeing an impact now. We should see an impact in the first quarter of 2023, but we really would expect that to hit the ground running beginning late 2Q in the fall. Yes is a short answer. That we should see continued growth and acceleration of growth with those investments being made late last year.
Great. Thank you very much.
You're welcome.
The next question comes from Mark Massaro with BTIG. Mark, please go ahead.
Hey, guys. This is Vidyun on for Mark. Thanks for taking the question. As far as your 80%-85% growth margin target by 2025, which doesn't look too far off, can you just remind us of what remaining levers you're hoping to pull to reach that target? Thanks.
Sure. As we said, we expect to see the benefits of the rationalization of our laboratories through this year and into that period of time. We were strained for capacity in Pittsburgh, which of course limits efficiency. In the case of Southern California, we have great efficiencies in our Phoenix lab that we think benefit there. The primary levers are rationalizing those labs, continued scale, which of course absorbs fixed costs, and continuing to drive the number of tests that are currently not paid or reimbursed appropriately and converting those to being appropriately reimbursed.
Awesome. Thank you. Just a quick follow-up. Could you potentially refresh us on the publication of the NCI data, and how you're expecting that to unlock any new reimbursement here? Thanks.
The publication is in the review process of having been submitted and undergoing comments. We obviously don't control timing of the journal's speed of review and acceptance and online publication timing. It's our expectation or hope or our belief that that should be published in the first half of this year, at least based upon current trends that we're seeing from a review cycle standpoint and clearance out of NCI. That would be the timing of it. You know, at least by the end of June, I would think is a reasonable assumption. In terms of what that means impact-wise, we have been discussing with our customers for most of 2022 some of the preliminary abstract data.
There is awareness among customers of the value of our tests as being proven out by this real-world, large-scale prospective study population as reported up through the NCI SEER program. That's not nearly as effective as having a peer-reviewed publication to walk through in detail as you can expect. We would expect on the physician penetration standpoint to really have a, another hit in terms of accelerating awareness of the value of our test, not just in terms of having the risk stratification confirmed in this large unselected patient population, but also in terms of the survival benefit that patients are experiencing when they're clinically tested with DecisionDx-Melanoma. Presumably, those results are then followed or impacting patient care, compared to patients who do not receive our test clinically.
That should be more impactful, I would think, when you have a full peer review publication to have a clinician really wrestle and challenge and also read through what the actual study entailed in all the fine detail. Separately, we would expect that this is the kind of outcome data that we hear from our commercial payers and laboratory benefit managers, which is, "I hear you in terms of what your test does. It looks like it can reduce the frequency of unnecessary sentinel biopsy surgical procedures, and I understand and appreciate the risk stratification in terms of reducing over-treatment in terms of patients who have a lower risk of recurrence likelihood than if you use staging alone. I appreciate all that.
Can you show me, Derek, that actual patient outcomes, death outcomes are actually improved if I pay for your test versus don't?" That NCR article does exactly that. I wouldn't expect us to see policy coverage change on a dime, but I would hope as we go out through the remainder of 2023 and 2024, that becomes that significant landmark study that would force a commercial payer to actually say, "You're right. We've been asking for this as being a litmus test of coverage that's been met right now." Again, I wouldn't see that being an automatic dime turn in July of 2023. That's gonna occur over a period of time.
Perfect. Thank you for taking the question.
Our next question comes from Catherine Schulte with Baird. Please go ahead, Catherine.
Thanks. This is Tom, on for Catherine. Wondering if you could just kind of build on that last point, Derek, and maybe just give us a status update on the commercial payer progress for DX Melanoma, and specifically just any expectations around potential NCCN guideline inclusion for 2023.
Sure. A couple of comments there. It continues to be challenging to push over commercial payers. As I think you know, they're, they're not necessarily swayed by evidence, but are, but are driven by other factors. We did have some nice wins in the year that will begin to be implemented in 2023. As we've said before, I think that's gonna continue to be steady but slow progress and, really, I think it would take an NCCN positive inclusion to see any kind of stepwise increase in the rate there. In terms of NCCN timing, as your second question there, Tom, historically, the melanoma group has had their in-person or significant meeting, I guess in the July time period. Is that right? Yeah.
July time period of each year. The outcome of that is usually published at year-end, December, early January, late November or so. I would not expect to see any material updates for the remainder of 2023 until we get to that year-end publication date, which reflects sort of their mid-summer meeting cycle.
Great. Thanks. I know you've touched on this before, but wanted to get into gross margin pacing for the year. Heard the comments on sort of the quicken pace on sort of the lab rationalization and the impact there, but just curious about how you're thinking about gross margin pacing overall and how we should think about, you know, contributions and recess versus some of the core term contributions. Thanks.
Sure. I think that, as with the other trends, that'll be a sort of a progressive trend. Nothing stepwise appears to be there. In addition to efficiency, the course converting those zero pay tests to being paid has a big impact because that drops straight through. We'll continue to see that. We would expect to see that move the right direction here over time, but in a, in a slower, methodical pace.
Those are all the questions we have for today. I'll now turn the call back to Derek for concluding remarks.
This concludes our Fourth Quarter and Full Year 2022 Earnings Call. Thank you again for joining us today and for your continued interest in Castle Biosciences.
Thank you everyone for joining us today. This concludes our call, and you may now disconnect your line.