Castle Biosciences Q3 2025 Earnings Call Transcript

Quartr
Provided by Quartr
November 3, 2025

Key Takeaways

  • Positive Sentiment: Castle launched Advanced AD TX, a validated 487‑gene test that identifies JAK‑responder vs TH2 molecular profiles and showed better clinical outcomes for JAK‑responder patients in a 49‑site study, positioning the company in a large atopic dermatitis market.
  • Positive Sentiment: The company reported strong Q3 results with $83M revenue, record quarterly volumes for DecisionDx‑Melanoma (10,459) and TissueCypher (10,609), and raised 2025 revenue guidance to $327–$335M, signaling sustained commercial momentum.
  • Negative Sentiment: Margins and profitability softened — adjusted gross margin fell to 76.8% vs 81.9% year‑ago, adjusted EBITDA declined to $9.2M from $21.6M, and the company posted a small net loss of $0.5M in Q3, reflecting higher personnel, lab, and marketing costs.
  • Neutral Sentiment: Reimbursement and regulatory catalysts are mixed and timing uncertain — LCD reconsideration requests for DecisionDx‑SCC were accepted as valid by Novitas and Palmetto MolDX, and DecisionDx‑Melanoma is pursuing an FDA pathway, but payer coverage and timing remain unresolved.
AI Generated. May Contain Errors.
Earnings Conference Call
Castle Biosciences Q3 2025
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Good afternoon and welcome to Castle Biosciences' third quarter 2025 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.

Camilla Zuckero
Camilla Zuckero
VP of Investor Relations and Corporate Affairs at Castle Biosciences

Thank you, Operator. Good afternoon, everyone. Welcome to Castle Biosciences' third quarter 2025 results conference call. Joining me today are Castle's Founder, President, and Chief Executive Officer, Derek Maetzold, Chief Financial Officer, Frank Stokes, and Senior Vice President, Medical, Dr. Matthew Goldberg, board-certified dermatologist and dermatopathologist. Information recorded on this call speaks only as of today, November 3rd, 2025. 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 following the conclusion of the call.

Camilla Zuckero
Camilla Zuckero
VP of Investor Relations and Corporate Affairs at Castle Biosciences

Before we begin, I would like to remind you that some of the statements made today will contain forward-looking statements, including statements about expected addressable markets, statements containing projections regarding future events or our future financial or operational results and performance, including our anticipated 2025 total revenue and the impact of our investment and growth initiatives, including our ability to achieve long-term growth and drive stockholder values. 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. Please refer to the risk factors in our most recent SEC filings for more information.

Camilla Zuckero
Camilla Zuckero
VP of Investor Relations and Corporate Affairs at Castle Biosciences

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 U.S. GAAP. 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.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Thank you, Camilla, and good afternoon, everyone. Today, I would like to start with some exciting news. Earlier today, we announced the launch of AdvanceAD-Tx, our first-in-class test designed to guide systemic treatment selection for patients with moderate to severe atopic dermatitis. Before I get into our test, let me talk about the critical need facing patients with moderate to severe atopic dermatitis. Generally, patients with moderate to severe atopic dermatitis have spent, in many cases, years on topical therapeutics and have reached the point that they are ready to cross the threshold of switching to an advanced systemic therapeutic. There are also patients who are already on an advanced systemic therapeutic but continue to experience significant symptoms. Today, there are two general classes of advanced systemic therapies: biologic therapies that primarily impact the Th2 pathway, or those that broadly inhibit multiple pathways, including the Th2 pathway.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

This latter class of drugs is known as Janus kinase inhibitors, or JAK inhibitors for short. All of these systemic therapies require prior authorization for initiation of a prescription. They are expensive, and they carry, as do all therapies, the potential for adverse events. The question facing these patients and their clinicians is which class of therapy is going to be more effective for that individual, that specific patient. We know from longitudinal prescription data that most patients start on a Th2 targeted biologic therapy today. And while these work well on many patients, around 40%-45% of patients require adding on additional therapies or switching altogether. This lines up with data from studies that have shown anywhere from 20%-50% of atopic dermatitis disease is driven by both Th2 and additional immune dysregulation pathways.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Such that a Th2 targeted therapy may not address all of the molecular underpinnings that are driving that patient's unique disease. We conducted a prospective study across 49 U.S. clinical study sites to see if we could identify a test for use in patients ages 12 and older with moderate to severe atopic dermatitis who may exhibit differential responses to one of these two therapeutic classes based upon the underlying biology that drives their disease and drives their symptoms. We were successful. Specifically, we discovered, developed, and validated a gene expression profile test that evaluates the expression of 487 genes that are spread across 12 known immune inflammatory and skin-related pathways that are associated with inflammatory skin conditions such as atopic dermatitis. Let's talk about what we found. This initial validation study identified patients with a JAK inhibitor responder profile and those who have a Th2 molecular profile.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

In patients with a JAK inhibitor responder profile, study data showed that these patients who were treated with a JAK inhibitor were significantly more likely to achieve a 90% improvement in their baseline disease severity, as measured by the Eczema Area and Severity Index scale, also known as EASI, achieve complete clearance on the validated Investigator Global Assessment scale, report no itch, and remain flare-free by three months compared to JAK inhibitor responder patients who were treated with a Th2 targeted therapy. What a great step forward in improving patient outcomes.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

This is a new opportunity in atopic dermatitis for our dermatologic clinician customers and their patients, and I cannot express how grateful I am to our clinical investigators, to our clinical research department, our scientists and bioinformatics colleagues, and all those who are able to bring forward an objective test that will potentially enable, for the first time, the implementation of precision medicine in the management of atopic dermatitis. Let's turn to the market size and our approach to clinical availability over the next 6-12 months. First, on sizing. Using multiple data sources, focusing on one-year prevalence, we estimate that there are approximately 13.2 million individuals who are ages 12 and older with moderate to severe atopic dermatitis in the U.S. Using a reasonable ASP at maturity, we estimate that this target patient population represents an approximately $33 billion total addressable market opportunity in the U.S alone.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

With our established leadership in dermatologic testing, we believe that we are well-positioned to introduce and scale AdvanceAD-Tx efficiently by leveraging our existing laboratory, logistics, and commercial infrastructure. Excitingly, our qualitative market research and physician feedback have been very encouraging. Specifically, approximately 80% of clinicians sampled stated that they would definitely or probably use AdvanceAD-Tx, highlighting the value of matching treatments to immune profiles. Addressing this unmet need, our goal with AdvanceAD-Tx is to enable stronger responses, fewer relapses, faster improvement in symptoms, improved quality of life, and ultimately reduced healthcare costs. Finally, let's turn to reimbursement. We are pursuing multiple pathways to accelerate patient access to AdvanceAD-Tx, recognizing that we're effectively building a new market and must evaluate all available options. We expect revenue contribution to be immaterial in 2026 as we build our reimbursement from ground zero.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

We expect to keep you informed of updates as appropriate. This being said, between models of reimbursement, the large market opportunity, and the fact that our dermatology commercial teams will be introducing our AdvanceAD-Tx test to the same customers who use our DecisionDx-Melanoma and DecisionDx-SCC test, we will clinically launch AdvanceAD-Tx on a limited access model this month, November 2025, and expect to expand in a phased manner throughout 2026, in part so our commercial team can primarily focus on our DecisionDx-Melanoma test. In summary, the launch of AdvanceAD-Tx marks another important milestone in expanding our commitment to, as well as expanding the value that we bring to our dermatological customers. Now, I will walk you through business highlights from the third quarter, and then Frank will provide additional financial highlights before we turn to your questions.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

I'm pleased to report that the momentum we established in the first half of the year continued into the third quarter. We believe our outstanding third quarter performance underscores the strength of our operating model, the success of our strategic initiatives, and our unwavering commitment to improving patient care. Revenue reached $83 million, and we delivered total test report volume of 26,841, with tests for our core revenue drivers growing 36% compared to the third quarter of 2024. For DecisionDx-Melanoma, we delivered 10,459 reports in the quarter, representing a 12% year-over-year increase. Notably, DecisionDx-Melanoma achieved another significant milestone by surpassing 10,000 reports in a single quarter for the first time in the company's history. We reiterate our previously provided expectation to deliver high single-digit volume growth for DecisionDx-Melanoma for the full year 2025 compared to the full year 2024.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Moving on to our DecisionDx-SCC test, we delivered 4,186 test reports in the third quarter of 2025. This high level of volume was achieved without proactive marketing, which we believe underscores the core clinical value and strength of our growing clinical evidence supporting the test. We submitted LCD reconsideration requests early in the third quarter to both Novitas and Palmetto MolDX and received notification from both Medicare contractors that, based upon CMS guidelines, our reconsideration requests were determined to be valid requests and were accepted as such. I'll remind you that this is not an indication of likelihood of coverage, and there is no specified timeline for a final reconsideration decision. During the quarter, we were pleased to see new peer-reviewed evidence further validating the clinical utility of our DecisionDx-SCC test.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

One study expands on the clinical value or utility of our DecisionDx-SCC test by adding a third use, predicting local recurrence in NCCN and high-risk SCC patients. This use builds on the test's established capabilities of predicting metastatic risk and response to adjuvant radiation therapy, making DecisionDx-SCC an even more comprehensive test for post-surgical management. Additionally, the study showed that DecisionDx-SCC significantly outperformed both the American Joint Committee on Cancer, or AJCC, and the Brigham and Women’s Hospital, or BWH, staging systems in stratifying risk for local recurrence and metastasis in the NCCN and high-risk patient group. This study demonstrates the superior risk stratification power of DecisionDx-SCC compared to traditional staging methods. A separate study of 244 clinicians was also published in the third quarter. Results from this study showed strong alignment between DecisionDx-SCC risk classes and clinical decision-making.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Specifically, Class 2A and 2B results were consistently used by physicians to drive management decisions for use of imaging and adjuvant radiation therapy, with use that is similar to clinical and pathologic factors that are deemed very high-risk factors by staging systems and recommended by national guidelines for decisions to use these two interventions. Importantly, these findings reinforce the practice-changing impact that DecisionDx-SCC has had on patient care. By enabling risk-aligned escalation or de-escalation of care, DecisionDx-SCC helps clinicians personalize treatment strategies, avoid unnecessary overtreatment, and address the clear limitations of traditional staging systems. Our growing body of evidence underscores DecisionDx-SCC's critical role in improving patient outcomes and guiding treatment pathways for high-risk SCC while supporting smarter, more efficient healthcare decision-making. Now, let's turn to our gastroenterology franchise.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

TissueCypher delivered 10,609 test reports in the third quarter compared to 6,073 test reports in the same period of 2024, representing 75% year-over-year growth. TissueCypher, like our DecisionDx-Melanoma test, achieved a significant milestone this quarter by exceeding 10,000 test reports in a single quarter for the first time, and we believe this suggests clinicians are increasingly recognizing its value. We remain highly focused on building education and awareness to drive continued adoption of our TissueCypher test. As such, we were very encouraged by new data presented at the American College of Gastroenterology's annual meeting that reinforced the important role of TissueCypher in Barrett's esophagus management. In a real-world study from four surgical practices involving 85 patients with non-dysplastic Barrett's esophagus, TissueCypher identified 15% of patients as intermediate or high risk for progression to high-grade dysplasia or esophageal adenocarcinoma.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

By definition, these patients with non-dysplastic disease were not identified as high risk by pathology alone. Importantly, the probability of progression for patients receiving intermediate and high-risk TissueCypher scores was similar to or even exceeded the five-year risk of progression associated with low-grade dysplasia. This is a critical finding because low-grade dysplasia is the threshold at which society guidelines recommend escalating care, such as increased surveillance frequency or endoscopic eradication therapy. These results underscore TissueCypher's ability to deliver clinically meaningful insights. By providing individualized risk stratification, the test enables physicians to escalate care for patients truly at risk while confidently de-escalating care for those at low risk. This supports more personalized care strategies, helps to prevent overtreatment, and improves the potential to intervene earlier in patients at the highest risk of progression.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Lastly, I want to thank each and every member of the Castle team for the continued hard work and unwavering commitment to improving patient care. I will now turn the call over to Frank.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Thank you, Derek, and good afternoon, everyone. Reiterating Derek's sentiment, we're very pleased with our strong third quarter results and the continued positive momentum we are seeing with our business. Net revenues for the three months ended September 30, 2025, were $83 million. For total revenue for 2025, we are raising our revenue guidance to $327-$335 million, up from the previously provided range of $310 million-$320 million. Our gross margin during the third quarter of 2025 was 74.7% compared to 79.2% in the third quarter of 2024.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions and excludes the effects of revenue adjustments in the current period associated with test reports delivered in prior periods, was 76.8% for the quarter compared to 81.9% for the same period in 2024. Turning to expenses, our total operating expenses, including cost of sales for the third quarter of 2025, were $89.8 million compared to $80.7 million for the third quarter of 2024. Sales and marketing expenses for the quarter were $32.8 million compared to $29.8 million for the same period in 2024. This increase is mainly due to higher personnel costs, higher expenses associated with travel, and higher marketing expense. General and administrative expenses were $23.1 million for the quarter compared to $20.7 million for the same period in 2024.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

This increase is primarily attributable to higher personnel costs and higher information technology-related costs. Higher personnel costs reflect headcount expansions in our administrative support functions, as well as merit and annual inflationary wage adjustments for existing employees. Cost of sales expenses were $18.7 million in the third quarter of 2025 compared to $15.6 million in the third quarter of 2024, primarily due to higher personnel costs, higher expenses for lab supplies, and higher lab service expense. Increases in personnel costs reflect a higher headcount due to additions made to support business growth in response to growing test report volumes, as well as merit and annual inflationary wage adjustment for existing employees. Higher expense for lab services and lab supplies also reflects higher test report volumes.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

R&D expenses were $13 million for the quarter compared to $12.3 million for the same period in 2024, primarily due to higher personnel costs driven by increased headcount to support continued business growth. Total non-cash stock-based compensation expense, which is allocated among cost of sales, R&D expense, and SG&A expense, was $12.1 million for the third quarter of 2025 compared to $13 million in the third quarter of 2024. Our net loss for the third quarter of 2025 was $0.5 million compared to net income of $2.3 million for the third quarter of 2024. Diluted loss per share was $0.02 compared to diluted earnings per share of $0.08 in the third quarter of 2024. Adjusted EBITDA for the third quarter was $9.2 million compared to $21.6 million for the comparable period in 2024. This further demonstrates our ability to translate strong top-line performance into meaningful bottom-line results.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Net cash provided by operating activities was $22.6 million for the third quarter of 2025 and $37.4 million for the nine months ended September 30, 2025. We continue to expect to deliver positive net cash flow from operations for 2025. Net cash used in investing activities was $69.2 million for the nine months ended September 30, 2025, and consisted primarily of purchases of marketable investment securities of $151.3 million, purchases of property and equipment, our asset acquisition of Previse, and purchases of debt securities classified as held to market, partially offset by the maturity of marketable investment securities. As of September 30, 2025, we had cash, cash equivalents, and marketable securities of $287.5 million. Our consistent top-line performance, strong margin profile, and disciplined expense management all contribute to our healthy cash position.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

In conclusion, we delivered another exceptional quarter, and our strong year-to-date performance further reinforces our confidence in the strength of our business and growth opportunities ahead of us. I'll now turn the call back over to Derek.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Thank you, Frank. In summary, our third quarter performance was strong. The momentum we built reflects our continued focus on strategic priorities, disciplined execution, and commitment to delivering value for patients, clinicians, and stockholders. Thank you for your continued interest in Castle. Now, we will be happy to take your questions. Operator?

Operator

Thank you. To ask a question, please press 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 an additional question, please return to the queue.

Operator

Please stand by while we compile the Q&A roster. Our first question today will be from the line of Subbu Nambi with Guggenheim. Please go ahead. Your line is now open.

Subbu Nambi
Subbu Nambi
Managing Director at Guggenheim

Hey, guys. Thank you for taking my question. Congratulations on launching the AdvanceAD. Could you provide more color on who would be addressable from the 13.2 million patients? And if it is all of them, how many of these patients are Medicare age?

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

So good to hear from you. This is Derek. Based upon our calculations, the 13 million and change patients are the target marketplace in the U.S. of patients who have moderate to severe atopic dermatitis. That would be the largest denominator. In terms of the Medicare exposure, we're estimating what, Frank, I think around 10%-15%, maybe 15%-20% max could be of Medicare age.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

So it's really a, in our case, children above the age of 12 through sort of middle age, and then there's another hump later on in life.

Subbu Nambi
Subbu Nambi
Managing Director at Guggenheim

Thank you for that. And a quick follow-up. Could you tell us a little bit more about the multiple reimbursement pathways? What do you mean by that? Is it Novitas and MolDX, or is it more to do with commercial or something else?

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

I think that certainly this is a test or result in more medically appropriate selections or recommendations by clinicians who are seeing Medicare patients. We have to understand what the commercial payment section might look like. There's also other payer opportunities, but we do not want to provide much more color than that at this point in time until we see how next spring plays out.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

I think the important part of the follow-up there.

Operator

The next question will be from. Apologies.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Go on.

Operator

Sorry. The next question will be from the line of Kyle Mikson with Canaccord. Please go ahead. Your line is open.

Kyle Mikson
Kyle Mikson
Managing Director and Senior Research Analyst at Canaccord

Yeah. Hey, guys. Thanks for the questions. Can I ask a quarter? The first one's going to be on SCC, so kind of a multi-part question. The first is on the reconsideration. The requests were approved, I guess. Anything you can kind of share on timing and likelihood and next steps and things like that? I know it is obviously probably tough to get a handle on that. And then secondly, the SCC volume seemed kind of flattish to down, let's say, quarter over quarter. But the gross margin for the company, it seemed to decline sequentially. So maybe what's happening there, I would have thought.

Kyle Mikson
Kyle Mikson
Managing Director and Senior Research Analyst at Canaccord

Yeah, some of the dynamics between gross margin and that kind of dead cost. Volume is interested here. Thanks.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

I'll take the first couple. You want to handle the gross margin, Frank?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Yeah. Go ahead.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

So. On the reconsideration request. The Medicare manual is pretty, I guess, straightforward and direct, which says if there is new, I cannot remember the exact words. Basically, if there is new clinical information that was not reviewed or considered as part of the kind of current LCD, whatever that LCD would be in terms of how many years since it was issued or finalized, then a reconsideration request should be deemed as being valid if, in fact, there is new information that was not considered as part of the initial LCD. That sort of is the threshold there.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

And as we have talked about, I think publicly now for quite some time, the fact of the open comment periods closed down in the, I guess, it was fall 2024 or 2023, in some cases. We had a significant number of new publications, new data coming out, including, of course, both of the seminal publications regarding the use of our tests or demonstrating our tests can predict responsiveness to adjuvant radiation therapy. I think the evidence was there to go ahead and say these should be valid considerations. And in fact, they were deemed so by both Novitas and MolDX. As it relates to timing, the Medicare manual or the program integrity manual does not have any specific kind of start and stop dates. That is really up to the working pace of either one of those contractors. That is an unknown outcome, Kyle.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Regarding SCC volume, keep in mind that until, I guess, towards the end of the second quarter, our dermatology commercial teams were being focused or bonused, I guess, whatever you want to call that, roughly 50/50 on melanoma and squamous cell carcinoma. I think that. We certainly know that these are emotionally responsive marketplaces. That's why we have field forces against them or working on those products. But we also know that these tests, and this one in particular, the SCC test provides clinicians who are ordering the test with tremendous information that they realize they can't get elsewhere.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

I'm not sure if the, I mean, flattish to me is actually quite strong in terms of saying if the volume went down tremendously, you would say, "Gee, there really wasn't much use of that clinically anyway." The fact that we actually maintain close to the same volume, I think, is quite important from how our clinicians are using the test and adopting it for ordinary patient care. Frank, you want to?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Yeah. And Kyle, we did have some modest revenue in the quarter from some commercial claims on SCC. Not really material, but there were some dollars there, which helps with the gross margin line.

Operator

Thank you. The next question is from the line of Catherine Schulte with Baird. Please go ahead. Your line is open.

Tom Peterson
Tom Peterson
Senior Research Associate at Baird

Hey, everyone. This is Tom Peterson on for Catherine. Congrats on a really solid quarter here.

Tom Peterson
Tom Peterson
Senior Research Associate at Baird

I wanted to ask a first question here on the DecisionDx-Melanoma volume outlook. Now, Q3 volumes were up about 5% sequentially versus the guidance that kind of flattish in the back half versus Q2 levels. I guess, what did you see in the quarter outside of typical seasonality? With that in mind, how should we think about the Q4 volume growth for DecisionDx-Melanoma given the reiteration of the high single-digit outlook for the full year?

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

We had, I think, signaled or stated, I'm not quite sure what the word is, early in the year with our guidance back in, when was that? Give it May or March, I can't remember, that we expected upper single-digit volume growth year over year in the melanoma test. That was met with some head scratching, I guess, in some places in the world. It looks like that's what's coming in at.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

We are running on our model, which is good for us from a standpoint of modeling accuracy. I don't think there was anything special in terms of third quarter to second quarter this year. We continue to have additional support from a medical communication standpoint and congresses and publications. We also had our dermatology sales force, of course, be switched over to, I think, either 95% or 100% focused on the melanoma test beginning in July of this year. Perhaps that quarter versus quarter lift was due to that complete focus on the melanoma test with the squamous cell test being serviced, I guess you would say, versus being educated on. In terms of fourth quarter, as you may recall in years past, we typically see the fourth quarter to be flattish or down a bit to the third quarter in terms of normal seasonality.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

That's due to a combination, we think, of both holidays. Both Thanksgiving, Hanukkah, and Christmas in the fourth quarter, shorter working days as a result of that, coupling that with people actually wearing pants and long sleeve shirts and hats on. You sort of pick up less incidental melanoma or funny-looking moles. I don't think anything would tell us that we would expect something differently in the fourth quarter than what we've seen in the last two or three years. Is that correct, Frank?

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Operator, other questions?

Camilla Zuckero
Camilla Zuckero
VP of Investor Relations and Corporate Affairs at Castle Biosciences

Tom? Tom, are you still there, or? Jerry, is there another question?

Tom Peterson
Tom Peterson
Senior Research Associate at Baird

Thank you.

Operator

Yes. The next question will be from the line of Mason Carrico with Stephens. Please go ahead. Your line is open.

Mason Carrico
Mason Carrico
Equity Research Analyst at Stephens

Hey, guys. Thanks for the question here. On DecisionDx-Melanoma, good acceleration there.

Mason Carrico
Mason Carrico
Equity Research Analyst at Stephens

Could you give us a bit more insight into how refocusing the derm team has had an impact? What are you seeing drive the majority of the growth, at least in Q3? Was it newer clinicians ramping up? Was it higher utilization among existing docs?

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Yeah. Hey, Mason. We see both avenues of growth. I've called it the same store, new store sales growth. We've seen both. We do continue to have new ordering positions that convert. We do try to penetrate deeper into their practices and into their patient base. Both areas continue to grow for us. As we said before, it's lots of room to go on that test yet. More positions to penetrate for sure, and then more patients that we'd like to see expanded in individual practices.

Mason Carrico
Mason Carrico
Equity Research Analyst at Stephens

Got it. Frank, any additional insight you can give on the guide update?

Mason Carrico
Mason Carrico
Equity Research Analyst at Stephens

I think the previous guide may have assumed non-DecisionDx-SCC revenue growing 21%-26% this year. What does the guide imply now? Could you just clarify what DecisionDx-SCC did contribute in the quarter?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

It was a kind of mid-single-digit millions, Mason, on SCC. Not material, but we do see some commercial claims coming through on the test. A modest contributor there. As we said, we were expecting kind of high single-digit year-over-year growth in volumes on melanoma. I don't really model ASP improvement. We certainly continue to make some progress and hope to continue to make progress, but we really keep ASP advances as upside just given the difficulty in predicting how and when they may come. I would not assume continued SCC revenue. We're sort of assuming that falls off here just to be conservative.

Operator

Thank you. The next question today is from the line of Puneet Souda with Leerink Partners.

Operator

Please go ahead. Your line is open.

Michael Sonntag
Michael Sonntag
Analyst at Leerink Partners

Hi, guys. You have Michael Sonntag on for Puneet. Congrats on the quarter. I just wanted to ask one on TissueCypher. It looks like you're approaching roughly double-digit market penetration. I was kind of wondering if you could offer some insight on the penetration of physicians in that market and how you expect the momentum to look, I guess, as you're rounding out the year, heading into 2026.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

We haven't necessarily disclosed this quarter, maybe not last quarter, I guess, number of ordering clinicians in the United States. I would say we are still in the obviously early growth phase there, both from a penetration of patients being diagnosed by gastroenterologists, plus number of gastroenterologists who are adopting our test across the board. I think both areas, as Frank said, thanks to our new store sales, are on the upswing for TissueCypher.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Keep in mind that based upon third-party data, we think there's roughly 420,000 patients diagnosed each year with Barrett’s esophagus that could be potentially benefiting from our test. There is a nice long way to go to get to 105,000 tests a quarter if that was fully penetrated. I think that reflects upside. Regarding the other part of your question, Frank, do you want to.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Are you just looking for where we kind of where we think the test is going to go penetration-wise?

Michael Sonntag
Michael Sonntag
Analyst at Leerink Partners

Yeah. I guess any color, if you see potential for, I guess, similar market penetration rate into 2026, or if there's anything like a broader awareness or any sort of guideline or coverage win that you think could potentially drive an acceleration.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

I'm not aware of any guideline activity going on that would impact it.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Yeah. I'm not sure how much that would drive market share upward.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

I think it really is more about continuing to educate the marketplace and accessing our customers at the right frequency and new customers at the right level. They appreciate the value of ordering a test like TissueCypher to help guide patient care decisions about do I go ahead and watch and wait and have this patient back every three to five years, or have to have them back every six months or one year? Do I go ahead and even intervene and eradicate the Barrett’s esophagus lesion? I just think we're just seeing early upswing from a modeling standpoint. As Frank had said last quarter, I would not go ahead and straight-line growth percentage. As our denominator gets bigger, we would expect to go ahead and see the percent growth be lower. I think that there's a lot of upside, obviously, in getting patients the kind of care they deserve.

Operator

Thank you. The next question is from the line of Mark Massaro with BTIG. Please go ahead. Your line is open.

Operator

This is Vivian on for Mark. Thanks for taking the questions. I have one on DDM. I think you're pursuing FDA approval there. Could you just educate us on if there's any upside to your current Medicare rate as a result of that FDA approval? And just remind us of the timing of when you're expecting that.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

You're talking about our DecisionDx-Melanoma test, correct?

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Yeah. Correct.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Okay. So I might get a thought, so I want to double-check. We are preparing the application following the achievement of breakthrough designation status earlier this summer. Our intention or rationale for doing this, number one, is because it's our option as opposed to being forced to. That would provide some benefits to us from a review standpoint.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

In terms of upside potential, I don't see this changing our Medicare rate because, as an ADLT, through the novelty route as opposed to through the FDA approval route, we sort of are already there, I think. I wouldn't make that into a benefit. What our hope in pursuing this line, not only with the melanoma test, but looking at our other tests as well, is that there are these state biomarker laws that many of us have talked about in the industry for the last couple of years that I think are covering more than 25, maybe less than 30 states so far and more likely going forward. While those biomarker laws have not proven yet to have the impact that they were meant to have by the state legislatures, our belief is that over the next couple of years, we're going to see improved enforcement.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Amendments, I guess, to these current laws and regulations such that insurance carriers will be having to fall into line to do the right thing and follow the intent of these biomarker laws in the first place. One of the four elements of, I guess you would say, coverage under the majority biomarker laws is your test FDA-cleared or approved. That's our hope, is that downstream, not immediately in, call it, 2026 or 2027, but maybe towards the end of the decade, not only Castle, but others of those who are pursuing an FDA route towards our test will begin to go ahead and reap the benefits of having commercial payers actually stand up and actually reimburse us fairly.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Perfect. That's great color. Thank you. I just had one follow-up on TissueCypher. Could you just remind us of what your current sales force there stands at?

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

I think it was 65 reps, but you may have added since then. I'm just curious, you put up a record quarter for TissueCypher. Did you realize any benefit from that Previse acquisition that you did a couple quarters ago? I think it was kind of an adjacent technology. I'll stop there. Thanks.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

There was no impact on TissueCypher from Previse in the quarter. On the sales force side, for competitive reasons, we're not giving specific numbers going forward. But what we said is that we think these therapeutic areas can be targeted with sales forces of under 100 people. We still think that's the case in GI.

Operator

Thank you. The next question today is from the line of Thomas Flaten with Lake Street. Please go ahead. Your line is open.

Thomas Flaten
Thomas Flaten
Senior Research Analyst at Lake Street

Yeah. Hey, good afternoon, guys. A couple quick questions. One on AdvanceAD-Tx.

Thomas Flaten
Thomas Flaten
Senior Research Analyst at Lake Street

Have you guys, just by chance, had any engagement on the biopharma side with the manufacturers of JAK inhibitors? I can see there being a strong interest on their part in ensuring that patients get tested appropriately, more so than maybe the Th2 therapies.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Yeah. We aren't going to comment a whole lot there. I think, as you would expect, though, Thomas, that there should be a natural synergy between being able to identify patients who may get a better response versus a less than better response. We will see how those kinds of interactions would benefit today. Of course, the initial version—we did not quite call it version 1.0, but call it 1.0—was really focused on the data that we presented in the press release, plus the accompanying corporate presentation on atopic dermatitis.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Going forward, as you know from Castle, we are continuing to invest in studies, and the atopic dermatitis field is no less. We are hopeful—we do not know, of course, right now—that by having 487 genes sort of paper over these 12 different immune or skin-related pathways, we may be able to find signatures even for other classes of therapies or even potentially specific drugs themselves, depending on how unique their second of action is. There are opportunities, I think, not just near-term, but also midterm, to go ahead and improve the utility of our test beyond this initial area, which is personally fantastic to me.

Thomas Flaten
Thomas Flaten
Senior Research Analyst at Lake Street

And then finally, I know you get asked this every quarter, but philosophically, on SCC, you are going to continue accepting orders and processing those for the foreseeable future.

Thomas Flaten
Thomas Flaten
Senior Research Analyst at Lake Street

Is there any trigger that would cause you to no longer accept orders for SCC at this point?

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

I do not see one right now, unless there is some really bad actor playing by the Medicare contractors. Even then, we would have to take a really thoughtful internal discussion. We have always believed that if we are developing or acquiring, in some cases, a high-complexity assay like our squamous cell carcinoma test, being in the healthcare business, we should be offering that test clinically for advancing patient care. A sort of interim or an intermediate blip in the reimbursement landscape would be a terrible way to run a business and say, "We are going to yank it away from our patients because of a couple of contractors," decisions that we think were not necessarily in the best interest of patient care.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

I do not think there is any short-term trigger like that, per se, that we are aware of. Is that what you want to add to that, Frank?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

I think that's right.

Operator

Thank you. With no further questions in the queue at this time, I'd like to hand the call back to Derek Maetzold to give closing remarks.

Derek Maetzold
Derek Maetzold
Founder, President, and CEO at Castle Biosciences

Thank you, Harry. This concludes our third quarter 2025 earnings call. Thank you again for joining us today and for your continued interest in Castle Biosciences.

Operator

This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.

Executives
Analysts
Powered by Quartr