Castle Biosciences Q1 2025 Earnings Call Transcript

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May 5, 2025
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Operator

Good afternoon and welcome to Castle Biosciences First Quarter twenty twenty five 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 Zuccaro, Vice President of Investor Relations and Corporate Affairs. Please go ahead.

Camilla Zuckero
Camilla Zuckero
Vice President of Investor Relations & Corporate Affairs at Castle Biosciences

Thank you, operator. Good afternoon, everyone. Welcome to Castle Biosciences first quarter twenty twenty five results conference call. Joining me today are Castle's Founder, President and Chief Executive Officer, Derek Mashold Chief Financial Officer, Frank Stokes and Senior Vice President, Medical, Doctor. Matthew Goldberg, Board Certified Dermatologist and Dermatopathologist.

Camilla Zuckero
Camilla Zuckero
Vice President of Investor Relations & Corporate Affairs at Castle Biosciences

Information recorded on this call speaks only as of today, 05/05/2025. Therefore, if you are listening to the replay or reading this 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. 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, TAM, intended use populations and similar items referenced in our earnings release issued today and statements containing projections regarding future events or our future financial or operational results and performance, including our anticipated 2025 total revenue, our expectations regarding reimbursement for our products, opportunities for growth, impacts of seasonality and other trends, the size and structure of our commercial team, the timing of targeted milestones and the impact of our investments and growth initiatives, including our ability to achieve long term growth and drive stockholder value.

Camilla Zuckero
Camilla Zuckero
Vice President of Investor Relations & Corporate Affairs at Castle Biosciences

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 annual report on Form 10 ks for the year ended 12/31/2024, and its quarterly report on Form 10 Q for the quarter ended 03/31/2025, under the heading Risk Factors and in the company's other documents and reports filed or to be 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 net loss per share basic and diluted and adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in The United States or GAAP.

Camilla Zuckero
Camilla Zuckero
Vice President of Investor Relations & Corporate Affairs at Castle Biosciences

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 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. I will now turn the call over to Derek.

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

Thank you, Camilla, and good afternoon, everyone. We are off to an exceptional start of the year, building on our track record of consistent execution and strong business fundamentals. Revenue grew by 21% to $88,000,000, and total test report volume for our core revenue drivers grew by 33 compared to the first quarter of twenty twenty four. Additionally, we believe our strong balance sheet with $275,000,000 in cash, cash equivalents, and marketable investment securities gives us the flexibility to continue executing on our growth initiatives as we work to maintain financial discipline. This includes strategic opportunities as evidenced by our announcement earlier today that we signed an agreement to acquire ProVise, which we believe can further benefit patients and providers alike while strengthening our position in the gastrointestinal space.

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

Today, I will walk you through business highlights from the quarter, discuss our expected acquisition that provides, and then Frank will provide additional financial highlights before we turn to your questions. Before diving into our business highlights, I'd like to introduce doctor Matthew Goldberg. Matt joined Castle in August 2020 and currently serves as our senior vice president medical. He completed his dermatology residency at the University of California, San Francisco, followed by a dramatic pathology fellowship at the University of Texas Southwestern. Board certified in both dermatology and dermatopathology, doctor Goldberg is the ideal person to discuss our DecisionDx Melanoma test as we enter May Skin Cancer Awareness Month.

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

Pat?

Matthew Goldberg
Matthew Goldberg
Senior Vice President of Medical at Castle Biosciences

Thank you, Derek. May is Skin Cancer Awareness Month. Our mission aligns with raising awareness about the importance of prevention, detection, risk assessment and personalized treatment strategies designed to improve patient outcomes, including for one of the most aggressive forms of skin cancer melanoma. As you think about the patient journey, our DecisionDx Melanoma test is ordered by physicians after biopsies take place and a diagnosis of invasive melanoma is made. And our test is designed to answer two important clinical questions to guide the subsequent treatment plan decisions at this point in the patient journey.

Matthew Goldberg
Matthew Goldberg
Senior Vice President of Medical at Castle Biosciences

First, what is the risk of sentinel lymph node positivity in order to inform decisions on the sentinel lymph node biopsy procedure? And second, what is the patient's risk of recurrence? And importantly, DecisionDx Melanoma has been shown to be associated with improved patient survival as evidenced from real world prospective data. Therefore, I'm especially pleased DecisionDx Melanoma recently achieved a significant milestone surpassing 200,000 test orders since we launched the test. This is a remarkable achievement and I'm extremely proud of my colleagues and their unwavering commitment to improving the lives of the patients we serve.

Matthew Goldberg
Matthew Goldberg
Senior Vice President of Medical at Castle Biosciences

With that, I'll turn it back to Derek.

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

Thanks, Matt. Now we will discuss our quarterly highlights. For DecisionDx Melanoma, we delivered 8,621 test reports in the quarter, an increase of 3% compared to the first quarter of twenty twenty four and roughly flat from the fourth quarter of twenty twenty four as expected. As a reminder, historically, the second quarter sees growth sequentially over the first quarter. Importantly, we anticipate high single digit volume growth for DecisionDx Melanoma for the full year 2025 compared to 2024.

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

We believe our compelling body of evidence reinforces continued adoption. We were especially pleased with the recent publication of two papers discussing data from a prospective multicenter study demonstrating a significant impact of our DecisionDx Melanoma test on Sentinel lymph node biopsy or SLMB decision making. The first publication reported data from our DECIDE study supporting the performance of a low risk DecisionDx Melanoma test result to predict sentinel lymph node positivity rates of less than five percent who elected to have an SLMB. In this prospective multicenter study, no patient with a DecisionDx Melanoma predicted risk of less than five percent SLN positivity, but who decided to have an SLNB procedure anyways had a positive node. That is the actual SLNB positivity rate was zero percent.

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

The second publication shared outcomes of patients with a low risk DecisionDx Melanoma test result, of which approximately half the patients decided to forego an SLMB and approximately half proceeded with an SLMB despite the low risk DecisionDx Melanoma test result. A clinical significance, all patients with a low risk DecisionDx Melanoma test result were recurrence free. Specifically, we saw a one hundred percent recurrence free survival rate with a median follow-up of two years. Additionally, during the quarter, we presented new study data at the National Comprehensive Cancer Network or MCCN twenty twenty five annual conference, showing DecisionDx Melanoma as a significant predictor of mortality in a real world cohort of nearly seven thousand patients with early stage cutaneous melanoma. Specifically, as part of Castle's collaboration with the National Cancer Institute's SEER program, this study further validated DecisionDx Melanoma's risk stratification performance in patients within or early stage cutaneous melanoma tumors or stage one to two a.

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

In a real world cohort of 06/1992, eighth edition of the American Joint Committee on Cancer or AJCC eight, low risk patients, the test identified individuals at higher risk of death. Importantly, multivariable analyses confirm DecisionDx Melanoma as a significant predictor of melanoma specific mortality and overall mortality independent of key AJCC eight factors. These findings highlight the test ability to refine risk assessment beyond AJCC eight staging, helping identify patients who may benefit from enhanced surveillance and management to potentially improve outcomes. Moving on to our DecisionDx SCC test, we delivered 4,375 test reports in the first quarter of twenty twenty five. Building on our six studies published in 2024, we presented new data at the NCCN twenty twenty five annual conference demonstrating the DecisionDx SCC's ability to enhance risk stratification beyond traditional staging.

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

Specifically, the study evaluated how integrating DecisionDx SCC with the Brigham and Women's Hospital or BWH staging under NCCN guidelines may improve prognostic accuracy. In a multicenter cohort of 1,412 high risk FCC patients, DecisionDx SCC significantly enhanced metastatic risk stratification in NCC and high risk and very high risk patient populations. And the data demonstrated that the test improved BWH's staging risk prediction accuracy. When combined with BWH staging, a DecisionDx SCC class one test result, which is considered low risk, results in a nearly twofold decrease in metastatic risk, while a class two b test result, which is the highest risk reported, showed more than a fivefold increase in risk among lower stage patients classified as b d b h t one or t two a NCC in high risk patients. These findings demonstrate that DecisionDx SCC may refine individual patient risk assessment, supporting more accurate personalized treatment decisions based upon a patient's predictive metastatic risk.

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

Now let's turn to DecisionDx SCC reimbursement. The Novitas local coverage determination policy or LCD that included non coverage language for DecisionDx SCC went into effect on 04/24/2025. We will be pursuing reconsideration requests of both the Novitas and MolDx LCDs. Based upon timing, neither of these LCDs included a review of the six twenty twenty four publications noted above, which included evidence showing that DecisionDx SCC is able to predict response to adjuvant radiation therapy or ART in addition to predicting the risk of progression. Given the strength of evidence of the data surrounding this use, we believe the reconsideration request could be accepted as valid.

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

This evidence and additional studies support that the test is reasonable and necessary, which is the CMS requirement to be a covered test for patients with high risk SCC. For now, we will be continuing to offer the test because given the strength of evidence in DecisionDx SCC's ability to predict both the risk of a task list to impact treatment pathway decisions and the ability to predict responsiveness to ART, we believe it is the right thing to do for patient care. Now let's turn to our gastroenterology franchise. Before getting into our tissue cycle performance for the quarter and the expected ProVise acquisition, I want to highlight that April was esophageal cancer awareness month, a month dedicated to raising awareness about esophageal cancer, its risk factors, and the importance of early detection. Supporting key educational programs and initiatives throughout the month of April, Castle proudly collaborated with the Esophageal Cancer Action Network, the American Foregut Society, and the Gut Doctor podcast to promote esophageal cancer prevention, education, and advocacy.

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

As you will recall, we acquired TissueCypher in December 2021, giving us our spatial omics test designed to determine a patient's individual risk of progression from Barrett's Esophagus to high grade dysplasia or esophageal cancer. Barrett's Esophagus is the only known risk factor for the development of esophageal adenocarcinoma cancer, one of the fastest growing cancers in The US with a five year survival rate of less than twenty percent. Tissue cipher have been studied in 16 peer reviewed publications to date, and studies have consistently found that Tissue Cypher is the strongest independent predictor of progression with the ability to help identify nondysplastic patients that progress at a rate similar to confirmed low grade dysplasia. For this reason, we are thrilled with the positive reception TissueCypher has received from the gastroenterology community, particularly as the test can make a meaningful impact on patient care in an area with unmet clinical needs. In fact, in the first quarter of twenty twenty five, we delivered 7,432 tissue Cypher test reports compared to 3,429 in the same period of 2024.

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

This represents 117% year over year growth compared to the first quarter of twenty twenty four. As a reminder, the growth drivers we expect for Tissue Cypher in 2025 and beyond include, one, our recent commercial team expansion, two, the unmet clinical need and clinical value of our tests being further accepted by clinicians, and three, a strong focus on education and awareness. We're excited about the growth prospects of the test, including the volume growth expected in 2025, and we are equally pleased by its clinical utility to determine a patient's individual risk of progression from Barrett's esophagus disease to cancer. Turning to our announcement from earlier today, we recently signed a definitive agreement to acquire ProVise, a gastrointestinal health company with a primary focus on esophageal disorders. Underscores our commitment to the GI community providers and patients alike.

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

As part of our strategic growth initiatives, we continually assess opportunities for ones that would fit into most or all of our outlined criteria, which are complementary to our existing test disease states, adding value for our current customers, some level of existing reimbursement, and the test that could be successful utilizing Castle's commercial playbook. With ProVise, we found an opportunity to expand our offerings within our GI vertical beyond our spatial omics tissue cipher Barrett's esophagus test, furthering our position in this space. Provides his methylation technology as well as his pipeline technology, provides us with the potential to address existing unmet needs, including potential upstream opportunities. We expect the transaction to close in a matter of weeks, and we'll continue to work through technology transfer, integration, and future r and d plans. Turning to our mental health business, as we told you on our last earnings call in February, due to changes in the market and our focus in allocating resources efficiently on profitable growth, in late twenty twenty four, we revised our commercial strategy for our iGenx test, reallocating resources to inside sales and nonpersonal promotions.

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

After careful further assessment, we made the decision to discontinue the test effective May 2025 as it makes the best sense for our business to put its resources towards other disease states with unmet clinical needs. And with that, I will now turn the call over to Frank.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Thank you, Derek, and good afternoon, everyone. As Derek highlighted, we delivered very good first quarter financial results. Revenue was $88,000,000 for the first quarter of twenty twenty five, an increase of 21% over the first quarter of twenty twenty four. The increase was driven predominantly by test volume growth for our non dermatologic tests that is 117% Tissue Cypher growth compared to the first quarter of twenty twenty four. Adjusted revenue, which excludes the effects of revenue adjustments in the current period related to tests delivered in prior periods, was $87,200,000 for the first quarter of twenty twenty five, an increase of 22% over the first quarter of twenty twenty four.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

For total revenue for 2025, we are raising our revenue guidance to $287,000,000 to $297,000,000 up from the previously provided range of $280,000,000 to $295,000,000 Our revenue guide reflects DecisionDx SCC reimbursement by Medicare through April 24 only. From an apples to apples comparison for 2025 revenue growth, if you exclude DecisionDx SCC revenue for both our 2024 and 2025 totals, our normalized revenue growth in 2025 would be high teens to low 20s percent. Our gross margin in the first quarter of twenty twenty five was 49.2% compared to 77.9% in the first quarter of twenty twenty four. 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 81.2% for the quarter compared to 80.5% for the same period in 2024. The gross margin for the first quarter twenty twenty five was impacted in large part due to the onetime adjustment of an acceleration of amortization expense of approximately $20,100,000 during the three months ended 03/31/2025, associated with the discontinuation of ID Genetics that Derrek mentioned earlier.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

For each of the remaining quarters of 2025, we expect gross margin to be in the mid-70s range. Turning to expenses. Our total operating expenses, including cost of sales for the first quarter of twenty twenty five, were $115,900,000 compared to $78,400,000 for the first quarter of twenty twenty four. Sales and marketing expense the quarter were $36,800,000 compared to $30,500,000 for the same period in 2024. The increase is mainly due to higher personnel costs, higher organizational and business development activities costs and higher sales related travel and other expenses.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

General and administrative expenses were $21,800,000 for the quarter compared to $18,000,000 for the same period in 2024. The increase is primarily attributable to higher personnel costs, higher information technology related costs and higher professional fees. Higher personnel costs reflects headcount expansions in our administrative support functions as well as merit and annual inflationary wage adjustment for existing employees. Cost of sales expenses were $16,400,000 in the first quarter of twenty twenty five compared to $13,900,000 in the first quarter of twenty twenty four, primarily due to higher personnel costs, higher depreciation expense for lab equipment and leasehold improvements and higher lab services costs. 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 adjustments for existing employees.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Higher expense for lab services also reflects higher test report volumes. R and D expenses were $12,600,000 for the quarter compared to $13,800,000 for the same period in 2024, primarily due to slightly lower personnel costs and expense for clinical studies. Total noncash stock based compensation expense, which is allocated among cost of sales, R and D expense and SG and A expense, was $11,200,000 for the first quarter of twenty twenty five, down slightly from $12,700,000 in the first quarter of twenty twenty four despite a 23% year over year increase in total headcount. Interest income was $3,100,000 for the first quarter of twenty twenty five compared to $3,000,000 in the first quarter of twenty twenty four, primarily a result of higher average balances of marketable investment securities and slightly higher interest rates. Our net loss for the first quarter of twenty twenty five was $25,800,000 compared to $2,500,000 for the first quarter of twenty twenty four.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

And net loss per share, basic and diluted, was $0.90 and adjusted net loss per share, basic and diluted, was $0.20 compared to $09 and $09 respectively, for the same period in 2024. Adjusted EBITDA for the first quarter was $13,000,000 compared to $10,500,000 for the comparable period in 2024. Net cash used in operating activities was $6,000,000 for the first quarter of twenty twenty five due in part to annual cash bonus payments and certain health care benefit payments that do not recur to the remaining three quarters of the year. We continue to expect to deliver positive net cash flow from operations for the full year of 2025. Net cash used in investing activities was $22,400,000 for the first quarter and consisted primarily of purchases of marketable investment securities of $48,400,000 purchases of debt securities classified as held to market of $5,600,000 and purchases of property and equipment of $4,700,000 partially offset by the maturity of marketable investment securities of $36,300,000 As of 03/31/2025, we had cash, cash equivalents and marketable securities of $275,200,000 In conclusion, I'm pleased with our strong execution and results in the first quarter and look forward to maintaining that momentum for the rest of 2025.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

I'll now turn the call back over to Derek.

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

Thank you, Frank. In summary, we had an excellent start to the year, building on our strength and momentum from 2024, underpinned by robust business fundamentals. We look forward to continuing to work to achieve the goals we set for 2025 as our focus remains on driving both near and long term stockholder value. Thank you for your continued interest in Castle. We will now be happy to take your questions.

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

Operator?

Operator

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 one follow-up. If you have an additional questions, The first question is from the line of Sung Ji Nam with Deutsche Bank. You may proceed.

Sung Ji Nam
Managing Director, Senior Equity Research Analyst at Scotiabank

Hi, thanks for taking the questions. Just Frank, just a clarification, the mid-seventy percent gross margin guidance, is that a GAAP or non GAAP? And also, does that include, decision d x s t c, contribute or or impact?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

That's adjusted adjusted gross margin, Sung Ji, and it does include the the the falloff of reimbursement for SCC.

Sung Ji Nam
Managing Director, Senior Equity Research Analyst at Scotiabank

Okay. Got it. And then just on, Previse, sorry. Just either didn't have a a chance to go through their website, carefully, but do they offer the methylation technology they offer, is that mostly tissue based? Do they offer, liquid biopsy based technology as well?

Sung Ji Nam
Managing Director, Senior Equity Research Analyst at Scotiabank

And then do you anticipate immediate contribution in terms of sales from this acquisition, or is it just largely complementary in terms of providing additional insight, to your tissue cipher product? Thank you.

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

So they have a, hi, Sunji. They have a a product that is available commercially today that is is tissue based. So it's it's similar to tissue cipher, but it uses a methylation platform or technology platform. They also have a a a non endoscopic sponge based technology. And from our perspective, we look forward to seeing if we could potentially combine both methodologies going forward into both tissue based, testing as well as non endoscopic or non pitch biopsy tissue specimens.

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

As you know, we, have indicated in the last several quarters, we've been looking for other opportunities both in dermatology and in gastroenterology to complement our current offerings and build the strength of both of those franchises. Provides happens to be one of the opportunities that we were able to pull the trigger on at this point in time, but there are other ones out there that that, we we will hopefully be able to discuss in the future.

Sung Ji Nam
Managing Director, Senior Equity Research Analyst at Scotiabank

Great. Thank you.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

And regarding Yep. And and, Sanjee, we we wouldn't expect a meaningful impact on revenue or EBITDA this year, but, those impacts will be more downstream.

Sung Ji Nam
Managing Director, Senior Equity Research Analyst at Scotiabank

Got it. Appreciate it. Thank you.

Operator

The next question is from the line of Kyle Mixon with Canaccord Genuity. You may proceed.

Kyle Mikson
Managing Director & Senior Research Analyst at Canaccord Genuity - Global Capital Markets

Hey, guys. Thanks for the questions. Congrats on quarter and the acquisition. So just on ProVias, maybe just walk through Derek where EsoPredict fits in the very tough of its workflow relative to TissueCyper. Just wondering if they compete at all.

Kyle Mikson
Managing Director & Senior Research Analyst at Canaccord Genuity - Global Capital Markets

And then could you also talk about the test Medicare payment rate, the mix, and the annual volume if possible?

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

So the the revised test as a predict is a methylation based assay. The current use is for predicting progression of of Barrett's Esophagus disease. So similar to Castle's test of TissueCypher, the TissueCypher dataset is is more robust. Our our interest is to see one, how can this enhance our TissueCypher franchise? Can the combination reporting of both tissue cipher from a spatial omics standpoint and DNA methylation from a device standpoint get us to a a a stronger clinical clinical offering to our patients today and tomorrow?

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

And then, of course, can we also use the the non endoscopic sponge based technology to really, push forward a little more upstream vessels offerings.

Kyle Mikson
Managing Director & Senior Research Analyst at Canaccord Genuity - Global Capital Markets

Got it. That's helpful. Thanks, Derek. And then, on the, I guess, what the discontinuation of ID Genetics, can you talk about how you'll reinvest the spending associated with the the personnel and the marketing for that that product? And maybe, like, how much that business was burning and if there's any, like, you know, run rate savings, net of severance that you can talk about?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Yeah. Not not a lot of not a lot of severance or changes. We were as we said, we had changed the marketing support for that test. We we continue to believe it is a is a very good test, and, of course, it's a it's just a, unfortunately, incredibly unmet medical need. But while payers in our our business are rarely rational, they've been especially difficult in that one.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

And so that led us to sort of the changes we made over the last several last couple of quarters. I I think that we we will see some modest impact to revenue, Kyle, but EBITDA will be benefited positively benefited from from the change as well. So not big numbers there, but there will be some revenue some lower revenue, but at the end of the day it will improve the EBITDA performance of the company.

Operator

The next question is from the line of Puneet Souda with Leerink Partners. You may proceed.

Puneet Souda
Senior MD at Leerink Partners

Hi, guys. Thanks for taking my questions. So first one, Derek, just wanted to understand, I think you gave a high single digit volume growth for DecisionDx Melanoma. I'm just trying to understand where some of the offset are and what tissue cipher growth ought to be in 2Q and for the full year? Just trying to reconcile the growth that implied growth for tissue Cipher as a result of DecisionDx Melanoma?

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

Frank, do wanna take that?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Yeah. Sure. Yeah. We what we said, Puneet, is volume growth on melanoma of of, mid to high single digits for for the year over year, 25 over 24. And we reiterated or or we we provided an apples to apples number, so the rest of the rest of the growth is is TC.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

It it's we also think we'll see some continued benefit or improvement in ASP on melanoma. The the team has has done great work there, and and we continue to see very slow and very deliberate, but some continued progress on the ASP side there which benefit numbers as well. So good solid growth for TC, tough to keep that in the same kind of scale that we have, but good consistent linear growth from here through the year.

Puneet Souda
Senior MD at Leerink Partners

Got it. Thanks for clarifying that Frank. And on the tissue cipher, correct me if I'm wrong, but I think you're up to 65 sales reps. Can you remind us what's the expectation for hiring for the rest of the year? And on the reimbursement side, can you just remind us where you stand with commercial reimbursement for and what in terms of the priority for commercial reimbursement, where do you stand today for Tissue Cipher?

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

So I think we discussed that we're around 65 sales territories with, I guess, year end earnings, Puneet. So we are having the training being completed, getting people's feet wet. We'll sort of take certainly a breath and make sure that we can understand if there are gaps in the marketplace right now and a need or benefit to expand more in 2025 versus a little bit later. So I don't think we've discussed any public plans about near term expansion. I think we need to kinda get through the second quarter here and see see how the expanded efforts are are are educating the marketplace, producing results, and then kinda go from there.

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

At the end of the day, if we are accurate in our assumption that we believe there's around 10,000 targetable clinicians or gastroenterologists and their associated support, then 65 still seems a little low, but we aren't quite sure, to be honest, if the larger group practice models that gastroenterologists practice in makes that number adequate over it still needs to go up a couple of regions. Do have a second question? No. No. The

Operator

next question is from the line of Catherine Schultz with Baird. You may proceed.

Tom Peterson
Senior Research Associate at Baird

Hey, everyone. This is Tom Peterson on for Catherine. Appreciate you guys taking the quest questions. Congrats on a solid quarter. First question, I kinda wanted to get the latest on sales and marketing efforts for DecisionDx SCC and DecisionDx Melanoma.

Tom Peterson
Senior Research Associate at Baird

You know, you had talked about shifting the Salesforce incentives more towards melanoma, once, SEC coverage came out of the model. So I guess, can you just confirm that that is the the strategy going forward and, you know, your thoughts on sort of the the volume outlook for '25?

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

Yeah. That is still the intention, Tom, is to is to have the, these the field forces go from roughly kind of fifty fifty, I guess I would call it, splitting time between melanoma and squamous cell carcinoma to being very heavily weighted going forward in the second half of the year to melanoma. We haven't had a single test focus in this marketplace, I think, probably since COVID. Right? Probably.

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

Probably COVID. So it's and we were much smaller there as a company, so it's hard to say what kind of, I guess, lift or acceleration one could see when we go back to a a solely focused or predominantly solely focused field team in dermatology. But our expectations is that we should see some lift as appropriate.

Tom Peterson
Senior Research Associate at Baird

Okay. Thanks, Derek. That's that's really helpful. And then you mentioned the reconsideration request for both MolDx and Novitas. I guess, what's your latest thoughts on timing here?

Tom Peterson
Senior Research Associate at Baird

You know, should we expect, an outcome here in 2025 and and just your latest thoughts there?

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

Sure. So I think, I think, first of all, ours our recommendation or guidance, I guess, in the last year and a half of having people, remove squamous cell carcinoma from revenue models was obviously a a good straightforward approach. And certainly for the remainder of 2025, I would not have anybody reinsert FCC revenue assumptions. I think on timing, it's difficult to project at this point in time. And I think as we see the year progress or the quarter progress or the quarters progress, we'll go and update, the group as we have material knowledge.

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

There is no real good benchmarking to kinda give you a a a evidence based, target there.

Operator

The next question is from the line of Paul Knight with KeyBanc. You may proceed.

Paul Knight
Paul Knight
Managing Director at KeyBanc Capital Markets

Thanks for the question. On the could you talk about the distribution of your sales force by cap type just so we have an idea of where you're doing most ads this year?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Yeah, Paul. So so the as you said, the the GI sales force is rough and tough middle sixties, and the derm sales force is is high sixties, maybe around 70.

Paul Knight
Paul Knight
Managing Director at KeyBanc Capital Markets

Can we expect that build and ramp to continue this year?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

The the the derm sales force, there may be some growth here and there as we see territories get get full, you know, get get, you see territories become kind of full of business, and we need we need more effort in the territory. Maybe you take a territory and make it two or something like that. That'll be more episodic, I think. And as Derek said earlier, I think on the TC side, we wanna settle into where we are and, watch how the the territories progress to see if we need to add another another handful of of reps there.

Operator

The next question is from the line of Sughu Nambi with Guggenheim. You may proceed.

Subbu Nambi
Managing Director at Guggenheim Securities

Hi, guys. Thank you for taking my question. Regarding the acquisition of Pvice and your positioning of this as complementary asset to tissue cipher, this conceptually makes sense. That said, it does seem, at least on the surface, similar to what you did with the MyPath acquisition a few years ago, which as you know came up light of targets. And I asked not to be heavy handed, but I wanna hear what is different here and what lessons we'll learn that increase the probability of success.

Subbu Nambi
Managing Director at Guggenheim Securities

Because on paper, this definitely looks interesting.

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

I think I missed the last part of her the very last part her question.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Yeah. I I think, so so we we Shubha, we do quite like the MyPath acquisition. We we were able to pull up reimbursement for the differential diagnostic test, which was very important. We were able to add another, offering to to derms and derm paths, which which increased our value to them. We don't expect my path to to get to the scale of of of Centimeters or SCC, given the nature of that market, but, we also like having an ability to point to a prognostic test in melanoma when when myPath results in a positive diagnosis, from a previously, indeterminate lesion.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Previse is is a bit different, however, and we we we're excited about the technology that comes along with it. As Derek said, there's gonna be some some work done and some interesting, efforts to see if we can improve the prognostic offering, potentially with the multi omics approach at some point. But also Previse has a very interesting pipeline in GI. And as we've said before, it's our intent and goal to have multiple offerings to the GI community, particularly around the the the the kind of the upper upper GI esophageal area, and this this brings us several candidates there. So different motivations for the two, but nice a nice expansion of our pipeline as well.

Subbu Nambi
Managing Director at Guggenheim Securities

Thank you for that, Frank. And it maybe I missed this, but how much is it getting reimbursed? As in how how does this compare to TissueCipher in terms of rate Medicare rate? And will that play a role in decision making for doctors?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Not not. I don't think it it plays a role in decision making. Their their Medicare rate is lower than ours because ours is the is the ADLT. So that that's a that's a differential there. But not not, I don't think clinicians are are are are making that making decisions that way.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

I think TC, we've been able to grow so quickly because of the robust body of of evidence supporting the clinical utility and the the high actionability of the test.

Operator

The next question comes from the line of Mason Carrico with Steve Stephens Inc. You may proceed.

Mason Carrico
Research Analyst at Stephens Inc

Hey, guys. Thanks for the question. Frank, on the margin guide, could you give us a bit more color on that assumption? Specifically, what are your expectations for SEC volumes in the back half of this year? Are you expecting them to trend higher, flatten out, go down?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

So the, we would expect that as we shift promotion, more more fully to to to melanoma that that we would see some some certainly slowing of growth. At some point, I think that plateaus and we begin to see the the demand ebb a bit. But but on the other hand, Mason, it's it's a test that physicians are as you can see from volumes, physicians have really embraced it. It helps their practice. It helps their patients.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

It helps their their patient management. And, you know, it it saves it saves Medicare almost a billion dollars a year by appropriately directing patients to add your radiation therapy who who will benefit from it and directing patients who won't benefit away. So, we we we we one way of saying that that without promotion, most die high you know, high value diagnostic tests, you know, do not grow. But but this is also a test that has great value to to the to the users and and to the health care system.

Mason Carrico
Research Analyst at Stephens Inc

No. That that makes sense. And then as a follow-up, how how are you thinking about the growth algorithm of DecisionDx Melanoma going forward? And I guess in terms of same store sales versus increasing the number of ordering clinicians, I mean, obviously, probably benefit from both. Both are important.

Mason Carrico
Research Analyst at Stephens Inc

But how do you have the reps, I guess, splitting their time between driving utilization or out hunting for new clinicians?

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

So in, historically, I guess, I would say that we looked at a combination of forward looking revenue per territory as well as number of actively ordering customers, I guess, you would say. And what we had found, which I think is I don't know if there's a real industry standard here, Mace or not, but when we have a territory get up around, what, Frank, two, two and a half, three million, forward looking revenue, then that becomes a territory that that that usually if you go back and look at sort of where the representative is spending time, it's more on maintaining existing customers and less on hunting for new new clinicians. And that's kind of about the time we choose to go ahead and and divide. And and usually, success begets success, so you probably have two successful territories adjacent to each other. So you might take two and make them into three, for example.

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

I think that rule of thumb still holds pretty well. So what that ends up doing is letting us spend, hopefully, roughly half our time, nurturing and educating current clinicians about where they could appropriately expand the use of our test in our patient population, and then roughly half their time, moving people from an awareness or no awareness to awareness and hopefully, usage and adoption.

Operator

The next question is from the line of Thomas Flaten with Lake Street. You may proceed.

Thomas Flaten
Senior Research Analyst at Lake Street Capital Markets, LLC

Hey. Good afternoon. Good afternoon. I appreciate you taking the questions. Derek, probably a difficult question to answer, but you you said in your prepared remarks that you would continue offering SCC for now.

Thomas Flaten
Senior Research Analyst at Lake Street Capital Markets, LLC

Do you have a sense of how for now how long for now will last given that there's a bit of a black box around the reconsideration request and and and the timelines there?

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

No. I don't really have more information to or or insight to go ahead and guide, unfortunately. I I think for now is that is that, we need to understand how our interactions play out with Medicare, and that'll help make a determining factor of how we wanna approach that. I think from a a purely ethical perspective today, I guess you would say, we have a test here which when used properly can help a patient and their clinician care team from their dermatological or Mohs surgeon to their radiation oncologist identify people who may be considering, adjuvant radiation therapy and probably take about sixteen percent plus of them out of that therapy course because they will receive, based upon our data, no clinical benefit but substantial side effects and at a great cost to Medicare. So, for the time being, we feel obligated to make sure that those patients are benefiting.

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

Now Medicare benefits to the tune of around $2,400,000 per day in avoiding unnecessary radiation therapies, and that's net of the cost of our test. So we're gonna have to kinda wait and see how we work through the reconsideration process and make a call as those as as that becomes clear.

Thomas Flaten
Senior Research Analyst at Lake Street Capital Markets, LLC

And then any update on atopic dermatitis?

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

Not since the end of the year end earnings. We are still moving through market research to appreciate both the interest in our clinicians regarding the product profile as well as the reimbursement strategy, and we believe we are still on track to achieving our our milestones for that a couple of years ago, which was which was commercial availability by year end.

Operator

The next question is from the line of Mark Massaro with BTIG. You may proceed.

Mark Massaro
Managing Director - Senior Equity Research Analyst at BTIG

Hey, guys. Thank you for taking the questions. On the acquisition that you just announced, was there any stock included in the deal or was it cash? And if you're not willing to share the terms of the deal, is it safe to say that the, any level of cash would be immaterial to your cash balance?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

There was no stock market. We've not disclosed the value of the transaction.

Mark Massaro
Managing Director - Senior Equity Research Analyst at BTIG

Okay. For investors on the line that might be thinking this question, the timing of the acquisition sort of coincides with your decision to, shut down the ID Genetics business, which you admittedly did telegraph, or I believe you did. And then it also coincides with the lapping of the SEC payments from your Medicare contractor for the time being. To what extent does the timing of this deal, influence your, probability of winning, sort of SEC reimbursement back? Because, you know, optically, this almost could look like like your, you know, your ability to win in a Medicare reconsideration request might be smaller than it might have been a quarter ago?

Mark Massaro
Managing Director - Senior Equity Research Analyst at BTIG

Or could you just speak to that? Because, obviously, the you know, you announced a new deal, the timing of these other two going away.

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

Completely unrelated.

Mark Massaro
Managing Director - Senior Equity Research Analyst at BTIG

Okay. And then last quick question. I know you were asked about, you know, what you acquired. What what I don't understand is how much revenue this asset was producing in 2024. And then for the sponge technology, this does look similar to another test, on the market called EsoGuard.

Mark Massaro
Managing Director - Senior Equity Research Analyst at BTIG

Is it safe to say that, that the sponge technology or the non endoscopic technology and the EsoGuard test have have some similarities in the marketplace? And then if you could, where does that stand in terms of data and Medicare coverage?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

So revenue is is not material to Castle, for the year. This is a technology opportunity for us and a pipeline opportunity, first and foremost, as well as a nice way to potentially improve our prognostic offering for Barrett's. And and the the Medicare process for non endoscopic diagnosis, there there there is there are policies, draft policies out there, I believe, but this this technology is is is not at the point of of seeking Medicare

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

coverage yet.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Although and just to note, Mark, there are, of course, more than just one other. There are a couple of non endoscopic methods for diagnosis, not only for Barrett's, other conditions as well. So in that respect, there's some similarity to those other technologies.

Operator

Next question is from the line of Kyle Mixon with Canaccord Genuity. You may proceed.

Kyle Mikson
Managing Director & Senior Research Analyst at Canaccord Genuity - Global Capital Markets

Thanks for the follow-up. Just want ask about the acquisition of the pipeline. Keep talking about it. Derek, can you talk about the timing of the pipeline launches and how large those opportunities are? And then just secondly, since you're getting access to the Johns Hopkins PCR based methylation technology, have you have you ruled out using that tech to develop, like, an early detection or a screening test for GI cancers?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Haven't haven't ruled it out, Kyle. Haven't ruled it in, to be clear, but but but not not certainly wouldn't wouldn't have stopped any any opportunities there. I think that the opportunity we have is to accelerate the development of the pipeline that the company had, with additional resources, but also our our broader expertise in GI and our somewhat deeper history of R and D. So we're way down on the pipeline technology. So I don't know that we're ready to put our put a pen in the ground on where what the timelines would be.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

But we certainly think we can accelerate them from what they might otherwise have been.

Kyle Mikson
Managing Director & Senior Research Analyst at Canaccord Genuity - Global Capital Markets

Okay. Thanks for that.

Operator

There are no additional questions waiting at this time. So I would like to pass the call back over to Derek for any closing remarks.

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

Thank you, operator. This concludes our first quarter twenty nineteen earnings call. We thank you again for joining us today and for your continued interest in Castle Biosciences.

Operator

That concludes today's call. Thank you for your participation, and enjoy the rest of your day.

Executives
    • Camilla Zuckero
      Camilla Zuckero
      Vice President of Investor Relations & Corporate Affairs
    • Derek Maetzold
      Derek Maetzold
      Founder, President & CEO
    • Matthew Goldberg
      Matthew Goldberg
      Senior Vice President of Medical
    • Frank Stokes
      Frank Stokes
      CFO
Analysts
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Key Takeaways

  • Strong financial start: Q1 revenue grew 21% to $88 M with 33% core test volume growth and $275 M in cash, leading to raised 2025 revenue guidance to $287 M–$297 M.
  • DecisionDx Melanoma momentum: Delivered 8,621 reports in Q1, expects high-single-digit volume growth in 2025, and recent publications show zero SLNB positivity in low-risk patients plus 100% two-year recurrence-free survival.
  • DecisionDx SCC reimbursement push: Produced 4,375 reports in Q1, presented data enhancing metastatic risk stratification beyond standard staging, and will seek reconsideration of non-coverage LCDs while continuing to offer the test.
  • TissueCypher expansion: Q1 deliveries more than doubled to 7,432 reports (117% YoY) fueled by commercial team growth and clinical uptake, with ProVise acquisition aimed at adding methylation and non-endoscopic options.
  • Acquisition of ProVise: Signed agreement to acquire GI health company ProVise to complement spatial omics in Barrett’s Esophagus, expand pipeline with methylation-based assays, and pursue non-endoscopic testing opportunities.
AI Generated. May Contain Errors.
Earnings Conference Call
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