Castle Biosciences Q2 2026 Earnings Call Transcript

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July 30, 2026

Key Takeaways

  • Revenue guidance was raised: Second-quarter revenue reached $103.5 million, up 20% year over year, prompting Castle to increase its 2026 revenue outlook to $365 million–$375 million from $345 million–$355 million.
  • TissueCypher remained the primary growth engine: Test reports rose 63% year over year to 14,988, and management now expects full-year volume growth of approximately 50%–52%; the company cited continued physician adoption and substantial remaining market opportunity.
  • AdvanceAD-Tx commercialization advanced: The test generated more than 1,000 orders in the quarter, received a unanimous recommendation for a $36.75 CMS crosswalk rate, and showed strong real-world treatment-concordance results, supporting a broader commercial launch over time.
  • Profitability was pressured by investment spending: Gross margin declined to 74.9% from 77.3%, while the company posted a $2.1 million net loss versus $4.5 million of net income a year earlier, reflecting higher laboratory, personnel, sales, marketing, and R&D costs.
  • Melanoma growth remained steady but moderated: DecisionDx-Melanoma report volume increased 3% year over year, below typical seasonal sequential growth, as the sales force adapted to promoting three products; management nevertheless maintained its expectation for mid- to high-single-digit full-year volume growth.
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Earnings Conference Call
Castle Biosciences Q2 2026
00:00 / 00:00

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Operator

Good afternoon, welcome to the Castle Biosciences second quarter 2026 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, Investor Relations and Corporate Affairs. Please go ahead.

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

Thank you, operator. Good afternoon, everyone. Welcome to Castle Biosciences second quarter 2026 results conference call. Joining me today are Castle's Founder, President, and Chief Executive Officer, Derek Maetzold, and Chief Financial Officer, Frank Stokes. Information recorded on this call speaks only as of today, July 30, 2026. 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 Zuccaro
Camilla Zuccaro
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 2026 total revenue and the impact of our investments in growth initiatives, including our ability to achieve long-term growth and drive stockholder value. 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 Zuccaro
Camilla Zuccaro
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. What a great quarter. Our team across all areas at Castle did a phenomenal job in executing on our growth plans and pulling it through the business, including revenue on the top line in evidence development and clinical research. Thanks to the efforts by our team and the clinical value that our clinicians see in the actionability of our tests, we delivered revenue of $103.5 million, 20% growth compared to the second quarter of 2025. Furthermore, if we exclude DecisionDx-SCC and IDgenetix revenue for both 2026 and 2025, our revenue growth for second quarter of 2026 was 40% compared to the second quarter of 2025. Test report volume for our core revenue drivers grew 32% compared to the second quarter of 2025.

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

Our strong second quarter results reflect the continued execution of our growth strategy and that we remain focused on investing thoughtfully in the future growth of Castle. We continue to invest in commercial resources to drive adoption of our tests, generate the clinical evidence needed to support reimbursement and expand adoption, advance pipeline opportunities across our dermatology and gastroenterology offerings, and add the laboratory capacity, technology, and personnel needed to support future growth. Supported by our robust balance sheet, we believe these investments position us to capitalize on the opportunities across our current portfolio and pipeline while maintaining a disciplined approach to capital allocation.

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

We believe we will continue this positive momentum in the second half of 2026 and our strong second quarter performance gives us the confidence to raise our 2026 total revenue guidance to $365 million-$375 million, compared to the previously provided guidance of $345 million-$355 million. I will walk you through the business highlights from the second quarter, and then Frank will provide additional financial highlights before we turn to your questions. Let's start with our four revenue drivers for 2026: DecisionDx-Melanoma and TissueCypher. For DecisionDx-Melanoma, we delivered 10,280 test reports in the second quarter, representing 3% growth compared to the second quarter of 2025. We are on track to meet our expectations of mid to high single-digit volume growth for the full year 2026 over 2025.

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

DecisionDx-Melanoma test volume also increased approximately 3% in the second quarter of 2026 compared with the first quarter of 2026, representing moderate sequential growth, though below the sequential increase we typically see based upon historical seasonality. We believe this moderate sequential growth was due in part to our commercial team adapting its customer engagement model to support three products within the same customer call. This is a deliberate investment in the growth of our business. DecisionDx-Melanoma remains the established foundation of our dermatological commercial portfolio, while the additional products, DecisionDx-SCC and AdvanceAD-Tx, expand the value we can provide the same customer base and support growth over the medium and long term. Additionally, we continue to generate a substantial body of evidence to support the clinical performance and use of our DecisionDx-Melanoma test.

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

In fact, during the second quarter, we were pleased to announce the publication of a prospective multicenter study demonstrating DecisionDx-Melanoma outperformed the Melanoma Institute Australia Nomogram or MIA in identifying patients at low and high risk of sentinel lymph node biopsy positivity. Importantly, patients predicted to be low risk by DecisionDx-Melanoma, that is, they were predicted to have a sentinel lymph node positivity rate of less than 5% had an actual observed sentinel lymph node positivity rate of just 2.6%, well below the National Comprehensive Cancer Network, or NCCN, 5% threshold used to consider avoiding a sentinel lymph node biopsy surgical procedure. These findings further demonstrate the value of integrating tumor biology with clinical pathologic factors to improve risk assessment, support more informed risk-aligned care, and help identify patients who may safely forego the sentinel lymph node biopsy surgical procedure. Now, let's turn to our TissueCypher test.

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

During the quarter, we delivered 14,988 TissueCypher test reports, representing 63% growth compared to the second quarter of 2025. Based upon trends for the first half of the year, we believe our 2026 test report volume for TissueCypher will trend toward 50%-52% growth compared to 2025. Now, let's move on to our AdvanceAD-Tx test. During the second quarter, we delivered more than 1,000 orders. Given the test ability to guide systemic treatment selection for patients ages 12 and up with moderate to severe atopic dermatitis, we were particularly pleased that the AdvanceAD-Tx test was recently recognized with the Genomics Innovation Award in the 10th annual MedTech Breakthrough Awards program. In addition, we were encouraged by a new independent real-world clinical utility study for AdvanceAD-Tx presented in June at the Revolutionizing Atopic Dermatitis meeting.

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

In this multi-center study, only 54.3%, or just over half, of patients receiving baseline systemic therapy were initially on pathway concordant treatment. However, following testing with our AdvanceAD-Tx test, 97.8% of patients were initiated on molecularly concordant systemic therapy. The impact of AdvanceAD-Tx on assisting clinicians and patients with making molecularly aligned therapy decisions overlaps the market research we conducted in the summer and fall of 2025. That is, clinicians are searching for tools, in this case, our AdvanceAD-Tx test, to assist them in making more informed, better therapy selections that align with an individual patient's underlying disease biology. With that, I would 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 proud to report excellent financial results for the second quarter of 2026. Revenue was $103.5 million for the quarter, driven by continued strength in our core revenue drivers, primarily TissueCypher test volume growth and some improvement in ASP, due in part to modifications in our accrual processes that were implemented earlier this year. For total revenue for 2026, we are raising our revenue guidance to $365 million-$375 million, up from the previously provided range of $345 million-$355 million. Our gross margin during the second quarter of 2026 was 74.9%, compared to 77.3% in the second quarter of 2025.

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 76.3% for the quarter, compared to 79.5% for the same period in 2025. For the full year 2026, we continue to expect our adjusted gross margin to be in the low to mid-70s range. Turning to expenses, our total operating expenses, including cost of sales for the second quarter of 2026, were $106.6 million, compared to $90.4 million for the second quarter of 2025. Sales and marketing expenses for the quarter were $40.9 million, compared to $35.1 million for the same period in 2025, primarily driven by higher personnel costs, higher expenses associated with travel, and higher business administration costs.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

General and administrative expenses were $25.2 million for the quarter, compared to $22.9 million for the same period in 2025, primarily attributable to higher personnel costs. Higher personnel costs reflect headcount expansions in our administrative functions, as well as merit and annual inflationary wage adjustments for existing employees. Cost of sales expenses were $23.7 million in the second quarter of 2026, compared to $17.6 million in the second quarter of 2025, primarily due to higher expenses for lab supplies, higher personnel costs, and higher lab services costs. The increase in lab supplies and lab services costs reflects higher test report volumes. 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

R&D expenses were $14.5 million for the quarter, compared to $12.8 million for the same period in 2025, primarily due to higher personnel costs driven by increased headcount to support continued business growth, as well as increased advisory board, clinical trial, and travel costs related to our pipeline initiatives. Total non-cash stock-based compensation expense, which is allocated among cost of sales, R&D, and SG&A expense, was $11.6 million for the second quarter of 2026, compared to $11.2 million in the second quarter of 2025. Interest income was $2.4 million for the second quarter of 2026, compared to $2.9 million in the second quarter of 2025. Our net loss for the second quarter of 2026 was $2.1 million, compared to net income of $4.5 million for the second quarter of 2025.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Diluted loss per share for the second quarter was $0.07, compared to diluted earnings per share of $0.15 for the same period in 2025. Adjusted EBITDA for the second quarter was $12.4 million, compared to $10.4 million for the comparable period in 2025. We continue to support and invest in growth initiatives while focusing on thoughtful expense control. We expect to achieve positive adjusted EBITDA for the third quarter, the fourth quarter, and the full year 2026, and absent any strategic direction shift, as well as for the full year 2027. Net cash provided by operating activities was $15.2 million for the second quarter of 2026, and net cash used in operating activities was $6.9 million for the six months ended June 30, 2026.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Net cash used in investing activities was $41.8 million for the six months ended June 30, 2026 and consisted primarily of purchases of marketable investment securities of $109.6 million, purchases of property and equipment, partially offset by the maturities of marketable investment and debt securities, along with the sale of equity securities. As of June 30, 2026, we had cash equivalents, and marketable investment securities of $266.8 million. Our strong balance sheet continues to provide financial flexibility to invest in our growth priorities. In closing, we delivered strong financial results through the first half of the year, continuing our long-standing history of consistent execution and performance excellence. 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, we continue to execute at a high level, and I'm encouraged by the momentum we're carrying into the remainder of the year. None of this would be possible without the dedication of the entire Castle team, and I'm proud of what they have accomplished through their unwavering commitment to improving patient care. Thank you for your continued interest in Castle. We'll be happy to take your questions. Operator?

Operator

Thank you. In order to allow everyone in the queue an opportunity to address the Castle management team, please limit your time on the call to one question and only one follow-up. If you have additional questions, please return to the queue. Please stand by while we compile the Q&A roster. Our first question comes from Max Masucci with Roth Capital Partners. Please go ahead.

Max Masucci
Max Masucci
Analyst at Roth Capital Partners

Hi, good afternoon. Congrats on a great quarter. First question on AdvanceAD-Tx. Nice to see the unanimous panel vote for the crosswalk. Would love to get your initial thoughts on the rate associated with the crosswalk, whether the decision matched your expectations, and just any updated expectations around the transition to a full commercial launch.

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

Yeah. Good question, Max. Derek here. First of all, in our analysis and before we submitted our request to be crosswalked to that code, we believed at Castle Biosciences that was the most appropriate code. The crosswalk code is for a test that predicts drug response to patients with psoriasis. The AdvanceAD-Tx test, as you know, predicts systemic drug response to people with atopic dermatitis, similar kind of technology approaches, et cetera. We thought that was the appropriate crosswalk to take care of that. Obviously, the panel did too. I think it was a 21 to zero vote in favor of crosswalking. The rate of $36.75, I think is a very, very strong rate for our test. We are quite pleased with the panel's recommendation or at least voting outcome there.

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

As you know, CMS will go ahead and take that input, and I think we see preliminary draft 2026 CLFS rate schedules in late September. We're looking forward to seeing that affirm going forward. I think from an overall perspective, as that goes on with the clinical laboratory fee schedule effective January 1st, 2026, that gives us a good benchmark in order to go ahead and set conversations with commercial payers as well regarding reimbursement rates, et cetera. I think it's a very nice, consistent plotting launch going forward here, which lets us get in a better position to open up a full launch in the future.

Max Masucci
Max Masucci
Analyst at Roth Capital Partners

That's great. Second question. Can you just give a bit more detail around the TissueCypher ASP trends in the second quarter? Any one-timers? Just looking at the $20 million guidance raise, is that mostly captured by the improved TissueCypher volume growth outlook, or is there any expectation or improved expectation on the ASP side for TissueCypher?

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

Frank?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Yeah, we did have some pickup in ASP, Max. We've been selling the test for long enough now that we've got a bit more experience in terms of expected rates and actual collected rates, and so we were able to increase the ASP a bit in the first half of this year. Now, having said that, I wouldn't expect to see the same stepwise increase in the back half. I think we are evaluating our payer experience and comparing that to our expectations, but I would not expect to see it again. Most of the raise in our guide here is based on performance to date and continued performance of our two primary revenue drivers, DecisionDx-Melanoma and TissueCypher.

Max Masucci
Max Masucci
Analyst at Roth Capital Partners

Great. Thank you.

Operator

Our next question comes from Thomas Flaten with Lake Street Capital. Please proceed with your question.

Thomas Flaten
Thomas Flaten
Analyst at Lake Street Capital

Hey, good afternoon. Congrats on the quarter. Two questions. Given the volume growth on TissueCypher, anything you can share with us with respect to sales force expansion to really keep maximizing on this opportunity?

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

We have continued to sort of expand as we see territories hitting a forward-looking $2.5 million, $3 million in revenue, Thomas. We don't necessarily give out specific numbers, but we're kind of floating around 100 sales representative or sales territories for both our gastroenterology division and our dermatology division. We think that's probably pretty close to where it needs to be from a TissueCypher standpoint and dermatology sample for that matter. I think we're kind of there. That being said, we had expansions last year, and we had expansions late second quarter this year here, so we aren't even seeing the full fruits, I guess, of those expansion opportunities. But we feel pretty comfortable with coming in from a volume year-over-year of 50%, 52% is what we believe we're on track for. That's very quite positive.

Thomas Flaten
Thomas Flaten
Analyst at Lake Street Capital

Got it. In the DETECT-AD study that you're doing with SciBase, how much of a window do you need to have a clinical effect from a preventative perspective? How early does the test need to detect potential flares?

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

I think that's to be determined. Based upon our market research, interactions with our investigators and also interactions with our medical dermatologists who are skin cancer doctors, but of course, the majority of what they see in their practice is basically atopic dermatitis in terms of diseases like this. The commentary there is that we have high-dose steroids. We can start those up in a couple of days in advance. You've got a topical JAK inhibitor that works pretty quick as well. One could say you could go as short as a day and a half, two days in advance. We'd like to see if we can get earlier than that, so it gives patients the time to maybe use less high-powered topical therapies to kind of keep control and keep their symptoms depressed or suppressed.

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

I think we'll kind of look at that, see if the data unwinds this fall preliminarily and get a good, positive sense what that looks like. That being said, the patient research that we have done recently in the second quarter of this year, there is such an acute need to be able to say, "You're telling me I could use a pen that'll be able to help me kind of understand my disease, control my disease, as if I was a diabetic, wanting to really appreciate how do I stay dialed in to being as normal as possible?" That's a very, very positive feedback set there. I think we have a range of what we could detect in advance of an actual flare to be extremely clinically meaningful to both patients and their clinicians.

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

The other end of the equation that we are getting commentary on, which I think is quite positive as well, is that once my flare has resolved, if I can't get ahead of it, that is, how long do I stay on my sort of rescue medications before I could begin tapering those medications off? Again, we should be able to predict the front end, if they can't suppress their flare completely and it actually becomes symptomatic, hopefully it's much more mild than if they didn't know that. At the back end, rather than sort of having their sort of rescue medication treatment plan be sort of, well, once the symptoms resolve themselves, stay on your high-dose steroids for what? Five days, four days, three days.

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

We believe that one of the uses of this device will be able to go ahead and help patients taper off of their rescue medications quicker or stay on longer if they still have this underlying heavy biological disease pattern going on. The final thing, which is quite exciting, is that we also have seen broad trends in the marketplace where patients would desire to sort of lengthen out their injection rates, lengthen out their use of oral therapies. Rather than kind of following what's on the label as to say, "Well, I've got copay exposure, potentially. I don't like the idea of taking injections every two weeks. Can I sort of take fewer injections and kind of lengthen out the frequency but also still be controlled?" Right now, we talk to our dermatological colleagues, they're telling us that's all, of course, basically empirical.

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

The last patient I had here, [Derek], was able to go from sort of two-week injections of one drug to three and then to four. When they got to five weeks, they all of a sudden had a heavy flare liminality up, we said, "Well, go back to four." This device should be able to help a patient who wants to take that as a pathway of choice and let them potentially sort of lengthen out therapy dosage once they're well controlled to go ahead and just be on less medication over time, which I think most people would appreciate.

Thomas Flaten
Thomas Flaten
Analyst at Lake Street Capital

That's super helpful. Thank you.

Operator

Our next question comes from Mason Carrico with Stephens Inc. Please go ahead.

Analyst at Stephens Inc

Good afternoon. This is Ben on for Mason. Thanks for taking the questions. On the Q1 call, you guys noted that you started to see some quarterly seasonality beginning to emerge for TissueCypher. In your view, do you see any of that seasonality continue to play out in Q2? How should we think about the quarterly pacing for that test and the balance of the year? I guess as we look ahead to next year, should we think of that seasonality similar to 2026, or will that become, I guess, even more pronounced? Frank, you want to take it, or me take that?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Yeah. Hey, Ben. I think that as tempting as it is to look sequentially at these tests, I think we really need to look on a trend line. If you look at the trend on TissueCypher, it's pretty steady growth. We had a little bit lower Q1, little higher Q2. If you smooth that over four quarters, you get closer to a pretty consistent trend. I would say in the first place, I would look sort of at that multi-quarter pathway. Secondly, yeah, the seasonality we saw in Q1 did seem to be driven by fewer patient encounters. Just as we see on the derm side, we will probably continue to see that on TissueCypher. We get to Q1, we'll look year-over-year and look at the multi-quarter trend rather than just sequentially quarter-to-quarter.

Analyst at Stephens Inc

Got it. That makes sense. Among the AdvancedAD test orders that you've received to date, are you seeing any signs of repeat ordering there or increasing utilization among the initial cohort of accounts? Or is that still mostly first-time trial orders? Thanks for taking the questions.

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

I don't have the raw data in front of me to answer that quantitatively, Ben. My recollection the last time we reviewed that last month was that we are seeing both new ordering customers as we sort of release this to additional customers, get their staff trained up or the clinician trained up on how to do this non-invasive scraping technique, get kits in the offices, et cetera, that we are seeing the sort of new ordering adoption we expect to see based upon the emphasis we're putting it on from a sales force standpoint. We have, I think, very few clinicians who have sort of been one and done. We do see heavy repeat users going on right now.

Operator

Our next question comes from Subbu Nambi with Guggenheim Securities. Please go ahead.

Ethan Kriss
Ethan Kriss
Analyst at Guggenheim Securities

Hi, this is Ethan on for Subbu. Thanks for taking our question. What are your top priorities for R&D investments this year, and how much do you expect R&D to increase year-over-year?

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

Frank?

Ethan Kriss
Ethan Kriss
Analyst at Guggenheim Securities

Sorry, my question was.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Good to talk to you. Thanks for the question. Yeah. I'm sorry I tracked you. Yeah, I think we'll continue to see some increase in R&D as we continue to focus on newly internally developed programs. I think you've heard us say before, we're very excited about the pipeline we have, and the way the story at Castle has evolved from the IPO days when we really had one kind of primary product, to now two therapeutic areas and multiple products in each opportunity within the pipeline. We will see some increase. It's a deliberate investment, and we are running Castle for not only near term quarter-to-quarter growth, but also mid and long-term growth to ensure long-term value creation well past 2030, 2035.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Some increase, I think in terms of priority, it will continue to be those programs within our existing therapeutic areas that line up so well with our commercial footprint.

Ethan Kriss
Ethan Kriss
Analyst at Guggenheim Securities

Got it. Thanks.

Operator

Our next question comes from Matthew Parisi with KeyBanc Capital Markets. Please go ahead.

Matthew Parisi
Matthew Parisi
Analyst at KeyBanc Capital Markets

This is Matthew Parisi on for Paul Knight at KeyBanc Capital Markets. Congrats on the great quarter, thanks for the questions. You guys had a pickup in SCC volumes for the first time since it lost coverage and you stopped marketing the test. Could you provide some color on what is driving the resurgence?

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

The what?

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

SCC.

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

Pardon?

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

SCC volume.

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

Oh, SCC volume.

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

What's driving that? Sorry.

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

I think the number one driver of SCC volumes is the clinical value existing customers see in the test and how they use it to manage their patients' high-risk squamous cell carcinomas. We did, which I think we talked about at first quarter earnings, allow, sounds like a funny word, encourage, I guess, our sales force to say, "Hey, our predominant focus is and will remain on the short term cutaneous melanoma, but you have this atopic dermatitis test. You have this squamous cell carcinoma test that creates clinical value." We need to make sure that we are spending some time on those elements. A small amount of time, but some time. I think it's a combination of existing users, more working days in the second quarter certainly, and some return to some promotional time with our sales force.

Matthew Parisi
Matthew Parisi
Analyst at KeyBanc Capital Markets

Thank you. If you could provide an update on the Previse GI pipeline test.

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

Sure. We have, as you know, when we acquired Previse, we had a portfolio of IP that came out of Hopkins was licensed into Previse. They had a tissue-based assay, Esopredict, that we made available in the first, I guess, early first quarter of this year as a reflexive test or backstop test in those few cases that we couldn't get a TissueCypher result to a physician. Under the expectation that, hey, the most well-documented, the most valuable test that predicts progression of Barrett's disease to high-grade dysplasia or cancer is the TissueCypher test. But if we're unable for features of the way the biopsy was taken, et cetera, not to get a spatialomics test to work, we would offer up Esopredict as a backup in those few cases.

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

Regarding the cell collection device, Previse had also worked out a sponge which would fit into a capsule and attach to a string that went through the capsule. The expectation was that one would swallow that, it let it go down into your lower esophagus, maybe upper stomach or lower esophagus. The capsule dissolves, the sponge pops out, you pull the sponge back out with that string. We have protocols for cell collection devices that are in design and sort of ready to go here. I would say probably the update of that, probably maybe first half of next year is probably the right timing.

Matthew Parisi
Matthew Parisi
Analyst at KeyBanc Capital Markets

Thank you. Appreciate the questions.

Operator

Our next question comes from Kyle Nixon with Canaccord Genuity. Please go ahead.

Alex Vukasin
Alex Vukasin
Analyst at Canaccord Genuity

Hi, this is Alex Vukasin. I am on for Kyle Nixon. Thank you for taking our questions and congrats again on the strong quarter. Just following up on something I have previously asked. We are about halfway through the year now. On TissueCypher, you exited 2023 at about 26% patient penetration with about 2%-3% incremental penetration each of the next two years to about 31 exiting 2025, and you followed that up with a really strong first half and particularly 2Q. Just understand there is a lot of runway here, but could you qualify the opportunity ahead for this test? Does any low-hanging fruit remain, or could we perhaps have to see some step up in expenses to reach the rest of this opportunity over time? Just trying to get a sense of how durable this level of growth is going forward. Thanks.

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

Okay. I'll hand it back to [audio distortion] or Scott. Go on, Frank.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Yeah, just clarifying there. We think we exited 2025 at about 10% to maybe 11% or 12% patient penetration on the addressable patient market. The numbers we provided earlier today would get us to maybe 15%, middle teens. We are certainly going to begin to face the headwinds of big numbers and by definition, the easier physicians to convert are the first ones, and the ones that come later perhaps take a bit more work. At some point we'll begin to see that. I think importantly, at this juncture in the life of that test and the marketing of that test, we still have maybe way too many, you might think, physicians who haven't yet had the chance to be educated on the clinical benefit of using TissueCypher for their Barrett's esophagus patients.

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Lots of runway ahead as we convert those physicians that don't yet have the opportunity. We will begin to get into those big numbers and begin to get into that more mature phase, that test has a long way to go yet.

Alex Vukasin
Alex Vukasin
Analyst at Canaccord Genuity

Got it. Thank you. Just on the Novitas LCD, which impacts the Pittsburgh lab and the MolDX LCD, which impacts the Phoenix lab. Does mid 2027 kind of remain a reasonable timeframe for potential return of payment for SCC? Importantly, have there been any recent chats or review of new data that perhaps invokes incremental confidence in the ability to flip one of these decisions specifically? Thank you.

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

We have no, I guess, public commentary about data discussions with either Medicare contractor. As you may know, there is no timeline for their response. We've heard nothing, by the way, negative, so don't take that commentary as negative from a standpoint of a return to coverage. We did model out based upon a very limited database that maybe it would take a year and a quarter to have those Medicare contractors work through the reconsideration request. That would be sort of in the second half of this year. I think expecting to see daylight in the second half of 2026 is a reasonable expectation.

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

Once a draft was posted, we don't really have any sense right now would they work quicker to go from draft to final or would they follow the current path, which has roughly taken the entire year to finalize a draft LCD to final. Our, I think, guidance has been pretty consistent, which is to say, if we see a positive draft coverage LCD coming out from either one of the Medicare contractors in the latter half of this year, or the second half of this year, I should say, then we should anticipate roughly a year later of regaining coverage for Medicare beneficiaries, which would be a fantastic opportunity to really advance their care. That's how I would kind of view that per se.

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

We of course always are generating additional publications, additional evidence development to support the correct decision to enable Medicare beneficiaries to benefit from this test on a broad basis. That's being worked through right now.

Alex Vukasin
Alex Vukasin
Analyst at Canaccord Genuity

Got it. Thank you very much.

Operator

Your next question comes from Mark Massaro with BTIG. Please proceed with your question.

Meaghan Rockey
Meaghan Rockey
Analyst at BTIG

Hey, guys. This is Meaghan on for Mark. Thank you for taking our questions. I'm curious about the FDA Breakthrough Device Designation. Can you just give maybe a ballpark range or any additional color for when you're thinking about the timing of the FDA approval?

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

Okay, what's the last part?

Meaghan Rockey
Meaghan Rockey
Analyst at BTIG

FDA approval.

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

Oh, approval. I would separate those two things here, Meaghan. The breakthrough device designation enables us to sort of go to the front of the line, get other special features, I guess you would say, in terms of the review of a submission. I don't know if we've talked publicly about our timing of that. I would think we might expect to have FDA clearance/approval maybe later on this year, early next year.

Meaghan Rockey
Meaghan Rockey
Analyst at BTIG

Great. Thank you.

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

I would separate that. BDD gives you an opportunity to really have more powder in your gun, I guess you would say, in addressing the FDA. There are certain expectations on both sides of the table.

Meaghan Rockey
Meaghan Rockey
Analyst at BTIG

Awesome. Thank you, guys. You continued to deliver strong unit growth in melanoma volumes this quarter. We're just curious if you've seen any changes in the competitive environment in melanoma over the recent months.

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

We had talked through, I guess, first quarter earnings was a high year-over-year growth rate, and we hopefully tried to speak intuitively, which is to say, we think at the end of the year, we're going to come in with between kind of mid to high single-digit growth, and I think we're right on track to achieve what our internal goals are. We're seeing the promotional responsiveness, the value of our test in the marketplace, hasn't really changed a whole lot. That's fantastic, of course.

Meaghan Rockey
Meaghan Rockey
Analyst at BTIG

Great. Thank you, guys.

Operator

Our next question comes from Puneet Souda with Leerink. Please proceed with your question.

Philip Song
Philip Song
Analyst at Leerink

Hi, this is Philip on for Puneet. Thanks for the question and congrats on a great quarter. I know there were a lot of questions on TissueCypher already, but if it's all right, I just want to double-click more on volume growth this quarter. A big step-up, obviously, both year-over-year and sequentially after the seasonal dip in the first quarter. Just wanted to ask, can you talk a bit more about what drove the re-acceleration? Was it mostly seasonal combined with execution, or is there anything else you could call out in terms of growth mix or depth of use that may have played a role?

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

Frank, you or me?

Frank Stokes
Frank Stokes
CFO at Castle Biosciences

Yeah, sure. We don't yet have the procedures data for the second quarter. As we noted in our last call, first quarter was lower in terms of upper endoscopy procedures than we've seen in prior quarters. Again, I think that the important focus here is on that multi-quarter trend. Maybe trailing four, you draw a nice trend line and you see the TissueCypher fairly steady, fairly in line with where it's been through those maybe trailing three or four quarters. We believe we probably, I don't know it yet, I don't know if we did, we probably saw more procedures in the quarter than we saw in Q1. When you trend that out, it's just good, solid increased penetration on the volume side for TissueCypher through last year.

Philip Song
Philip Song
Analyst at Leerink

Got it. That makes sense. I also wanted to ask, did you see any impact from ACA disenrollment on your test volumes this quarter? Just with enhanced marketplace subsidies now lapsed and coverage down in 2026, are you seeing it in either ordering volumes or shift towards self-pay that pressures collections? Is a younger, more commercially insured franchise like AdvanceAD more exposed than melanoma and TissueCypher? I know it was more Medicare skewed.

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

I don't think we have any visibility to be able to comment on that question, I guess I would say.

Philip Song
Philip Song
Analyst at Leerink

Okay, no worries.

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

I was trying to get about our test report data for second quarter. I don't recall our reimbursement team saying there was a change in the mix of insured patients commercially, Medicare patients commercially, Medicare managed patients commercially, or Medicaid. Medicaid, we've always had a very low exposure, a couple of points is all. I guess you would say, well, if there are less people ordering tests or going to doctors because they chose to back out of their insurance, we have no way to see that, I guess you would say.

Philip Song
Philip Song
Analyst at Leerink

Got it. Fair enough. Thank you so much.

Operator

Our last question comes from Robbie Bamberger with Baird. Please go ahead with your question.

Analyst at Baird

Hi, guys. This is John for Robbie. Thank you for taking my questions. First, I guess just again on kind of the lower than expected seasonal volumes there for DecisionDx-Melanoma in 2Q, given some of those sales force items you mentioned, I guess kind of what informs confidence in that mid to high single-digit growth for the year and I guess how should we think about year-over-year volume growth in 3Q and 4Q for that test as well too? Thanks.

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

I guess confidence is we have an enterprise model, I guess similar to you, that you do on the outside and we're on the inside. Based upon what we see in our model against actuals, we believe we're still tracking towards what we thought we would do, which is kind of mid to high single-digits for the year. In terms of third and fourth quarter, second half expectations, I guess I would sort of take our first half and get a range and see how you get to the second half from a full year-end volume growth, is the way I would approach that.

Analyst at Baird

Great. Was just wondering, too, how you're kind of thinking about the progression of AdvanceAD-Tx rollout here. Any plans to kind of further broaden this out for the rest of the year? Maybe by the end of the year, how many clinician offices are you maybe trying to target here as part of your phased approach? Thanks.

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

We are still managing field-based expectations. Maybe the best way to go ahead and say it is that our field force in dermatology, I believe for the remainder of the year, at least certainly third quarter, is relatively 80%-85% focused on cutaneous melanoma from a call focus commission bonus perspective, with the remaining 15% being more heavier weighted to atopic dermatitis, AdvancedAD tests, and some on SCC from a bonus standpoint, just to make sure that we're balancing out both near-term needs, mid-term needs, and long-term needs. That will certainly, I think, change a bit of the acceleration in a positive manner for AdvancedAD without having us hopefully see a sacrifice in melanoma focus. We are still trying to manage volume so we don't get too far ahead of ourselves.

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

As you would know, if you don't create demand, then there isn't much of a reason to have Medicare or commercial payers to really step up and pay attention. As we create volume, we can also model collections against our internal collection model as we get more confident with that towards the end of this year or latter half of the third quarter. That'll let us go ahead and say, now we should plan on openings up a bit more in 2027.

Operator

We have reached the end of the question and answer session. I would now like to turn the floor back over to Derek Maetzold for closing comments.

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

Thank you, operator. This concludes our second quarter 2026 earnings call. We thank you again for joining us today and for your continued interest in Castle Biosciences.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you.

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