Castle Biosciences Raises Outlook as Melanoma, TissueCypher Tests Gain Traction

Key Points

• Castle Biosciences raised its full-year outlook after second-quarter performance exceeded expectations, driven primarily by DecisionDx-Melanoma and TissueCypher, along with physician adoption and modest pricing gains.
• DecisionDx-Melanoma remains the company’s core growth engine, with expected mid- to high-single-digit volume growth and testing penetration of roughly one-third of eligible invasive melanoma cases. TissueCypher has reached about 15% penetration, leaving substantial room for expansion as its sales force matures.
• AdvanceAD-Tx is gaining early physician interest but is unlikely to generate significant revenue until 2027 as Castle works through reimbursement requirements. The company expects to remain adjusted-EBITDA positive through the rest of 2026 and in 2027, excluding major strategic changes.

Castle Biosciences NASDAQ: CSTL reported continued momentum in its core diagnostic franchises during the second quarter, prompting the company to raise its outlook by more than the amount of its reported beat, according to CFO Frank Stokes.

Stokes said the company’s DecisionDx-Melanoma and TissueCypher tests were the principal drivers of performance. Both products recorded favorable results, supported by modest average selling price gains during the first half of the year, continued physician adoption and broader use among physicians’ eligible patient populations.

“We raised our guidance a little bit more than the beat,” Stokes said, adding that the update reflected optimism about second-half performance and the broader franchise.

Melanoma test remains a core growth driver

Castle expects DecisionDx-Melanoma test volume to grow at a mid- to high-single-digit rate this year, Stokes said. He described the product as being at a more mature stage of market penetration, estimating that the company is testing roughly one-third of an estimated 130,000 annual invasive melanoma cases.

The company uses an estimate above the approximately 100,000 cases reflected in SEER data, citing published research that suggests melanoma may be underreported by 30% to 70%, particularly when diagnoses occur in community dermatology offices.

Stokes said two-thirds or more of relevant healthcare providers have used the test within the past year, making the next stages of market expansion more difficult but still meaningful. Castle continues to seek both new physician customers and wider adoption within existing accounts.

He said the company’s research supports testing patients with melanomas thicker than three-tenths of a millimeter, arguing that biological risk assessment can provide more useful guidance than traditional clinical thresholds alone. Castle also has breakthrough designation for its melanoma test and intends to seek FDA clearance.

Stokes said FDA clearance could potentially strengthen reimbursement discussions, particularly as more states enact biomarker legislation. He said payers have often not complied with such laws and that FDA clearance could make it more difficult for insurers to classify a test as experimental or investigational.

TissueCypher penetration opportunity

TissueCypher, Castle’s test for risk stratification in Barrett’s esophagus patients, remains in an earlier phase of commercial penetration. Stokes said the company estimates it has reached about 15% patient penetration based on annualizing second-quarter volume and estimates for relevant upper gastrointestinal endoscopies.

That leaves substantial room for growth, he said, noting that reaching penetration levels comparable to DecisionDx-Melanoma would represent more than a doubling of the TissueCypher business.

The test is intended to help physicians identify which patients classified as low risk by dysplasia status may still face a risk of progression to esophageal cancer. Stokes said more than 80% of Barrett’s biopsies fall into low-risk categories, while many esophageal cancers arise from those populations.

Castle believes the business may experience some seasonal effects tied to patient behavior around annual insurance deductible resets. Third-party data suggested fewer Barrett’s surveillance procedures in the first quarter than in the fourth quarter, though Stokes said the company prefers to evaluate TissueCypher trends over a rolling four-quarter period rather than sequential quarterly changes.

The company expanded its TissueCypher sales force earlier this year. Stokes said those new representatives are expected to reach fuller productivity in the latter half of the year. TissueCypher is included in the practice guidelines of two of three major gastrointestinal societies, he added.

Atopic dermatitis test remains in early commercialization

Castle made its AdvanceAD-Tx test for atopic dermatitis available in the fourth quarter and saw volume nearly double in the second quarter, albeit from a small base. The test is designed to help physicians determine whether a patient may be more likely to respond to a biologic therapy or a JAK inhibitor.

Stokes said physicians have shown strong receptivity, given that biologics do not work for all patients and that treatment changes can create additional cost, patient dissatisfaction and delays in care. Still, the company is taking a more measured commercial approach while it works through reimbursement.

An advisory committee unanimously recommended that the test’s fee schedule payment rate align with another test, Stokes said. CMS has not yet issued its decision. Castle will also need a Medicare coverage determination from one of its Medicare Administrative Contractors for Medicare reimbursement.

Stokes said Castle does not expect AdvanceAD-Tx to produce significant revenue in 2026, but anticipates some revenue contribution in 2027.

Reimbursement and 2027 outlook

For DecisionDx-SCC, Castle has submitted additional data to support reconsideration of Medicare coverage. Stokes said a typical process could include a Contractor Advisory Committee meeting, a proposed local coverage determination and a period that could take about a year from draft policy to final policy. He described the second half of 2027 as a potential upside-case timing for renewed payment.

Looking ahead, Stokes said Castle expects to remain adjusted EBITDA positive through the rest of 2026 and to be adjusted EBITDA positive in 2027, absent significant strategic changes. He said the company expects continued penetration of its lead products, potential reimbursement catalysts for its SCC and atopic dermatitis tests, and progress across its product pipeline.

About Castle Biosciences (NASDAQ:CSTL)

Castle Biosciences, Inc is a molecular diagnostics company specializing in the development and commercialization of prognostic and diagnostic tests for patients with dermatologic conditions. The company's proprietary portfolio of genomic assays is designed to improve risk assessment and guide clinical decision-making for individuals with skin cancers and other skin-related diseases. By combining genomic data with advanced statistical algorithms, Castle Biosciences seeks to provide actionable insights that help physicians tailor treatment plans and monitoring strategies.

The company's flagship test, DecisionDx-Melanoma, evaluates the probability of metastasis in patients diagnosed with cutaneous melanoma, supporting more personalized surveillance and therapeutic approaches.

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