CASTLE BIOSCIENCES INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Castle Biosciences delivered strong third quarter results with revenue growing 39% and total test report volume up 41% Y/Y.
• Achieved positive cash flow and earnings, demonstrating operating leverage.
• Raised full-year 2024 revenue guidance to $320 million to $330 million, up from $275 million to $300 million.
• In dermatology, DecisionDx-Melanoma saw 9% Y/Y growth in test reports, with ongoing clinical studies supporting its use. DecisionDx-SCC had 49% Y/Y growth in test reports, with multiple peer-reviewed studies highlighting its value in guiding adjuvant radiation therapy decisions.
• TissueCypher had 115% Y/Y growth in test reports, with continued expansion of the commercial team and positive reception in the gastroenterology community.
• IDgenetix saw 81% Y/Y growth in test reports, with measured investment and focus on reimbursement and clinical utility.

Segment Performance

• Dermatology Business:
  • DecisionDx-Melanoma: Delivered 9,367 test reports in Q3 2024, a 9% year-over-year increase.
  • DecisionDx-SCC: Delivered 4,195 test reports in Q3 2024, a 49% year-over-year increase.
• TissueCypher: Delivered 6,073 test reports in Q3 2024, a 115% year-over-year increase. This test is used for assessing esophageal cancer progression risk in Barrett's esophagus patients.
• Mental Health Business: IDgenetix: Delivered 5,045 test reports in Q3 2024, an 81% year-over-year increase.

Guidance

• Raised full-year 2024 revenue guidance to $320 million to $330 million, reflecting year-over-year growth of 45% to 50%, up from the prior range of $275 million to $300 million.
• Expect to continue momentum in the fourth quarter to close out a strong 2024, setting the stage for long-term shareholder value.

Risks

• Potential impact of hurricanes on Q4 volumes, as patient access to healthcare may be disrupted.
• Uncertainties related to reimbursement for products, including potential non-coverage by payers like Palmetto for certain tests.
• Competitive landscape, including competition from other companies marketing similar tests (e.g., SkylineDx for DecisionDx-Melanoma).
• Reimbursement challenges for mental health tests like IDgenetix due to commercial payer policies.

Question and Answer

Q: Kyle Mikson asked about the derm revenue step down in Q3 and the impact of DecisionDx-SCC revenue, including claims processing and non-coverage by Palmetto.

A: Frank Stokes responded that sequential volumes are predictable based on patient encounters, and there was no significant impact from Palmetto's draft policy on the business.

Q: Corey Rosenbaum inquired about the reception of TissueCypher by physicians and any pushback.

A: Derek Maetzold stated resistance to TissueCypher is low due to early awareness, with clinicians appreciating the test's ability to guide patient care in esophageal disease by identifying high-risk patients and de-escalating care for low-risk patients.

Q: Paul Knight asked about SG&A growth relative to revenue growth.

A: Frank Stokes replied that the company has grown into its P&L, managing expenses prudently to achieve cash flow, breakeven, and profitability.

Q: Unidentified Analyst from Guggenheim asked about the competitive landscape for DecisionDx-Melanoma, specifically regarding SkylineDx's test.

A: Derek Maetzold noted SkylineDx's test showed a 7.1% sentinel lymph node positivity rate in low-risk patients, whereas Castle's test has studies showing below the 5% threshold, highlighting Castle's test's clinical value.