Castle Biosciences, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Quarterly Highlights: Delivered revenue of $86.2 million and total test report volume of 26,574, with tests for core revenue drivers growing 33% year-over-year. Maintained strong gross margins and had $275.9 million in cash, cash equivalents, and marketable securities.
• DecisionDx-Melanoma: Collaborated with NCI SEER, presented novel research at ASCO, and a real-world study showed a 32% reduction in mortality risk for patients using the test.
• DecisionDx-SCC: Addressed reimbursement issues with LCDs, submitted reconsideration requests, with Novitas accepting the request and awaiting MolDx response.
• TissueCypher: Continued strong momentum with 92% Y/Y growth, driven by recognition of unmet clinical need and commercial optimization.
• Pipeline Initiatives: Collaborated with SciBase for atopic dermatitis test development, internally developed atopic dermatitis pipeline test expected to launch by end 2025, and Previse acquisition brought a robust GI technology pipeline.

Segment Performance

• DecisionDx-Melanoma: Delivered 9,981 test reports in Q2 2025, with a sequential increase of approximately 16% from Q1 2025 and a year-over-year increase of approximately 4% from Q2 2024. Expected high single-digit volume growth for the full year 2025 compared to 2024.
• DecisionDx-SCC: Delivered 4,762 test reports in Q2 2025. Submitted reconsideration requests for Novitas and MolDx LCDs; Novitas accepted the request, awaiting MolDx response.
• TissueCypher: Delivered 9,170 test reports in Q2 2025, representing a 92% year-over-year growth. Growth drivers include recognition of unmet clinical need and commercial optimization.

Guidance

• Raised 2025 total revenue guidance to $310 million to $320 million from the prior range of $287 million to $297 million.
• DecisionDx-Melanoma expected to have high single-digit volume growth for the full year 2025.
• Internally developed atopic dermatitis pipeline test targeted for launch by the end of 2025.

Risks

• Reimbursement Risks: Uncertainty with LCDs for DecisionDx-SCC, impacting revenue and margins.
• Regulatory Risks: Uncertainty around FDA approval for DecisionDx-Melanoma and outcomes of reconsideration requests for SCC LCDs.
• Market Risks: Resistance from commercial payers for DecisionDx-Melanoma, affecting market penetration.

Question and Answer

Q: Congrats on a great quarter. Just first, with the breakthrough designation you got for Dx-Melanoma just a few weeks ago, anything you can share with us on your plans to seek FDA approval studies, et cetera, just lay out kind of the bigger strategic thinking there?

A: Thanks, Thomas. Derek here. Yes, with the breakthrough designation device status approved or authorized, we are marching our efforts to go ahead and push forward towards an FDA submission. Timing of that, I don't think we need to make public at this point in time, but that's part of our expected outcome for that -- for seeking BDD in the first place.

Q: I think you've historically talked about 6 months for a sales rep to reach average productivity. Could you give us some insight into how many GI reps had reached that level of tenure maybe at the start of Q2 as well as how many have now hit that threshold as of today?

A: I think we scaled to the current level of territories just before year-end. So they would have been certainly in training in the first quarter. So I would think as we're exiting into the third quarter now, and you would assume if our modeling was correct about 6 months to KPI will be up to full speed, we should be hitting that with a fully mature sales team in the third and fourth quarter of this year.

Q: For DecisionDx-Melanoma, will you need any further studies to support FDA approval?

A: We don't believe that will be the case. I think the easy conversation that was had with the FDA regulators regarding our BDD application, I would think that we have plenty of data that would support that approval as is. We won't know that, of course, until we go into that process, but we would have taken it through the breakthrough designation device status if we hadn't felt comfortable with that, Subu.