Q2 2026 Castle Biosciences Inc Earnings Call

July 30, 2026

Speaker #1: Followed by a over to Camilla Zuckero, Vice President, Investor Relations and Corporate Affairs. Please go ahead.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: A recording of today's call will be available on the Investor Relations page of the company's website for approximately 3 weeks following the conclusion of the call.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #1: Good afternoon. And welcome to the CASTLE BIOSCIENCES Q2 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.

Speaker #2: 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.

Speaker #1: I would like to turn the call over to Camilla Zuckero, Vice President of Investor Relations and Corporate Affairs. Please go ahead.

Speaker #2: 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.

Speaker #2: Thank you, operator. Good afternoon, everyone. Welcome to Castle Biosciences' Q2 2026 results conference call. Joining me today are Castle's founder, president, and chief executive officer, Derek Maetzold, and chief financial officer, Frank Stokes.

Speaker #2: I will now turn the call over to Derek.

Speaker #3: 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 and evidence development and clinical research.

Speaker #2: 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.

Speaker #3: Thanks for 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.

Speaker #3: Furthermore, if we exclude decision SCC and IDGX revenue for both 2026 and 2025, our revenue growth for second quarter of 2026 was 40% compared to the second quarter of 2025.

Speaker #3: Test report volume for our core revenue drivers grew 32% compared to the second quarter of 2025. 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.

Speaker #3: 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 to laboratory capacity technology and personnel needed to support future growth.

Speaker #2: 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.

Speaker #3: 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.

Speaker #3: 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 to $375 million.

Speaker #3: Compared to the previously provided guidance of $345 to $355 million. Now, 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.

Speaker #2: I will now turn the call over to Derek.

Speaker #3: 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 and evidence development and clinical research.

Speaker #3: Let's start with our core revenue drivers for 2026. Decision DX melanoma and tissue cipher. For decision DX melanoma, we delivered 10,000, 280 test reports in the second quarter.

Speaker #3: Thanks for 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.

Speaker #3: 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.

Speaker #3: Furthermore, if we exclude DecisionDx-SCC and IDgenex revenue for both 2026 and 2025, our revenue growth for Q2 2026 was 40% compared to Q2 2025.

Speaker #3: Decision DX 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.

Speaker #3: Test report volume for our core revenue drivers grew 32% compared to Q2 2025. Our strong Q2 results reflect continued execution of our growth strategy, and we remain focused on investing thoughtfully in the future growth of Castle.

Speaker #3: 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.

Speaker #3: This is a deliberate investment in the growth of our business. Decision DX melanoma remains the established foundation of our dermatological commercial portfolio, while the additional products Decision DX SCC and advanced AD TX expand the value we can provide to the same customer base and support growth over the medium and long term.

Speaker #3: Additionally, we continue to generate a substantial body of evidence to support the clinical performance and use of our decision DX melanoma test. In fact, during the second quarter, we were pleased to announce the publication of a prospective multi-center study demonstrating Decision DX melanoma outperforming the melanoma institute of Australia nomogram, or MIA, in identifying patients at low and high risk of sentinel lift of biopsy positivity.

Speaker #3: We believe we will continue this positive momentum in the second half of 2026, and our strong Q2 performance gives us the confidence to raise our 2026 total revenue guidance.

Speaker #3: To $365 to $375 million compared to the previously provided guidance of $345 to $355 million. Now, I will walk you through the business highlights from Q2, and then Frank will provide additional financial highlights before we turn to your questions.

Speaker #3: Importantly, patients' predicted to be low risk by Decision DX melanoma that is, they were predicted to have a sentinel lift of positivity rate of less than 5% at an actual observed sentinel lift of positivity rate of just 2.6%, well below the national comprehensive cancer network, or NCCM, 5% threshold used to consider avoiding a sentinel lift of biopsy surgical procedure.

Speaker #3: Let's start with our core revenue drivers for 2026. Decision DX melanoma and tissue cipher. For Decision DX melanoma, we delivered 10,000, 280 test reports in the second quarter.

Speaker #3: 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 lift of biopsy surgical procedure.

Speaker #3: This represents 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.

Speaker #3: Decision DX 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.

Speaker #3: Now, let's turn to our tissue cipher test. During the quarter, we delivered 14,000, 988 tissue cipher test reports. Representing 63% growth compared to the second quarter of 2025.

Speaker #3: 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.

Speaker #3: Based upon trends for the first half of the year, we believe our 2026 test report volume for tissue cipher will trend toward 50 to 52% growth compared to 2025.

Speaker #3: 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 Advanced Adjunctive Testing (ADTx) expand the value we can provide to the same customer base and support growth over the medium and long term.

Speaker #3: Now, let's move on to our advanced AD TX test. During the second quarter, we delivered more than 1,000 orders, given the testability to guide systemic treatment selection for patients ages 12 and up with moderate to severe atopic dermatitis, we were particularly pleased with the advanced AD TX test was recently recognized with the genomics innovation award in the 10th annual MedTech Breakthrough Awards program.

Speaker #3: Additionally, we continue to generate a substantial body of evidence to support the clinical performance and use of our DecisionDx-Melanoma test. In fact, during the second quarter, we were pleased to announce the publication of a prospective multi-center study demonstrating DecisionDx-Melanoma outperforming the Melanoma Institute of Australia nomogram, or MIA, in identifying patients at low and high risk of sentinel lymph node biopsy positivity.

Speaker #3: In addition, we were encouraged by a new independent real-world clinical utility study for advanced AD TX presented in June at the Revolutionizing Atopic Dermatitis meeting.

Speaker #3: 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 advanced AD test, 97.8% of patients were initiated on molecularly concordant systemic therapy.

Speaker #3: 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%. This is well below the National Comprehensive Cancer Network, or NCCN, 5% threshold used to consider avoiding a sentinel lymph node biopsy surgical procedure.

Speaker #3: The impact of advanced AD 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.

Speaker #3: That is, clinicians are searching for tools; in this case, our advanced AD TX test to assist them in making more informed better therapy selections that align with an individual patient's underlying disease biology.

Speaker #3: 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.

Speaker #3: And with that, I will now turn the call over to Frank.

Speaker #2: Thank you, Derek. 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 tissue cipher test volume growth and some improvement in ASP, due in part to modifications in our accrual processes that were implemented earlier this year.

Speaker #3: Now, let's turn to our tissue cipher test. During the quarter, we delivered 14,000, 988 tissue cipher test reports. Representing 63% growth compared to Q2 2025.

Speaker #3: Based on trends for the first half of the year, we believe our 2026 test report volume for TissueCypher will trend toward 50% to 52% growth compared to 2025.

Speaker #2: For total revenue for 2026, we are raising our revenue guidance to $365 to $375 million, up from the previously provided range of $345 million to $355 million.

Speaker #3: Now, let's move on to our advanced ADTX test. During the second quarter, we delivered more than 1,000 orders. Given the test’s ability to guide systemic treatment selection for patients ages 12 and up with moderate to severe atopic dermatitis, we were particularly pleased that the advanced ADTX test was recently recognized with the Genomics Innovation Award in the 10th annual MedTech Breakthrough Awards program.

Speaker #2: Our gross margin, during the second quarter of 2026, was 74.9% compared to 77.3% in the second quarter of 2025. 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.

Speaker #3: In addition, we were encouraged by a new independent, real-world clinical utility study for advanced ADTX presented in June at the Revolutionizing Atopic Dermatitis meeting.

Speaker #2: 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.

Speaker #2: 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.

Speaker #3: The impact of advanced ADTX on assisting clinicians and patients with making molecularly aligned therapy decisions overlaps the market research we conducted in the summer and fall of 2025.

Speaker #3: That is, clinicians are searching for tools—in this case, our advanced ADTX test—to assist them in making more informed better therapy selections that align with an individual patient's underlying disease biology.

Speaker #2: 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.

Speaker #2: 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.

Speaker #3: And with that, I will now turn the call over to Frank.

Speaker #2: 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.

Speaker #2: 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 and response to growing test report volumes, as well as merit and annual inflationary wage adjustments for existing employees.

Speaker #2: For total revenue for 2026, we are raising our revenue guidance to $365 to $375 million, up from the previously provided range of $345 million to $355 million.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: As of June 30, 2026, we had cash, cash equivalents, and marketable investment securities of $266.8 million. financial flexibility to invest in our growth priorities.

Speaker #2: In closing, we delivered strong financial results through the first half of the year, continuing our longstanding history of consistent execution and performance excellence. I'll now turn the call back over to Derek.

Speaker #1: 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.

Speaker #1: 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 commitments to improving patient care.

Speaker #1: Thank you for your continued interest in CASTLE. Now we will be happy to take your questions. Operator?

Speaker #3: 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.

Speaker #3: If you have additional questions, please return to the queue. Please stand by while we compile the Q&A roster. And our first question comes from Max Masuchi with Ross Capital Partners.

Speaker #2: 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, for the full year 2027 as well.

Speaker #2: 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.

Speaker #3: Please go ahead.

Speaker #4: Hi, good afternoon. Congrats on a great quarter. So first question on advance ADTX. Nice to see the unanimous panel vote for the crosswalk. Would love to get your initial thoughts on the rate associated with the crosswalk.

Speaker #4: Whether the decision matched your expectations and just any updated expectations around the transition to a full commercial launch.

Speaker #2: As of June 30, 2026, we had cash, 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.

Speaker #1: Yeah, good question, Max. Derek here. So first of all, we in our analysis and before we submitted our request to be crosswalked to that code, we believe that CASTLE, that was the most appropriate code.

Speaker #3: 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.

Speaker #1: The crosswalk code is for a test that predicts drug response to patients with psoriasis. The advance AD test, as you know, predicts drug systemic drug response to people with atopic dermatitis, similar kind of technology approaches, etc., so we thought that was the appropriate crosswalk to take care of that.

Speaker #3: 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.

Speaker #3: Thank you for your continued interest in CASTLE. Now we will be happy to take your questions. Operator?

Speaker #1: Obviously, the panel did too, I think it was a 21 to 00 vote in favor of crosswalking. The rate of 3675, I think, is a very, very strong rate for our test.

Speaker #4: 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.

Speaker #1: So we are quite pleased with the panel's recommendation or earliest voting outcome there. And as you know, CMS will go ahead and take that input.

Speaker #4: 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 Masuchi with Ross Capital Partners.

Speaker #1: And I think we see preliminary draft 2026 CLFX CLFS rate schedules in late September, so we're looking forward to seeing that affirm going forward.

Speaker #1: I think from an overall perspective, as that goes on with the clinical laboratory fee schedule effective January 1, 2026, that gives us a good benchmark in order to go ahead and set conversations with commercial payers as well regarding reimbursement rates, etc.

Speaker #1: So 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.

Speaker #4: Please go ahead.

Speaker #5: Hi. Good afternoon. Congrats on a great quarter. So first question on advance ADTX. Nice to see the unanimous panel vote for the crosswalk. Would love to get your initial thoughts on the rate associated with the crosswalk.

Speaker #4: That's great. Second question, can you just give a bit more detail around the tissue cipher ASP trends in the second quarter, any one timers?

Speaker #5: Whether the decision matched your expectations, and just any updated expectations around the transition to a full commercial launch.

Speaker #4: And just looking at the 20 million guidance rates, is that mostly captured by the improved tissue cipher volume growth outlook, or is there any expectation or improved expectation on the ASP side for tissue cipher?

Speaker #3: Yeah. Good question, Max. Derek here. So first of all, in our analysis and before we submitted our request to be crosswalked to that code, we believe that CASTLE, that was the most appropriate code.

Speaker #1: Frank?

Speaker #2: We did have yeah, we did have a 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.

Speaker #3: The crosswalk code is for a test that predicts drug response to patients with psoriasis. The advance AD test, as you know, predicts drug systemic drug response to people with atopic dermatitis, similar kind of technology approaches, etc.

Speaker #2: 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.

Speaker #2: I think we will we all are evaluating our payer experience and comparing that to our expectations, but I would not expect to see it again.

Speaker #3: So we thought that was the appropriate crosswalk to take care of that. Obviously, the panel did too; I think it was the 21-to-0 vote in favor of crosswalking.

Speaker #2: So most of the raise in our guide here is based on performance to date, and you continue performance of our two primary revenue drivers, DecisionX Melanoma and Tissue Cipher.

Speaker #3: The rate of 3,675, I think, is a very, very strong rate for our test. So we are quite pleased with the panel's recommendation, or earliest voting outcome there.

Speaker #3: And, as you know, CMS will go ahead and take that input, and I think we see preliminary draft 2026 CLFX rate schedules in late September.

Speaker #4: Great. Thank you.

Speaker #3: Our next question comes from Thomas Flatten with Lake Street Capital. Please proceed with your question.

Speaker #3: So we're looking forward to seeing that affirmed going forward. I think from an overall perspective, as that goes on with the Clinical Laboratory Fee Schedule, effective January 1, 2026, that gives us a good benchmark in order to go ahead and set conversations with commercial payers as well regarding reimbursement rates, etc.

Speaker #1: Hey, good afternoon. Congrats on the quarter. Two questions. Given the volume growth on tissue cipher, anything you can share with us with respect to Salesforce expansion to really keep maximizing on this opportunity?

Speaker #3: So 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.

Speaker #2: We have continued to sort of expand as we see territories hitting a forward-looking two and a half, three million dollars in revenue, Thomas. We don't necessarily give out specific numbers, but we're kind of floating around 100 sales representatives or sales territories for both our gastroenterology division and our dermatology division.

Speaker #5: That's great. Second question, can you just give a bit more detail around the tissue cipher ASP trends in the second quarter? Any one timers?

Speaker #5: And just looking at the 20 million guidance rates, is that mostly captured by the improved tissue cipher volume growth outlook, or is there any expectation or improved expectation on the ASP side for tissue cipher?

Speaker #2: We think that's probably pretty close to where it needs to be from a tissue cipher standpoint and dermatology sample for that matter. So I think we're kind of there.

Speaker #2: That being said, we had expansion this 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 a coming in from a volume year-over-year of 50, 52 percent is what we believe we're on track for.

Speaker #3: Frank?

Speaker #2: We did have—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.

Speaker #2: 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.

Speaker #2: So that's very quite positive.

Speaker #1: Got it. And then in the Detect AD study that you're doing with Cybase, how much of a window how much of a window do you need to have a clinical effect from a preventative perspective?

Speaker #2: I think we are evaluating our payer experience and comparing that to our expectations. But I would not expect to see it again. So most of the raise in our guide here is based on performance to date.

Speaker #1: How early does the test need to detect potential flares?

Speaker #2: And you continue performance of our two primary revenue drivers, DecisionX Melanoma and tissue cipher.

Speaker #5: Great. Thank you.

Speaker #4: Our next question comes from Thomas Flaten with Lake Street Capital. Please proceed with your question.

Speaker #2: 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.

Speaker #3: Hey, good afternoon. Congrats on the quarter. Two questions. Given the volume growth on tissue cipher, anything you can share with us with respect to Salesforce expansion to really keep maximizing on this opportunity?

Speaker #2: 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. So one could say you could go as short as a day and a half, two days in advance.

Speaker #2: 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.

Speaker #2: We have continued to sort of expand as we see territories hitting a forward-looking $2.5 to $3 million in revenue, Thomas. We don't necessarily give out specific numbers, but we're kind of floating around 100 sales representatives or sales territories for both our gastroenterology division and our dermatology division.

Speaker #2: So I think we'll kind of look at see if the data unwinds this fall preliminarily, and get a good positive set for what that looks like.

Speaker #2: 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, "So you're telling me I could use a disposable " I mean, not a disposable, a pen that will 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 into being as normal as possible, so that's a very, very positive feedback set there.

Speaker #2: We think that's probably pretty close to where it needs to be from a tissue cipher standpoint, and dermatology standpoint for that matter. So, I think we're kind of there.

Speaker #2: That being said, we had expansion this last year and had expansions late in the second quarter of this year here. So, we aren't even seeing the full fruits, I guess, of those expansion opportunities.

Speaker #2: But we feel pretty comfortable with coming in from a volume year over year of 50, 52 percent is what we believe we're on track for.

Speaker #2: So 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.

Speaker #2: So that's very quite positive.

Speaker #3: Got it. And then in the Detect AD study that you're doing with Cybase, how much of a window—how much of a window do you need to have a clinical effect from a preventative perspective?

Speaker #2: 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?

Speaker #3: How early does the test need to detect potential flares?

Speaker #2: I think that's to be determined, I think, maybe. Based upon our market research, interaction 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.

Speaker #2: And again, we should be able to predict the front end, and 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.

Speaker #2: And 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," 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.

Speaker #2: 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 atopical JAK inhibitor that works pretty quick as well.

Speaker #2: So 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.

Speaker #2: And then 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.

Speaker #2: So I think we'll kind of look to see if the data unwinds this fall, preliminarily, and get a good, positive sense of what that looks like.

Speaker #2: 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, "So you're telling me I could use a disposable— I mean, not a disposable, a pen that will 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 into being as normal as possible."

Speaker #2: Lengthen out their use of oral therapies. So rather than kind of following what's on the label, it's to say, "Well, I've got copay exposure potentially.

Speaker #2: 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?" And right now, we talk to our dermatological colleagues they're telling us that's all, of course, basically empirical.

Speaker #2: So that's a very, very positive feedback set there. So 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.

Speaker #2: The last patient I had here, Derek, was able to go from sort of a two-week injections of one drug to three and then to four.

Speaker #2: But when they got to five weeks, they all of a sudden had a heavy flare lymphology up. So 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.

Speaker #2: And again, we should be able to predict the front end. And 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.

Speaker #1: That's super helpful. Thank you.

Speaker #3: And our next question comes from Mason Carico with Stevens Inc. Please go ahead.

Speaker #4: 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 tissue cipher.

Speaker #4: In your view, did 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?

Speaker #4: And then 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?

Speaker #2: And then 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.

Speaker #1: Frank, do you want to take it? Or will you take that?

Speaker #5: Yeah.

Speaker #1: I.

Speaker #5: The as tempting as it is to look sequentially at these tests, I think we really need to look on a trend line and if you look at the trend on tissue cipher, it's pretty steady growth.

Speaker #2: Lengthen out their use of oral therapies. So rather than kind of following what's on the label, it's to say, "Well, I've got copay exposure potentially."

Speaker #5: We had a little bit lower Q1, a little higher Q2. If you kind of smooth that over four quarters, you get closer to a pretty consistent trend.

Speaker #5: And so I would say in the first place, I would look sort of at that multi-quarter pathway. But secondly, yeah, the seasonality we saw in Q1 did seem to be driven by fewer patient encounters and just as we see on the derm side, we will probably continue to see that on tissue cipher.

Speaker #2: The last patient I had here, Derek, was able to go from sort of a two-week injection of one drug to three, and then to four.

Speaker #2: But when they got to five weeks, they all of a sudden had a heavy flare phenology up. So 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.

Speaker #5: But we get to Q1, we'll look year over year and look at the multi-quarter trend rather than just sequentially quarter to quarter.

Speaker #4: Got it. That makes sense. And then among the advanced AD test orders that you've received to date, are you seeing any signs of repeat ordering there, increasing utilization among the initial cohort of accounts?

Speaker #2: I think most people would appreciate it.

Speaker #3: That's super helpful. Thank you.

Speaker #1: And our next question comes from Mason Carico with Stevens, Inc. Please go ahead.

Speaker #4: Or is that still mostly first-time trial orders? Thanks for taking the questions.

Speaker #2: I don't have the raw data in front of me to answer that quantitatively, Ben, but 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, etc., that we are seeing the sort of new ordering adoption.

Speaker #4: 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?

Speaker #4: And then 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?

Speaker #2: We expect to see based upon the emphasis putting it on from a Salesforce standpoint. And we have I think very few clinicians who have sort of been one and done.

Speaker #3: Frank, do you want to take it? I want you to take that.

Speaker #2: So we do see heavy repeat users going on right now.

Speaker #3: And our next question comes from Subi Nambi with Guggenheim Securities. Please go ahead.

Speaker #6: Hi, this is Ethan on for Subu. Thanks for taking our question. So what are your top priorities for R&D investments this year? And how much do you expect R&D to increase year over year?

Speaker #2: Frank, so.

Speaker #6: Sorry. My question was.

Speaker #5: Let me talk to you. Thanks for the question. Yeah. I'm sorry. I tracked it. Yeah. The I think we'll continue to see some increase in R&D as we continue to focus on newly internally developed programs.

Speaker #5: 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.

Speaker #5: And the pipeline so we will see some increase it's a deliberate investment. And it's 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.

Speaker #5: So some increase, but 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.

Speaker #6: Got it. Thanks.

Speaker #3: Our next question comes from Matthew Parisy with KeyBank Capital Markets. Please go ahead.

Speaker #5: Hi, yes. This is Matthew Parisy on for Paul Knight at KeyBank Capital Markets. Congrats on the great quarter. And thanks for the questions. You guys had a pickup it lost coverage, and you stopped marketing the test.

Speaker #5: Could you provide some color on what is driving the resurgence?

Speaker #7: SEC volume.

Speaker #6: SEC volume.

Speaker #7: What's driving that?

Speaker #2: I think the number one driver of SEC volumes is the clinical value, existing customers, seeing the test, and how they use it to manage their patients' high-risk squamous cell carcinomas.

Speaker #2: We did which I think we talked about at first quarter earnings, allow it sounds like a funny word, encourage, I guess, our Salesforce to say, "Hey, our predominant focus isn't will remain in the short-term cutaneous melanoma." But you have this atopic dermatitis test.

Speaker #2: You have this squamous cell carcinoma test that's had great clinical value. We need to make sure that we are spending some time on those elements, a small amount of time, but some time so 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 Salesforce.

Speaker #5: Thank you. And then if you could provide an update on the provised GI pipeline test.

Speaker #2: Sure. So we have as you know, when we acquired Provise, we had a portfolio of IP that was that came out of Hopkins was licensed in the Provise.

Speaker #2: They had a tissue-based assay, SO Predict, 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 tissue cycle result to a physician under the expectation that, "Hey, the most well-documented, the most viable test that predicts progression of Barrett's disease to high-grade dysplasia or cancer is the tissue cycle test." But if we're unable for features of the way the biopsy was taken, etc., not to get a spatial omics test to work, it would offer up SO Predict as a backup in those few cases.

Speaker #2: Regarding the cell collection device, Provise had also worked out a sponge which was fit into a capsule and attached to a string that went through the capsule.

Speaker #2: And the expectation was that when it swallowed that, it let it go down into your lower esophagus, maybe upper stomach or lower esophagus, the capsule dissolves, the sponge pops out, and you pull the sponge back out with that string.

Speaker #2: We have protocols for cell collection devices that are in design and sort of ready to go here. So I would say probably an update on that probably maybe first half of next year is probably the right timing.

Speaker #5: Thank questions.

Speaker #3: Our next question comes from Kyle Nixon with Canaccord Danuti. Please go ahead.

Speaker #5: Hi, this is Alex Vukasin. I'm on for Kyle Nixon. Thank you for taking our questions. And congrats again on the strong quarter. Just following up on something I've previously asked.

Speaker #5: We're about halfway through the year now. On tissue cycle, you exited 2023 at about 26% patient penetration. It's about 2 to 3 percent incremental penetration each of the next two years, about 31 exiting, 25, and you followed that up with a really strong first half and particularly Q2.

Speaker #5: Just understanding that there's 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?

Speaker #5: Just trying to get a sense of how durable this level of growth is going forward. Thanks.

Speaker #2: Okay. Go on, Frank.

Speaker #5: Yeah. Just clarifying there, we think we exited 25 at about 10 to maybe 11 or 12 percent patient penetration. On the addressable patient market, and if the numbers we provided earlier today would get us to maybe 15% middle teens, we are certainly going to begin to face the headlines of big numbers.

Speaker #5: And by definition, the easier positions to convert are the first ones. And the ones that come later are perhaps take a bit more work.

Speaker #5: So at some point, we'll begin to see that. But 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 tissue cycle for the Barrett's esophagus patients.

Speaker #5: And so lots of runway ahead as we convert those physicians that don't yet have the opportunity. So we will begin to get into those big numbers and begin to get into that more mature phase.

Speaker #5: But that test has a long way to go yet.

Speaker #2: Got it. Thank you. And just on the Novotel's LCD, which impacts the CRISPR lab and the Multi-X LCD, which impacts the Phoenix lab, does mid-2027 kind of remain a reasonable time frame for potential return of payment for SEC?

Speaker #2: And 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?

Speaker #2: Thank you. So 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 something we've heard nothing, by the way, negative.

Speaker #2: So don't take that commentary as negative. From a standpoint of a return to coverage, we did model out based upon a very, very limited database that maybe it would take a year, a year and a quarter to have those Medicare contractors work through the reconsideration requests.

Speaker #2: That would be sort of in the second half of this year. So I think expecting to see daylight in the second half of 2026 I think is a reasonable expectation.

Speaker #2: Once a draft was posted, we don't really have any sense right now was would they work quicker to go from draft to final, or would the would they follow the currently path, which is roughly taking the entire year to finalize a draft LCD to final?

Speaker #2: So 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, the second half of this year, I should say, then we should anticipate roughly a year later regaining coverage for Medicare beneficiaries, which would be a fantastic opportunity to really advance their care.

Speaker #2: So I think that's how I would kind of view that per se. 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 in a broad basis.

Speaker #2: But that's being worked through right now.

Speaker #5: Got it. Thank you very much.

Speaker #3: Our next question comes from Mark Massaro with BTIG. Please proceed with your question.

Speaker #6: Hey, guys. This is Megan on from 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?

Speaker #2: Okay. What was the last part?

Speaker #6: FDA approval.

Speaker #2: Oh, approval. So I would separate those two things here, Megan. So the breakthrough device designation enables us to sort of go to the front line, get other special features, I guess you would say, in terms of their view of that of a submission.

Speaker #2: I don't know if we've talked publicly about our timing of that. I would think we might expect to have FDA clearance slash approval maybe later on this year, early next year.

Speaker #2: But I'd separate BDE gives you an opportunity to really have a more powder in your gun, I guess you would say, in addressing the FDA.

Speaker #2: There are certain expectations on both sides of the table.

Speaker #6: Awesome. Thank you, guys. And you continue 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.

Speaker #2: Yeah. We had talked through, I guess, the first quarter earnings was a high year-over-year growth rate, but 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.

Speaker #2: And I think we're right on track to achieve what our internal goals are. So we're seeing the promotional responsiveness, the value of our test in the marketplace, hasn't really changed a whole lot in that fantastic course.

Speaker #6: Great. Thank you, guys.

Speaker #3: Our next question comes from Puneet Souda with Learing. Please proceed with your question.

Speaker #7: Hi. This is Philip on for Puneet. Thanks for the question. And congrats. And a great quarter. I know there were a lot of questions on tissue cycle already, but it's all right.

Speaker #7: 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.

Speaker #7: So 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 definite use that may have played a role?

Speaker #2: Frank, you or me?

Speaker #5: Yeah, sure. So we don't yet have the procedures data for the second quarter. And as we noted in our last call, first quarter was lower in terms of upper endoscopy procedures than we've seen in prior quarters.

Speaker #5: But again, I think that the important focus here is on that multi-quarter trend. Maybe trailing forward, you draw a nice trend line and you see the tissue cycles fairly steady, fairly in line with where it's been through those maybe trailing three or four quarters.

Speaker #5: So 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.

Speaker #5: But when you trend that out, it's just good solid increased penetration on the volume side for tissue cycle through the last year.

Speaker #7: Got it. That makes sense. And then I also wanted to ask, did you see any impact from ACA disenrollment on your test volumes this quarter?

Speaker #7: 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 and is a younger, more commercially insured franchise like Advance AD more exposed than melanoma and tissue cycle?

Speaker #7: I know it's more Medicare skewed.

Speaker #2: Oh, I don't think we have any visibility to be able to comment on that question. I guess I would say.

Speaker #7: Okay. No worries.

Speaker #2: I don't think I was trying to think 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.

Speaker #2: We've always had a very low exposure, a couple of points. It was all so 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're not we have no way to see that, I guess you would say.

Speaker #7: Got it. Fair enough. Thank you so much.

Speaker #3: Our last question comes from Robbie Vanberger with Baird. Please go ahead with your question.

Speaker #8: Hi, guys. This is Sean for Robbie. Thank you for taking my questions. First, I guess just again, on kind of the lower than expected seasonal volumes there for decision DX melanoma in Q2, given some of those Salesforce items you mentioned, it's kind of what informs confidence in that mid to high single-digit growth for the year.

Speaker #8: And I guess how should we think about year-over-year volume growth in Q3 and Q4 for that test as well, too? Thanks.

Speaker #2: So 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.

Speaker #2: And 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.

Speaker #2: In terms of third and fourth quarter, second half expectations, I guess that 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.

Speaker #8: Great. And then was just wondering too, how you're kind of thinking about the progression of Advance AD TX rollout here. Any plans to kind of further broaden this out for the rest of the year?

Speaker #8: And maybe by the end of the year, how many clinician offices are you maybe trying to target here as part of your phased approach?

Speaker #8: Thanks.

Speaker #2: So we are still managing sort of, I guess, field-based expectations. So 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 we're relatively 80, 85, or 85% focused on cutaneous melanoma from sort of a call-focused commission bonus perspective.

Speaker #2: With the remaining 15% being I guess more heavier weighted to atopic to the Advance AD test 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.

Speaker #2: So that will certainly, I think, change a bit of the acceleration in the positive manner for Advance AD without having us hopefully see a sacrifice in melanoma focus.

Speaker #2: We are still trying to manage volume so that we don't get too far ahead of ourselves, but as you would know, if you don't create demand, then there isn't much reason to have Medicare or commercial payers to really step up and pay attention.

Speaker #2: And as we sort of 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, we're allowed to have the third quarter, that'll let us go ahead and say now we should plan on opening this up a bit more in 2027.

Speaker #3: 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.

Speaker #2: 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.

Q2 2026 Castle Biosciences Inc Earnings Call

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