Castle Biosciences, Inc. (CSTL) Q2 2025 Earnings Call Transcript

Castle Biosciences (CSTL) reported Q2 2025 revenue of $86.2 million, a 1% year-over-year decrease primarily due to DecisionDx-SCC non-coverage, which was largely offset by a 92% surge in TissueCypher volume. Despite lower net income and adjusted EBITDA, the company raised its full-year 2025 revenue guidance to $310M-$320M, driven by strong core test performance, including DecisionDx-Melanoma's 4% volume growth and new data demonstrating a 32% mortality risk reduction. Strategic initiatives include advancing DecisionDx-Melanoma towards FDA submission following its Breakthrough Device Designation, pursuing reconsideration for SCC coverage, and expanding its pipeline in atopic dermatitis and GI diagnostics via internal programs and recent acquisitions, positioning CSTL for diversified future growth.

Analysis

Castle Biosciences reported Q2 2025 revenue of $86.2 million, a marginal 1% year-over-year decrease that masks a significant strategic pivot and strong underlying growth in key franchises. The topline figure was impacted by a $12.5 million revenue decline from dermatological tests, primarily due to the Novitas non-coverage determination for DecisionDx-SCC which became effective April 24, 2025. However, this was almost entirely offset by an $11.7 million revenue increase from non-dermatological tests, spearheaded by the TissueCypher franchise, which saw test report volume surge 92% year-over-year to 9,170. Management quantified the core business strength by noting that excluding DecisionDx-SCC revenue from both periods, normalized revenue growth was approximately 23%. The company's flagship DecisionDx-Melanoma test continues to perform solidly, with volumes growing 4% YoY and new clinical data from a large NCI SEER study demonstrating a 32% reduction in mortality risk, fortifying its value proposition as it moves toward an FDA submission following its Breakthrough Device Designation. Despite the SCC headwind, the company raised its full-year 2025 revenue guidance to $310-$320 million, signaling strong confidence in continued momentum. The company is actively managing the SCC reimbursement issue, having submitted reconsideration requests, with Novitas already accepting the request as valid. Strategically, Castle is leveraging its robust balance sheet, with $275.9 million in cash, to expand its pipeline through the Previse acquisition for GI diagnostics and a collaboration with SciBase, alongside an internally developed atopic dermatitis test slated for a limited launch by year-end 2025, effectively diversifying its portfolio and mitigating single-product risk.

Key Decisions for Investors

• Investors should look past the flat headline revenue and focus on the successful execution of the company's diversification strategy, evidenced by the 92% volume growth in TissueCypher and the raised full-year guidance, which indicates core product strength is more than compensating for the DecisionDx-SCC headwind.
• The new NCI SEER data showing a 32% mortality reduction for DecisionDx-Melanoma, combined with its recent Breakthrough Device Designation, are significant de-risking events; monitor progress towards an FDA submission, which could serve as a major catalyst for expanding private payer coverage.
• While the negative impact from the DecisionDx-SCC non-coverage decision is largely understood, the successful submission of a reconsideration request to Novitas introduces a potential upside scenario, making any further updates on this process a key factor to watch.
• Consider the long-term growth potential from the pipeline, as the planned atopic dermatitis test launch by year-end 2025 and new capabilities from the Previse and SciBase deals position Castle to enter large, adjacent markets utilizing its existing commercial channels.