NEW YORK – Castle Biosciences said Monday after the close of the market that it saw record test volumes in the second quarter of 2022, driving revenues up 53 percent year over year. According to the firm, most of this reflects continued market penetration by its PCR-based gene expression skin cancer test portfolio.
For the three months ended June 30, the cancer testing firm reported total revenues of $34.8 million compared to $22.8 million during Q2 2021, significantly beating analysts' consensus estimate of $28.4 million.
Based on this performance, Castle executives said the company is increasing its full-year revenue guidance to a range of $130 million to $135 million from previous guidance of $118 million to $123 million.
The firm said it delivered 11,034 total test reports in the second quarter of 2022, up about 57 percent from 7,007 in Q2 2021. Castle's DecisionDx-Melanoma test volume was up about 39 percent, while sales of its newer DecisionDx-SCC (squamous cell carcinoma) test jumped more than 70 percent. Meanwhile, volumes for MyPath Melanoma and DiffDx-Melanoma rose about 52 percent.
During a call with investors, Castle President and CEO Derek Maetzold said that the company's dermatology test volume rose 44 percent year over year and 16 percent from Q1 2022. He argued this growth is directly linked to the clinical value of the firm's dermatology tests, as well as the strategic investments made in its business in recent years with the acquisition of new tests and technologies outside of melanoma and other skin cancers.
"We believe this quarter of strong organic growth, which led to record test report volume, is a result of the continued execution on our plan," Maetzold said.
While the company views a portion of its increased dermatology test volume as reflective of a seasonal boost in melanoma diagnoses, Castle sees its main growth driver as a combination of both investment and "meaningful new data," including an initial presentation from the firm's collaboration with the National Cancer Institute linking test results to clinical information from the SEER registry.
"We believe these are the key factors that drove the accelerated penetration that we observed," Maetzold said.
He added that, based on performance trends, Castle is at a point where it plans to split its sales team into two arms, one focusing exclusively on its DecisionDx tests for melanoma and squamous cell carcinoma, and another supporting its DiffDx-Melanoma and MyPath Melanoma assays.
MyPath Melanoma is already reimbursed by the Centers for Medicare and Medicaid Services, but Maetzold highlighted Castle's receipt this June of local coverage determinations from Medicare Administrative Contractors Palmetto GBA and Meridien, which would also provide coverage criteria for DiffDx-Melanoma. "We believe [that] LCD will be final by the end of the second quarter 2023," he said.
In the meantime, the reimbursement landscape for DecisionDx-SCC, Castle's squamous cell carcinoma assay, has become muddied.
Maetzold said that the company has been receiving reimbursement from Medicare contractor Novitas for the SCC test following a review and pricing decision that was finalized in Q2. However, this June, the MAC posted a new draft LCD concerning oncology biomarkers that proposes a complex web of requirements to align coverage for tests to recommendations from the ClinGen and OncoKB databases, and guidelines from the National Comprehensive Cancer Network.
"Two of these databases do not review gene expression profile tests and NCCN has not yet, to our knowledge, reviewed DecisionDx-SCC," Maetzold said. "As such, if finalized as proposed, [our test] would not be included as covered."
Further, he added, "we cannot predict whether this draft LCD will be finalized as proposed or what the timing of any final LCD might be."
Castle also said it returned 352 reports for its new gastrointestinal offering, TissueCypher Barrett's esophagus, a proteomic and morphological pathology test. This was up from just 56 tests in the first quarter. Maetzold said the company is still in its early stages of commercial growth, but a recent mention in July by the American Gastroenterological Association has been encouraging. "Given our momentum from the first quarter through the second and into July, we are executing on our planned commercial team investments for [this test] and, beginning in September, we expect to add additional territories," he said.
According to Maetzold, a particularly positive aspect of the AGA's review was a focus on the potential value of TissueCypher in confirming diagnoses in non-dysplastic BE patients. "From our perspective it's really up to us to carefully and consciously educate our gastroenterology customer base and grow that over the course of the next several years [in terms of] what this test will become, or should become, which is a very core part of the early workup," he said.
Castle also returned 827 reports for its IDgenetix assay, a pharmacogenomic test focused on psychiatric medications acquired earlier this year along with its developer AltheaDx.
Maetzold said Castle is still in the early stages of the Althea integration, after its acquisition deal closed on April 26. "Our commercial team of approximately 20 outside sales territories completed phase two training in June, and our lab and other integration efforts are going well with an expectation that further integration will allow us to enter 2023 with a well-integrated team," he said.
By 2025, Maetzold said the company expects the addition of TissueCypher BE test and Althea's IDgenetix to begin to materially contribute to the business.
As its revenues rose, Castle's Q2 R&D and SG&A spending also jumped significantly, with R&D expenses rising 75 percent to $11.9 million from $6.8 million, and SG&A costs growing 80 percent to $37.5 million from $20.8 million a year ago.
The firm's net loss for the second quarter was $1.6 million, or $.06 per share, compared to $8.8 million, or $.35 per share, for the same period in 2021.
Castle ended the quarter with $273.2 million in cash and cash equivalents.