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Castle Biosciences Doubles Q1 Revenues

NEW YORK – Castle Biosciences reported after the close of the market on Monday that it doubles its first quarter revenues year over year.

For the three months ended March 31, the skin cancer diagnostics company reported revenues of $17.4 million, up from $8.7 million a year earlier, and beating the average Wall Street estimate of $13.8 million.

Included in revenues for Q1 2020 and 2019 were positive revenue adjustments of $3.2 million and $600,000, respectively, related to tests delivered in prior periods, the company said. The additional positive revenue adjustments in the current year primarily related to recognition of revenues for certain tests for which no revenue was recognizable originally but was recognized upon cash collection of payments in the current-year period.

In Q1 2020, Castle delivered 4,574 DecisionDx-Melanoma test reports, growth of 42 percent compared to the 3,232 reports delivered during Q1 2019. Castle also said new ordering clinicians for DecisionDx-Melanoma grew 43 percent in the first quarter, compared to the same period in 2019. The company also delivered 361 DecisionDx-UM test reports in Q1 2020, which was relatively flat compared to the 360 reports it delivered during Q1 2019.

"The Castle Biosciences team continued to perform at an exceptional level in the first quarter, with significant growth in revenue and DecisionDx-Melanoma test report volume," Castle President and CEO Derek Maetzold said in a statement. "We are making investments in our business intended to put us in a position of strength as we continue to move through the current COVID-19 situation and execute on our strategy in the latter half of 2020 and 2021. This includes filling key positions and the initiation of clinical studies to drive additional evidence development for DecisionDx-Melanoma as well as to support the commercial launch of our two pipeline tests."

The firm reported net income in Q1 of $570,000, or $.03 per share, based on 17.4 million weighted-average shares outstanding, compared to a net loss of $2.3 million, or $1.22 per share, based on 1.9 million weighted-average shares outstanding, a year earlier. The company closed its initial public offering of 4.6 million shares in August 2019, increasing its number of outstanding shares. Wall Street analysts had estimated a loss per share of $.15 for Q1.

On a conference call with analysts following the release of the earnings, Maetzold said that the revenue increase was due in part to the continued expansion of its commercial teams, as well as continued development of evidence of clinical utility for its tests. He said that DecisionDx-Melanoma has about 14 percent penetrance into the melanoma market as of Q1, adding that physicians are ordering DecisionDx-UM for about 85 percent of patients with uveal melanoma.

Maetzold said that the company is planning to launch its DecisionDx-SCC test for patients diagnosed with high-risk cutaneous squamous cell carcinoma (SCC) in the third quarter of 2020. It's also planning to launch its gene expression profile test for suspicious pigmented lesions in the second half of 2020. According to Maetzold, these two tests will expand the company's total addressable market in the US by $1.4 billion.

In his statement, he further noted that while the COVID-19 pandemic has caused a high level of uncertainty and a significant reduction in biopsies for patients with cutaneous melanoma, Castle's business was not materially affected during Q1. However, he added, orders for the company's lead product, DecisionDx-Melanoma, saw a 43 percent year-over-year decline from April 1 to May 6 as a result of patient flow disruptions due to the pandemic. That decline stabilized in the second week of April, and dermatological clinician customers have indicated to Castle that they expect to expand office hours during the next two to three months, to catch up on rescheduled appointments and prioritize patient biopsies.

On the call, Maetzold said it was a little harder to tell whether the pandemic had caused any softening in orders for DecisionDx-UM, as monthly year-over-year test orders are sometimes hard to compare because the disease is so rare. However, the company does believe that the pandemic has had a small negative impact on orders for DecisionDx-UM, as well.

Maetzold did note that tertiary care centers seemed to be moving a bit slower than private practices to get back to business as usual, seeing patients, and catching up on biopsies. He said that this bodes a bit better for Castle's business as the company has more customers in private practice than from academic centers. However, he also cautioned that while it's unlikely that patients with putative melanoma lesions would decide to ignore them for the whole year rather than go to the dermatologist because of fears surrounding the pandemic, it's not entirely certain that all patients will elect to have biopsies when necessary, so there is still a bit of uncertainty around how the business will recover for the rest of 2020.

In response to the pandemic, the company said it made adjustments to its laboratory operations in March designed to keep employees safe and provide uninterrupted access to its DecisionDx-Melanoma and DecisionDx-UM tests. Castle noted it has maintained its specimen receipt to report turnaround time to an average of less than five days.

The company also said it received $1.9 million in relief funds allocated to Medicare providers under the CARES Act and an advance payment of $8.3 million from the Centers for Medicare & Medicaid Services, which will be applied against future Medicare claims the Company submits for reimbursement later this year.

Castle's Q1 R&D expenses rose 107 percent to $2.9 million from $1.4 million a year earlier, and its SG&A costs for the quarter rose 85 percent to $11.1 million from $6.0 million.

The company had cash and cash equivalents of $98.7 million at the end of the quarter.

Due to uncertainties regarding the duration and impact of the COVID-19 pandemic, the company suspended its previously announced annual revenue guidance for 2020.

Castle's shares rose nearly 2 percent to $33.02 in Tuesday morning trading on the Nasdaq.