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Castle Biosciences Sees Big Gains in New Testing Niches as Legacy Assays Grow Steadily


NEW YORK – Castle Biosciences said Thursday that third quarter 2023 revenues were up 66 percent compared to the same period last year, driven by increased test volume across its portfolio with particularly striking gains in Barrett's esophagus testing, a relatively new niche for the firm that it entered via a 2021 acquisition.

Castle reported $61.5 million in total revenues for the period ended Sept. 30, compared to $37.0 million in Q3 2022, and soaring past analysts' average estimate of $48.5 million.

The company said its revenue calculations included adjustments related to tests delivered in prior periods, namely a $883,000 net positive adjustment for Q3 2023, compared to a $277,000 net negative adjustment for the same period of 2022. The firm's non-GAAP revenue, removing these adjustments, rose 63 percent to $60.6 million from $37.3 million in the prior-year quarter.

Based on this record of consistent performance Castle said it is raising its 2023 revenue guidance to at least $200 million, up from a prior estimate of at least $180 million. Investors reacted favorably to the strong quarter, as shares of the company had jumped nearly 11 percent to $18.45 in early Friday trading on the Nasdaq.

Castle delivered 18,409 total test reports in Q3, up 52 percent compared to 12,114 in the same period of 2022. The firm's TissueCypher Barrett's Esophagus (BE) test volume in particular skyrocketed to 2,829 results delivered, more than three times the 690 reported for the third quarter of 2022.

In a conference call recapping the company's Q3 performance, President and CEO Derek Maetzold attributed this year-over-year growth largely to the robustness of the patient population being either newly diagnosed or rescoped every year for BE. Test volume a year ago was "very solid … for a sales team that was just starting to get its feet [under it] … and the reports this quarter really reflect good demand for our product as a test going forward," he said.

Accompanying this boost in adoption has been a flurry of BE-focused scientific publications and presentations in recent months. The assay uses a multiplexed fluorescence imaging platform to analyze both biomarkers and tissue morphology with a proprietary algorithm producing a risk score that classifies patients into high, intermediate, and low risk of progression.

Maetzold highlighted an August study published in the American Journal of Gastroenterology suggested that Castle's BE test results can significantly improve management decisions for low-grade disease diagnoses.

A subsequent presentation, at World Congress for Esophageal Diseases, similarly showed that the Barrett's Esophagus test can identify patients at a higher or lower risk of developing esophageal cancer better than standard pathology and clinical risk factors, guiding escalation or de-escalation of patient management.

In a September publication in the AGA journal Gastroenterology, still more evidence shored up the superiority of TissueCypher Barrett's Esophagus  over standard-of-care pathology review in predicting progression to high-grade dysplasia in patients with an initial diagnosis of low-grade dysplasia.

Finally, new data presented in October at the American Foregut Society annual meeting suggested significant clinical utility for the assay in driving escalation of treatment for patients with non-dysplastic disease whom Castle's assay suggests are at a higher risk of progression to high-grade dysplasia or esophageal adenocarcinoma than otherwise indicated by their clinicopathologic risk factors.

"We have FDA-approved devices, ablation tools, now … that have been shown in clinical trials to be highly effective at killing off Barrett's esophagus lesions. And when you do that, they don't progress to cancer, which is the goal," Maetzold said. However, clinical guidelines tend to advise the use of these treatments only in higher-risk patients.

The new data showing that TissueCypher BE can identify patients with non-dysplastic disease who actually have a progression risk even higher than low-grade dysplasia presents a compelling picture for a gastroenterologist who might have patients in their own practice that surprisingly progressed to cancer from a non-dysplastic lesion between normal visits, Maetzold said.

"They all recognize there's a need there to find those patients in that large non-dysplastic group, which makes up about 95 percent of the overall patient population," he added. "They've experienced those train wrecks and now they have a tool available that can meet the needs of their patients."

Castle's other recent addition, the IDgenetix pharmacogenomic assay, also saw an adoption boom year over year with the firm reporting 2,791 IDgenetix test reports during the quarter, more than double the 1,208 in Q3 2022.

The firm also saw significant volume growth in its suite of PCR-based gene-expression assays for cutaneous and uveal melanoma, and for cutaneous squamous cell carcinoma.

Castle delivered 1,011 MyPath Melanoma test reports during the quarter, compared to 834 MyPath Melanoma and DiffDx-Melanoma aggregate test reports in the third quarter of 2022, an increase of 21 percent.

For DecisionDx-UM, a test for uveal melanoma, test volume was nearly flat year over year. Castle delivered 399 results during the third quarter of 2023 compared to 392 in the same period of 2022.

Reports delivered for Castle's most established test, DecisionDx-Melanoma totaled 8,559 in the quarter, up 16 percent compared to 7,354 in Q3 2023. Its squamous cell carcinoma assay, DecisionDx-SCC, yielded 2,820 reports during Q3 2023, up 72 percent from 1,636.

Despite the increase in SCC testing, uncertainty remains for its future insurance reimbursement landscape.

As a result, Castle is leaving DecisionDx-SCC out of its guidance for the near future. Maetzold said that the company wouldn't expect to see final coverage determinations issued by payors until at least mid-next year.

Castle's Q3 net loss, which included non-cash stock-based compensation expense of $13.0 million, was $6.9 million, or $.26, compared to a net loss of $20.2 million, or $.77, in the same period of 2022. On average, analysts had expected a loss per share of $.76.

Its Q3 R&D expenses rose about 18 percent to $12.9 million from $10.9 million. SG&A costs were $44.6 million during the quarter, up 22 percent from $36.6 million.

The company ended the quarter with cash and cash equivalents totaling $91.2 million, and $138.5 million in marketable securities.