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Castle Seeks to Dissipate Medicare Concerns as Q2 Revenues Rise 44 Percent

NEW YORK – Castle Biosciences said Wednesday after the close of the market that its second quarter 2023 revenues were up 44 percent year over year.

For the three months ended June 30, the cancer testing firm reported total revenues of $50.1 million compared to $34.8 million during Q2 2022, beating analysts' consensus estimate of $44.2 million.

Based on these results, Castle raised its full-year 2023 revenue guidance to at least $180 million from a previous guidance of $170 million to $180 million.

The Friendswood, Texas-based company said it delivered 16,820 total test reports in the second quarter of 2023, up about 52 percent from the 11,034 it recorded in Q2 2022. Castle's DecisionDx-Melanoma test volume was up about 21 percent, while sales of its newer DecisionDx-SCC (squamous cell carcinoma) test doubled. Volumes for MyPath Melanoma and DiffDx-Melanoma were flat year over year.

Castle President and CEO Derek Maetzold said in a statement that the quarter saw significant expansion of the body of evidence for its tests' clinical value, and he noted that two patient outcome studies on the DecisionDx-Melanoma test were published during the second quarter.

The first study, a collaboration with the National Cancer Institute’s SEER Program Registries, found that that testing with DecisionDx-Melanoma was associated with lower melanoma-specific and overall mortality relative to untested patients.

"DecisionDx-Melanoma testing was associated with a 29 percent lower melanoma-specific mortality and a 17 percent lower overall mortality relative to patients who did not receive testing," Maetzold said during a call discussing the firm's quarterly financial results.

A similar multicenter study found that sentinel lymph node negative patients whose follow-up treatment was directed by DecisionDx-Melanoma results saw earlier detection of their recurrences, when the tumor burden was lower. At the study endpoint, 76 percent of recurring patients in the tested group were alive compared to 50 percent in the untested group.

Although Castle has coverage for DecisionDx-Melanoma under the Centers for Medicare and Medicaid Services' MolDx program, it has been struggling to gain and maintain coverage for its similar squamous cell carcinoma product, with negative draft local coverage determinations issued by Medicare contractor Novitas and others.

According to Maetzold, during recent open comment periods, Castle has been able to share new data on the potential utility of DecisionDx-SCC to inform adjuvant radiation therapy (ART). The company intends to publish the data as soon as possible and hopes it may help persuade payors of the assay's clinical value.

The data, from a matched case-control analysis, suggest that a DecisionDx-SCC Class 2B result could potentially identify a group of patients with a significant reduction in metastasis rate after having received ART compared to DecisionDx-SCC Class 1 who did not appear to receive any significant benefit.

During the company's earnings call, Maetzold admitted that there are significant unknowns regarding future coverage, but he stressed that Castle believes it has identified a significant unmet clinical need in the SCC space. "Given that we believe there are roughly 200,000 patients diagnosed each year with high-risk SCC and who are eligible for adjuvant radiation therapy per current NCCN guidelines, the potential impact on improved outcomes and reduced healthcare costs is tremendous," he said.

Specific to a recent non-coverage draft from Medicare's MolDx program — which is administered by contractor Palmetto GBA but is also adhered to by several other MACs — Maetzold said that he saw "core issues" in terms of the assessor's consideration of current treatment standards for SCC patients.

"For example, the premise of the MolDx team, I think, was that … adjuvant radiation therapy [isn't] actually useful in people with SCC. But [it] is recommended for every high-risk patient by every relevant guideline committee," Maetzold said.

"We would hope that with the addition of several key publications … including the adjuvant radiation therapy analysis … that there would be enough evidence during the course of the next year to … lead to continued coverage," he added.

Castle also said it returned 1,447 reports for its recently launched gastrointestinal offering, TissueCypher Barrett's esophagus, and 2,681 reports for its IDgenetix assay, a pharmacogenomic test focused on psychiatric medications — a year-over-year increase of 311 percent and 224 percent, respectively.

Castle's Q2 R&D and SG&A spending also bumped up, with R&D expenses rising 12 percent to $13.3 million from $11.9 million, and SG&A costs up about 19 percent at $44.7 million compared to $37.5 million a year ago.

Its net loss for the second quarter was $18.8 million, or $.70 per share, compared to $1.6 million, or $.06 per share, for the same period in 2022, beating the analysts' average estimate of a loss of $.91 per share.

Castle ended the quarter with $95.9 million in cash and cash equivalents and $129.6 million in marketable securities.

In morning trade on the Nasdaq, Castle shares were up about 14 percent at $19.13.