Castle Biosciences Reports Strong Growth Amid Challenges

Castle Biosciences ((CSTL)) has held its Q1 earnings call. Read on for the main highlights of the call.

Castle Biosciences’ recent earnings call painted a picture of robust growth tempered by some operational challenges. The company reported significant revenue growth and strategic acquisitions, notably the acquisition of Previse and the impressive performance of TissueCypher. However, the call also highlighted challenges such as a decline in gross margins, the discontinuation of IDgenetix, and reimbursement issues for DecisionDx-SCC. Despite these hurdles, the positive developments seem to outweigh the negatives, offering a promising outlook for the company.

Revenue Growth

Castle Biosciences reported a commendable revenue growth of 21%, reaching $88 million. This growth was driven by a 33% increase in test report volume for its core revenue drivers compared to the first quarter of 2024, showcasing the company’s expanding market presence and demand for its diagnostic tests.

Strong Balance Sheet

The company maintains a strong financial position with $275 million in cash, cash equivalents, and marketable investment securities. This robust balance sheet provides Castle Biosciences with the financial flexibility to pursue strategic initiatives and investments.

Previse Acquisition

Castle Biosciences has signed a definitive agreement to acquire Previse, a move that enhances its position in the gastrointestinal space. This strategic acquisition is expected to bolster the company’s portfolio and expand its market reach.

TissueCypher Growth

TissueCypher, one of Castle Biosciences’ key products, saw a remarkable 117% year-over-year growth in test reports, delivering 7,432 test reports in the first quarter of 2025. This growth underscores the product’s strong market acceptance and potential for future expansion.

DecisionDx-Melanoma Milestone

The DecisionDx-Melanoma test achieved a significant milestone by surpassing 200,000 test orders since its launch. This achievement highlights the test’s critical role in melanoma diagnosis and management.

Gross Margin Decline

The company’s gross margin declined to 49.2% in the first quarter of 2025 from 77.9% in the same period of 2024. This decline was primarily due to a one-time adjustment related to the discontinuation of the IDgenetix test.

IDgenetix Discontinuation

Castle Biosciences decided to discontinue the IDgenetix test effective May 2025, citing market changes and a strategic focus on resource allocation. This decision reflects the company’s commitment to optimizing its product portfolio.

DecisionDx-SCC Reimbursement Challenge

The company faces reimbursement challenges for its DecisionDx-SCC test, as the Novitas Local Coverage Determination policy included noncoverage language effective April 24, 2025. This presents a hurdle in the test’s market adoption.

Increased Operating Expenses

Operating expenses rose to $115.9 million in the first quarter of 2025, up from $78.4 million in the same period of 2024. This increase reflects the company’s investments in growth initiatives and operational expansion.

Forward-Looking Guidance

Castle Biosciences has raised its total revenue guidance for 2025 to between $287 million and $297 million, reflecting confidence in its growth trajectory. The company also reported an adjusted gross margin of 81.2% and a net loss of $25.8 million for the quarter. These projections indicate a focus on long-term growth despite short-term challenges.

In summary, Castle Biosciences’ earnings call highlighted a period of substantial growth and strategic advancements, tempered by some operational challenges. The company’s strong revenue growth, strategic acquisitions, and product milestones underscore its potential for future success. Despite facing issues like gross margin decline and reimbursement challenges, Castle Biosciences remains well-positioned for continued growth and market expansion.