Castle Biosciences - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue was $88.0M, up 21% year over year, and above S&P Global consensus ($80.4M), while GAAP diluted EPS of $(0.90) missed consensus (−$0.07); Adjusted EBITDA was $13.0M and Adjusted Gross Margin held at 81.2% despite a one-time $20.1M amortization linked to discontinuing IDgenetix. Values retrieved from S&P Global.*
• Management raised FY2025 revenue guidance to $287–$297M (prior $280–$295M), but this is below S&P consensus ($333.0M), reflecting the April 24 Medicare non‑coverage for DecisionDx‑SCC and a shift of derm sales focus to melanoma. Values retrieved from S&P Global.*
• Core test momentum continued: TissueCypher reports grew 117% YoY to 7,432; DecisionDx‑SCC reports rose 22% YoY to 4,375; DecisionDx‑Melanoma surpassed 200,000 lifetime orders and was +3% YoY in Q1.
• Strategic GI expansion: signed a definitive agreement to acquire Previse (methylation technology Esopredict; expected to close in weeks), with revenue impact immaterial near‑term; potential to combine methylation and spatialomics to strengthen Barrett’s offering.

What Went Well and What Went Wrong

What Went Well

• Strong top-line and core test growth: revenue +21% YoY to $88.0M; Adjusted revenues $87.2M (+22% YoY); TissueCypher test reports +117% YoY to 7,432; DecisionDx‑SCC +22% YoY to 4,375; DecisionDx‑UM +11% YoY to 470.
• Resilient margins ex one-time: Adjusted Gross Margin 81.2% (vs 80.5% LY) despite accelerated amortization; Adjusted EBITDA $13.0M vs $10.5M LY.
• Management tone and evidence build: “exceptional start to the year” and milestone of 200,000 DecisionDx‑Melanoma orders; multiple new studies and conference presentations validating DecisionDx‑Melanoma and DecisionDx‑SCC utility.

Quote: “We are pleased with the exceptional start to the year… we are raising our 2025 total revenue guidance to $287-297 million.” — Derek Maetzold, CEO.

What Went Wrong

• EPS miss versus consensus: GAAP diluted EPS of $(0.90) vs S&P consensus −$0.07, driven by a one‑time $20.1M amortization tied to discontinuing IDgenetix. Values retrieved from S&P Global.*
• SCC reimbursement headwind: Novitas LCD non‑coverage for DecisionDx‑SCC effective April 24, 2025; company pursuing reconsideration with Novitas and MolDX; near‑term derm sales force shifting toward melanoma.
• IDgenetix discontinued effective May 2025; related accelerated amortization depressed GAAP gross margin to 49.2%, and near‑term modest revenue impact (though positive for EBITDA).

Transcript

Operator (participant)

Good afternoon and welcome to Castle Biosciences' first quarter 2025 conference call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions, followed by a question-and-answer session. I would like to turn the call over to Camilla Zuckero, Vice President of Investor Relations and Corporate Affairs. Please go ahead.

Camilla Zuckero (VP of Investor Relations)

Thank you, Operator. Good afternoon, everyone. Welcome to Castle Biosciences' first quarter 2025 results conference call. Joining me today are Castle's Founder, President, and Chief Executive Officer, Derek Maetzold, Chief Financial Officer, Frank Stokes, and Senior Vice President Medical, Dr. Matthew Goldberg, board-certified dermatologist and dermatopathologist. Information recorded on this call speaks only as of today, May 5th, 2025. Therefore, if you are listening to the replay or reading this transcript of this call, any time-sensitive information may no longer be accurate. A recording of today's call will be available on the Investor Relations page of the company's website for approximately three weeks following the conclusion of the call. Before we begin, I would like to remind you that some of the statements made today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements include, but are not limited to, statements about our financial outlook, TAM, intended use populations, and similar items referenced in our earnings release issued today, and statements containing projections regarding future events or our future financial or operational results and performance, including our anticipated 2025 total revenue, our expectations regarding reimbursement for our products, opportunities for growth, impacts of seasonality and other trends, the size and structure of our commercial teams, the timing of targeted milestones, and the impact of our investment and growth initiatives, including our ability to achieve long-term growth and drive stockholder value. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties, and there can be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements.

These factors and other risks and uncertainties are described in detail in the company's annual report on Form 10-K for the year ended December 31, 2024, and its quarterly report on Form 10-Q for the quarter ended March 31, 2025, under the heading Risk Factors, and in the company's other documents and reports filed or to be filed with the Securities and Exchange Commission. These forward-looking statements speak only as of today, and we assume no obligation to update or revise these forward-looking statements as circumstances change. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue, adjusted gross margin, adjusted net loss per share, basic and diluted, and Adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States or GAAP.

These non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue and operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the Investor Relations page of the company's website. I will now turn the call over to Derek.

Derek Maetzold (Founder, President and CEO)

Thank you, Camilla, and good afternoon, everyone. We are off to an exceptional start of the year, building on our track record of consistent execution and strong business fundamentals. Revenue grew by 21% to $88 million, and total test report volume for our core revenue drivers grew by 33% compared to the first quarter of 2024. Additionally, we believe our strong balance sheet with $275 million in cash, cash equivalents, and marketable investment securities gives us the flexibility to continue executing on our growth initiatives as we work to maintain financial discipline. This includes strategic opportunities, as evidenced by our announcement earlier today that we signed a definitive agreement to acquire Previse, which we believe can further benefit patients and providers alike while strengthening our position in the gastrointestinal space.

Today, I will walk you through business highlights from the quarter, discuss our expected acquisition of Previse, and then Frank will provide additional financial highlights before we turn to your questions. Before diving into our business highlights, I'd like to introduce Dr. Matthew Goldberg. Matt joined Castle in August 2020 and currently serves as our Senior Vice President Medical. He completed his dermatology residency at the University of California, San Francisco, followed by dermatopathology fellowship at the University of Texas Southwestern. Board-certified in both dermatology and dermatopathology, Dr. Goldberg is the ideal person to discuss our DecisionDx-Melanoma test as we enter May, Skin Cancer Awareness Month. Matt?

Matthew Goldberg (SVP Medical)

Thank you, Derek. May is Skin Cancer Awareness Month. Our mission aligns with raising awareness about the importance of prevention, early detection, risk assessment, and personalized treatment strategies designed to improve patient outcomes, including for one of the most aggressive forms of skin cancer, melanoma. As you think about the patient journey, our DecisionDx-Melanoma test is ordered by physicians after biopsies take place and a diagnosis of invasive melanoma is made. Our test is designed to answer two important clinical questions to guide subsequent treatment plan decisions at this point in the patient journey. First, what is the risk of sentinel lymph node positivity in order to inform decisions on the sentinel lymph node biopsy procedure? Second, what is the patient's risk of recurrence?

Importantly, DecisionDx-Melanoma has been shown to be associated with improved patient survival as evidenced from real-world prospective data. Therefore, I am especially pleased DecisionDx-Melanoma recently achieved a significant milestone, surpassing 200,000 test orders since we launched the test. This is a remarkable achievement, and I am extremely proud of my colleagues and their unwavering commitment to improving the lives of the patients we serve. With that, I will turn it back to Derek.

Derek Maetzold (Founder, President and CEO)

Thanks, Matt. Now we will discuss our quarterly highlights. For DecisionDx-Melanoma, we delivered 8,621 test reports in the quarter, an increase of 3% compared to the first quarter of 2024 and roughly flat from the fourth quarter of 2024, as expected. As a reminder, historically, the second quarter sees growth sequentially over the first quarter. Importantly, we anticipate high single-digit volume growth for DecisionDx-Melanoma for the full year 2025 compared to 2024. We believe our compelling body of evidence reinforces continued adoption. We are especially pleased with the recent publication of two papers discussing data from a prospective multicenter study demonstrating the significant impact of our DecisionDx-Melanoma test on sentinel lymph node biopsy, or SLNB, decision-making.

The first publication reported data from our DECIDE study supporting the performance of a low-risk DecisionDx-Melanoma test result to predict sentinel lymph node positivity rates of less than 5% who have elected to have an SLNB. In this prospective multicenter study, no patient with a DecisionDx-Melanoma predicted risk of less than 5% SLN positivity, but who decided to have an SLNB procedure anyways had a positive node. That is, the actual SLNB positivity rate was 0%. The second publication shared outcomes of patients with a low-risk DecisionDx-Melanoma test result, of which approximately half the patients decided to forgo an SLNB, and approximately half proceeded with an SLNB despite the low-risk DecisionDx-Melanoma test result. Of clinical significance, all patients with a low-risk DecisionDx-Melanoma test result were recurrence-free.

Specifically, we saw a 100% recurrence-free survival rate with a median follow-up of two years. Additionally, during the quarter, we presented new study data at the National Comprehensive Cancer Network, or NCCN, 2025 annual conference, showing DecisionDx-Melanoma as a significant predictor of mortality in a real-world cohort of nearly 7,000 patients with early-stage cutaneous melanoma. Specifically, as part of Castle's collaboration with the National Cancer Institute's SEER program, this study further validated DecisionDx-Melanoma's risk stratification performance in patients with thin or early-stage cutaneous melanoma tumors or Stage I to IIA. In a real-world cohort of 6,892, eighth edition of the American Joint Committee on Cancer, or AJCC8, low-risk patients, the test identified individuals at higher risk of death. Importantly, multivariable analyses confirmed DecisionDx-Melanoma as a significant predictor of melanoma-specific mortality and overall mortality independent of key AJCC8 factors.

These findings highlight the test's ability to refine risk assessment beyond AJCC8 staging, helping identify patients who may benefit from enhanced surveillance and management to potentially improve outcomes. Moving on to our DecisionDx-SCC test, we delivered 4,375 test reports in the first quarter of 2025. Building on our six studies published in 2024, we presented new data at the NCCN 2025 annual conference, demonstrating DecisionDx-SCC's ability to enhance risk stratification beyond traditional staging. Specifically, the study evaluated how integrating DecisionDx-SCC with the Brigham and Women's Hospital, or BWH, staging under NCCN guidelines may improve prognostic accuracy. In a multicenter cohort of 1,412 high-risk SCC patients, DecisionDx-SCC significantly enhanced metastatic risk stratification in NCCN high-risk and very high-risk patient populations. The data demonstrated that the test improved BWH's staging risk prediction accuracy.

When combined with BWH staging, a DecisionDx-SCC Class 1 test result, which is considered low risk, results in a nearly twofold decrease in metastatic risk, while a Class 2B test result, which is the highest risk reported, showed more than a fivefold increase in risk among lower-stage patients classified as BWH T1 or T2a NCCN high-risk patients. These findings demonstrate that DecisionDx-SCC may refine individual patient risk assessment, supporting more accurate personalized treatment decisions based upon a patient's predicted metastatic risk. Now, let's turn to DecisionDx-SCC reimbursement. The Novitas Local Coverage Determination Policy, or LCD, that included non-coverage language for DecisionDx-SCC went into effect on April 24, 2025. We will be pursuing reconsideration requests of both the Novitas and MolDX LCDs.

Based upon timing, neither of these LCDs included a review of the June 2024 publication's note above, which included evidence showing that DecisionDx-SCC is able to predict response to adjuvant radiation therapy, or ART, in addition to predicting the risk of progression. Given the strength of evidence and the data surrounding this use, we believe the reconsideration request could be accepted as valid. This evidence and additional studies support that the test is reasonable and necessary, which is the CMS requirement to be a covered test for patients with high-risk SCC. For now, we will be continuing to offer the test because, given the strength of evidence in DecisionDx-SCC's ability to predict both the risk of metastasis to impact treatment pathway decisions and the ability to predict responsiveness to ART, we believe it is the right thing to do for patient care.

Now, let's turn to our gastroenterology franchise. Before getting into our TissueCypher performance for the quarter and the expected Previse acquisition, I want to highlight that April was Esophageal Cancer Awareness Month, a month dedicated to raising awareness about esophageal cancer, its risk factors, and the importance of early detection. Supporting key educational programs and initiatives throughout the month of April, Castle proudly collaborated with the Esophageal Cancer Action Network, the American Foregut Society, and the Gut Doctor podcast to promote esophageal cancer prevention, education, and advocacy. As you will recall, we acquired TissueCypher in December 2021, giving us our spatial omics test designed to determine a patient's individual risk of progression from Barrett's esophagus to high-grade dysplasia or esophageal cancer.

Barrett's esophagus is the only known risk factor for the development of esophageal adenocarcinoma cancer, one of the fastest-growing cancers in the U.S., with a five-year survival rate of less than 20%. TissueCypher has been studied in 16 peer-reviewed publications to date, and studies have consistently found that TissueCypher is the strongest independent predictor of progression, with the ability to help identify non-dysplastic patients that progress at a rate similar to confirmed low-grade dysplasia. For this reason, we are thrilled with the positive reception TissueCypher has received from the gastroenterology community, particularly as a test can make a meaningful impact on patient care in an area with unmet clinical needs. In fact, in the first quarter of 2025, we delivered 7,432 TissueCypher test reports compared to 3,429 in the same period of 2024. This represents 117% year-over-year growth compared to the first quarter of 2024.

As a reminder, the growth drivers we expect for TissueCypher in 2025 and beyond include: one, our recent commercial team expansion; two, the unmet clinical need and clinical value of our tests being further accepted by clinicians; and three, a strong focus on education and awareness. We're excited about the growth prospects of the test, including the volume growth expected in 2025, and we are equally pleased by its clinical utility to determine a patient's individual risk of progression from Barrett's esophagus disease to cancer. Turning to our announcements from earlier today, we recently signed a definitive agreement to acquire Previse, a gastrointestinal health company with a primary focus on esophageal disorders. We believe this proposed transaction underscores our commitment to the GI community, providers, and patients alike.

As part of our strategic growth initiatives, we continually assess opportunities for ones that would fit into most or all of our outlying criteria, which are complementary to our existing test disease states, adding value for our current customers, some level of existing reimbursement, and the test that could be successful utilizing Castle's commercial playbook. With Previse, we found an opportunity to expand our offerings within our GI vertical beyond our spatial omics TissueCypher Barrett's esophagus test, furthering our position in this space. Previse's methylation technology, as well as its pipeline technology, provides us with the potential to address existing unmet needs, including potential upstream opportunities. We expect the transaction to close in a matter of weeks and will continue to work through technology transfer, integration, and future R&D plans.

Turning to our mental health business, as we told you on our last earnings call in February, due to changes in the market and our focus on allocating resources efficiently on profitable growth, in late 2024, we revised our commercial strategy for our IDgenetix test, reallocating resources to inside sales and non-personal promotions. After careful further assessment, we made the decision to discontinue the test effective May 2025, as it makes the best sense for our business to put its resources towards other disease states with unmet clinical needs. With that, I will now turn the call over to Frank.

Frank Stokes (CFO)

Thank you, Derek. Good afternoon, everyone. As Derek highlighted, we delivered very good first-quarter financial results. Revenue was $88 million for the first quarter of 2025, an increase of 21% over the first quarter of 2024.

The increase was driven predominantly by test volume growth for our non-dermatologic tests. That is 117% TissueCypher growth compared to the first quarter of 2024. Adjusted revenue, which excludes the effects of revenue adjustments in the current period related to tests delivered in prior periods, was $87.2 million for the first quarter of 2025, an increase of 22% over the first quarter of 2024. For total revenue for 2025, we are raising our revenue guidance to $287-$297 million, up from the previously provided range of $280-$295 million. Our revenue guide reflects DecisionDx-SCC reimbursement by Medicare through April 24 only. For an apples-to-apples comparison for 2025 revenue growth, if you exclude DecisionDx-SCC revenue for both our 2024 and 2025 totals, our normalized revenue growth in 2025 would be high teens to low 20%.

Our gross margin during the first quarter of 2025 was 49.2% compared to 77.9% in the first quarter of 2024. Our adjusted gross margin, which excludes the effects of intangible asset amortization related to our acquisitions and excludes the effects of revenue adjustments in the current period associated with test reports delivered in prior periods, was 81.2% for the quarter compared to 80.5% for the same period in 2024. The gross margin for the first quarter of 2025 was impacted in large part due to the one-time adjustment of an acceleration of amortization expense of approximately $20.1 million during the three months ending March 31, 2025, associated with the discontinuation of IDgenetix that Derek mentioned earlier. For each of the remaining quarters of 2025, we expect gross margin to be in the mid-70s range.

Turning to expenses, our total operating expenses, including cost of sales for the first quarter of 2025, were $115.9 million compared to $78.4 million for the first quarter of 2024. Sales and marketing expense for the quarter were $36.8 million compared to $30.5 million for the same period in 2024. The increase is mainly due to higher personnel costs, higher organizational and business development activities costs, and higher sales-related travel and other expenses. General and administrative expenses were $21.8 million for the quarter compared to $18 million for the same period in 2024. The increase is primarily attributable to higher personnel costs, higher information technology-related costs, and higher professional fees. Higher personnel costs reflect headcount expansions in our administrative support functions, as well as merit and annual inflationary wage adjustment for existing employees.

Cost of sales expenses were $16.4 million in the first quarter of 2025 compared to $13.9 million in the first quarter of 2024, primarily due to higher personnel costs, higher depreciation expense for lab equipment and leasehold improvements, and higher lab services costs. Increases in personnel costs reflect a higher headcount due to additional grades to support business growth in response to growing test report volumes, as well as merit and annual inflationary wage adjustments for existing employees. Higher expense for lab services also reflects higher test report volumes. R&D expenses were $12.6 million for the quarter compared to $13.8 million for the same period in 2024, primarily due to slightly lower personnel costs and expense for clinical studies.

Total non-cash stock-based compensation expense, which is allocated among cost of sales, R&D expense, and SG&A expense, was $11.2 million for the first quarter of 2025, down slightly from $12.7 million in the first quarter of 2024, despite a 23% year-over-year increase in total headcount. Interest income was $3.1 million for the first quarter of 2025 compared to $3 million in the first quarter of 2024, primarily a result of higher average balances of marketable investment securities and slightly higher interest rates. Our net loss for the first quarter of 2025 was $25.8 million compared to $2.5 million for the first quarter of 2024. Net loss per share, basic and diluted, was $0.90, and adjusted net loss per share, basic and diluted, was $0.20 compared to $0.09 and $0.09 respectively for the same period in 2024.

Adjusted EBITDA for the first quarter was $13 million compared to $10.5 million for the comparable period in 2024. Net cash used in operating activities was $6 million for the first quarter of 2025, due in part to annual cash bonus payments and certain healthcare benefit payments that do not recur to the remaining three quarters of the year. We continue to expect to deliver positive net cash flow from operations for the full year of 2025. Net cash used in investing activities was $22.4 million for the first quarter and consisted primarily of purchases of marketable investment securities of $48.4 million, purchases of debt securities classified as held to market of $5.6 million, and purchases of property and equipment of $4.7 million, partially offset by the maturity of marketable investment securities of $36.3 million.

As of March 31, 2025, we had cash, cash equivalents, and marketable securities of $275.2 million. In conclusion, I'm pleased with our strong execution and results in the first quarter and look forward to maintaining that momentum for the rest of 2025. I'll now turn the call back over to Derek.

Derek Maetzold (Founder, President and CEO)

Thank you, Frank. In summary, we had an excellent start to the year, building on our strength and momentum from 2024, underpinned by robust business fundamentals. We look forward to continuing to work to achieve the goals we set for 2025, as our focus remains on driving both near and long-term stockholder value. Thank you for your continued interest in Castle. We will now be happy to take your questions. Operator?

Operator (participant)

In order to allow everyone in the queue an opportunity to address the Castle Management Team, please limit your time on the call to one question and one follow-up. If you have additional questions, please return to the queue, and please stand by while we compile the Q&A roster. The first question is from the line of Sung Ji Nam with Deutsche Bank. You may proceed.

Sung Ji Nam (Managing Director and Senior Analyst)

Hi. Thanks for taking the questions. Just, Frank, just a clarification. The mid-70% gross margin guidance, is that a GAAP or non-GAAP? And also, does that include DecisionDx-SCC contribution or impact?

Matthew Goldberg (SVP Medical)

That's adjusted gross margin, Sung Ji, and it does include the fall-off of reimbursement for SCC.

Sung Ji Nam (Managing Director and Senior Analyst)

Okay. Got it. And then just on Previse, sorry, just didn't have a chance to go through their website carefully, but do they offer the methylation technology they offer, is that mostly tissue-based?

Do they offer liquid biopsy-based technology as well? Do you anticipate immediate contribution in terms of sales from this acquisition, or is it just largely complementary in terms of providing additional insight to your TissueCypher product? Thank you.

Derek Maetzold (Founder, President and CEO)

They have a—hi, Sung Ji. They have a product that is available commercially today that is tissue-based, so it's similar to TissueCypher, but it uses a methylation platform or technology platform. They also have a non-endoscopic sponge-based technology. From our perspective, we look forward to seeing if we could potentially combine both methodologies going forward into both tissue-based testing as well as non-endoscopic or non-pinch biopsy tissue specimens. As you know, we have indicated in the last several quarters we've been looking for other opportunities, both in dermatology and in gastroenterology, to complement our current offerings and build the strength of both of those franchises.

Previse happens to be one of the opportunities that we were able to pull the trigger on at this point in time, but there are other ones out there that we will hopefully be able to discuss in the future.

Sung Ji Nam (Managing Director and Senior Analyst)

Great. Thank you.

Derek Maetzold (Founder, President and CEO)

Regarding sales contribution—

Matthew Goldberg (SVP Medical)

and Sung Ji, we would not expect meaningful impact on revenue or EBITDA this year, but those impacts will be more downstream.

Sung Ji Nam (Managing Director and Senior Analyst)

Got it. Appreciate it. Thank you.

Operator (participant)

The next question is from the line of Kyle Mikson with Canaccord Genuity. You may proceed.

Kyle Mixon (Managing Director and Senior Analyst)

Hey, guys. Thanks for the questions. Coming back from the quarter and the acquisition. Just on Previse, maybe just walk through, Derek, where EsoPredict fits in the various steps workflow relative to TissueCypher. Just wondering if they compete at all.

Could you also talk about the test Medicare payment rate, the mix, and the annual volume, if possible?

Derek Maetzold (Founder, President and CEO)

The Previse test EsoPredict is a methylation-based assay. The current use is for predicting progression of Barrett's esophagus disease. Similar to Castle's test of TissueCypher, the TissueCypher data set is more robust. Our interest is to see, one, how can this enhance our TissueCypher franchise? Can the combination reporting of both TissueCypher from a spatial omics standpoint and DNA methylation from a Previse standpoint get us to a stronger clinical offering to our patients today and tomorrow? Of course, can we also use the non-endoscopic sponge-based technology to really push forward a little more upstream Castle's offerings?

Kyle Mixon (Managing Director and Senior Analyst)

Got it. That's helpful. Thanks, Derek.

On the continuation of IDgenetix, can you talk about how you will reinvest the spending associated with the personnel and the marketing for that product? And maybe how much that business was burning? And if there's any run rate savings, net of severance that you can talk about?

Derek Maetzold (Founder, President and CEO)

Yeah. Not a lot of severance or changes. As we said, we had changed the marketing support for that test. We continue to believe it is a very good test. Of course, it's just an unfortunately incredibly unmet medical need. While payers in our business are rarely rational, they've been especially difficult in that one. That led us to some of the changes we made over the last couple of quarters.

I think that we will see some modest impact to revenue, Kyle, but EBITDA will be benefited, positively benefited from the change as well. Not big numbers there, but there will be some revenue, some lower revenue, but at the end of the day, it'll improve the EBITDA performance of the company.

Operator (participant)

The next question is from the line of Puneet Souda with Leerink Partners. You may proceed.

Puneet Souda (Managing Director covering Life Science Tools & Diagnostics)

Hi, guys. Thanks for taking my questions. First one, Derek, just wanted to understand. I think you gave a high single-digit volume growth for DecisionDx-Melanoma. I'm just trying to understand where some of the offsets are and what TissueCypher growth ought to be in 2Q and for the full year. Just trying to reconcile the growth, that implied growth for TissueCypher as a result of DecisionDx-Melanoma. Frank, do you want to take that?

Derek Maetzold (Founder, President and CEO)

Yeah, sure. Yeah. What we said we need is volume growth on melanoma of mid to high single digits for the year-over-year, 25 over 24. We reiterated or we provided an apples-to-apples number. The rest of the growth is TC. We also think we'll see some continued benefit or improvement in ASP on melanoma. The team has done great work there, and we continue to see very slow and very deliberate, but some continued progress on the ASP side there, which will benefit numbers as well. Good solid growth for TC. Tough to keep it in the same kind of scale that we have, but good consistent linear growth from year-to-year.

Puneet Souda (Managing Director covering Life Science Tools & Diagnostics)

Got it. Thanks for clarifying that, Frank. On the TissueCypher, correct me if I'm wrong, but I think you're up to 65 sales reps.

Can you remind us what's the expectation for hiring for the rest of the year? On the reimbursement side, can you just remind us where you stand with commercial reimbursement in terms of the priority for commercial reimbursement, and where do you stand today for TissueCypher?

Frank Stokes (CFO)

I think we discussed that we're around 65 sales territories with, I guess, year-end earnings to meet. We are having training being completed, getting people's feet wet. We'll sort of take certainly a breath and make sure that we can understand if there are gaps in the marketplace right now and a need or a benefit to expand more in 2025 versus a little bit later. I don't think we've discussed any public plans about near-term expansion.

I think we need to kind of get through the second quarter here and see how the expanded efforts are educating the marketplace and producing results, and then kind of go from there. At the end of the day, if we are accurate in our assumption that we believe there's around 10,000 targetable clinicians or gastroenterologists and their associated support, then 65 still seems a little low, but we aren't quite sure, to be honest, if the larger group practice models that gastroenterologists practice in make that number adequate or if it still needs to go up a couple of regions. Do you have a second question?

Puneet Souda (Managing Director covering Life Science Tools & Diagnostics)

No. You may press.

Operator (participant)

The next question is from the line of Catherine Schulte with Baird. You may proceed.

Hey, everyone. This is Tom Peterson on for Catherine. Appreciate you guys taking the questions. Congrats on a solid quarter.

First question, I kind of wanted to get the latest on sales and marketing efforts for DecisionDx-SCC and DecisionDx-Melanoma. You had talked about shifting the salesforce incentives more towards melanoma once SCC coverage came out of the model. I guess, can you just confirm that that is the strategy going forward?

Matthew Goldberg (SVP Medical)

Your thoughts on sort of the volume outlook for 2025?

Derek Maetzold (Founder, President and CEO)

Yeah. That is still the intention, Tom, is to have the field forces go from roughly kind of 50/50, I guess I would call it, splitting time between melanoma and squamous cell carcinoma to being very heavily weighted going forward in the second half of the year to melanoma. We have not had a single test focus in this marketplace, I think probably since COVID, right? Probably.

It's kind of COVID, and we were much smaller there as a company, so it's hard to say what kind of, I guess, lift or acceleration one could see when we go back to a solely focused or predominantly solely focused field team in dermatology. Our expectation is that we should see some lift as appropriate.

Okay. Thanks, Derek. That's really helpful. You mentioned the reconsideration requests for both MolDX and Novitas. I guess, what's your latest thoughts on timing here? Should we expect an outcome here in 2025? Just your latest thoughts there.

Sure. I think, first of all, our recommendation or guidance, I guess, in the last year and a half of having people remove squamous cell carcinoma from revenue models was obviously a good, straightforward approach.

Certainly, for the remainder of 2025, I would not have anybody reinsert SCC revenue assumptions. I think on timing, it's difficult to project at this point in time. I think as we see the year progress or the quarter progress or the quarters progress, we'll go ahead and update the group as we have material knowledge. There is no real good benchmarking to kind of give you an evidence-based target there.

Operator (participant)

The next question is from the line of Paul Knight with KeyBanc. You may proceed.

Paul Knight (Managing Director and Equity Research Analyst)

Thanks for the question. Can you talk about the distribution of your salesforce by test type just so we have an idea on where you're doing most ads this year?

Frank Stokes (CFO)

Yeah. Paul, as you said, the GI salesforce is rough and tough, middle 60s. The derm salesforce is high 60s, maybe around 70.

Paul Knight (Managing Director and Equity Research Analyst)

Can we expect that build and ramp to continue this year?

Frank Stokes (CFO)

The derm salesforce, there may be some growth here and there as we see territories get full. You see territories become kind of full of business, and we need more effort in the territory. Maybe you take a territory and make it two or something like that. That'll be more episodic, I think. As Derek said earlier, I think on the TC side, we want to settle into where we are and watch how the territories progress to see if we need to add another handful of reps there.

Operator (participant)

The next question is from the line of Subbu Nambi with Guggenheim. You may proceed.

Subbu Nambi (Managing Director covering Healthcare IT & Diagnostics)

Hey, guys. Thank you for taking my question. Regarding the acquisition of Previse and your positioning of this as a complementary asset to TissueCypher, this conceptually makes sense.

That said, it does seem, at least on the surface, similar to what you did with the MyPath acquisition a few years ago, which, as you know, came up light of targets. I ask not to be heavy-handed, but I want to hear what is different here and what lessons were learned that increased the probability of success? Because on paper, this definitely looks interesting.

Matthew Goldberg (SVP Medical)

That's the last part of our very last part of our question.

Frank Stokes (CFO)

Yeah. I think we do quite like the MyPath acquisition. We were able to pull up reimbursement for the differential diagnostic test, which was very important. We were able to add another offering to derms and derm paths, which increased our value to them. We do not expect MyPath to get to the scale of CM or SCC given the nature of that market.

We also like having an ability to point to prognostic test in melanoma when MyPath results in a positive diagnosis from a previously indeterminate lesion. Previse is a bit different, however, and we are excited about the technology that comes along with it. As Derek said, there's going to be some work done and some interesting efforts to see if we can improve the prognostic offering, potentially with a multi-omics approach at some point. Previse has a very interesting pipeline in GI. As we've said before, it's our intent and goal to have multiple offerings to the GI community, particularly around kind of the upper GI esophageal area. This brings us several candidates there. Different motivations for the two, but a nice expansion of our pipeline as well.

Subbu Nambi (Managing Director covering Healthcare IT & Diagnostics)

I think it's a bad sign.

Maybe I missed this, but how much is it getting reimbursed? As in how does it compare to TissueCypher in terms of Medicare rate? Will that play a role in decision-making for doctors?

Frank Stokes (CFO)

I don't think it plays a role in decision-making. Their Medicare rate is lower than ours because ours is the ADLT. That's a differential there. I don't think clinicians are making decisions that way. I think TC, we've been able to grow so quickly because of the robust body of evidence supporting the clinical utility and the high actionability of the test.

Operator (participant)

The next question comes from the line of Mason Carrico with Stephens. You may proceed.

Mason Carico (Analyst)

Hey, guys. Thanks for the question. Frank, on the margin guide, could you give us a bit more color on that assumption?

Specifically, what are your expectations for SCC volumes in the back half of this year? Are you expecting them to trend higher, flatten out, go down?

Frank Stokes (CFO)

We would expect that as we shift promotion more fully to melanoma, we would see some certainly slowing of growth. At some point, I think that plateaus and we begin to see the demand ebb a bit. On the other hand, Mason, it's a test that physicians are, as you can see from volumes, physicians have really embraced it. It helps their practice. It helps their patients. It helps their patient management. It saves Medicare almost $1 billion a year by appropriately directing patients to adjuvant radiation therapy who will benefit from it and directing patients who will not benefit away. We formally are saying that without promotion, most high-value diagnostic tests do not grow.

This is also a test that has great value to the users and to the healthcare system.

Mason Carico (Analyst)

No, that makes sense. As a follow-up, how are you thinking about the growth algorithm of DecisionDx-Melanoma going forward? I guess in terms of same-store sales versus increasing the number of ordering clinicians, I mean, obviously, you probably benefit from both. Both are important. How do you have the reps, I guess, splitting their time between driving utilization or out hunting for new clinicians?

Derek Maetzold (Founder, President and CEO)

Historically, I guess I would say that we looked at a combination of forward-looking revenue per territory as well as number of actively ordering customers, I guess, who would say.

What we had found, which I think is I don't know if there's a real industry standard here, Mason or not, but when we have a territory get up around, what, Frank, $2 million, $2.5 million, $3 million forward-looking revenue, then that becomes a territory that usually, if you go back and look at sort of where the representatives are spending time, it's more on maintaining existing customers and less on hunting for new clinicians. That's kind of about the time we choose to go ahead and divide. Usually, success to get success. You probably have two successful territories adjacent to each other. You might take two and make them into three, for example. I think that rule of thumb still holds pretty well.

What that ends up doing is letting us spend hopefully roughly half our time nurturing and educating current clinicians about where they could appropriately expand the use of our tests in our patient population, and then roughly half their time moving people from an awareness or no awareness to awareness and hopefully usage and adoption.

Operator (participant)

The next question is from the line of Thomas Flaten with Lake Street. You may proceed.

Thomas Flatten (Senior Research Analyst)

Hey, good afternoon. I appreciate taking the questions. Derek, probably a difficult question to answer, but you said in your prepared remarks that you would continue offering SEC for now. Do you have a sense of how long for now will last, given that there's a bit of a black box around the reconsideration requests and the timelines there?

Derek Maetzold (Founder, President and CEO)

No, I don't really have more information or insight to go ahead and guide, unfortunately.

I think for now is that we need to understand how our interactions play out with Medicare, and that'll help make a determining factor of how we want to approach that. I think from a purely ethical perspective today, I guess you would say we have a test here which, when used properly, can help a patient and their clinician care team from their dermatological or Mohs surgeon to their radiation oncologist identify people who may be considering adjuvant radiation therapy and probably take about 60% plus of them out of that therapy course because they will receive, based upon our data, no clinical benefit but substantial side effects and at a great cost to Medicare. For the time being, we feel obligated to make sure that those patients are benefiting.

Now, Medicare benefits to the tune of around $2.4 million per day in avoiding unnecessary radiation therapies, and that's net at the cost of our test. We are going to have to kind of wait and see how we work through the reconsideration process and make a call as that becomes clear. Any update on atopic dermatitis? Not since the end of the year in earnings. We are still moving through market research to appreciate both the interest in our clinicians regarding their product profile as well as the reimbursement strategy. We believe we are still on track to achieving our milestone we set a couple of years ago, which was commercial availability by year-end.

Operator (participant)

The next question is from the line of Mark Massaro with BTIG. You may proceed.

Mark Massaro (Managing Director)

Hey, guys. Thank you for taking the questions.

On the acquisition that you just announced, was there any stock included in the deal, or was it cash? If you're not willing to share the terms of the deal, is it safe to say that any level of cash would be immaterial to your cash balance?

Frank Stokes (CFO)

There was no stock component. We've not disclosed the value of the transaction.

Mark Massaro (Managing Director)

Okay. For investors on the line that might be thinking this question, the timing of the acquisition sort of coincides with your decision to shut down the IDgenetix business, which you admittedly did telegraph, or I believe you did. It also coincides with the lapping of the CMS payment from your Medicare contractor for the time being. To what extent does the timing of this deal influence your probability of winning sort of CMS reimbursement back?

Because optically, this almost could look like your ability to win in a Medicare reconsideration request might be smaller than it might have been a quarter ago. Could you just speak to that? Obviously, you announced a new deal, the timing of these other two going away.

Derek Maetzold (Founder, President and CEO)

Completely unrelated.

Mark Massaro (Managing Director)

Okay. Last quick question. I know you were asked about what you acquired. What I do not understand is how much revenue this asset was producing in 2024. For the sponge technology, this does look similar to another test on the market called EsoGuard. Is it safe to say that the sponge technology or the non-endoscopic technology and the EsoGuard test have some similarities in the marketplace? If you could, where does that stand in terms of data and Medicare coverage?

Frank Stokes (CFO)

Revenue is not material to Castle for the year.

This is a technology opportunity for us and a pipeline opportunity, first and foremost, as well as a nice way to potentially improve our prognostic offering for Barrett's. The Medicare process for non-endoscopic diagnosis, there are policies, draft policies out there, I believe, but this technology is not at the point of seeking Medicare coverage yet. Although, and just a note, Mark, there are, of course, more than just one other. There are a couple of non-endoscopic methods for diagnosis, not only for Barrett's, other conditions as well. In that respect, there's some similarity to those other technologies.

Operator (participant)

Next question is from the line of Kyle Mikon with Canaccord Genuity. You may proceed.

Kyle Mixon (Managing Director and Senior Analyst)

Thanks for the follow-up. Just want to ask about the acquisition of the pipeline. Keep talking about it. Derek, can you talk about the timing of the pipeline launches and how large those opportunities are?

Just secondly, since you're getting access to the Johns Hopkins PCR-based methylation technology, have you ruled out using that tech to develop an early detection or a screening test for GI cancers?

Derek Maetzold (Founder, President and CEO)

Haven't ruled it out, Kyle. Haven't ruled it in, to be clear, but certainly wouldn't have stopped any opportunities there. I think that the opportunity we have is to accelerate the development of the pipeline that the company had with additional resources, but also our broader expertise in GI and our somewhat deeper history of R&D. We are way down on the pipeline technologies. I don't know that we're ready to put a pin in the ground on where the timelines would be, but we certainly think we can accelerate them from what they might otherwise have been.

Kyle Mixon (Managing Director and Senior Analyst)

Okay. Thanks for that.

Operator (participant)

There are no additional questions waiting at this time, so I would like to pass the call back over to Derek for any closing remarks.

Derek Maetzold (Founder, President and CEO)

Thank you, operator. This concludes our first quarter 2025 earnings call. We thank you again for joining us today and for your continued interest in Castle Biosciences.

Operator (participant)

That concludes today's call. Thank you for your participation and enjoy the rest of your day.