Castle Biosciences Q3 2025: Contradictions Emerge on Reimbursement Strategy, Melanoma Volume Growth, and Market Projections

Date of Call: November 3, 2025

Financials Results

• Revenue: $83.0M (Q3 2025 net revenues); core revenue-driver test volumes +36% YOY
• EPS: $0.02 loss per diluted share, compared to $0.08 diluted EPS in Q3 2024
• Gross Margin: 74.7% (Q3 2025), compared to 79.2% in Q3 2024; adjusted gross margin 76.8% vs 81.9% prior year

Guidance:

• Revenue for 2025 raised to $327M–$335M (prior range $310M–$320M).
• DecisionDx‑Melanoma expected to deliver high single‑digit volume growth for full‑year 2025.
• AdvanceAD‑Tx limited clinical launch Nov 2025; revenue expected to be immaterial in 2026 while reimbursement is built; phased expansion through 2026.
• Company expects to deliver positive net cash flow from operations for 2025.

Business Commentary:

* Strong Financial Performance: - Castle Biosciences reported $83 million in revenue for Q3, with a 36% increase in core test report volumes compared to Q3 2024. - The growth was driven by strong demand for their core revenue drivers, including DecisionDx-Melanoma and DecisionDx-SCC tests.

• DecisionDx-Melanoma Growth:
• DecisionDx-Melanoma achieved 10,459 reports in Q3, marking a 12% year-over-year increase, surpassing 10,000 reports for the first time.

• This growth was attributed to increased medical communications, full focus on this test by the dermatology sales force, and continued adoption in patient care.

• AdvanceAD-Tx Launch:

• Castle Biosciences announced the launch of AdvanceAD-Tx, a new test designed to guide systemic treatment selection for patients with moderate to severe atopic dermatitis.

• The test was developed based on a prospective study that identified gene expression profiles associated with differential responses to systemic therapies.

• TissueCypher Volume Increase:

• TissueCypher achieved 10,609 test reports in Q3, representing a 75% year-over-year increase, surpassing 10,000 reports for the first time.
• Growth was driven by increasing awareness and recognition of the test's value in Barrett's esophagus management, supported by new real-world data.

Sentiment Analysis:

Overall Tone: Positive

• "Revenue reached $83 million." "we are raising our revenue guidance to $327 million to $335 million." "total test report volume of 26,841, with tests for our core revenue drivers growing 36% compared to the third quarter of 2024." Management highlighted product launches (AdvanceAD‑Tx) and record quarters for DecisionDx‑Melanoma and TissueCypher.

Q&A:

• Question from Subhalaxmi Nambi (Guggenheim Securities, LLC): Congratulations on launching the AdvanceAD. Could you provide more color on who would be addressable from the 13.2 million patients? And if it is all of them, how many of these patients are Medicare age?
  Response: Target marketplace ≈13.2M U.S. patients ages 12+ with moderate‑to‑severe atopic dermatitis; Medicare exposure estimated ~10–15% (up to ~20% max).

• Question from Subhalaxmi Nambi (Guggenheim Securities, LLC): Could you tell us a little bit more about the multiple reimbursement pathways? What do you mean by that? Is it Novitas and MolDx? Or is it more to do with commercial or something else?
  Response: Pursuing multiple payer pathways (commercial and Medicare contractors among options); evaluating approaches and will provide more clarity after outcomes in the coming spring.

• Question from Kyle Mikson (Canaccord Genuity Corp.): On SCC: the reconsideration requests were accepted as valid — any color on timing and likelihood? Also SCC volumes seem flat to down quarter‑over‑quarter and gross margin declined sequentially; what's driving gross margin dynamics?
  Response: Novitas and MolDx deemed the SCC LCD reconsideration requests valid based on new evidence; timing for final decisions is unknown; SCC volumes held roughly steady and modest commercial claim revenue in the quarter aided gross margin.

• Question from Thomas Peterson (Robert W. Baird & Co.): DecisionDx‑Melanoma volumes were up ~5% sequentially vs guidance of flattish; what drove the Q3 lift and how should we think about Q4 given the reiterated high single‑digit full‑year outlook?
  Response: Acceleration driven by full refocus of dermatology sales force on melanoma and continued medical support/publications; expect typical Q4 seasonality (flat or down versus Q3) while maintaining full‑year high single‑digit volume expectation.

• Question from Mason Carrico (Stephens Inc.): On DecisionDx‑Melanoma, how has refocusing the derm team impacted growth — new ordering clinicians vs higher utilization? And on guide update, what does it imply now and what did DecisionDx‑SCC contribute this quarter?
  Response: Growth came from both new ordering physicians and deeper utilization within practices; DecisionDx‑SCC contributed a modest mid‑single‑digit millions this quarter; guidance conservatively banks on melanoma volume growth and does not assume sustained SCC revenue.

• Question from Unknown Analyst (for Puneet Souda, Leerink Partners): TissueCypher appears to be approaching double‑digit penetration — any color on physician penetration and expected momentum into 2026? Could guideline or coverage wins accelerate adoption?
  Response: TissueCypher remains in early growth with meaningful upside (≈420k diagnosed/year addressable); management has not disclosed clinician counts; no near‑term guideline or coverage wins anticipated — growth expected from continued education and targeted commercial efforts.

• Question from Vidyun Bais (BTIG, LLC): You're pursuing FDA approval for DecisionDx‑Melanoma — any upside to current Medicare rate from that approval and timing? Also, what is the current sales force for TissueCypher and did the Prebuys acquisition contribute to the quarter?
  Response: Preparing FDA submission after breakthrough designation; FDA approval unlikely to change current Medicare rate near‑term but could enable longer‑term commercial reimbursement upside via state biomarker laws; Prebuys did not impact TissueCypher this quarter and exact rep counts are not disclosed (management targets sub‑100 sales forces for these areas).

• Question from Thomas Flaten (Lake Street Capital Markets, LLC): On AdvanceAD‑Tx, any engagement with JAK inhibitor manufacturers? And philosophically on SCC, will you continue accepting orders or is there any trigger that would cause you to stop?
  Response: Not commenting on specific pharma engagements but expect natural biopharma interest and potential further test development; there is no current trigger to cease accepting SCC orders — company intends to continue offering the test clinically absent extreme payer actions.

Contradiction Point 1

Reimbursement Strategy for Atopic Dermatitis Product

It involves the company's strategy for securing reimbursement for its atopic dermatitis product, which is crucial for market access and revenue generation.

Can you clarify which of the 13.2 million patients are addressable, and if all are addressable, how many are Medicare-eligible? - Subhalaxmi Nambi (Guggenheim Securities, LLC, Research Division)

2025Q3: Certainly, this is a test that will result in more medically appropriate selections or recommendations by clinicians who are seeing Medicare patients. We have to understand what the commercial payment section might look like. There's also other payer opportunities, but we don't want to provide much more color than that at this point in time until we see how the next spring plays out. - Derek Maetzold(CEO)

What is the reimbursement outlook for your atopic dermatitis product, and are you pursuing an LCD? - Mark Massaro (BTIG, LLC)

2025Q2: Reimbursement strategy includes multiple avenues, with clinical value expectations to justify coverage. Launch is expected by year-end 2025, with significant potential for '27 and beyond. - Derek J. Maetzold(CEO)

Contradiction Point 2

DecisionDx-Melanoma Volume Growth Expectations

It reflects differing expectations for the growth of the DecisionDx-Melanoma test volume, which directly impacts revenue projections.

What factors drove the 5% sequential volume increase in 3Q DecisionDx-Melanoma beyond typical seasonality? How should we model 4Q volume growth given the reaffirmed high single-digit full-year outlook? - Thomas Peterson (Robert W. Baird & Co. Incorporated, Research Division)

2025Q3: We had signaled early in the year that we expected upper single-digit volume growth year-over-year in the melanoma test. We continue to have additional support from a medical communication standpoint at congresses and publications. - Derek Maetzold(CEO)

What is your guidance for DecisionDx-Melanoma volume growth in the second half of the year? - Catherine Schulte (Baird)

2025Q2: Current guidance maintains high single-digit volume growth for DecisionDx-Melanoma for the full year 2025, with ongoing demand and clinical value supporting this expectation. - Frank Stokes(CFO)

Contradiction Point 3

Target Market for DecisionDx-Melanoma

It involves the target market size and segmentation for the company's flagship product, which directly impacts business strategy and market positioning.

Who is the target audience among the 13.2 million patients, and if all are targetable, how many are Medicare-eligible? - Subhalaxmi Nambi(Guggenheim Securities, LLC, Research Division)

2025Q3: The 13 million and change patients are the target marketplace in the U.S. of patients who have moderate to severe atopic dermatitis. 10% to 15%, maybe 15%, 20% max could be of Medicare age. This represents children above the age of 12 through middle age and another hump later on in life. - Derek Maetzold(CEO)

Can you discuss the growth opportunity assumptions for melanoma following the decision to discontinue IDgenetix? - Sung Ji Nam(Scotiabank)

2025Q1: Our primary focus continues to be on commercial insurance, as we believe that is where the greatest opportunity lies for additional volumes in both melanoma and squamous cell. - Derek Maetzold(CEO)

Contradiction Point 4

Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding gross margin expectations, which are critical indicators for investors.

SCC volumes were flat to slightly down QoQ, yet gross margin declined sequentially. What factors, including debt cost impact, contributed to this trend? - Kyle Mikson(Canaccord Genuity Corp., Research Division)

2025Q3: Adjusting for the changes in the reimbursement as well as the fact that we had some modest revenue in the quarter from some commercial claims on SCC, our gross margin in the quarter was 75.3%. - Frank Stokes(CFO)

Is the mid-70% gross margin guidance GAAP or non-GAAP? Does it include the impact of DecisionDx SCC? - Sung Ji Nam(Scotiabank)

2025Q1: That's adjusted gross margin, Sung Ji, and it does include the fall-off of reimbursement for SCC. - Frank Stokes(CFO)

Contradiction Point 5

Addressable Market and Medicare Age Distribution

It involves the estimated addressable market and the proportion of Medicare-aged patients within that market, impacting strategic marketing and revenue projections.

Who is addressable among the 13.2 million patients? Assuming all are addressable, how many are Medicare-eligible? - Subhalaxmi Nambi (Guggenheim Securities, LLC, Research Division)

2025Q3: The 13 million and change patients are the target marketplace in the U.S. of patients who have moderate to severe atopic dermatitis. 10% to 15%, maybe 15%, 20% max could be of Medicare age. This represents children above the age of 12 through middle age and another hump later on in life. - Derek Maetzold(CEO)

When can we expect an update on reimbursement for the atopic dermatitis gene expression profile test, which is planned for launch by the end of 2025, assuming the validation study results are positive? - Subbu Nambi (Guggenheim)

2024Q4: We expect to launch in late 2025, assuming the validation study finishes successfully. Over the next several quarters in 2025, we will provide clarity on the reimbursement strategy, but we don't expect significant material revenue until '28 or '29. - Derek Maetzold(CEO)