Castle Biosciences: Steady Revenue Stream, But Medicare Reimbursement Loss A Concern

Castle Biosciences (NASDAQ: CSTL) has carved out a niche in precision oncology diagnostics, leveraging its proprietary gene expression profiling technology to guide cancer treatment decisions. While the company’s revenue continues to grow, its reliance on Medicare reimbursement for key tests has become a critical vulnerability. The recent denial of coverage for its DecisionDx-SCC test by Medicare contractor Novitas in February 2025, coupled with an upcoming pivotal decision on April 24, 2025, underscores the risks investors must weigh against its diversified product pipeline and resilient financial footing.

Revenue Growth Amid Headwinds

Castle Biosciences reported robust revenue expansion in 2023, with $219.8 million in total revenue, a 60% year-over-year increase. This growth was driven by strong adoption of its tests, including a 130% surge in TissueCypher® Barrett’s Esophagus test reports and a 17% rise in dermatologic tests (including DecisionDx-SCC). The company’s 2025 revenue guidance of $280–$295 million reflects confidence in its ability to offset losses from DecisionDx-SCC’s Medicare non-coverage.

Medicare’s Role in the Equation

The Feb. 23, 2025, non-coverage ruling by Novitas for DecisionDx-SCC followed a similar denial by MolDx in 2024, both of which analysts argue were already priced into the stock. The test, which predicts metastasis risk in cutaneous squamous cell carcinoma (cSCC), faces a final Medicare decision on April 24, 2025. A denial would cement the loss of Medicare reimbursements, though Castle Biosciences claims its 2025 guidance excludes DecisionDx-SCC revenue beyond 2024.

The stakes are high: DecisionDx-SCC accounted for a meaningful portion of dermatologic test growth in 2024, and its Medicare non-coverage could pressure margins if commercial payers follow suit. However, the company has highlighted potential $970 million in annual Medicare savings if the test were adopted, arguing it reduces unnecessary treatments.

Diversification as a Shield

While DecisionDx-SCC faces headwinds, Castle Biosciences’ broader portfolio remains a key strength. Its flagship DecisionDx-Melanoma test, which assesses recurrence risk in skin cancer patients, continues to grow steadily. Additionally, TissueCypher, a multi-cancer diagnostic tool, saw a remarkable 130% increase in reports for Barrett’s Esophagus cases in 2024. These products, along with its mental health and uveal melanoma tests, provide a cushion against Medicare’s decisions.

The company’s $293 million in cash as of year-end 2024 further bolsters its resilience, allowing it to invest in salesforce expansion (targeting 13,000–15,000 dermatologists) and advocacy efforts to secure reimbursement.

Analysts: Uncertainty Resolved, Focus on Fundamentals

Analysts at Leerink and Canaccord Genuity have maintained bullish ratings, with Leerink’s Puneet Souda noting the Feb. 23 decision “discounted” by investors and the April 24 outcome as a “final chapter.” Souda emphasized Castle’s focus on “cleaner” products like DecisionDx-Melanoma and TissueCypher, while Canaccord’s Kyle Mikson pointed to the company’s undervalued stock and strong operational execution.

Conclusion: A Test of Resilience

Castle Biosciences faces a pivotal moment with Medicare’s April 24 decision on DecisionDx-SCC. A negative ruling would likely pressure the stock in the short term but is already partially reflected in its 2025 guidance. The company’s diversified revenue stream, cash reserves, and expanding pipeline—particularly in TissueCypher—position it to navigate regulatory hurdles.

Investors should monitor two key metrics:
1. April 24 Medicare Decision: A denial could accelerate the shift toward other products, testing Castle’s ability to offset losses.
2. Q1 2025 Earnings (May 5): Revenue and test volume data will reveal whether the Medicare non-coverage has impacted adoption rates beyond expectations.

While Medicare reimbursement losses are a valid concern, Castle Biosciences’ strategic focus on high-growth diagnostics and its financial flexibility suggest it can weather this storm. The April 24 decision will be a critical inflection point, but the company’s long-term prospects hinge on its ability to diversify its revenue base and prove the clinical value of its tests in a cost-conscious healthcare environment. For now, the bulls are betting on its resilience—and the bears on its ability to adapt to a world without Medicare’s backing for DecisionDx-SCC.