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Introduction & Market Context
Castle Biosciences (NASDAQ:CSTL) reported strong third-quarter 2025 results on November 3, with revenues significantly exceeding analyst expectations. The molecular diagnostics company posted total revenue of $83 million, surpassing forecasts of $71.03 million, representing a 16.85% positive surprise. Following the earnings release, Castle’s stock rose 1.92% in aftermarket trading to $25.50, reflecting investor confidence in the company’s growth trajectory and product expansion strategy.
The company’s performance was driven by substantial test volume growth across its core product lines, particularly in its dermatology and gastroenterology segments. Castle Biosciences continues to strengthen its position in specialized diagnostic testing while expanding its product portfolio with the launch of a new test targeting the atopic dermatitis market.
Quarterly Performance Highlights
Castle Biosciences reported a 36% year-over-year increase in test volume for its core revenue drivers, DecisionDx-Melanoma and TissueCypher. Total test report volume reached 26,841 for the quarter, with particularly strong performance in the company’s non-dermatologic segment, which saw revenue increase by 67% compared to Q3 2024.
As shown in the following financial highlights chart, the company achieved $83 million in revenue while maintaining strong adjusted gross margins of 76.8% and generating $22.6 million in operating cash flow:
Despite the positive revenue performance, gross margins experienced a slight contraction compared to the previous year. Gross margin for Q3 2025 was 75%, and adjusted gross margin was 77%, down from 79% and 82% respectively for the same period in 2024. The company reported a net loss of $0.5 million for the quarter, with adjusted EBITDA of $9.2 million.
The revenue mix is increasingly diversifying, with non-dermatologic revenue now representing a significant portion of total revenue. The following chart illustrates the breakdown of test volume and revenue by type:
Strategic Initiatives
Castle Biosciences is executing a three-pronged strategy focused on developing best-in-class tests, building robust clinical evidence, and penetrating target markets, as illustrated in their strategic approach:
A major highlight of the quarter was the launch of AdvanceAD-TX, the company’s new test designed to guide systemic therapy decision-making in patients ages 12 and older with moderate-to-severe atopic dermatitis (AD). This non-invasive gene expression profile test represents Castle’s expansion into a significant new market with an estimated $33 billion U.S. opportunity based on a target population of approximately 13.2 million patients.
CEO Derek Maetzold emphasized the innovative nature of AdvanceAD-TX during the earnings call, noting, "We discovered, developed, and validated a gene expression profile test that evaluates the expression of 487 genes." The test is designed to "enable stronger responses, fewer relapses, faster improvement in symptoms" for AD patients.
The company’s comprehensive clinical portfolio spans multiple therapeutic areas, positioning Castle Biosciences to address various unmet needs in dermatology, gastroenterology, and ophthalmology:
Product Performance and Development
DecisionDx-Melanoma remains a cornerstone product for Castle Biosciences, providing precise risk prediction that has been associated with improved patient survival. Studies have shown that patients who received the test had a 29% lower 3-year melanoma-specific mortality and a 17% lower 3-year overall mortality compared to those who did not.
As illustrated in the following value proposition slide, the test addresses critical clinical questions for melanoma patients:
The company’s TissueCypher test for Barrett’s esophagus risk stratification also continues to gain traction. The test has been recognized in clinical practice guidelines as a tool that may be used by physicians to risk stratify non-dysplastic patients, providing objective information to guide surveillance and treatment decisions.
Castle’s DecisionDx-SCC test provides critical risk assessment for squamous cell carcinoma patients, answering three key clinical questions as shown below:
Forward-Looking Statements
Castle Biosciences has raised its full-year 2025 revenue guidance to $327-$335 million, up from the previous range of $310-$320 million, reflecting confidence in continued growth across its test portfolio. The company expects high single-digit volume growth for DecisionDx-Melanoma in 2025.
The following timeline illustrates the company’s expectations for material revenue contribution from various tests over the coming years:
While revenue from the newly launched AdvanceAD-TX is anticipated to be immaterial in 2026, the company is pursuing multiple reimbursement pathways to drive adoption. Castle is also pursuing FDA approval for its tests, which could enhance future reimbursement opportunities.
The company maintains a strong balance sheet with $287.5 million in cash, cash equivalents, and marketable securities as of September 30, 2025, providing flexibility for continued investment in product development and market expansion. Management has emphasized a disciplined capital allocation approach focused on commercial optimization, focused R&D efforts, and strategic opportunities within current therapeutic areas.
Conclusion
Castle Biosciences delivered a strong quarter with significant test volume growth and revenue that exceeded analyst expectations. The company’s expansion into the atopic dermatitis market with AdvanceAD-TX represents a substantial growth opportunity, while its core dermatologic and gastroenterology tests continue to drive current performance.
Despite a slight contraction in gross margins, the company maintains a strong cash position and positive operating cash flow. With raised full-year guidance and a robust product pipeline, Castle Biosciences appears well-positioned for continued growth in the specialized diagnostic testing market.
Investors responded positively to the results, with the stock rising in aftermarket trading. As the company continues to execute on its strategy of developing innovative tests and expanding market penetration, it will be important to monitor the commercial uptake of AdvanceAD-TX and the impact of ongoing reimbursement initiatives for its existing test portfolio.
Full presentation:
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