Castle Biosciences at Jefferies Global Healthcare: Diagnostic Innovations and Financial Strategies

On Wednesday, 04 June 2025, Castle Biosciences (NASDAQ:CSTL) presented at the Jefferies Global Healthcare Conference 2025, outlining strategic advancements and financial goals. The company highlighted its innovative diagnostic tests and financial resilience, while also addressing challenges such as the discontinuation of its iGenics test due to reimbursement issues.

Key Takeaways

• Castle Biosciences is committed to expanding its diagnostic test portfolio, focusing on molecular diagnostics for patient health.
• The DECIDE study showed DecisionDx Melanoma test can safely avoid sentinel lymph node biopsies, with 100% recurrence-free survival at two years.
• Financially, the company aims to maintain an 80-81% gross margin and achieve cash flow positivity by the end of 2025.
• Discontinued iGenics test due to reimbursement challenges, focusing on optimizing commercialization investments.
• Castle Biosciences reported $275 million in cash and investments as of Q1 2025, maintaining a strong balance sheet.

Financial Results

• Revenue and Volume:

- Anticipates seasonal revenue increase from Q1 to Q2 2024, primarily due to melanoma-related tests.

- Predicts flat or slower revenue growth in the following four quarters.

- Discontinued iGenics test in Q1 2025 due to reimbursement issues.

• Gross Margin:

- Maintained an adjusted gross margin of 80-81% over the past five quarters.

• Operating Expenses:

- Reported $28.3 million in operating expenses in Q1 2025, including a write-down of iGenics amortization costs.

• Cash Flow:

- Used $6 million in operating cash in Q1 2024 and Q1 2025 due to bonuses and healthcare expenses.

- Achieved $23-24 million in operating cash flow in each of the subsequent three quarters of 2024.

• Balance Sheet:

- Held $275 million in cash, cash equivalents, and investments as of Q1 2025.

Operational Updates

• Test Portfolio:

- Focuses on diagnostic support, risk stratification, and therapy selection.

- Includes MyPath Melanoma, DecisionDx Melanoma, Tissue Cipher, Provize, and DecisionDx SCC.

• DecisionDx Melanoma:

- Used to rule out sentinel lymph node biopsy, with 100% recurrence-free survival at two-year follow-up.

- SEER database study showed a 29% reduction in three-year melanoma-specific mortality for tested patients.

• DecisionDx SCC:

- Predicts responsiveness to radiation therapy, potentially saving Medicare $972 million annually.

• Tissue Cipher:

- Identifies high-risk patients with non-dysplastic Barrett’s esophagus for early intervention.

• Sales Force:

- Dermatology sales force consists of approximately 80 representatives.

- GI sales force expanded to the mid-60s.

Future Outlook

• Goals:

- Drive robust test volume growth and maintain industry-leading gross margins.

- Achieve operating cash flow positivity by the end of 2025.

- Sustain a strong balance sheet.

• Capital Allocation:

- Optimize commercialization and R&D investments.

- Open to acquiring assets that align with strategic focus.

• Sales Force Expansion:

- Plans to split dermatology territories reaching $3 million in sales.

- Expanding GI sales force to enhance market penetration in Barrett’s esophagus diagnostics.

Q&A Highlights

• No questions were asked during the conference call.

For further insights, readers are encouraged to refer to the full conference call transcript.

Full transcript - Jefferies Global Healthcare Conference 2025:

Derek Maslow, CEO, Casa Biosciences: Good morning. My name is Derek Maslow. I’m the CEO of Casa Biosciences. With me today is Frank Stokes, our CFO. I want to thank Jefferies Conference for the opportunity to come and present today and look forward to taking questions when we get done.

Let’s talk a little bit about Castle Biosciences. First, I encourage everybody to read through our disclaimers on the corporate presentation located on our website. So we try and focus on improving, health of patients through innovative test services. And we develop those internally or we look to acquire them with a key goal of saying, will this novel test have a positive impact on patient health or not? If it does, then that’s something we should pursue either investigating, discovering, developing, or acquiring.

So we play in a couple of locations here. One way to think about organizing diagnostic test services is sort of where do you perhaps come and impact the patient journey. And at this point in time, our earlier tests are located in sort of the diagnostic support area, which from a commercialized test right now, have MyPath Melanoma, which really assists dermatopathologists and dermatologists in understanding, if this biopsy for a melanoma is actually melanoma or not. We then move into patients who have a definitive on pathology typically and provide tests that we would call risk stratification or prognostic tests. That’s important from our perspective because, as far as I’m aware, every disease state, once it’s diagnosed, the next step is really what are we facing downstream.

Do we have a good outcome, be it in this case, usually cancer care progression, or it could be LDL cholesterol leading to cardiovascular events or not, and you adjust your treatment pathways based upon risk stratification. And then one goes downstream a bit more into therapy selection process. We have, one test on the marketplace or DecisionDx SCC test, which is for use in patients with, with squamous cell carcinoma of the skin, but high risk. So they have the presence of one or more risk factors that puts them in a higher risk of progression category. We’re able to demonstrate in two back to back publications in 2024 that our test not only risk stratifies patients that are already at high risk of progression, but also identifies patients whose squamous cell carcinomas are likely to be responsive to radiation therapy or unlikely to be responsive to radiation therapy.

Going back to the risk revocation area, we also have our our initial lead test for for use in invasive cutaneous melanoma called DecisionDx Melanoma. And we if you jump down to the bottom there, also have a a a test that we acquired a couple of years ago called tissue cipher, which is for use in patients diagnosed with Barrett’s esophagus disease and and and a grade, which is either gonna be nondysplastic, indefinite, or low grade dysplasia. We can get into the use of that test here shortly. We announced a few weeks ago that we also acquired a second company in the gastroenterology space, this one called Provize, which has a complementary test in the same area as tissue cipher. It also has some upstream pipeline opportunities, which might move us into a diagnostic support area as well going forward.

So one can organize how one runs a business different fashions. This is how we choose to organize Castle Biosciences. I think we first look at identifying a clinical question we can solve through advanced molecular diagnostic tests. We then look to build a robust base of evidence which will help us penetrate the marketplace both in terms of physician usage and hopefully reimbursement coverage, and then continue to focus and focus and focus on building and expanding and building and expanding in those areas. So just an example of some of the value that we give on a top line basis.

Our DecisionDx Melanoma test was developed to to really answer two clinical questions, which I go into on the next slide here. And we recently published data from our prospective multicenter decide publication, which did a couple of things. One of them is that it also demonstrated that physicians use our test clinically to rule out a sentinel lymph node biopsy procedure, which is a prognostic procedure done in melanoma as it is done in other solid tumors. We also demonstrated in this DECIZE study that that that that in when our test is used to avoid a sentinel lymph node biopsy procedure, a question for us remains is are we doing patient harm? And that would be that that if you’re if you’re ruling out a surgical procedure that used to be standard of care across the board with the use of a molecular test, we wanna make sure that if we if our test result is used to eliminate that procedure, that patients don’t experience an untoward recurrence downstream that’s higher than we than we would potentially predict.

And we demonstrated here earlier this year that at least with two year follow-up data, the DECIDE study demonstrated quite nicely that patients who had a low risk or low likelihood of of having a positive Sutton lymph node, therefore, avoid of that procedure, had one hundred percent recurrence free survival. So no events of recurrences so far. That’s gonna change, obviously, but it does show you that it’s a very, very low risk population, which is able to safely avoid an interventional surgical procedure. I talked about the radiation therapy data out of the SCC test earlier. Again, we published two back to back multicenter US based studies demonstrating that our test can predict patients who will respond or not respond to adjuvant radiation therapy.

Coupled with that was a was a a very nice review of what’s that do to cost extraction. And at this point in time, there are a couple of predominant radiation therapy approaches used in the Medicare population. This study demonstrated that if you just look at at at at at cost of radiation therapy, so so the so the full course of of radiation therapy, and our test was used to help rule out or rule in radiation therapy in these patients that are Medicare eligible, the net savings would be $972,000,000 per year to Medicare, which is a great extraction for a single test in a small population. And then finally, tissue cipher in terms of the impact of value on patient care. So in the case of Barrett’s esophagus disease, Barrett’s esophagus disease is the only known precursor for add esophageal adenocarcinoma or EAC, which is a a very, very difficult diagnosis, about a twenty percent survival rate at five years if you’re diagnosed with EAC as opposed to Barrett’s disease.

In The US for a number of years, we have stratified patients according to intervention. If they happen to have nondysplastic disease or indefinite disease, those patients are typically watched, which means coming back in three to five years for a repeat upper endoscopy to see if that Barrett’s lesion has progressed or worsened. If you’re diagnosed with what’s called high grade dysplasia, which is just before the presence of cancer. Those patients are universally ablated usually with with radio frequency ablation with one of the Medtronic tools, but also sometimes with surgical procedures. And then you have this low grade dysplasia group, which is just below high grade by definition.

Those patients are probably a bit of a toss-up. Many of them do go on to have their their Barrett’s disease ablated because, again, if it’s not there, it can’t progress to cancer. And what we’ve demonstrated with with TissueCipher is that if you go ahead and look at the at the wealth of data, which is over seven peer reviewed publications showing the validity of this test, performance characteristic of the test, that we take patients who have non dysplastic disease, who have the lowest chances of population of progressing to esophageal cancer, and find people who actually have a risk of progression as if they have low grade or high grade dysplasia. So it’s doing a very, very nice job of taking what’s a low risk population, identifying those bad actors to enable them to do what? Be hopefully cured of their Barrett’s disease, not progress to cancer.

Now that’s important because, again, looking at standard of care today as a population, nondysplastic patients represent around ninety five percent of all patients with Barrett’s lesions. But because they aren’t treated, they now represent the biggest group of patients that advance onto esophageal adenocarcinoma. So a great impact in terms of clinical value and clinical care that is directed by one of our tests. So let’s spend a couple of seconds here on DecisionDx Melanoma. A busy, busy word salad slide.

I appreciate that. A couple of highlights here. If you look on the on the middle of of the left diagram here, what you can see is that we originally developed our test using only molecular factors. That is gene expressions of 31 genes, 28 of which were linked to the likelihood of progression or or recurrence, three genes which are control genes internal to the patient’s tumor itself. And we developed that algorithm and locked it down back in 02/2012, so thirteen years ago now.

We believed at that point in time that the approach we had taken scientifically got us to the most accurate molecular or biologically appropriate test to predict progression in patients with primary melanoma. We also thought we should go ahead and make sure that as we generate more and more clinical data from a research perspective, can we actually improve the test? And so a couple of years ago, we said we think we have enough research cases here that we should do what? Open up the kimono again and see one was the algorithm that we developed in 02/2012, the best that we can see still in 02/1920, or can we improve the the the prognostic performance of our tests to allow our physicians to go ahead and get better value. The second question that we asked the same time was to say, there any enhancement we can do by looking at any clinical features or pathological features that are routinely captured in the order forms that we get that would get us to a more accurate test.

And it turns out the answer on the first question was no. We could not find a better algorithm looking at the raw gene data than one that we had located in lock down two thousand twelve, which was which was nice confirmation, I guess, that we have the right the right algorithm with the right gene set. But we did find that by adding clinical or and or pathological factors, we can get to a more accurate result for physicians use. And what was interesting was that even though progression to a sentinel lymph node, meaning one or more melanoma cells in the in the lymph node that’s sentinel or close to the original primary tumor, is progression just by definition. If we look beyond that and look at the risk of recurrence beyond the sentinel lymph node, we find is that actually the the the clinical and pathologic factors are a little bit different for those questions, which we didn’t think which was not intuitive to us initially.

And so what we offer today for our clinicians is is is is two test results on one report, which is to say if you’re interested in using our test to rule out or rule in potentially a similar biopsy procedure, then we will provide you with a result from the from the I thirty one, the integrated thirty one SLMB test. If you’re interested in thinking about after that decision is being made, is this patient at lower high risk of progression, then we provide a second result, which is based upon a different mix of clinical factors you can see up there, which is the I thirty one ROR of risk or recurrence result, and that is used very nicely clinically. Now what does that mean for patient care? Well, on the right hand side of this slide, you can see two studies that were published in 2024, which are quite interesting. One of them was a ongoing collaboration that we have with the National Cancer Institute SEER database program, which is the The US’s tumor registry program.

And there, we were able to take patients who were clinically tested with DecisionDx Melanoma and match them into patients who were captured in the SEER database. Now that covers about half the states in The US and there’s not always perfect reporting, but at least we can match up patients that we tested clinically with the SEER registry patient data. And then using SEER’s methodology, they like to do a three to one match. So it for every one patient that we tested clinically that we can find in the SEER database, they’ll try and find three patients that are matched clinically and pathologically, basically identical to the ones that we know were tested. So we have a tested population that we know because we tested them, and then we have an untested population that both of us know because we can’t find those patients in the CASL database, but they’re in the SEER database.

And what was demonstrated in the first publication of this collaboration was that if you just look at physicians who were using our melanoma test clinically compared to patients matched for clinical features, pathological features, and socioeconomic features. So ZIP codes, access to care, etcetera. If you were tested clinically and the expectation then is that you had your care adjusted clinically based upon our test results, you had a a twenty nine percent lower or improved three year melanoma specific survival. That’s a fantastic gain in patient care with the EsoMuncker diagnostic test. Similarly to that, we also had published or also saw being published an independent study conducted by Cleveland Clinic, Northwestern Chicago, and Oregon Health Sciences in Portland.

And they basically took patients in their practices in those institutions where they took patients. They had performed a sudden lift node procedure. Patients that were node negative, meaning no melanoma cells found in the sentinel lymph nodes, so they remained either stage one or stage two clinically just localized melanoma. And so we know within each of our institutions, there were some clinicians who were adopting the CASL test and some clinicians who were not. So they also matched patients within those three institutions to patients that were tested, that were some left o negative to those that were that were not tested, but also some left o negative.

So same access to care, same treatment pathway, same access to oncology. And similarly, again, what we found was that, again, patients who had a high risk class two result have their escalation of care. They were imaged more frequently to pick up metastatic progression, which means they found it earlier. They found it with a lower tumor burden. That’s important because at least in melanoma, we know that our newer therapies, PD one inhibitor therapies, our BRAF MEK inhibitor therapies can potentially get to cures or at least a much more robust response if you can pick up metastatic progression in melanoma when it’s asymptomatic, meaning smaller tumor burden.

So again, second study demonstrating that again use of our test to adjust care pathways leads to improved health outcomes. These are two great examples of how we try and build value for both improving penetration of our tests clinically and also improving access from a reimbursement standpoint. Another question that most of our clinicians ask us is to say, well well, we can we can see data over all stages, stage one and two and three. Stage one being thinner tumors, stage two being a little bit thicker, but still located to the primary tumor site. No evidence of progression.

And stage three, meaning you have a positive sentinel lymph node. But the largest patient population happens to be stage one patients. Those with sort of thinner tumors, which is good because we’re diagnosing earlier. And a consistent question we get was to say, well, that your overall data is interesting, but I really wanna understand in the patients I see day in day out, is these thinner stage one tumors, how does your test perform? And again, we had published in the last year or so a couple of publications showing that you can either look at the combined cohort of stage one patients from previously published data, just over 1,200 patients, or you can take a subcut of 5,000 and some odd patients out of the SEER database and show excellent performance on risk stratification of these thin patients.

So I’ll switch over to DecisionDx SCC test. So this was the test that we originally developed primarily focusing on patients with cutaneous squamous cell diagnosis of the skin, so SCC of the skin. And those patients fall in the two rough buckets from a guideline standpoint. You have patients that just have a diagnosis of squamous cell carcinoma. They’re usually small, easily curable, no risk factors present.

From our perspective, there’s no clinical utility in a test that we would develop to help that population. That ends up being about eighty percent of a million plus patients, but the other twenty percent, about two hundred thousand patients a year, we believed one were diagnosed with one or more clinical or pathological risk factors. They were at a higher baseline rate of progressing. And there within current treatment guidelines, physicians currently have options. They can either just watch clinically.

They can decide to go ahead and do something in terms of routine imaging surveillance to pick up spread earlier. They can consider performing a similar biopsy procedure on that patient like you do in melanoma, but they also have therapeutics like radiation therapy. And so we initially thought, well, you have existing pathways in these people with high risk SCC. Some patients are getting interventions like adjuvant radiation therapy. Some patients are getting nothing because these the the the the accuracy of the prognosis is is not very great looking only at clinical and pathological factors.

So we were successful in developing a a test this time using 40 genes from that patient’s primary SCC test to be able to say, hey, in that high risk population, we can we can find people who are actually quite low risk similar to the baseline population. But we also have people who are who are quite aggressive. So if you’re gonna go ahead and decide on is clinical follow-up okay for for patient a, but patient b should get radiation therapy today, we can help that clinician be usually a dermatologist make that call accurately. Fantastic clinical use from our perspective. We aren’t creating new pathways.

We’re just allowing a more accurate assessment of a current pathway. Well, along the way, we also looked at the second question, which I mentioned earlier, which is to say, if adjuvant radiation therapy is the best intervention one has in their in their toolbox today for SCC patients, Can your test help find people who may not benefit or who may benefit from radiation therapy? And we are successful in achieving that goal as well. So today, we have here is a risk stratification test, which is to say our overall risk of progression of metastasis runs around thirteen percent in our clinical studies to date. We can take patients from a thirteen percent population average and say, actually, we can reduce that by half to about six and a half percent likelihood of progression or at our highest risk class to be result.

You can see here it’s a multiplier up on a risk perspective. Those patients, if you look at pathological factors only look the same, but they obviously have a tumor which acts quite differently, which to me says you would change the care pathway accordingly. And similarly, on the radiation side of the question, what we’ve demonstrated in our in our two large multicenter studies published last year is that if you happen to have a a class two b test result, we can show roughly a fifty percent reduction in in the rate of metastasis at five years for patients who received adjuvant radiation therapy compared to those that did not receive or we did not see statistical differentiation between patients with the low risk class one test result or a class two a test result. And to put that into a slide viewpoint here oops. This is a build slide here.

We’ll show the oops. I guess we won’t show the final one there. It puts in in the in the build slide perspective here. What we saw here was that patients, again, with a class one or class two a test result, no signal in terms of radiation responsiveness. One could argue an anti signal, but I think that that that noise numbers are too small.

But if you go ahead and look at a a a class two b test result, you see a a fantastic reduction in the rate of metastasis based upon the class call when you take people who receive radiation therapy versus those that did not receive it. Looking at time here. So let’s skip over to financials here for a minute here. We believe we built a very strong resilient business over the last four or five years since we went public in 2019. And I’ll go through a couple of the highlights here, but we have a a few goals this year, which is a go ahead and one, continue to go ahead and drive robust test volume growth on a pro form a basis.

To maintain what we see as as as industry leading adjusted gross margin, to achieve operating cash flow positivity by the end of twenty twenty five, maintain a strong balance sheet, which is at two seventy five million dollars at the end of the first quarter. And follow, we believe we have done what to say, let’s take our capital and put it to uses that move the business forward in a very positive way. Be it improving or increasing our commercialization investments, improving our pipeline, our r and d investments, or finding things that actually fit our strategic focus. So I’ll go through a few things in the first quarter here. What you see here on the left and right is net revenue by quarter and test volume by quarter.

So a couple of things here. One of them is that you can see from the first quarter of twenty twenty four to second quarter a sort of a a a reasonable bump up in terms of revenue. We see that typically year in year out of Castle with seasonality primarily related to melanoma. We expect a similar kind of change, I guess, to be in second quarter twenty five. Part of that is seasonality because the second quarter represents the single largest number of working days for our physician base compared to other quarters.

And we think from a skin cancer perspective, patients are taking off winter coats and hats and gloves and putting on short sleeve shirts and shorts. And you’re just detecting more melanoma or more skin cancers popping up. So it’s a kind of a combination there. But I don’t but I anticipate that. And then we see sort of a a roughly flat or slower growth modality quarter over quarter for the ensuing four quarters.

So that’s about what we expect to see on a routine basis here. And I think that’s what’s in our forecast and our guidance for 2025 as well. On test volume, it looks a little peculiar there. You might recall that we made the decision in the first quarter of this year to discontinue our iGenics test, which is shown in the purple on the test volume standpoint. The iGenics, we believe, is is the industry leading pharmacogenomic test by combining both drug gene information, drug drug information, and lifestyle factors into a single report for patient care.

However, as we looked in the last couple of years at the significant changes and reimbursement challenges in this marketplace, We made the decision last fall to go ahead and move from a in person field based sales and marketing effort to only tele telephonic base to watch and see what we could do. And then they made the decision earlier this year to go and discontinue that that test. The volume looks a little funny. Our overall volume of our of our maintained products though has been growing quite nicely. So that translates into a couple of nice things.

One of them is that if you look at adjusted gross margin, we see that we’re maintaining roughly 80%, eighty one % adjusted gross margin over the course of the last five quarters. And our operating expenses, can see the $28,300,000 in the first quarter of twenty twenty five that reflects essentially our write down of the amortization costs of the iGenx test from the discontinuation perspective. So an anomaly there from that standpoint, the rest of it’s fairly consistent as we would expect. If we look at operating cash flow, we see trends that we expect. We do pay cash bonuses in the first quarter of each year.

We also front load some other healthcare expenses for our employee base in the first quarter. So as you saw in 1Q twenty twenty four, we used about $6,800,000 in operating cash to operate the business. And you saw in first quarter of this year, again, a $6,000,000 use of cash to go ahead and fund those first quarter periodic expenses. And then we picked up last year roughly $23,000,000 20 4 million dollars in operating cash flow each of the three quarters, which to us reflects us growing into a very nice business over the last four or five years, especially last year. If you look look at adjusted EBITDA by quarter, it’s the exact same kind of trend there.

So as a final slide here to come through, we believe that we’ve taken a thoughtful approach as we use to invest our capital in the in in the marketplace. We went public in 02/2019. I think did two raises in 2020. Is that right, Frank? And then since that time, have not had to go and go back to the capital markets.

We have increased our balance to $275,000,000 in cash, cash dividends and investments through the first quarter twenty twenty five. And we use that to fund three areas of the business. So I would call out one of them is make sure that we’re optimizing our commercialization investments. So on a dermatology perspective, we are sitting in the kind of low eighties from a sales representative perspective in territory salespeople. We think that’s probably about where we need to get to.

There are a few territories that approaching $3,000,000 in sales and we will look to split those territories up in the two. That’s that’s that’s that’s that’s too many ongoing customers to let our sales reps maintain a balance between growing within the customer base and growing new customers. So that’s about our our cut point is about $3,000,000 is sort of the the concerning factor on current volume. In the GI side of the business, which is which is which has a higher growth potential right now, we went from 24 sales representatives a year and a half ago to sort of the mid sixties the first part of this year. Again, that will help to go and drive penetration in that Barrett’s esophagus gastroenterology marketplace quite nicely.

So that’s the other area of commercial optimization. From an r and d perspective, we’re split between sort of supporting our currently marketed products in dermatology, gastroenterology, ophthalmology, and also pipeline investments going forward. And then we are laser focused on a lesser priority in general, which is to say, there assets that we can pick up that will actually make our value to dermatologists, our value to gastroenterologists stronger? And that may be things that we can market today. It may be pipeline tests we can market tomorrow.

And we have certainly been open in the past looking at saying are there is there another area or so that would actually strengthen the the foundation of of the company from a performance standpoint that we should consider going into. But again, a very disciplined approach and and thankfully, we’re in a position today to make calls that are good for Castle in the mid to long term as opposed to being too reactionary in the short term. And with that, I think we’re done with the core presentation here and have three minutes left for any questions. Frank, do you have a question for me? I don’t.

No questions from the CFO either? Alright. Thank you very much. Thank you.

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