Castle Biosciences at KeyBanc Forum: Strategic Insights for 2025

On Tuesday, 18 March 2025, Castle Biosciences (NASDAQ: CSTL) presented at the KeyBanc Annual Health Care Forum 2025, offering a strategic overview of its current operations and future plans. The discussion highlighted both the company’s strong financial position and the challenges it faces in the molecular diagnostics industry, particularly with reimbursement pathways and market penetration.

Key Takeaways

• Castle Biosciences is now a cash-generating company, having closed 2024 ahead of revenue guidance.
• The company is investing in R&D and business growth, including acquisitions like Tissue Cypher.
• DecisionDx-SCC faces reimbursement challenges, with a critical coverage decision expected on April 24.
• The company aims to increase market penetration for DecisionDx-Melanoma to 55-65%.
• State biomarker laws are anticipated to improve the commercial payer environment.

Financial Results

• Castle Biosciences reported being cash flow positive throughout 2024.
• The company exceeded its revenue guidance for the year.
• Financial milestones set for 2025 have already been achieved.

Operational Updates

• Tissue Cypher: Targets over 400,000 patients annually for Barrett’s Esophagus disease, aiming to identify high-risk patients.
• DecisionDx-Melanoma: Currently at 28-30% market penetration, with a goal to reach 55-65%.
• DecisionDx-SCC: Published eight studies in 2024, highlighting potential Medicare savings of up to $970 million annually.
• Sales Force: Expanded to cover 13,000-15,000 dermatology clinicians across the U.S.
• MyPath Melanoma Test: Plans to invest more broadly in this test.
• IDgenetics: Shifted to an inside sales support model to boost profitability.

Future Outlook

• Castle Biosciences anticipates continued growth in 2025, despite the upcoming April 24 coverage decision for DecisionDx-SCC.
• Ongoing evidence development is expected to drive further market penetration for DecisionDx-Melanoma.
• Improvements in state biomarker laws are likely to enhance the commercial payer environment.

Q&A Highlights

• Reimbursement: Clarity has improved with programs like MolDX, though state-level inconsistency remains a challenge.
• Acquisition Strategy: Focused on commercial structure, internal pipeline, and validated test acquisitions.
• PAMA Impact: Ensures Medicare reimbursement aligns with commercial insurance rates.
• RFK HHS Leadership: Anticipated to emphasize personalized medicine and biomarker value in CMS.

For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - KeyBanc Annual Health Care Forum 2025:

Paul Knight, Analyst, KeyBank Life Science Research: It’s Paul Knight, here from KeyBank Life Science Research, and the CEO of Castle Biosciences, Derek Metzold. Derek, you know, I think I started following molecular diagnostics somewhere around 02/2001, and we’ve had our cycles since then. Where do you think we are now today in diagnostics? Is it obviously the IPO market’s been shut off, but firms like Castle are now starting to generate cash. Where do you think the industry is in terms of reimbursement, profitability and potential?

Derek Metzold, CEO, Castle Biosciences: I think from a, let me write those things down real quick here. Potential, I think from a reimbursement perspective, we’ve seen is, I mean, it was a good commentary there of cycles, right? Thankfully, I think there’s more clarity, I guess, maybe a little less concern on timing of reimbursement from CMS for new diagnostic tests, but at least there is a clarified pathway there through the MolDX program is one example. I think on the commercial reimbursement side, many of us had expectations of having the state biomarker laws actually be followed, I guess, or to have the local state insurance plans actually follow the intent of the law. And that doesn’t seem to be that did not happen in the last couple of years.

We have seen those some nice bright light pathways in 2024 and earlier this year. So hopefully in three or four years, we see more consistency of commercial plans on a state level where biomarker laws are in place actually following the intent and spirit of those regulations so that patients who will benefit from biomarker information regarding their treatment options actually get access to those testing service. So that’s I think a positive looking forward. From a profitability standpoint, you’re right. I think there is still a balance between investing in R and D to developing your first or second molecular diagnostic test, creating appropriate adoption, getting reimbursement that sucks a lot of cash investment out.

And as you mentioned, there’s only a few of us who are in a position now we’ve gotten to be sized, I guess, in a relative basis to be able to be functioning as a cash generating organization, which lets you, of course, go ahead and put more dollars back into either growing the business on the top line or else moving it through with from a new product standpoint. So that feels pretty good overall.

Paul Knight, Analyst, KeyBank Life Science Research: And what do you see in the development pipeline? Are products going to have to be more mature before a castle would acquire it? Is there any dynamics about early stage companies in the industry that you see or are they just not as many?

Derek Metzold, CEO, Castle Biosciences: So, from a Castle perspective, we have followed for the last several years kind of philosophy of sort of three buckets of using of our capital use. One of them is clearly pushing investment into our commercial structure to go ahead and drive adoption reimbursement of available tests today. The other one is supporting internal pipeline, which as you noted may require more time to go from a concept to a test and from a test to being reimbursed compared to acquiring tests that have either have been fully validated and developed, maybe are commercially available, maybe have reimbursement already taken care of through Medicare or some other payer process. And certainly at Castle here in the last several years, we’ve done all three of those things right. We’ve expanded our commercial footprint to go ahead and try and meet the needs of our marketplace for our currently marketed test.

We’ve acquired a couple of companies, most notably, of course, was our tissue cipher acquisition with Sernostics, which was a test that had been well validated clinically, performance was consistent across multiple studies, was reviewed and has coverage through Novitas on claim by claim basis and of course such a great demand opportunity there. And of course, we had talked more recently about our most advanced internal pipeline test, which is a test what we hope will meet our product profile goal of being able to help dermatologists, figure out which systemic atopic dermatitis patients their or drug their patient will respond best to and also which they probably won’t respond well to. And that’s a mixture of sort of capital investment, our commercial structure, pipeline and acquisitions. I think we would see ourselves going forward on all three of those buckets.

Paul Knight, Analyst, KeyBank Life Science Research: The, you know, we’ll we’ll eventually have to talk about SCC, but I prefer to go in reverse because it’s more interesting and timely. Right? Yeah. Tissue Cypher has been getting a ton of traction. Can you talk to Tissue Cipher?

Derek Metzold, CEO, Castle Biosciences: Sure. So that’s a marketplace where we believe there’s over four hundred thousand patients who are undergoing an endoscopy, an upper GI endoscopy each year with a diagnosis of Barrett’s Esophagus disease. The majority of those patients, the vast majority, ninety percent plus will be diagnosed with what’s called nondysplastic Barrett’s Esophagus disease, which is Barrett’s Esophagus disease, which is certainly Barrett’s Esophagus, but no dysplasia being seen by pathology and the standard of care for those patients has been to sort of I’ll see you back every three or every five years to rescope you and hope that your disease hasn’t progressed to cancer or to high grade dysplasia in that time period. So it’s a watchful waiting approach, which is appropriate on a population basis. But if you get patients who are diagnosed with low grade dysplasia or high grade dysplasia today in The U.

S, those patients are recommended or referred to undergo an intervention. Most typically it’s called radiofrequency ablation, which is essentially trying to wipe out that Barrett’s lesion. Sometimes that’s used alone, sometimes it’s used in combination with a surgical procedure. But the goal is to get rid of that lesion because the chance over five years of progressing to cancer is outweighs the risk of doing nothing. What that means practically, of course, is that because we sort of treat and try and kill off the likelihood of those patients progressing to esophageal cancer, the majority of patients who progress to esophageal cancer are those nondisplastic dysplastic patients that we watch and wait.

And so where tissue cipher really stepped into a eye on that clinical need was to say, hey, we can use spatialomics by looking at biomarkers and where they’re located on that Barrett’s Esophagus PINCH biopsy and tell you if this particular patient’s non dysplastic Barrett’s disease is highly likely to progress at a rate that’s similar to or higher than low grade or high grade dysplasia, in which case we would say just because this patient biologically has been shown to progress rather than pathologically, why would you treat them the exact same way? And I think most gastroenterologists around The U. S. When we get to them and present the benefit of our test here say, well, of course, I’m treating patients with ablation or other interventions to stop progression. And that’s based upon my expectation of how many would progress over the course of five years.

If your test could be that similar or better, why not use it? So I think we walked into a very, very important opportunity to help people avoid progressing to esophageal cancer. And today, we have no good tools to find those people in that on this plastic bucket. So that’s a really, really fantastic outcome. And I think what you’ve seen in the meantime is that when you appropriately educate doctors, you’re seeing quite nice adoption across the space.

Paul Knight, Analyst, KeyBank Life Science Research: And the DECISION DX melanoma is your largest test, rapid growth in ’24. What’s your outlook there, Derek?

Derek Metzold, CEO, Castle Biosciences: I think that if we look at sort of where does it get to, maybe that kind of question. We sort of benchmark other molecular diagnostic tests that have sort of a similar use. So they’re able to kind of remove a procedure. In our case, it’s removing a sentinelift no biopsy surgical procedure. And does that marry the same kind of clinical use as for instance, the thyroid test where you’re removing a potential thyroidectomy procedure, right?

If we think that that’s comparable market, then I would say, we believe we exited 2024 at around what twenty eight percent, ’20 ’9 percent, ’30 percent marker penetration. So getting up to the fifty five percent, sixty percent, sixty five percent should not be a huge direction. I think more of the question is timing, how fast do we go ahead and double volume overall in the next several years or is it going to be another decade before we get there? And I think ongoing evidence development, we have seen last year a number of plans on a commercial basis move from non coverage to coverage based upon the fact that when you use our test, people live longer. So I think that ongoing march of evidence will help go ahead and drive that penetration forward.

Paul Knight, Analyst, KeyBank Life Science Research: And, I guess, you know, touching on now SCC, I guess, your options are what? You’ve submitted more published work that may get reviewed. Is that kind of the possibility on SCC?

Derek Metzold, CEO, Castle Biosciences: Yes, I think there’s we had eight publications in 2024. Half of them were sort of tied to the ability of our test to predict responsiveness to adjuvant radiation therapy. And that was we had those four papers, two of them were separate multicenter trials, which showed that when you compare to match control patients that the use of our test identifies patients who received no benefit from adjuvant radiation therapy, which is a majority of patients who’d be eligible. And we find a small proportion of patients who get a tremendous nearly a 50% reduction in the likelihood of progression compared to those patients who don’t receive ART. So great clinical utility on directing radiation therapy.

Those weren’t available for the for either one of the LCDs when those were reviewed in 2023. So those are important publications. We also published last year a fairly basic direct cost analysis model to the Medicare population showing if you actually take the number of people who underwent radiation therapy of the Medicare age bracket over the course of a single year. And if you had applied our test to help rule in or rule out radiation therapy, you just took the cost of radiation therapy, which we estimated based upon reimbursed rates of around $60,000 for a full course of therapy and you deducted the cost of our tests being paid for by Medicare. The overall savings to Medicare, I think was up to $970,000,000 in savings in the course of a year.

That really shows you the value of being able to rule out an intervention which is used in this disease state. And if you do so, has tremendous opportunities, not only avoid complications from patients undergoing ART who don’t benefit, but also removing overall cost dollars. So I think that data going in, we would hope would be enough evidence to say, hey, the use of our test tremendously allows people to rule out ART and a few that need it. You really can push them hard towards that. And the overall cost savings to the system is just

Paul Knight, Analyst, KeyBank Life Science Research: fantastic. So in effect, that’s a clinical utility test?

Derek Metzold, CEO, Castle Biosciences: Yeah. That would be the

Paul Knight, Analyst, KeyBank Life Science Research: Sorry.

Derek Metzold, CEO, Castle Biosciences: Oh, yeah, yeah, yes. That would be the primary clinical use. Now it turns out, if you look at say NCCN guidelines, the majority of patients, I want to say upper 90s, might be ninety nine percent of the people who we test actually NCCN high risk or very high risk SCC disease. It also happens that under NCCN guidelines, you would be eligible for radiation therapy under either one of those two categories. So if that ends up being the final intended basically covering the people who are testing today, which I think is appropriate from a medical care standpoint.

Okay.

Paul Knight, Analyst, KeyBank Life Science Research: And would that would you view that as kind of your best study on cost analysis done yet today?

Derek Metzold, CEO, Castle Biosciences: Yes, on the ART approach, yes.

Paul Knight, Analyst, KeyBank Life Science Research: And then, let’s say FCC continues eventually is not reimbursed, were your commercial sales force, what do they get reallocated to or is melanoma growing fast enough that you just wouldn’t hire because of the melanoma growth?

Derek Metzold, CEO, Castle Biosciences: Yes. So we are sitting, I think at the end of twenty twenty four, maybe mid-70s in terms of sales territories across The U. S. Single layer. We think there are 10,000 plus medical dermatologists, but you have another few thousand dermatology clinicians who are nurse practitioners or physicians assistants that are also in that same group that are doing medical dermatology.

So maybe call it 13,000, 14 thousand, 15 thousand might be the right number. Being sized in the mid-70s to cover that universe of clinicians is about the right size, whether or not you have one product or one test in our case that you’re offering educationally or two tests. So I don’t see any kind of a reduction that would be thoughtfully thought out. Plus, as you pointed out earlier, Paul, this is our single largest revenue base of the company. And to have us make some kind of a change short term wise does not seem to be in the best interest of patient care, doctor care or Castle’s employees.

Paul Knight, Analyst, KeyBank Life Science Research: Okay. And then, when is the expiration date on reimbursement for SCC right now, Derek?

Derek Metzold, CEO, Castle Biosciences: So there was an extension provided in January that has this sort of effective date of the Novitas LCD being April twenty fourth of this year.

Paul Knight, Analyst, KeyBank Life Science Research: Why was it extended, do you think?

Derek Metzold, CEO, Castle Biosciences: There was a press release issued by another laboratory, which seemed to suggest that the extension was provided by the incoming administration. They would have time to go ahead and review the LCD. I don’t know, the way to that or not, at least that was what was out there already. So that’s my assumption there.

Paul Knight, Analyst, KeyBank Life Science Research: And then, obviously, we’ve had a lot of changes going on in Washington, including layoffs. Do you think, clinical utilization rates will go up under this scenario of rising unemployment?

Derek Metzold, CEO, Castle Biosciences: Clinical utilization rates of our test specific.

Paul Knight, Analyst, KeyBank Life Science Research: Will people more physician visits, diagnostics testings while they’re still on a health plan?

Derek Metzold, CEO, Castle Biosciences: Oh, I think as it relates to Castle’s test specifically, no.

Paul Knight, Analyst, KeyBank Life Science Research: Yeah. You’re more Medicare age.

Derek Metzold, CEO, Castle Biosciences: Yeah. I mean, one could argue maybe, well, for either cutaneous squamous cell carcinoma or melanoma, those are usually a mixture between patient driven like that mole in the back of my neck bleeding or they’re clinician driven where maybe you might see a few more dermatology visits being snuck into, but I don’t think we would be able to discern that Paul. I I think we’re maybe more likely maybe you might see an uptake will be to say, do you have employees in the federal government or other locations that would say, I’ve had this ongoing GERD, I’m taking, Pepcid over the counter, I chomp that for three or four day. I still have this thing. I might go in then maybe that’s a scenario, but I don’t think I don’t think it’s gonna be a heavy driver, be able to see empirically.

Okay.

Paul Knight, Analyst, KeyBank Life Science Research: And has a panel worked as well as we’d hope?

Derek Metzold, CEO, Castle Biosciences: I think, so our core tests are all advanced diagnostic laboratory tests. Yeah. And we thought that was important. One that you could call it a good seal of approval to say, hey, we made a decision to take our investor dollars and develop and build or acquire innovative first in class tests by and large. And that’s kind of a badge of honor to the employee base and even to our clinicians to say, hey, we like this before we have something now.

On the other hand, that also means that we get priced annually. There’s a lag in price structure, but that means that we have to collect the medium private payer rate. So what the commercial payers pay us on average from a fully allowable amount and we get priced that with our Medicare rate. So for us, PAMA has worked in terms of saying, hey, I don’t think there’s a problem by having Medicare reimburse the cost of a test for Castle at the same rate that’s being reimbursed by commercial insurance. So, I think from our standpoint, PAMA has done a wonderful job of saying, let the commercial marketplace set the rate for Medicare as opposed to having different negotiations that might disadvantage Medicare or vice versa.

I think, PAMA, for the other thousands of tests out there that are not advanced diagnostic tests has been delayed as you know. I don’t know at the end of the day, if that means Medicare is overpaying as a whole for those testing services or if they’re underpaying relative to commercial markets. But I know from our perspective, it feels good to be transparent with the marketplace saying all we would ask you to do from a Medicare standpoint is to reimburse us the average weighted price that we get paid on a private basis, and that seems to be a very transparent, give and take.

Paul Knight, Analyst, KeyBank Life Science Research: Another question we’ve had regarding the new administration is new leadership at CMS. Do you sense that there could be any change in terms of CMS view on reimbursement or approval in the early days of the RFK HHS leadership?

Derek Metzold, CEO, Castle Biosciences: One that’s probably above my pay grade in general, Paul. But I would say, I don’t know how one could affect the reimbursement. I think PAMA adjustments would require a change through Congress that’s pretty well established. Maybe they would go ahead and push PAMA compliance as opposed to delays. Maybe that’s an impact on the reimbursement side.

I think on the approval side, assuming, Oz is confirmed, there certainly is interest in personalized medicine from his perspective. And so you would think that might have an elevated approach in CMS at least under the value of biomarkers maybe that has a benefit for the industry overall, but that’s possible upside there potentially.

Paul Knight, Analyst, KeyBank Life Science Research: Yes, that’s the question I think we’re intimating is maybe, somebody knows RFK’s history more than we do is, you know, the interest that he may have in personalized medicine. I guess that’s it.

Derek Metzold, CEO, Castle Biosciences: Yeah.

Paul Knight, Analyst, KeyBank Life Science Research: And then regarding other products, MyPath, U N, where are we with that, Derek?

Derek Metzold, CEO, Castle Biosciences: So we are on the UV melanoma test, just for the audience here, that’s our last of our sort of early Chapter one test at Castle Biosciences. It serves a small marketplace of a rare cancer. We think we’re testing eighty percent, eighty five percent of all patients diagnosed each year. So that’s fairly fully penetrated. I think our goal there is to make sure that we’re serving patients well.

There are obviously fifteen percent or twenty percent of patients who aren’t accessing our tests on a routine basis. So we have some small upside there. On our MyPath Melanoma test, we are beginning to look at investing in that test on a broader basis going forward. That’s a small contributor today, but it’s important for us because I think to our overall customer base that says, hey, we care about melanoma. We want to make sure we can assist you in getting the diagnosis correct, which is what MyPath does.

And then when it comes to saying, okay, this is melanoma and it’s invasive, our DECISION DX melanoma could fit right into that same customer group and say, now, we can provide you with additional information you can get nowhere else that lets you understand, does this patient need to go undergo the surgical, some of the biopsy procedure or can we kind of have a conversation and defer that? And then how do I treat the management afterwards? So I think that’s a nice one, two punch there.

Paul Knight, Analyst, KeyBank Life Science Research: And then ID genetics, sorry. Update that?

Derek Metzold, CEO, Castle Biosciences: Yes, we had pivoted last fall or late last year, I guess, to looking at the value of having us largely promote that from our inside sales support as opposed to on the feet ground support. And that was an attempt to really see if we can get this into a profitable line of business. So kind of stay tuned on that after the first quarter here to see how that’s going.

Paul Knight, Analyst, KeyBank Life Science Research: I’ve seen companies in the molecular diagnostics industry use the inside Salesforce approach. In one situations does that seem to really work well, Derek?

Derek Metzold, CEO, Castle Biosciences: That’s a good I can’t comment on other people’s experience that’s there. Certainly, when we have seen vacant territories and switched over some support, we see good support of those vacant territories. I think with the iGenics team, we have customers who like the assay and the assay course, as you may recall, it provides really a three in one kind of report. It lets clinicians get not only drug gene data, but gene gene data as well as lifestyle factor data so that a physician who’s seeing a patient with depression or anxiety, one of the other covered mental health services doesn’t have to go back at night and figure out how do these things all fit together, we try and do that for them. So that has great value.

And I think when you look at our current customers being able to support those who are inside sales is probably an appropriate approach to approach to think about. Okay.

Paul Knight, Analyst, KeyBank Life Science Research: And then any sense on the commercial payer environment? Is it as same as historical and usual in the market today?

Derek Metzold, CEO, Castle Biosciences: For which? Just in general?

Paul Knight, Analyst, KeyBank Life Science Research: In general, I mean, it seems to have been always difficult in most of our career watching or dealing with commercial pay. But is there you think there’s any hope that it could get quicker?

Derek Metzold, CEO, Castle Biosciences: I think that clearly building evidence makes a difference. It takes a while to get there. As I mentioned earlier, we were seeing some plans last year take a hard look at the NCIC or data, which shows of course that in patients who were tested clinically with their melanoma test compared to a matched group using NIH’s approach of three:one matching, they live longer than patients who were not clinically tested. And I think that kind of data shows this is an outcome improvement. Clinicians use our order our tests because they use the results to inform how they want to follow that patient or care for that patient.

And if you get tested, all the things being matched equally, including socioeconomic factors, people live longer if you actually have received this information on top of what you already have. That kind of movement is always needed, I guess, in diagnostics industry. We are seeing some movement in some of the state biomarker laws. As you may know, I think over half the population is now covered under biomarker law. I don’t believe the spirit or intent of the legislation was actively followed by many commercial carriers.

Yeah. But we are seeing movement on some states going back and trying to recorrect that behavior. So hopefully at the end of the day, the states that passed legislation to say having biomarkers inform better patient care or something we care about will actually happen. I don’t think that’s happens overnight, but I think we’re we are seeing the march in the in the right direction, which is helpful for all patient care and for companies too.

Paul Knight, Analyst, KeyBank Life Science Research: Yeah. Routine doctor visits seem to take forever to get scheduled now. It kind of signals to me or ask the question, how are they keeping up with the many new data points and diagnostics?

Derek Metzold, CEO, Castle Biosciences: Our clinicians specifically, I think that’s where the mixture of both personal and non personal education communication efforts takes place, right? I think nothing really substitutes for being in person and having a well trained commercial group and having a well trained medical science liaison groups who can actually add value to that clinicians base of knowledge, which will have them either say, I see where I can get better value out of your test more often or have them say, actually, I’m getting the right value out of your test. Thank you very much. And mixing that in with non personal promotion activities is a way to kind of move business forward from an educational standpoint. But you’re right, with the advent of new tests, of new therapies, of more patients coming in and less reimbursement from a clinician standpoint, there’s a balance of saying how do they keep up and I think we play an important role in keeping up.

Yeah.

Paul Knight, Analyst, KeyBank Life Science Research: Well, Derek, any closing comments on what you’re thinking about with Castle’s twenty twenty five?

Derek Metzold, CEO, Castle Biosciences: Yes. We closed out last year, I think very, very strong ahead of our revenue guidance. We generated cash last year. We were operating cash flow positive for the course of 2024, which all hit our milestones from for 2025 by the way already. So that’s quite positive.

I think as you noted, we have good growth under our current belt for 2025 expectations. We have this overhang potentially of this April 24 pumpkin date for this coverage decision with CIGI X SCC. And otherwise, we believe that we have the resources in place, the people in place to go ahead and have another productive 2025.

Paul Knight, Analyst, KeyBank Life Science Research: Congratulations on many years of running a successful molecular diagnostics firm, Derek.

Derek Metzold, CEO, Castle Biosciences: Thank you. Thank you. Good to see you, Paul.

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