Castle Biosciences Inc (CSTL) August 2026 Conference Transcript

Welcome to the Canic Court Growth Conference on Comments in the World of Science with Diagnostics of the Canic Court. Please welcome to your first time with Tassel Biosciences. Tassel offers a range of tests across dermatologic cancers and GI cancers as well, as well as atopic dermatitis, which we'll talk about today. With the company, we have Frank Stokes, CFO. Thanks, Frank, for joining us today. So you had your second quarter results announced a couple weeks ago. A very strong quarter and guidance was adjusted. Can you just talk about what you saw in the quarter of the puts and takes as well as the guidance update?

Yeah, sure. So two key drivers in the business are the melanoma test, or Decision DX melanoma and tissue cipher. We saw good performance in both. Modest, I would say, incremental ASP progress across both through the first half of the year. So I think the drivers there are continued penetration, continued physician conversion, and in both tests really expanding the pool of a physician's patients that they want to test with those two tests. We raised our guidance a little bit more than the beat, so I think we see that signal some optimism in where things go in the second half and continue good performance on the whole franchise.

Okay. And then what do you, I mean, specifically with melanoma, I think it was like, you know, kind of an easier comp in the first quarter. Maybe it wasn't as great in the second. but what do you see as underlying growth trends in that business?

We still see it as, this year, a mid- to high single-digit volume growth test. We're at a bit of a more mature penetration point there. We think that we use about 130,000 melanomas a year, invasive melanomas. Sear data is about 100, but there are some really good publications. There are four, actually, that suggest melanoma is underreported by between 30% and 70%. The dynamic there is melanomas are usually reported in a community or diagnosed in a community derm office, and those offices sometimes don't have experience or awareness of SEER reporting, and so a lot of those cases don't get reported. So the publications show 30% to 70%. We use 30% to be conservative, so that gets you 130,000 if that's the right number. So if that's the number, we're testing about a third of the patients at this point. We probably have two-thirds to maybe a little more of the physicians have used our tests, of the health care practitioners, providers have used our tests in the last year or so. We're at a little bit chunkier point in the penetration curve. I think we continue to convert physicians, but good, solid performance there, and I think that's going to continue to be an important revenue driver for us.

Okay, and then the Durham sales force, there's been some, let's say, changes there. So for about a year or so, they have not been incentivized to sell the squamous cell test, Decision DX SEC. So that's, you know, we would have thought that focus kind of shifted towards melanoma. But then now you have this advanced ADTX test for atomy dermatitis, which I think, I believe that the team is kind of split between that as well. So did that cause any impact on volume in the quarter, those things?

So we're still, the compensation structure still skews almost totally toward melanoma. But we are building a longer term value franchise in our DERM business. So we do have, you know, we also have our SEC test, which is currently poorly reimbursed and not covered by Medicare. We have our MyPath test as well. So we've got a fairly robust DERM portfolio there. And we do have to sort of balance, you know, Q2, what are we doing for Q2 versus what we're doing for 27, 28. So we do have some attention on some other testing that the sales force has directed, but by and large, most of what they're doing is focused on melanoma.

All right, and then maybe just speak to the medium-term opportunity in melanoma. You know, it's a mid-dialogic grower, but I think this year could be a little elevated given some, maybe the comps or something. So just talk about there's, you know, a runway there.

I think we still have plenty of runway in melanoma. Other modalities, the testing, you know, the percentage of testing is higher than in melanoma. You know, you've got thyroid at 60 percent-ish, 65 percent-ish, I think prostates in the 50s maybe. One of the differences we have is we have in melanoma, we have one primary test and really one test with quality data. So the overall testing penetration is a little bit more subdued. But I think we can continue to grow that. How long does it take to get to those points, I think, is the question. But we still have, we still, every physician meeting, every day, we have a physician that somehow, despite, what, 12 years of, 12, 14 years of selling this test, we still have some physicians who still aren't aware of it, haven't heard of it, haven't been educated on the benefits of it. So we continue to find new physicians to convert. And then within those physicians, you know, we do a ton of R&D and study work to demonstrate the benefit of testing all their patients. And so you've got a new store and a same-store opportunity there, if you think about it that way from the physician perspective. And physicians will frequently do their own risk stratification. You know, maybe they're comfortable at a millimeter and below is a low-risk melanoma, so I don't need a test. millimeter and above is high risk. And in the first place, we have data that shows that we are clinically actionable all the way down to three-tenths of a millimeter. Below that, there's no actionability, no benefit to testing, but above anything above three-tenths, there's benefit. But on top of that, you know, you have the opportunity to just break it down for a physician just from a practical perspective. And we're not talking about a breast cancer where you're talking centimeters of diameter, you know, a melanoma thickness of less than a millimeter or more, a tenth of a millimeter is far less than a strand of hair. So it's an easy or a good chance to go to a physician and say, listen, we understand your kind of historical high-risk analysis based on clinical pathological features, but at the end of the day, nine-tenths of a millimeter and 1.1 millimeter is almost negligible. So is that really a good break for risk, or should it be more biologically driven? And we've got data to support it, and that's a good engaged conversation to have with a physician to help them see that there's a larger group of their patients that can benefit from testing.

And if you received FDA approval one day for that, because I think that's a breakthrough.

We did. We have a breakthrough designation for it, and we've said we intend to file for FDA clearance. I think that our view on FDA clearance is similar to some of the other companies that you follow. We're not necessarily focused on regulation and the regulatory environment or potential change there. But really, one of the primary benefits we think should be around what is now very, very poor payer compliance with state biomarker laws. I think at this point, we just passed half the states now. I think more than half, and in population-wise, it's much more than that, are in states that have biomarker legislation. Most of the time, the payers are just simply ignoring it and are being allowed to do that, which is discouraging. But among the criteria that those laws frequently list, and most of them, if you look across the country, most of them are modeled after the Illinois law. The Illinois law was one of the first ones. Most of them just copied that. But among the criteria are FDA clearance. And it should be the case that for a payer to inappropriately deem a test or a test service to be experimental investigational when the FDA has cleared it that would strike many of us to be a difficult argument to make with a straight face so part of our our strategy there is not only demonstrating the quality of the data supporting the test the development the validation and the continued support but also on the reimbursement side helping have another another tool in the box to to try to have pay or stop acting inappropriately all right great and then maybe moving to tissue cipher that's been a really significant growth driver a great you know acquisition a couple years ago.

Talk about the growth in the quarter for volume for that test and if you're seeing any, like, you know, maturity and seasonality with that business.

Yeah, we probably have been, had the luxury of missing seasonality just given where we were in the ramp and we were so early in our penetration. And we probably were able to mask it or grow through it just through early penetration where we were in the curve. We believe in Q1 that, you know, the third-party data suggests that there were fewer, and recall there, our patient population, our patients who are having an upper GI endoscopy for purposes of Barrett's esophagus surveillance, about 420,000 a year of those. The data suggests that Q1 had a lower number of those procedures than Q4 did. I don't have the data for Q2 yet. I suspect that maybe some of those Q1 procedures got delayed a bit into Q2. We can suppose, I don't have good data to say one way or the other why that might happen, but it is clear, and you hear it from other services companies, that the reset of deductibles in the first quarter of the year does in fact change patients' behavior and the way they approach either elective procedures or non-emergency, non-acute healthcare procedures does become impacted by that change. in the deductible. So that may be one reason we see it. We've really tried to look less so, you know, incremental quarter to quarter sequentially on Tissue Cipher, but to look more kind of a rolling four quarter, you know, trend. And you see that it's much more steady around a trend line when you kind of take a little broader lens. I think we're just going to be probably for the rest of the year in that same environment, which is a combination of early in the launch. And early in our commercial expansion, we've added some commercial resources there. So we're early in that process. And we're newly penetrating a new area. We're not displacing a technology. We're not replacing a technology. This is supplemental and additive to the dysplastic criteria that GIs have always used to determine risk for a Barrett's esophagus patient. And And the reality is that, generally speaking, GIs will intervene with a dysplastic Barrett's. If a Barrett's patient has high-grade dysplasia, even moderate dysplasia, it's generally the case the GI is going to intervene or consider intervention with ablation. I said a couple times, ablation may not be 100% effective, but it's pretty close to 100% effective in terms of preventing the progression to esophageal cancer. And again, Barrett's is the only precursor to esophageal cancer that there is. And esophageal cancer has an 85% five-year mortality rate. So it's a terrible diagnosis for a patient. And by the way, those five years are fairly difficult five years, given the interventions that occur to try to extend life. So if it's a moderate dysplastic patient or a high-grade dysplasia, the physician is almost certainly going to intervene with ablation, and that's almost certainly going to work. So what that means is that the esophageal cancers are coming out of the low-risk population, the non-dysplastic, the low-grade dysplasia, or indeterminate dysplasia, because physicians don't want to ablate everybody. Sometimes you get a question, why don't we just ablate everybody, just ablate all the Barrett's patients every year. We can't do that for a number of reasons, cost, capacity, but also ablation is not without side effects and not without risk. And so you certainly don't want to ablate a patient that doesn't need it. So what the test does is it takes that large pool, which is 80-plus percent of Barrett's biopsies that are low risk by physical characteristics or by dysplasia status, and it identifies for the physician which ones of those patients may yet still be at risk for progression to esophageal cancer. And then the physician has a number of options. Then more frequent surveillance, potentially ablating the patient and intervening before that Barrett's progresses. So there's a large pool of untested patients yet. We think that if we take our Q2 volume numbers and annualize it, just do a run rate, And if our data on the number of endoscopies is correct, we're about 15 percent patient penetration on a run rate. And that suggests a couple of things. One, it suggests that there's plenty of room to go. It suggests that if we could get the penetration of our tissue cipher test to where our melanoma test is now, that's better than a double in terms of that business alone, that test alone. And we continue to build our value to the physician community. with their Barrett's patients. And eventually, at some point, it's our intent to have other testing services available to that physician community to leverage our marketing effort, our promotion effort there. And so as we continue to build that value of the educational channel, if we are able later to add something to it, it'll be exponentially more impactful.

Okay. And as you, like, you know, kind of target doubling the market share, the market penetration, you know, what could accelerate that? What could be some accelerant? So you have, you know, expanding Salesforce. You just did that recently. You have maybe like guidelines or something, you know, some sort of like do more data, things like that. As well as, yeah, just any sort of penetration increases.

Yeah, so I think that there's nothing immediately obvious to me that might be a stepwise increase. So what could bend the curve, accelerate the curve? We're already, the test is already, of the three significant GI societies, The test is already mentioned in the practice guidelines in two of the three as recommended. So we have good societal support. There's good societal recognition of the benefit of testing, particularly these low-grade or non-dysplastic patients. So I think we're in a good position there. We did make an expansion in our sales force earlier in the year, and it'll take some time for those folks to get up to full productivity and full contribution. And so they'll get there at some point in the back age two of this year. So I think that'll help as well. But but again, it's mostly it's mostly in that case, it's physician education. We don't have there's not a competing modality that we have to displace. There's not a there's not a procedure that's being taken away or replaced. It really is educating educating the health care community on the clinical question, which it turns out many of them are aware, and a lot of, when you talk to a GI, it's similar to a derm. A lot of derms have a patient in their practice history that was a type, a T1A, very low-risk melanoma, and, you know, the physician said, this is great. This is what you're supposed to do. You saw a lesion. You came in here. We got it early. We removed it. You did what you were supposed to. Good job. Now all you got to do is we just worry about others, so just come back in a year and we'll do a skin check and watch for other melanomas. And then a year and a half later, that patient has presented in the ER and they're coughing up blood because they've got lung mets or brain mets. And the physician says, how did that happen? So there's a discordance between, in the case of melanoma, as we've talked about, about 80% of melanomas are initially diagnosed at low risk, i.e. let's remove it, you did good, going your way. But two-thirds of the melanoma deaths come from that low-risk pool. So there's discordance there in the traditional risk stratification and in the actual prognostic potential of the patient. You see the same thing on Barrett's. The vast majority of these patients are non-dysplastic, low-grade, but that's where most of the cancers come from. And so similar, you have GIs, many GIs who have a patient in their practice history who is non-dysplastic Barrett's in progressive esophageal cancer because you don't intervene because they're low-risk. And so I think as more and more, that clinical need is well understood. And so it's really our goal and our hurdle is to educate the physician community. They understand the challenge. They understand the problem. Here's the solution or a potential tool to add to your treatment, and here's why it's valid, and here's why you can trust it.

Okay. Sounds good. Maybe, I guess one more on that. How do you think about, like, the demographic probably might not skew totally towards, like, the Medicare age group. So commercial plans, what's been the kind of bottleneck to gaining broader coverage among them, and that happens kind of soon?

Yeah, I think that we certainly don't see anything unique to Tissue Cipher as it relates to that question. Roughly speaking, our Medicare volume tends to be sort of a little bit less than half of all the patients are Medicare age. So that's a blend of direct Medicare, straight Medicare, and Medicare Advantage commercial plans. The balance are commercial. You know, the cost savings are there. The impact on the patient groups are there. It's really a matter of penetration to get the test to the point that, again, a payer can't, with a straight face, call something experimental when it's being widely used. And so we're, you know, we've got a ways to go to get to that level of penetration when that becomes apparent.

Okay. Let's move on to the atopic dermatitis test, Advanced ADTX, called Advanced AD. So you did a limited early, kind of an early access program in 4Q. Still, it's a little bit limited in early, you know, in the last two quarters. I think you have maybe got to like a thousand or so orders in the second quarter. So it's early days, but maybe talk about, you know, how you're commercializing thus far. What's the plan for the next few quarters as you sort of dig deeper into the reimbursement process, maybe even touch on what's happening there?

Yeah, so the test is, we've made it available in Q4. The test is available now. Great physician receptivity, you know, that was almost a double in terms of volume, but off a small base to be sure. And again, it's a, the need is pretty well understood on the part of many of the health care providers. you know biologics don't work in all patients and somewhere between 40 and 60 percent of the time a biologic doesn't work and while we recognize there are some physicians who aren't going to use JAK inhibitors for a variety of reasons some of the early JAK approvals came with a black box and has still a black box and so there are some concerns about toxicity which we certainly understand but I think there's a growing comfort and awareness that with a subset of patients JAKs are safe and effective. And so physicians won't understand, is this a patient that's going to respond to a biologic or is this a patient that's going to respond to a JAK inhibitor? The correct identification and answer of that question and correctly getting a patient on the right medication at the right time. Of course, there's patient satisfaction. There's patient improvement. There's physician satisfaction. They don't have a patient coming back multiple times for the same concern, the same complaint. And there's potentially a fair amount of economic benefit as well. These drugs are all expensive, and patients who are on them have generally failed a number of other more inexpensive topicals, generics, et cetera. So by the time a patient gets to the point a physician is considering a biologic or a jack, the patients, it's an acute case. You know, the patient's failed the easy answer. The patient's failed that. The patient's still not satisfied and not responsive, and so the physician needs to try something that's more effective. And I think you're going to have a couple of groups of physicians. I think you're going to have a group of physicians who says, look, there's a biologic that I've used forever, and I'm going to use that first, and I'm going to continue to use that first. And if that doesn't work, then I'm going to consider Advance AD to see if I should consider a class of drug change or just another, just kind of progressing through the biologics. And then I think there's a group of physicians who are going to take a different approach and view it as an opportunity to say, I'm going to avoid a failure altogether, and I'm going to run this test, and then I'm going to know which class to start with. And then, you know, sometime maybe down the road, there are other follow-on opportunities we have in inflammatory skin disease. But the ability to when you have a switch, in addition to the dissatisfaction that I referenced, you've got you've got a high cost because a patient's getting a prescription, probably not using all of it, getting another one. You know, these drugs are frequently front end loaded. And so the expense can mount as along with that patient, you know, fatigue and dissatisfaction. So we've made the test available. WE HAD A PRETTY IMPORTANT MILESTONE IN THAT WE WERE, WE HAD RECOMMENDED CROSSWALK, IN TERMS OF SETTING PRICE ON THE FEE SCHEDULE, WE HAD RECOMMENDED CROSSWALK TO ANOTHER TEST. THE ADVISORY COMMITTEE MET AND ANNOUNCED THEIR RESULTS AND THEY UNANIMOUSLY RECOMMENDED ALIGNMENT WITH THAT. AND SO WE'LL SEE WHERE CMS COMES OUT. CMS HAS A HIGH PERCENTAGES OF FOLLOWING THEIR ADVISORY COMMITTEE, NOT ALWAYS OF COURSE, BUT THEY FREQUENTLY FOLLOW THAT committee. And where that comes out is important in terms of setting a metric so that we can begin to work with commercial payers on getting payment on a claim-by-claim basis. And, you know, frequently, you know, you'll see a physician has made in the patient notes, you know, the treatment was changed, therapy was changed, drug was changed as a result of the read of this test. And so we're still early days in that reimbursement process. And so that's led us to be a bit more subdued in terms of aggressively marketing the test and aggressive promotion. But we have a high level of confidence that the physician reception is going to be strong, that the clinical need is there. And so we're enthusiastic that could be a good test for us, particularly going forward. I don't think we see big revenue in 26, but I think we begin to see some revenue impact in 27.

And you need a MAC, Medicare MAC, to kind of reconcilize it?

For Medicare, we would need to have a coverage decision by one of the max. Which we either doesn't. For us, it.

Yeah, you have two options.

Yeah, we have two options. I think that the incidence in this in AD is a little bit lower. I think we expect early days to see 15, 20 percent of the patients be Medicare age. So Medicare is clearly important. And then, of course, you have the impact of Medicare coverage on the commercial payers as well. So we'll work with the MACs appropriately to hopefully demonstrate how they can save some significant drug spend, as well as get Medicare beneficiaries the right technology and the right care.

Do you think there's a risk to having the code in the payment rate prior to actual coverage? Because maybe if it's a code on the payers list, it's easier to turn it off maybe?

Look, I mean, there's a history of payers, once you have a code, now they know what they say no to. I guess is the way, is kind of the less elegant way to say that. So there is that, but we've always taken the approach that we're not trying to sneak one by, right? We provide a medical service, a significant patient benefit, and we don't see a need to obfuscate that with a miscellaneous code or something like that and sort of almost hope it doesn't get noticed or something. I THINK MAYBE THAT'S THE WAY YOU MIGHT PUT THAT. SO HAVING A PLA CODE SO THAT WE CAN HAVE AN ENGAGED DISCUSSION AND AN INFORMED DIALOGUE WITH WHATEVER THE PAYER IS, MEDICARE, COMMERCIAL, WE THINK THAT'S IMPORTANT AND YES, THAT SOMETIMES MAY BE USED AS A TOOL BY SOME OF THE COMMERCIAL PAYERS, BUT THAT'S THE APPROACH WE PREFER TO TAKE.

OKAY. WE HAVE A COUPLE MINUTES LEFT. So on DecisionDX SEC, so that was non-covered, you know, a year or so ago. It's been non-covered for about a year and a half or so. You went out with a reconsideration request, I think a little less than a year ago. Maybe it was in September.

Yeah, it's coming up on a year for both contractors.

So the next stage would be maybe, like, if everything was, you know, well, I guess, according to the plan, a CAC meeting, perhaps, then a draft LCD that would include, you know, SEC for coverage, and then the final would be, you know, months after that. Maybe is that the pathway?

That would be typical. So it would be typical that we would see a comment, care access committee, a CAP meeting, comment meeting. And then the contractor would incorporate that comment with the tech assessment we've provided, the data we've supplied, and present a proposed draft coverage LCD, including coverage criteria. And then those have typically taken a year to get from draft to final. I think that's the bookend is a year. So that would be the typical approach we would see. We certainly have submitted significant data since that draft. Since the current LCD was effective in April of 25, we certainly have provided significant incremental data that certainly wasn't part of either contractor's analysis originally, just given the timing and the publication. So we've provided a significant amount of information, a significant amount of data. We've answered a lot of the questions that were raised in the early drafts of the negative coverage policies. And so we look forward to the chance to have a CAC to be able to engage with stakeholders and continue to demonstrate the validity of the test and the benefit to Medicare beneficiaries.

Yeah, so the next catalyst will be this CAC meeting, hopefully, and then... Potentially, although it's not required, but yeah, it could be. But the earliest you could receive, you know, payment for that test again might, you know, you kind of, you guys kind of estimate maybe mid to like later in 2017.

Yeah, H227 maybe is probably, that'd probably be an upside case, yeah.

All right, so maybe just finally, any thoughts on 27 like factors that we should be considering with respect to growth on the various segments that we talked about, you know, the newer pipeline test, the AD test, as well as the core kind of test. And then also, you know, just EBITDA positive, you're basically there each quarter, so that's good to see as well. So, V, what does 27 hold for us as a financial profile as a whole?

So, we did say that we anticipate, absent any, you know, significant strategic changes, that we would be adjusted EBITDA positive for 27 as well. We'll be positive through the – we expect to be positive through the rest of 26. I think 27 is exciting. I think we've got some pipeline opportunities that we can begin to provide more visibility on and provide some progress. I think continuing to see the continued penetration of our lead products is exciting as well. There are a number of catalysts. There's reimbursement catalysts, SCC and AD, that could be impactful. But we're, you know, it's funny. For a long time, we had one test on the market. Then we had a couple tests. And it's nice to see the effort mature such that we have multiple on-market products as well as a robust pipeline of potential future opportunities.

All right, great. Thanks, Frank. Appreciate it. Awesome. Thank you.