Good evening and welcome or good afternoon and welcome to the Jeffries Global Healthcare Conference. My name is Lucy Laster from the Healthcare Investment Banking Team and I'm here today with Frank Metzold and CEO, sorry, Derek Metzold, CEO and Frank Stokes from Castle Biosciences. Thank you.
Thank you, Lucy and Jeffries for inviting us here at this conference. I'll run through a slide presentation, and then we can field questions as we have time for. So I would encourage you to review the disclaimers and forelooking statements, both here and in our most recent filing. So Castle Bioscience is an advanced diagnostic laboratory focusing on really improving health or innovative tests that guide patient care decisions, improve outcomes, and hopefully extract costs at the same time. We had a tremendous first quarter, we believe, coming out of 2025. We saw good volume growth in both our Decision DX melanoma test, which is our oldest solid revenue driver of 16% year over year, and our tissue cipher test results increased in volume by 58% year over year in the first quarter as well. We were able to raise our revenue guidance to $345, $355 million up from what we have reported at year end. And we answered the quarter with just under $262 million in cash and cash equivalents. From a business standpoint, we try and focus on three different principles. One is to focus on finding what we believe are best-in-class or first-in-class solutions to, again, guide decisions for patient care. We will focus on building a robust body of evidence and continue to build it over time, not only to drive penetration with providers and patients, but also with payers as well. And that has led us to where we are today, which, if you look at this slide here, It's really organized from left to right in terms of screening tests all the way through to rescue and prevention tests. The horizontal lines show our primary two functional areas that we focus most of our commercial investments in, which is dermatology, where we have a test that supports differential diagnosis of melanoma. We have two tests in the risk stratification or prognostication area, our DecisionDX melanoma test, DecisionDX SCC test. We also have two tests that are involved in therapy selection. So for our DecisionDX SCC test, we have demonstrated in two back-to-back propensity match studies that our tests can find people who will be greatly responsive to radiation therapy in the adjuvant setting and those patients who appear to have a recalcitrant tumor as well. So that guides that therapy selection choice. We also recently released, later in 2025, our advanced AD test, which is to help clinicians and patients who are making decisions around initiating or switching systemic therapies in patients who are diagnosed with atopic dermatitis. So these are people who have atopic dermatitis as indication. They've worked through weeks or years to try and get topical agents to sort of ameliorate or control their disease symptoms, and that's failed. They're now moving on to systemic therapy. We'll go into that in a little bit in this presentation. And then finally, we do have a pipeline program we've talked about recently with a company called Sybase trying to harness electrical impedance spectroscopy technology to really measure the underlying disease control in patients who have atopic dermatitis. So if those of you who are familiar with minimal residual disease monitoring in cancer, this is an MRD test approach, you would say, for people with atopic dermatitis, really seeing if their disease is under control and symptoms are under control so they can go ahead and moderate their therapy intensity appropriately. In gastroenterology, we also have tissue cipher and ESO predict today, as well as a pipeline test used slightly upstream of that my slide is stuck can we have a slide advance please on this slide here I think the only important aspect to look at is the is the TAM valuation of our marketed products and our potential pipeline products and across the board here in both our dermatology investments and our GI investments we think we have significant upside in terms of our currently marketed products as well as near-term pipeline products see if that's working here so i'm going to skip through decision dx melanoma for the sake of time and we can come back a little bit later if we need to with questions and focus on tissue cipher and our advanced ad test so tissue cipher this is our spatial omics test it's a risk stratification test using people who are diagnosed with barrett's esophagus disease we estimate that there are roughly 415,000 endoscopies per year initiated for does this patient have Barrett's disease or not and these are patients who are eligible for our test service we'll get into just a minute we think there's an estimated U.S. TAM based upon our projected ASP at maturity of around one billion dollars in the U.S. marketplace and as of the end of the first quarter of 2026 we had roughly 400 clinicians who have ordered our test or using our test today in patient care So what's the issue here with Barrett's esophagus disease? Well, this happens to be the only known cause of development of esophageal adenocarcinoma. And today, under guidelines, if a patient is diagnosed with low-grade dysplasia or high-grade dysplasia, which is what a pathologist grades on looking at the histology of the pinch biopsy done with an upper endoscopy procedure, they typically recommend intervention. And that can be surgical removal of the Barrett's esophagus lesion. It can be the use of ablation tools such as radiofrequency ablation to basically wipe out that Barrett's disease so it can't progress, it won't progress to esophageal adenocarcinoma. That sounds good in principle because you're intervening and you're hopefully curing that patient from not progressing to esophageal cancer, but it turns out that 96-97% of all patients diagnosed with Barrett's esophagus disease have what's called non-dysplastic Barrett's esophagus disease. That's the largest group. As a population, they have the lowest chance of progressing in general studies. However, it turns out that because we don't intervene, we don't ablate, we don't treat the Barrett's lesion in those patients we watch, those that were the majority of patients who progressed to his EAC are actually in that nondysplastic group. And so what tissue cipher, what we're able to go ahead and do, and this is a real-world study that was published recently, is to say, can we take people who are not certain what their likelihood of progression looks like and pull them apart, risk stratify those who are at a higher risk of progressing to cancer from those who are at a lower chance of progressing the cancer, so we can go ahead and do two things. One of them is to know who we should intervene on and rid that patient of their Barrett's lesion so that they won't progress the cancer. And the other one is to go ahead and say, do we need to go ahead and re-scope this patient every one year, every two years, or can we maybe relax the endoscopic re-scoping to see if the Barrett's lesion has actually worsened? And what we're able to do with tissue cipher is to see that when gastroenterologists are using our tests especially in this large non-dysplastic population which makes up the majority of patients and makes up the majority of tissue cipher tests as well is that we can restratify these patients and what we're seeing in terms of clinical use is that gastroenterologists are then referring their high risk tissue cipher patients to be intervened with to have that bare esophage lesion ablated or surgically dealt with so that those patients reduce their risk of progressing and on the other hand of the equation we are We're seeing that on average, we're seeing roughly repeat endoscopies are occurring every 18 months, every 20 months. Guidelines would say maybe three to five years for non-dysplastic patients, and we're seeing actually a lengthening out appropriately of the repeat endoscopy procedure. So we're both decreasing costs and repeat endoscopies in patients with low-risk tissue cipher results, and we're increasing the appropriate use of ablation and other interventions to go ahead and cure that patient with their various lesions and hopefully stop their progression to EAC. So two very, very strong outcomes from a patient care perspective. Our advanced AD test is our most recent launch test. This came out in late November 2025. We release this on a fairly limited launch basis until we get comfortable around the average sales, the average reimbursement rate that we expect to see as this test matures out. So our volume is being clamped down because we're limiting access to the number of clinicians who have access to it. But it's a very interesting category. We think there's roughly 10 million patients diagnosed with atopic dermatitis today that have moderate to severe atopic dermatitis and are seeking or on systemic therapies. And that's important because even though advances in the last decade, which include biologics such as Regeneron's dupixin therapy, which has been a game changer for patients with this disorder, as well as JAK inhibitors, are effective therapies, but they come with some side effect costs, and they don't work on everybody. And it turns out that if you go ahead and track longitudinal data in people who are on systemic therapies for atopic dermatitis, within a short period of time, four, six, seven months, they're switching. Forty percent of them are making a change in therapy, which is a not very satisfied patient if they're switching at that high of a rate. Our initial thought with this product was to say, gee, could we find a biological signature or a test that didn't require a biopsy procedure to be done? in patients with atopic dermatitis that would help direct that therapy selection choice, and we were successful. So what does our test do? We have a non-biopsy scraping technique where we basically received tissue from a patient who has atopic dermatitis who, again, is seeking systemic therapy. We take that to our laboratory. We measure 487 genes that were mapped to 12 pathways of inflammatory immune and skin barrier pathways that we believe are drivers of atopic dermatitis disease state, and we report a very simple report out for our clinicians. We find that patients will either have what we term a Th2 molecular profile or they have a JAK inhibitor responder profile. Now, why are those two things important? We have today four biological therapies with Regeneron's depiction being the market leader that are all working predominantly in the th2 immunological pathway we have two fda-approved jack inhibitors that work not only in the th2 pathway but broader pathways other pathways that are driving disease symptoms and so what we're able to produce as a report for our dermatological clinicians and their patients is to say hey your disease happens to be at this point in time one that we would term a JAK inhibitor responder profile, meaning they have a far greater chance of responding to a JAK inhibitor rather than a biological therapy. And that lets a physician and patient have a really strong dialogue about saying, should we move in that direction then or not? On the other hand, if they happen to have a disease which is mainly driven by a TH2 biological pathway, then our data would suggest that you can either use a biological therapy, you can use a JAK inhibitor therapy, you roughly get kind of the same response from patient care. And so what does that look like? So the actual numbers coming out from our report, if we just look at the three blue areas, which are clinician-reported outcomes from clinical studies using the same endpoints that therapeutics use for FDA approval, and the purple is patient-reported outcomes. And what you see are very, very similar trends. So one is look at the 5.5x in the second blue box. That's measuring improvement in skin clearance by the predominant grading system used, which is called the EZ system. And EZ90 means the patients who achieved a 90% improvement in their skin condition, almost complete clearance but not quite complete, although complete ones are in there. And what we see is that if those patients are put on a JAK inhibitor with a JAK responder profile, they have a 5.5 greater likelihood of achieving easy 90 as opposed to not so very very strong differentiation between patients being placed on the right therapy versus not the optimal therapy for the disease condition so those are the two tests without a highlight briefly in this presentation if we look at our financials here from a first quarter highlights perspective we ended up with just under $84 million in revenue, and part of our leading indicator for that allowed us to go and increase again our 2026 guide between $345 to $355 million, so it was a good, solid, above-performance expectation. We hit an adjusted gross margin of 75.6%, which we thought was about where we should be sitting based upon the rollout of our atopic dermatitis test and the average ASPs overall, so that's about what we thought we should get to when we got there. We did hit a negative adjusted EBITDA number of $5.1 million operating cash flow-wise $22 million and ended up the quarter, as I said earlier, with $262 million in cash or cash equivalents. This was certainly a quarter of investment for us, looking out towards remainder of the year in terms of what we were projecting from a revenue forecasting perspective. If we look overall at our volumes of 1Q-2026 over 1Q-2025 on a test-by-test basis, Our two core revenue drivers are DecisionDX Melanoma, which grew 16% year-over-year, and TissueCypher, which grew 58% year-over-year from a volume perspective. The additional tests are shown below here, which is DecisionDX SCC, MyPath Melanoma, and DecisionDX UM. For DecisionDX SCC, those of you who don't necessarily know the council story, we had launched that test in late 2020. we received Medicare coverage in the second quarter of 2022 we had Medicare coverage taken away in the second quarter of last year we don't actively promote this test but this test has tremendous impact on patient care in terms of having letting patients go ahead and adopt radiation therapy due to the fact that we have pulled back our promotion of this test we expected volume to drop down and in fact that's what we saw we went from 4 to 375 to 3702 from a report issue in the first quarter of 2026, which was greater demand than we actually were forecasting, which I think just shows the intrinsic value that this test is having on patient care. MyPath Melanoma and DecisionDXUM are two small minor tests that are covered by very, very limited resources, and they show what we expected, which is roughly consisting volume year over So what do we think we do as a company? we try and optimize our commercialization strategy our commercial investments largely again are in are in dermatology and gastroenterology we have pipeline products that will hopefully come out in a timely manner to go ahead and add more products more value on those two commercial investment vehicles that focuses our r&d efforts to really develop tests and test products that again will help leverage our gastroenterology and dermatology franchises going in the future. We do also look outside as well with the company. So can we find opportunities that are in those same categories that will again let us go ahead and drive mid-term and long-term value for our investors. We think we are also well positioned for continued value creation going forward. We are focusing on driving robust test volume growth. So that will go ahead and translate into robust revenue growth. We expect to maintain a strong adjusted gross margin, a strong balance sheet, and follow disciplined capital allocation. And with that, we can take questions. No questions
taken. I would love to be able to, you know, focus on the great parts of the portfolio, but I have to ask about decision SEC. So when you go from 4,400 tests to 3,700 tests, but you're still supporting it, you're not getting reimbursement for it, and you're still putting up a 75% gross margin, can you just give us some sort of idea as to how you're doing that and maybe Maybe just some dialogue on why it's so important for you to continue to support this test.
So, from a patient care perspective, we're in the patient care business. We do expect to receive Medicare coverage in the future, which is why the test is still available for patient care. So you could call it an early commercial investment potentially, or just saying we have expectations based upon the data that was not reviewed by the Medicare contractors, that coverage should be granted going forward. So having on the marketplace for patient care is good today, given the relatively low cost of goods to produce the test report. From a one-level-down perspective, the majority of clinicians who use our DecisionDX SCC test happen to overlap with our clinicians who use our DecisionDX melanoma test. So, one, we're in there predominantly talking about the melanoma skin cancer test, but that does lead sometimes to what's up with the squamous cell carcinoma test. And so that's an important element to have us go ahead and maintain that for their purpose as well. We don't need to go ahead and say we're not going to pay for it because we have this interim break in Medicare coverage and therefore take away one of the tests that you enjoy coming from CASEL. We're seeing the same thing with atopic dermatitis, by the way, in that this is obviously early innings in terms of our limited release today, but the clinicians who are going to be allowed to order our tests are those who are current customers, and so it lets us hopefully serve that dermatologist better in the marketplace, lets him or her serve their patients better, hopefully brings more value to us when we go in and see those doctors in our offices because we have sort of three offerings. We're doing the right thing for patient care with SCC, and we're offering it's part of the kind of overall portfolio. I don't know if I got to the question you were asking or not. Go ahead.
On the margin side, it's a, SCC is a very efficient test for us. We don't necessarily have incremental lab space or lab technicians that aren't otherwise occupied. So we're able to cover part of that cost with our other activities, and then the consumables or the actual chips and reagents are fairly modestly priced. Sure.
On DX melanoma, phenomenal franchise, there have been a couple of news reports over the course of the last couple of weeks, whether it's a vaccine for melanoma or a risk stratification test on, you know, on the hormone-based, you know, breast cancer. um like these types of things i think play in your wheelhouse and also i think um create a lot of disinformation in the market so maybe you can just talk about the general complex in risk stratification tests and maybe just hit on the vaccine for melanoma that you know was all over the headlines the other day.
So in terms of can AI or can a pathology-enabled AI analysis replicate, I think in the case of breast cancer, breast cancer progression may be responsible for therapies, you've had for a few years out now, I can't remember what institution or what firms had the test available to kind of monitor or mimic, I guess, the Oncotype DX for breast cancer test, near Here as I can tell, they're not in that space that doesn't get used clinically whatsoever. So I think these are interesting things going forward. I think from a council perspective, the more we can link new advantages for improving risk stratification for treatment decisions only helps to bolster penetration for us as opposed to being a competitor per se. We know from our tissue cipher experience, thinking about spatial omics, which is pretty close to what's being talked about here from a pathology AI test, right? Those are very precise algorithms. They require consistency in digital scanning. They require consistency in digital readings. They require consistency without using immunofluorescence or other ways of marking proteins. And to think about that being decentralized as a competitor to be used in one of the 2,000 or 3,000 dermatopathology shops out there, I don't think people are realizing the capital investment to do that, much less keep it valid from a platform standpoint. So I don't see this competition. I see more noise as being good. Now, why is that good? I think many people, when you first had companion diagnostics come out in the marketplace years ago for different drug selection processes, People think about that as being a fantastic advance, which I agree they are. But it turns out that in every disease state we have, the most valid, the most important information, as I see it, after you have a confirmed diagnosis, is what's next in my journey. Am I a patient who has a very, very low likelihood of progressing, whether or not it's somebody with high LDL cholesterol looking at a heart attack or stroke downstream, or am I somebody who has a very high risk of progressing? And that level of progression is what, or risk stratification is what drives all of our choices, right? What therapies are we going to undergo? What surgical procedures do we do? Radiation or not? So I find risk stratification to be the place where we started out because we felt there was so many questions. If you could answer that better, you're really impacting patient care decisions. In terms of the vaccines and melanoma or other kind of advances, I think that's a very positive sign for CASEL. whether or not it's a vaccine which can go ahead and stop or slow progression, whether not it would happen to be having PD-1 inhibitor therapies or other types of therapies moving up from later stage diseases into much more earlier stage disease. That only bodes well for saying all of these new therapies, if they prove out to be effective and safe, are going to always have risk and benefit analysis questions. And the question I would say would be why wouldn't we want a test like our test in melanoma to be able to say, hey, you do have a melanoma. It is invasive. Maybe it's 0.5, 0.6, 1 millimeters thick. There is some risk of progression on a population basis. But if you go ahead and run our genomic test on your melanoma, it turns out that if you do nothing, you have, what, a 1% chance of being dead in five years or 99% chance of being alive. You take that risk of having no intervention saying now, is doing the intervention now, be it a vaccine or be it a immunological therapy, is there a benefit to the risk I'm taking from a side effects or toxicity standpoint? And many patients, I think, would say no. I'll go ahead and be the 99 percentile person, not the 1 percent person. So I think those would be great advances if we could move therapies further up into earlier stage melanoma. That's, I think, one of the missing elements for us right now in terms of why don't we think we can get to 85 or 90 percent patient penetration. I think it's because I think getting from where we are now to 60, 55, 65 percent is a pretty reasonable progression. But there's only a few tests that achieve 85, 90 percent, 95 percent patient penetration in the right population. Those tests almost always have, you know, specific drug therapies or interventions that one can go through or one can avoid. Take breast cancer, for example, right? You've got choices out there now. Do you go on therapy A or therapy B or do you not have to have a taxan for five years, for example? So I think that would only help, one, patient care in general, and two, it sets up a much more higher level need for a test like ours in melanoma to go ahead and drive increased penetration usage to help patients and their physicians make the right choice about these interventions.
Do you think that having more test optionality, these headlines, is actually putting any expediency behind the reimbursement education and awareness?
You mean would it have payers pay earlier and quicker, or does it have more of a population basis? I don't, I would, on the negative side of life, I would say I don't see how that would encourage a payer to pay earlier or faster. On the positive side, though, we have, I think it was 24, 26 state biomarker laws in place earlier this year. I think there's been half a dozen that they're working their way through. Either they've passed legislation waiting for Governor Sinov or they're in that state that have been quite positive. So over time, I would say that if we can continue to get from 26 or 24 states to 30 to 35 to 40 and basically mandate appropriate coverage and payment where you have validated tests, that's going to benefit the entire marketplace. And that kind of noise, I think, on the general population, I think will help encourage our legislatures to go and make, I would say, the right choices, but at least make choices towards saying, hey, why should a patient, just because they're Medicare age, have access to a test that's covered, where if you're 64 years of old, you don't have access to a test. That's a disappointing separation of individuals that should be treated, given the same opportunities for health care in the U.S. versus not. That being said, we have 24 seconds left. We might as well close early, huh? Thank you. Thank you.