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Castle Biosciences Q1 Revenues Up 31 Percent

This article has been updated with comments from Castle Biosciences' analyst conference call.

NEW YORK – Castle Biosciences reported after the close of the market on Monday that its first quarter revenues rose 31 percent year over year.

For the three months ended March 31, the skin cancer diagnostics company reported revenues of $22.8 million, up from $17.4 million a year earlier, and beating the average Wall Street estimate of $16.7 million.

Included in revenue for the quarter were positive revenue adjustments related to tests delivered in prior periods, the company said. These positive prior-period revenue adjustments for Q1 totaled $5.3 million, compared to $3.2 million for the same period in 2020.

In Q1 2021, Castle said it delivered a total of 5,142 gene expression profile test reports, a 4 percent increase from the 4,935 test results the company delivered a year ago. Castle delivered 4,060 DecisionDx-Melanoma test reports, a decrease of 11 percent compared to the 4,574 reports delivered during Q1 2020. Castle also delivered 337 DecisionDx-UM test reports in Q1 2021, down from the 361 reports it delivered during Q1 2020, and it delivered 527 DecisionDx-SCC test results during Q1. Finally, Castle delivered 218 DecisionDx DiffDx-Melanoma test reports for suspicious pigmented lesions in Q1.

"We are pleased with our strong execution in the first quarter," Castle President and CEO Derek Maetzold said in a statement. "In line with our expectations, January and February were impacted, we believe, by COVID-19 and weather interruptions. However, we are encouraged by the positive trends that we are seeing. Specifically, we saw order volume for our DecisionDx-Melanoma test increase by approximately 30 percent in March 2021, compared to January 2021, with March orders being the highest March since DecisionDx-Melanoma became commercially available."

This trend continued in April, with April's orders exceeding those of March, he added.

On a conference call with analysts following the release of the earnings, Maetzold said Castle is expecting the majority of the estimated 26,000 patients who were not diagnosed with melanoma with one of the company's tests in 2020 or in early 2021, to be diagnosed later this year or in 2022, depending on the timing of COVID vaccinations and a continued return to in-person medical care.

"As such, we anticipate continued improvement to our volume growth rate for the second half of 2021 and into 2022," he said. "I cannot predict the rate of progression of a full return to the in-office visits or when all representatives will be allowed to visit all of their clinicians offices. We are seeing increased levels of in-person visits by our commercial team with just over 75 percent of our sales calls being live and in-person."

In his statement, Maetzold also highlighted the company's decision at the end of April to acquire the Myriad myPath Melanoma laboratory and test from Myriad Genetics for $32.5 million and said it "enables us to provide the most comprehensive offerings for patients with skin cancer and difficult-to-diagnose melanocytic lesions."

On the reimbursement front, Maetzold noted that Castle submitted a technical assessment dossier for DecisionDx-SCC to Medicare Administrative Contractors Palmetto and Iridium in the second quarter of 2020. "We received confirmation of acceptance of the submission as being complete in the third quarter of 2020, and believe — although there can be no assurances — that a draft LCD should be posted in 2021," he said on the call.

Separately on Monday, Castle announced a pipeline initiative to develop a genomic test aimed at predicting systemic therapy response in patients with moderate to severe psoriasis, atopic dermatitis, and related conditions. The company is expecting the pipeline initiative to result in a genomic test that will help clinicians make therapeutic decisions for their patients.

Based on its development and validation timelines, Castle believes it can launch this test by the end of 2025, and that it will add approximately $1.9 billion to the firm's current estimated US total addressable market.

Castle has initiated a 4,800 patient, prospective, multicenter clinical study to develop and validate the test. It expects to recruit approximately 50 participating centers from across the US.

"Our pipeline initiative to develop an innovative test that can predict therapy response and guide treatment selection of systemic therapies in patients diagnosed with moderate to severe psoriasis, atopic dermatitis, and related conditions has the potential to expand our reach into non-skin cancer, medical dermatology diseases and is expected to provide enhanced value to our clinical customers and their patients," Maetzold said in the statement. "These tests, along with our other pipeline products, have the potential to increase our estimated US total addressable market to slightly more than $5.5 billion."

The firm reported a net loss for Q1 of $4.3 million, or $.17 per share, compared to a net income of $570,000, or $.03 per share, a year earlier. Wall Street analysts had estimated a loss per share of $.23 for Q1.

Castle's Q1 R&D expenses rose 103 percent to $5.9 million from $2.9 million a year earlier, and its SG&A costs for the recently completed quarter rose 64 percent to $18.2 million from $11.1 million.

According to Castle CFO Frank Stokes, the increase in SG&A expenses for the quarter was attributable in part to the expansion of the company's sales and marketing teams for the launch of DecisionDx DiffDx-Melanoma, administrative support functions, and higher personnel costs associated with the increased headcount. He also noted that the firm's R&D expenses will likely continue to increase as it continues to invest in commercial products and pipeline initiatives.

The company had cash and cash equivalents of $407.0 million at the end of the quarter.

For full-year 2021, Castle anticipates generating revenues of $80 million to $83 million. Analysts are expecting revenues of $79.8 million for the year.

Castle's shares fell nearly 4 percent to $52.69 in Tuesday morning trading on the Nasdaq.