NEW YORK – Castle Biosciences reported after the close of the market on Monday that its second quarter revenues rose 18 percent year over year.
For the three months ended June 30, the skin cancer diagnostics company reported revenues of $12.7 million, up from $10.7 million a year earlier, and beating the average Wall Street estimate of $8.8 million.
Included in revenues for Q2 2020 and 2019 were positive revenue adjustments of $2.3 million and $3.3 million, respectively, related to tests delivered in prior periods, the company said. The additional positive revenue adjustments in the current year primarily related to recognition of revenues for certain tests for which no revenue was recognizable originally but was recognized upon cash collection of payments in the current-year period.
In Q2 2020, Castle delivered 3,008 DecisionDx-Melanoma test reports, a decrease of 19 percent compared to the 3,691 reports delivered during Q2 2019. Castle also said new ordering clinicians for DecisionDx-Melanoma fell 43 percent in the second quarter, compared to the same period in 2019. However, Castle added that it did convert new clinicians during the quarter.
The company delivered 306 DecisionDx-UM test reports in Q2 2020, down from the 376 reports it delivered during Q2 2019.
Castle said it believes the decreases in test reports and new ordering physicians are the result of fewer patient visits to physicians, physician office closures, and limited physician access during the recently completed quarter due to the COVID-19 pandemic.
"While our second quarter financial results reflect COVID-19 impacts, thanks to the strong execution by our employees, we continue to successfully navigate these challenging times," Castle President and CEO Derek Maetzold said in a statement. "We have seen a notable improvement in DecisionDx-Melanoma orders since April's low, with sequential gains throughout the quarter leading to a year-over-year increase in June and continued year-over-year gains in July."
Specifically, the company said, DecisionDx-Melanoma orders decreased 45 percent year-over-year in April, decreased 39 percent year-over-year in May, and then increased 10 percent year-over-year in June. The year-over-year increase in orders continued in July.
This trend was also apparent in the number of new ordering clinicians for DecisionDx-Melanoma, the company said. The pandemic had its largest impact in April, and the number of new clinicians ordering the test improved sequentially throughout the remainder of the quarter and into July.
The company said it believes the improvement since April was driven in part by the reopening of dermatology practices and rescheduled patient visits, which generally coincided with the easing of state and local government restrictions.
On a conference call with analysts following the release of the earnings, Maetzold said data published by the Commonwealth Fund for the week of June 14 showed that business for dermatology clinics has returned to its February 2020 baseline. Further, he added, Castle has seen the rate of DecisionDx-Melanoma orders outpace melanoma diagnoses since April.
"We believe this is partly attributable to our commercial team's successful pivot with its promotional efforts, which we anticipate will support further recovery," he added. "We expect the near-term positive trends we've seen in test orders to continue and as such we believe our third quarter DecisionDx-Melanoma test report volume will increase, closely approaching pre-COVID levels."
In his statement, Maetzold also noted that the company has recently seen the publication of several peer-reviewed articles that developed the evidence to support both clinician adoption and payor coverage of DecisionDx-Melanoma and DecisionDx-UM, as well as the company's pipeline tests.
He said that the company is moving forward with its planned commercial team expansion in the second half of 2020, as well as new tests currently in development. Castle is planning to have DecisionDx-SCC — its pipeline test for patients with high-risk cutaneous squamous cell carcinoma (SCC) — commercially available at the beginning of September.
Further, Maetzold said, the company has completed the clinical validation work needed to launch its pipeline test for use in suspicious pigmented lesions, and expects this test to become commercially available in the second half of 2020.
"We estimate that combined, our three skin cancer products, DecisionDx-Melanoma, DecisionDx-SCC, and our test for suspicious pigmented lesions, will have a total addressable US market of approximately $2.0 billion," he added.
The firm's Q2 net loss narrowed to $1.4 million, or $.08 per share, from $2.3 million, or $1.05 per share, a year earlier. Wall Street analysts had estimated a loss per share of $.40 for Q2.
The company said it received $1.9 million in relief funds allocated to Medicare providers under the Coronavirus Aid, Relief, and Economic Security, or CARES, Act and an advance payment of $8.3 million from the Centers for Medicare & Medicaid Services, which will be applied against future Medicare claims the company submits for reimbursement later this year.
Castle's Q2 R&D expenses rose 108 percent to $2.7 million from $1.3 million a year earlier, and its SG&A costs for the quarter rose 53 percent to $10.4 million from $6.8 million.
The company had cash and cash equivalents of $179.8 million at the end of the quarter.
On the conference call, Castle CFO Frank Stokes said that while the firm expects to continue its recovery from the impact of the pandemic in the second half of the year, it will not reissue guidance at this time because of the remaining uncertainty.
"We believe our current cash position along with cash generated from sales of our products will be sufficient to fund our operating expenses for the foreseeable future," Stokes said. "We remain confident in our ability to invest in the business and execute on our growth plans as we build the company for near- and long-term growth."