NEW YORK – Castle Biosciences reported after the close of the market on Monday that its fourth quarter revenues fell 2 percent year over year.
For the three months ended Dec. 31, 2020, the skin cancer diagnostics company reported revenues of $17.3 million, down from $17.6 million a year earlier, but beating the average Wall Street estimate of $15.7 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 Q4 totaled $3.5 million, compared to $4.3 million for the same period in 2019.
In Q4 2020, Castle delivered 4,246 DecisionDx-Melanoma test reports, a decrease of 5 percent compared to the 4,480 reports delivered during Q4 2019. Castle also delivered 410 DecisionDx-UM test reports in Q4 2020, down from the 434 reports it delivered during Q4 2019, and delivered 428 DecisionDx-SCC test results during Q4. DecisionDx-SCC is a prognostic gene expression profile test for patients diagnosed with high-risk cutaneous squamous cell carcinoma — that test became commercially available during the third quarter. Finally, Castle delivered 73 DecisionDx DiffDx-Melanoma test reports for suspicious pigmented lesions from Nov. 2 through Dec. 31.
"Our execution in 2020 allowed us to successfully navigate through this unique year and further our position as the leader in genomic testing for dermatologic cancers," Castle President and CEO Derek Maetzold said in a statement. "We began the year with one skin cancer test and ended the year with a suite of three tests, more than tripling our estimated in-market US total addressable market to $2 billion."
Maetzold also announced that the company has launched a new product that combines the DecisionDx-Melanoma prognostic gene expression profile test for cutaneous melanoma with an artificial intelligence-based results system called an Integrated Test Result (ITR), which is designed to provide a more precise risk prediction in patients with stage I, II, or III melanoma. The company plans to launch an app later in 2021 for dermatologists, featuring an interactive algorithm using the 31-GEP test score and traditional clinicopathologic factors to predict risk.
The ITR is calculated by an independently validated algorithm (i31-GEP), designed to provide a more precise and personalized prediction of sentinel lymph node (SLN) positivity in order to guide treatment decisions, the company said.
"Further, we are developing several pipeline tests that are focused on answering clinical questions with high unmet need along the patient care continuum," Maetzold added. "We estimate these pipeline tests could add an additional $3.6 billion to our US TAM, bringing our aggregate US TAM to slightly more than $5.5 billion."
On a conference call with analysts following the release of the earnings, Maetzold further noted that although these new pipeline tests are still early in the development stages, the company is aiming to launch three to five of them by the end of 2025.
He also said that the Centers for Medicare and Medicaid Services has set the rate for the company's DecisionDx-UM test for 2021 to $7,776, and has set the rate for DecisionDx-Melanoma to $7,193 for the year.
The firm reported a net loss for Q4 of $4.9 million, or $.23 per share, compared to net income of $2.1 million, or $.11 per share, a year earlier. Wall Street analysts had estimated a loss per share of $.12 for Q4.
Castle's Q4 R&D expenses rose 44 percent to $4.6 million from $3.2 million a year earlier, and its SG&A costs for the quarter rose 52 percent to $15.0 million from $9.9 million.
For full-year 2020, the company reported that its revenues rose 21 percent to $62.6 million from $51.9 million a year earlier, beating the average Wall Street estimate of $61.1 million.
Included in revenue for the period were positive revenue adjustments related to tests delivered in prior periods. This positive prior period revenue adjustments for the year was $200,000, compared to $2.5 million for 2019.
In 2020, Castle delivered 16,232 DecisionDx-Melanoma test reports, an increase of 5 percent compared to the 15,529 reports delivered during 2019. The company said third-party data for 2020 suggested that diagnoses of melanoma were down more than 20 percent over the prior year.
Castle also delivered 1,395 DecisionDx-UM test reports in 2020, down from the 1,526 reports it delivered during 2019, and 485 DecisionDx-SCC test reports from Aug. 31 through the end of the year.
The firm reported a net loss for 2020 of $10.3 million, or $.54 per share, compared to net income of $3.0 million, or a loss per share of $.21, a year earlier. Wall Street analysts had estimated a loss per share of $.41 for 2020.
Castle used approximately 18.9 million shares to calculate per-share loss in 2020 compared to about 8.7 million shares in 2019. The company had two public offerings of common stock in 2020, including a $74 million offering of 2 million shares in June and a $232 million offering of 4 million shares in December.
Castle's 2020 R&D expenses rose 80 percent to $13.3 million from $7.4 million a year earlier, and its SG&A costs for the year rose 61 percent to $48.1 million from $29.9 million.
The company had cash and cash equivalents of $410 million at the end of the year.
Because of the ongoing impact of the COVID-19 pandemic, Castle declined to provide guidance for the first quarter or full-year 2021. Although there are areas of recovery, Maetzold said on the call, Castle is still experiencing some headwinds to its test report volume growth as a result of a decline in diagnoses of melanoma.
"Diagnoses of melanoma [in 2020] were down by more than 20 percent, or approximately 26,000 diagnoses, compared to 2019. We continue to believe this is due to a mix of temporary closing of dermatology practices in the second and third quarter of 2020, as well as the shifting from in-person general healthcare visits to telemedicine visits, which we believe was a significant factor in the ongoing reduction in the diagnosis of melanoma, especially in the back half of 2020 and early 2021," Maetzold said.
Further, he added, severe weather experienced in the first quarter in many parts of the US has affected dermatology practices and patient flow. Therefore, given the continued impacts from COVID, recent weather, and a historically flat first quarter, Castle is expecting Q1 2021 DecisionDx-Melanoma test results volume to be softer than in Q4.
"Although we can't predict the trajectory of the recovery of these missing diagnoses of melanoma, we anticipate improvement in our volume growth rate for the second half of 2021 and into 2022, although we expect that it will not be linear," Maetzold said.
He also noted that the company submitted technical assessment dossiers for its DecisionDx-SCC and DecisionDx DiffDx-Melanoma tests to Medicare Administrative Contractors Palmetto GBA and Iridium in the second quarter of 2020, and believes that a draft Local Coverage Determination will likely be posted sometime this year.
Castle's shares rose 3 percent to $68.25 in Tuesday morning trading on the Nasdaq.