CASTLE BIOSCIENCES INC

Castle Biosciences is a molecular diagnostics company that provides innovative test solutions to aid clinicians in the diagnosis and treatment of dermatologic cancers, Barrett's esophagus (BE), atopic dermatitis (AD), and uveal melanoma (UM). The company's foundational strategy since its inception in 2008 has been to transform disease management by prioritizing patients, clinicians, employees, and investors, which guides its long-term value creation. The company's tests are designed to deliver personalized information to inform clinical care decisions, primarily utilizing multi-analyte assays with algorithmic analysis (MAAA) for tissue-based tests to characterize individual patient biology and generate clinically actionable information.

The company's core business model revolves around generating revenue through reimbursement from third-party payors, including government payors like Medicare and commercial payors such as insurance companies, for its diagnostic testing services. The revenue recognition process involves variable consideration due to potential differences between standard rates and actual payments, with implicit price concessions measured using the "most likely amount" method under ASC Topic 606. Revenue is recognized upon delivery of the test report to the treating clinician, and for claims without established coverage or predictable collectability, revenue is recognized based on actual cash collections.

Castle Biosciences' test portfolio includes several commercially available tests across dermatology, gastroenterology, and ophthalmology. In dermatology, these include DecisionDx-Melanoma, DecisionDx-SCC, and MyPath Melanoma. For gastroenterology, the company offers TissueCypher, and in ophthalmology, DecisionDx-UM. Most recently, the company commenced a limited launch of its AdvanceAD-Tx test in November 2025 ¹ to guide systemic treatment decisions in patients with moderate-to-severe AD.

DecisionDx-Melanoma is a risk stratification gene expression profile (GEP) test for invasive cutaneous melanoma (CM), with an estimated U.S. total addressable market (TAM) of approximately $540 million ² and Medicare coverage. TissueCypher is a risk stratification spatialomics test for Barrett's esophagus, with an estimated U.S. TAM of approximately $1 billion ³. AdvanceAD-Tx is a non-invasive GEP test for moderate-to-severe AD, with an estimated U.S. TAM of approximately $33 billion ⁴. DecisionDx-SCC is a GEP test for high-risk cutaneous squamous cell carcinoma (SCC), with an estimated U.S. TAM of approximately $820 million ⁵. MyPath Melanoma is a diagnostic GEP test for difficult-to-diagnose melanocytic lesions, with an estimated U.S. TAM of approximately $600 million ⁶. DecisionDx-UM is a risk stratification GEP test for uveal melanoma, with an estimated U.S. TAM of approximately $10 million ⁷. The IDgenetix test, a pharmacogenomic (PGx) test for mental health conditions, was discontinued in May 2025 ⁸.

For the fiscal year ended December 31, 2025, Castle Biosciences reported total net revenues of $344.229 million ⁹, an increase of 3.7% ¹⁰ from $332.069 million ¹¹ in the prior year. Cost of sales (exclusive of amortization of acquired intangible assets) increased by 18.0% ¹² to $71.028 million ¹³ from $60.205 million ¹⁴ in 2024. Gross margin for 2025 was $238.363 million ¹⁵, representing a gross margin percentage of 69.2% ¹⁶, a decrease from 78.5% ¹⁷ in 2024. Operating loss for 2025 was $42.810 million ¹⁸, compared to an operating income of $8.670 million ¹⁹ in 2024. The company reported a net loss of $24.158 million ²⁰ for 2025, compared to a net income of $18.245 million ²¹ in 2024. Diluted EPS for 2025 was not explicitly provided in the summary financial tables. Net cash provided by operating activities was $64.347 million ²² in 2025. As of December 31, 2025, cash and cash equivalents were $116.729 million ²³, and marketable investment securities were $182.8 million ²⁴. Total debt, net, was $10.057 million ²⁵.

Year-over-year, net revenues increased by $12.160 million ²⁶, or 3.7% ²⁷. This was driven by a $52.787 million ²⁸ increase in non-dermatologic test revenue, primarily from an 86.2% ²⁹ increase in TissueCypher test report volumes, partially offset by a $40.627 million ³⁰ decrease in dermatologic test revenue. The decrease in dermatologic revenue was mainly due to a lower average selling price (ASP) for DecisionDx-SCC following the loss of Medicare LCD coverage effective April 24, 2025 ³¹, despite increases in test report volumes for DecisionDx-SCC by 5.8% ³² and DecisionDx-Melanoma by 8.5% ³³. The gross margin percentage decreased from 78.5% ³⁴ in 2024 to 69.2% ³⁵ in 2025, primarily due to the lower ASP for DecisionDx-SCC and accelerated amortization expense related to IDgenetix.

Significant operational developments during 2025 included the acquisition of Previse in May 2025 ³⁶, which expanded capabilities in Barrett's esophagus with complementary methylation-based intellectual property and non-endoscopic cell-collection technology. In June 2025, the company entered into a collaboration and license agreement with SciBase Holding AB to develop and commercialize diagnostic tests for dermatologic diseases, starting with atopic dermatitis ³⁷. A limited access launch of the AdvanceAD-Tx test commenced in November 2025 ³⁸. The IDgenetix test was discontinued in May 2025 ³⁹. Construction of the company's new corporate headquarters in Friendswood, Texas, began in May 2024 and portions were completed in January 2026 ⁴⁰, with total development project costs expected to be approximately $42.8 million ⁴¹.

The company plans phased expansion of availability for its AdvanceAD-Tx test throughout 2026 ⁴². Beginning in the first quarter of 2026, the company also plans to offer the Esopredict test as a supplemental option for cases in which TissueCypher does not produce an actionable result, providing clinicians with an additional molecular tool for risk stratification when primary testing is inconclusive ⁴³. The sponge-based, swallowable cell-collection device from Previse is currently under development and is expected to be introduced in the future, subject to applicable regulatory clearances, potentially broadening the GI testing portfolio ⁴⁴.

The company expects to continue pursuing pipeline initiatives for tests that will complement and expand its test offerings ⁴⁵. The collaboration with SciBase Holding AB, entered into in June 2025, is initially focused on developing a non-invasive diagnostic test designed to help predict disease flares in patients with atopic dermatitis ⁴⁶. This initiative aligns with the strategic goal of expanding the pipeline beyond dermatologic cancers into inflammatory skin conditions ⁴⁷.

The company expects cost of sales in absolute dollars to increase as the number of tests performed increases ⁴⁸. Additionally, cost of sales is expected to increase prior to the launch of new tests or significant commercial expansion efforts, as operations are readied to support anticipated business growth ⁴⁹. This includes continued investment in and expansion of laboratory facilities ⁵⁰. Research and development expenses are expected to increase in absolute dollars as the company continues to invest in R&D activities related to developing enhanced and new products, as well as in clinical studies and pipeline initiatives ⁵¹. Selling, general and administrative expenses are expected to increase as the scale of the business grows, with selling and marketing-related expenses anticipated to increase at a higher rate, consistent with the growth strategy ⁵². Stock-based compensation expense is expected to continue to be material in future periods, attributable to both existing awards outstanding and anticipated additional grants to current and future employees ⁵³.

The company believes its existing cash and cash equivalents, marketable investment securities, and anticipated cash generated from sales of its products will be sufficient to fund planned operations for at least the next 12 months ⁵⁴. The development project for the new corporate headquarters in Friendswood, Texas, is expected to cost a total of approximately $42.8 million ⁵⁵, with the remaining cost to be incurred in the first quarter of 2026 ⁵⁶. The company intends to use existing cash and cash equivalents to pay for the remainder of this project ⁵⁷. The company believes it will meet longer-term expected cash requirements and obligations through a combination of existing cash and cash equivalents, marketable investment securities, and anticipated cash generated from sales of its products and issuances of equity securities or debt offerings ⁵⁸.

The company explicitly flagged that revenues from its DecisionDx-SCC test represented a significant portion of 2025 revenues but are not expected to be so in 2026 operating results, following the discontinuance of Medicare reimbursement as of April 24, 2025 ⁵⁹. The company submitted reconsideration requests for both Novitas and MolDX LCDs in July 2025, which were confirmed as valid procedural steps, but this does not indicate coverage or a favorable review outcome ⁶⁰. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, is anticipated to reduce the number of Americans with health insurance by narrowing access to ACA marketplace exchange enrollment and declining to extend ACA enhanced advanced premium tax credits that expired at the end of 2025 ⁶¹. The OBBBA is also expected to reduce Medicaid spending and enrollment by implementing work requirements for some beneficiaries, capping state-directed payments, reducing federal funding, and limiting provider taxes used to fund the program ⁶². The Budget Control Act of 2011, as amended, will continue to reduce Medicare payments to providers by 2% per fiscal year through 2032 ⁶³. The U.S. Supreme Court's decision in Loper Bright Enterprises v. Raimondo in June 2024 greatly reduced judicial deference to regulatory agencies, which could increase successful legal challenges to federal regulations affecting the company's operations ⁶⁴.

Castle Biosciences faces several material risks, including a significant portion of its revenue coming from a small number of third-party payors, with Medicare accounting for 44% ⁶⁵ of total revenue for the year ended December 31, 2025, and one commercial payor contributing 16% ⁶⁶ of revenue. The company has incurred significant losses, with a net loss of $24.2 million ⁶⁷ in 2025 and an accumulated deficit of $224.3 million ⁶⁸, and may not sustain profitability. Unfavorable U.S. and global economic conditions, including ongoing conflicts in the Middle East and between Ukraine and Russia, economic slowdowns, labor shortages, inflation, and monetary policy shifts, could adversely affect the business. Billing for products is complex, time-consuming, and expensive, with risks of payment delays, denials, and recoupments, especially given the discontinuance of Medicare coverage for DecisionDx-SCC effective April 24, 2025 ⁶⁹. The company relies on limited or sole suppliers for reagents and equipment, posing supply chain risks. The diagnostic testing industry is subject to rapid change, which could render current or future products obsolete. Regulatory risks include potential changes in FDA enforcement discretion for Laboratory Developed Tests (LDTs), despite the vacating of the FDA's LDT final rule on March 31, 2025 ⁷⁰ and its rescission on September 19, 2025 ⁷¹. Failure to comply with federal, state, and foreign laboratory licensing requirements, including CLIA and NYSDOH, could lead to sanctions. Intellectual property risks include the inability to obtain and maintain sufficient protection, potential infringement claims from third parties, and challenges to patent validity or enforceability. The company's in-licensed intellectual property from The Washington University in St. Louis is subject to federal regulations, including "march-in" rights. Cybersecurity threats, including cyber-attacks and data compromises, could lead to regulatory investigations, litigation, fines, and business disruptions. Product or professional liability lawsuits could result in substantial liabilities. International expansion exposes the company to business, regulatory, political, operational, financial, and economic risks. The company's ability to use net operating loss carryforwards and other tax attributes may be limited, with $36.3 million ⁷² of NOLs from prior acquisitions expected to expire unused due to Section 382 limitations.

Management's message to shareholders emphasizes the company's vision to transform disease management by prioritizing patients, clinicians, employees, and investors, which serves as the guidepost for long-term value creation. The company highlights its commitment to maintaining a strong corporate culture based on trust, excellence, collaboration, integrity, innovation, and excitement, as evidenced by an 83% ⁷³ employee engagement score in 2025, which was 11% ⁷⁴ higher than the healthcare benchmark average. Management anticipates continued investment in and expansion of laboratory facilities to support expected operational growth and higher test volumes. The company expects to continue incurring research and development expenses through ongoing pipeline initiatives and efforts to build evidentiary support for new tests. A key strategic priority is the phased expansion of availability for the AdvanceAD-Tx test throughout 2026 ⁷⁵. Another strategic priority involves enhancing the future development of TissueCypher by incorporating additional molecular modalities, such as methylation markers and other genomic markers, following the acquisition of Previse, and offering the Esopredict test as a supplemental option for inconclusive TissueCypher results beginning in the first quarter of 2026 ⁷⁶. Management also noted that the company's existing cash and cash equivalents, marketable investment securities, and anticipated cash generated from sales of its products are believed to be sufficient to fund planned operations for at least the next 12 months ⁷⁷.