On November 2, 2022 Castle Biosciences, Inc. (Nasdaq: CSTL), a company improving health through innovative tests that guide patient care, reported its financial results for the third quarter and nine months ended Sept. 30, 2022 (Press release, Castle Biosciences, NOV 2, 2022, View Source [SID1234622802]).
"We achieved strong top-line growth and a new record in total quarterly test report volume, which we believe was due to continued strong execution from the Castle team, despite typical seasonality," said Derek Maetzold, president and chief executive officer of Castle Biosciences. "We believe that our portfolio of innovative tests brings substantial added value to clinicians and their patients. Further, we believe our tests enable shared and informed treatment decisions that improve patient outcomes, and we expect they will continue to prove their clinical utility in the marketplace and build momentum.
"Our strategic growth initiatives, specifically the acquisitions and integrations of TissueCypher and IDgenetix, are progressing as expected. We are pleased with the results from these franchises to date. The addition of these two tests was intended to provide material revenue in 2024 and beyond. We believe the expected growth from these acquisitions, coupled with our expectation for continued strong organic revenue, should position us well for long-term value creation for stockholders.
"During our Investor Day in September, we presented our foundational guideposts and three-year financial targets for the year-ending December 31, 2025. These guideposts– exceptional employees, continuous evolution and improvement, and customer and solution centric– are grounded in Castle’s mission, vision and values and are foundational to how we operate our business. Also, our three-year financial targets reflect our belief in Castle’s business model and the merits of our tests. Specifically, we anticipate achieving total revenue in the range of $255 million to $330 million for the year-ending December 31, 2025. We expect, by combining strong top-line growth and gross margins with a continued disciplined approach to capital allocation, our net operating cash flow to be positive by 2025.
"Once again, our continued progress is directly attributable to the tireless efforts and continued commitment of our exceptional team of professionals. Our success depends on their daily dedication to the patients and healthcare providers we serve."
Third Quarter Ended Sept. 30, 2022, Selected Results
•Revenues were $37.0 million, a 58% increase compared to $23.5 million during the same period in 2021. Included in revenue for the current year was $(0.3) million related to tests delivered in prior periods. Revenue for the same quarter last year included $(0.1) million related to tests delivered in prior periods.
•Adjusted revenues, which exclude the effects of revenue adjustments related to tests delivered in prior periods, were $37.3 million, a 58% increase compared to $23.6 million for the same period in 2021.
•Delivered 12,114 total test reports in the third quarter of 2022, an increase of 57% compared to 7,727 in the same period of 2021:
◦DecisionDx-Melanoma test reports delivered in the quarter were 7,354, compared to 5,505 in the third quarter of 2021.
◦DecisionDx-SCC test reports delivered in the quarter were 1,636, compared to 934 in the third quarter of 2021.
Schedule your 30 min Free 1stOncology Demo!
Discover why more than 1,500 members use 1stOncology™ to excel in:
Early/Late Stage Pipeline Development - Target Scouting - Clinical Biomarkers - Indication Selection & Expansion - BD&L Contacts - Conference Reports - Combinatorial Drug Settings - Companion Diagnostics - Drug Repositioning - First-in-class Analysis - Competitive Analysis - Deals & Licensing
Schedule Your 30 min Free Demo!
◦MyPath Melanoma and DiffDx-Melanoma diagnostic gene expression profile (GEP) aggregate test reports delivered in the quarter were 834, compared to 913 in the third quarter of 2021.
◦DecisionDx-UM test reports delivered in the quarter were 392, compared to 375 in the third quarter of 2021.
◦TissueCypher Barrett’s Esophagus test reports delivered in the quarter were 690. No test reports were delivered by Castle in the third quarter of 2021.
◦IDgenetix test reports delivered in the quarter were 1,208. No test reports were delivered by Castle in the third quarter of 2021.
•Gross margin for the quarter ended September 30, 2022, was 70%, and adjusted gross margin was 76%.
•Operating cash flow was $(5.2) million, compared to $(6.1) million for the same period in 2021, and adjusted operating cash flow was $(5.2) million, compared to $(3.0) million for the same period in 2021.
•Net loss for the third quarter was $(20.2) million, compared to $(11.8) million for the same period in 2021.
•Adjusted EBITDA for the third quarter was $(8.3) million, compared to $(5.5) million for the same period in 2021.
Nine Months Ended Sept. 30, 2022, Selected Results
•Revenues were $98.7 million, a 43% increase compared to $69.0 million during the same period in 2021. Included in revenue for the period was $(1.9) million related to tests delivered in prior periods. Revenue for the same period last year included $4.1 million related to tests delivered in prior periods.
•Adjusted revenues, which exclude the effects of revenue adjustments related to tests delivered in prior periods, were $100.6 million, a 55% increase, compared to $64.9 million for the same period in 2021.
•Total test reports delivered in the nine months ended September 30, 2022, were 31,775, an increase of 60% compared to 19,876 in the same period of 2021:
◦DecisionDx-Melanoma test reports delivered in the nine months ended September 30, 2022, were 20,502, compared to 14,693 during the same period of 2021.
◦DecisionDx-SCC test reports delivered in the nine months ended September 30, 2022, were 4,122, compared to 2,245 during the same period in 2021.
◦MyPath Melanoma and DiffDx-Melanoma aggregate diagnostic GEP test reports delivered in the nine months ended September 30, 2022, were 2,739, compared to 1,758 during the same period in 2021.
◦DecisionDx-UM test reports delivered in the nine months ended September 30, 2022, were 1,279, compared to 1,180 during the same period in 2021.
◦TissueCypher Barrett’s Esophagus test reports delivered in the nine months ended September 30, 2022, were 1,098.
◦IDgenetix test reports delivered in the nine months ended September 30, 2022, were 2,035 (April 26, 2022–September 30, 2022).
•Gross margin for the nine months ended September 30, 2022, was 71%, and adjusted gross margin was 78%.
•Operating cash flow was $(35.7) million, compared to $(16.2) million for the same period in 2021.
•Adjusted operating cash flow was $(35.7) million, compared to $(12.7) million for the same period in 2021.
•Net loss for the nine months ended September 30, 2022, was $(46.5) million, compared to $(24.9) million for the same period in 2021.
•Adjusted EBITDA for the nine months ended September 30, 2022, was $(30.5) million, compared to $(8.0) million for the same period in 2021.
Cash, Cash Equivalents and Marketable Investment Securities
As of Sept. 30, 2022, the Company’s cash and cash equivalents totaled $134.2 million. Additionally, the Company held $131.8 million in short-term investments.
2022 Revenue Guidance
Castle Biosciences is further increasing its guidance for anticipated total revenue in 2022. The Company now anticipates generating $132-137 million in total revenue in 2022, compared to the previously provided guidance of $130-135 million.
Third Quarter Accomplishments and Highlights
Dermatology
•In July, a presentation on DecisionDx-Melanoma was given at the 2022 American Academy of Dermatology (AAD) Innovation Academy. The presentation, titled The 31-Gene Expression Profile Test for Cutaneous Melanoma, provided an overview of the test as well as data highlights that demonstrate how incorporating DecisionDx-Melanoma test results into decision-making between a patient and his/her clinician can help guide cutaneous melanoma management decisions and improve patient outcomes. See the Company’s news release from July 20, 2022, for more information.
•In July, the Company announced the achievement of a significant milestone for its DecisionDx-Melanoma test, surpassing 100,000 tests ordered. From the test’s launch through June 30, 2022, DecisionDx-Melanoma had been ordered more than 105,000 times by more than 10,200 providers for patients diagnosed with cutaneous melanoma. See the Company’s news release from July 25, 2022, for more information.
•In September, the Company announced the publication of a study in the Journal of the American Academy of Dermatology demonstrating that DecisionDx-Melanoma’s integrated algorithms, which combine the 31-GEP score with a patient’s clinicopathologic factors, provide personalized and accurate survival prognoses which can help guide risk-aligned patient management. Further, the study showed that using DecisionDx-Melanoma test results in conjunction with current staging guidelines can help refine patient risk, reduce unnecessary procedures and ultimately improve patient care. As the National Comprehensive Cancer Network (NCCN) guidelines recommend risk-aligned decisions for individual patients, the use of DecisionDx-Melanoma test results could aid in identifying patients with more or less aggressive cases of melanoma to align treatment decisions more accurately with patient risk and help ensure a more appropriate allocation of healthcare resources. See the Company’s news release from September 23, 2022, for more information.
Gastroenterology
•In August, the Company announced the American Gastroenterological Association (AGA) published a best practice advice article stating the TissueCypher Barrett’s esophagus test may be beneficial for risk-stratification of patients with non-dysplastic Barrett’s esophagus. The best practice advice article from the AGA, titled "AGA Clinical Practice Update on New Technology and Innovation for Surveillance and Screening in Barrett’s Esophagus: Expert Review," was recently published online in Clinical Gastroenterology and Hepatology and can be viewed here. See the Company’s news release from Aug. 4, 2022, for more information.
Corporate
•In September, the Company announced it had received an AZBio Fast Lane Award from the Arizona Bioindustry Association (AZBio). The award recognizes companies that have achieved outstanding milestones in the last 18 months, measured by clinical results, regulatory approvals, certifications, collaborations, funding awards, product launches, job growth or product sales milestones. Highlights of Castle’s performance over the past year and a half include: more than doubling its workforce, expanding from 201 employees to more than 480 between Dec. 31, 2020, and June 30, 2022; expanding the Company’s innovative portfolio of tests in areas of unmet clinical need (gastroenterology and mental health) through two strategic acquisitions (Cernostics, with the TissueCypher Barrett’s Esophagus test, and AltheaDx, with the IDgenetix test); expanding data that demonstrates the potential value of Castle’s tests to guide patient care and transform disease management through the publication of 22 peer-reviewed papers and close to 100 posters and/or oral presentations; and initiating a collaboration with the National Cancer Institute (NCI) to link DecisionDx-Melanoma testing data with data from the Surveillance, Epidemiology and End Results (SEER) Program’s registries on cutaneous melanoma (CM) cases that resulted in a study analysis showing patients diagnosed with melanoma and tested with DecisionDx-Melanoma had improved survival (27% improvement in melanoma-specific
survival) compared to untested patients. See the Company’s news release from September 13, 2022, for more information.
•In September, the Company hosted an Investor Day, where the Company’s foundational guideposts as well as three-year financial targets were presented. See the Company’s news release from September 20, 2022, for more information.
Conference Call and Webcast Details
Castle Biosciences will hold a conference call on Wednesday, Nov. 2, 2022, at 4:30 p.m. Eastern time to discuss its third quarter 2022 results and provide a corporate update.
A live webcast of the conference call can be accessed here:
View Source or via the webcast link on the Investor Relations page of the Company’s website, View Source Please access the webcast at least 10 minutes before the conference call start time. An archive of the webcast will be available on the Company’s website until Nov. 30, 2022.
To access the live conference call via phone, please dial 844 200 6205 from the United States, or +1 929 526 1599 internationally, at least 10 minutes prior to the start of the call, using the conference ID 723381.
There will be a brief Question & Answer session following management commentary.
Use of Non-GAAP Financial Measures (UNAUDITED)
In this release, we use the metrics of Adjusted Revenue, Adjusted Gross Margin, Adjusted Operating Cash Flow and Adjusted EBITDA, which are non-GAAP financial measures and are not calculated in accordance with generally accepted accounting principles in the United States (GAAP). Adjusted Revenue and Adjusted Gross Margin reflect adjustments to net revenues to exclude changes in variable consideration related to test reports delivered in previous periods. Adjusted Gross Margin further excludes acquisition-related intangible asset amortization. Adjusted Operating Cash Flow excludes the effects of repayments to Medicare of COVID-19 government relief advancements to healthcare providers. Adjusted EBITDA excludes from net loss interest expense, depreciation and amortization expense, income tax (benefit) expense, stock-based compensation expense, and change in fair value of contingent consideration, and acquisition-related transaction costs.
We use Adjusted Revenue, Adjusted Gross Margin, Adjusted Operating Cash Flow and Adjusted EBITDA internally because we believe these metrics provide useful supplemental information in assessing our revenue and cash flow performance reported in accordance with GAAP, respectively. We believe Adjusted Revenue and Adjusted Gross Margin are also useful to investors because they provide additional information on current-period performance by removing the effects of revenue adjustments related to tests delivered in previous periods and, with respect to Adjusted Gross Margin, acquisition-related intangible asset amortization, which we believe may facilitate revenue and gross margin comparisons to historical periods. We believe Adjusted Operating Cash Flow is also useful to investors as a supplement to GAAP measures in the assessment of our cash flow performance by removing the effects of COVID-19 government relief payments, which we believe are not indicative of our ongoing operations. We believe Adjusted EBITDA may enhance an evaluation of our operating performance based on recent revenue generation and product/overhead cost control because it excludes the impact of prior decisions made about capital investment, financing and other expenses. However, these non-GAAP financial measures may be different from non-GAAP financial measures used by other companies, even when the same or similarly titled terms are used to identify such measures, limiting their usefulness for comparative purposes.
These non-GAAP financial measures are not meant to be considered in isolation or used as substitutes for net revenues, gross margin, net cash (used in) provided by operating activities or net loss reported in accordance with GAAP; should be considered in conjunction with our financial information presented in accordance with GAAP; have no standardized meaning prescribed by GAAP; and are not prepared under any comprehensive set of accounting rules or principles. In addition, from time to time in the future, there may be other items that we may exclude for purposes of these non-GAAP financial measures, and we may in the future cease to exclude items that we have historically excluded for purposes of these non-GAAP financial measures.
Likewise, we may determine to modify the nature of adjustments to arrive at these non-GAAP financial measures. Because of the non-standardized definitions of non-GAAP financial measures, the non-GAAP financial measure as used by us in this press release and the accompanying reconciliation tables have limits in their usefulness to investors and may be calculated differently from, and therefore may not be directly comparable to, similarly titled measures used by other companies. Accordingly, investors should not place undue reliance on non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of this release.