On May 9, 2022 Castle Biosciences, Inc. (Nasdaq: CSTL), a company improving health through innovative tests that guide patient care, reported its financial results for the first quarter ended March 31, 2022 (Press release, Castle Biosciences, MAY 9, 2022, View Source [SID1234613966]).
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"We saw significant progress and execution on our growth initiatives in the first quarter, with record test report volume," said Derek Maetzold, president and chief executive officer of Castle Biosciences. "We remain laser-focused on the execution of our three operational growth pillars — our strong core dermatology business, pipeline initiatives and strategic opportunities — and are pleased with our results.
"In 2021, we made commercial investments, including a significant sales team expansion, in our proprietary skin cancer test business to further our position of strength in 2022 and beyond. We believe these investments, coupled with the demonstrated utility of our tests, are the drivers behind the nearly 70% increase in total test volume during the first quarter.
"We reported initial proof of concept data on our sample collection method for our pipeline test for inflammatory skin diseases, and we remain on track to launch this test in 2025, which would add an additional $1.9 billion to our estimated U.S. total addressable market (TAM), if successful.
"We are encouraged with the initial progress on our gastroenterology franchise and TissueCypher Barrett’s Esophagus (BE) test. We successfully hired and trained our commercial team for this test, who were in the field in February 2022, and received new Advanced Diagnostic Laboratory Test (ADLT) status from the Centers for Medicare & Medicaid Services (CMS) in March 2022. Further, the recent acquisition of AltheaDx and the IDgenetix pharmacogenomic test (PGx), in alignment with our M&A strategy to diversify our portfolio and create near- and long-term revenue growth opportunity, adds approximately $5.0 billion to our estimated U.S. TAM. IDgenetix now has expanded Medicare coverage, from depression only to seven additional mental health conditions. We are entering the remainder of 2022 with an estimated in-market U.S. TAM of just under $8 billion, for all our franchises combined.
"We believe our progress is only possible through the dedication of our Castle team, who allows us to execute at a high level, further our impact on patient care and position ourselves for continued value creation."
First Quarter Ended March 31, 2022, Financial and Operational Highlights
Revenues were $26.9 million, an 18% increase compared to $22.8 million during the same period in 2021. Included in revenue for the current year was $0.6 million related to tests delivered in prior periods. Revenue for the same quarter last year included $5.3 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 $26.3 million, an 50% increase, compared to $17.5 million for the same period in 2021.
Delivered 8,627 total test reports in the first quarter of 2022, an increase of 68% compared to 5,142 in the same period of 2021:
DecisionDx-Melanoma test reports delivered in the quarter were 6,023, compared to 4,060 in the first quarter of 2021, an increase of 48%.
DecisionDx-SCC test reports delivered in the quarter were 1,142, compared to 527 in the first quarter of 2021, an increase of 117%.
myPath Melanoma and DecisionDx DiffDx-Melanoma (Castle’s comprehensive diagnostic offering) aggregate test reports delivered in the quarter were 950, compared to 218 in the first quarter of 2021, an increase of 336%.
DecisionDx-UM test reports delivered in the quarter were 456, compared to 337 in the first quarter of 2021, an increase of 35%.
TissueCypher Barrett’s Esophagus test reports delivered in the quarter were 56.
Gross margin for the quarter ended March 31, 2022, was 72%, and adjusted gross margin was 77%.
Operating cash flow was $(21.4) million, compared to $(3.6) million for the same period in 2021, and adjusted operating cash flow was $(21.4) million, compared to $(5.5) million for the same period in 2021.
Net loss for the first quarter, inclusive of non-cash stock-based compensation expense of $8.4 million, was $(24.6) million, compared to $(4.3) million for the same period in 2021.
Adjusted EBITDA for the first quarter was $(11.4) million, compared to $0.9 million for the same period in 2021.
Cash and Cash Equivalents
As of March 31, 2022, the Company’s cash and cash equivalents totaled $309 million.
2022 Revenue Guidance
Castle Biosciences is increasing its previously issued guidance for anticipated total revenue in 2022. The Company now anticipates generating $118-123 million in total revenue in 2022, compared to the previously provided guidance of $115-120 million. This includes expected revenue from the TissueCypher Barrett’s Esophagus test, acquired in December 2021, and the IDgenetix pharmacogenomics test for mental health conditions, acquired in April 2022.
First Quarter and Recent Accomplishments and Highlights
Dermatology
In April, the Company announced new real-world data from its ongoing collaborative study with the National Cancer Institute (NCI). This new data showed that patients who received DecisionDx-Melanoma test results in addition to traditional clinicopathologic factors, as part of their clinical care, had improved survival compared to patients who were not tested (that is, their clinician could only rely upon available traditional clinicopathologic factors), with a 27% (hazard ratio (HR)=0.73, p=0.028) and 21% (HR=0.79, p=0.006) MSS (melanoma specific survival) and OS (overall survival) survival benefit compared to matched patients who were not tested, respectively. The data was shared in a poster presentation at the 18th European Association of Dermato-Oncology (EADO) Congress. See the Company’s news release from April 21, 2022, for more information.
Castle’s U.S. Federal Supply Schedule (FSS) contract with the Veterans Health Administration (VHA) was expanded to include coverage for the Company’s entire skin cancer test portfolio, effective April 15, 2022. Castle’s expanded U.S. FSS contract now includes DecisionDx-SCC, DecisionDx DiffDx-Melanoma, myPath Melanoma and DecisionDx-CMSeq, in addition to DecisionDx-Melanoma. Castle was awarded its first U.S. FSS contract in August 2021 for DecisionDx-Melanoma. See the Company’s news release from April 29, 2022, for more information.
In April, the Company gave a poster presentation highlighting data and concluding that its non-invasive skin scraping technique produces sufficient ribonucleic acid (RNA) to assess reproducible gene expression for its inflammatory skin disease pipeline test. The poster was presented at the 4th Annual Revolutionizing Atopic Dermatitis Conference. The Company expects to launch this pipeline test by the end of 2025. See the Company’s news release from April 18, 2022, for more information.
In March, the Company announced new data further demonstrating the performance of DecisionDx-Melanoma and i31-SLNB to provide improved risk prediction of sentinel lymph node (SLN) positivity, compared to using T-stage factors alone, in patients with cutaneous melanoma. In the study, the DecisionDx-Melanoma test outperformed T-stage in identifying patients with low-risk tumors who could forgo SLN biopsy, with an Area Under the Curve of 0.89 versus 0.78 for T-stage in patients with T1-T2 tumors, indicating that DecisionDx-Melanoma provides improved predictions compared to those of the T-stage system. See the Company’s news release from March 11, 2022, for more information.
Uveal Melanoma
In January, the Company announced the publication of a study in Ocular Oncology and Pathology demonstrating that the combined application of DecisionDx-UM, DecisionDx-PRAME and DecisionDx-UMSeq allows for highly accurate analysis of RNA and DNA from a single biopsy sample for patients with uveal melanoma (UM). DecisionDx-UMSeq is Castle’s 7-gene test that uses next-generation sequencing to identify somatic mutations relevant to UM. This information, together with results from the DecisionDx-UM gene expression profile test, is designed to help build a comprehensive genomic profile of an individual UM tumor from a single biopsy, which can then be used to inform patient care. See the Company’s news release from Jan. 12, 2022, for more information.
Gastroenterology
In March, the Company announced that CMS granted ADLT status for the TissueCypher Barrett’s Esophagus test, effective March 24, 2022. TissueCypher is Castle’s prognostic test designed to predict future development of high-grade dysplasia and/or esophageal cancer in patients with BE. ADLT status requires that a clinical diagnostic laboratory test provide new clinical diagnostic information that cannot be obtained from any other test or combination of tests, among other criteria.1 The announcement of ADLT status for TissueCypher confirms that the test meets these criteria established by CMS for laboratory tests under the Protecting Access to Medicare Act of 2014 (PAMA). See the Company’s news release from March 29, 2022, for more information.
In April, the company announced an independent, peer-reviewed article published in Clinical Gastroenterology and Hepatology. The study reinforces the ability of TissueCypher to significantly improve predictions of progression to esophageal cancer in patients with BE, compared to predictions based on traditional clinicopathologic variables alone, allowing for more informed disease management decisions. See the Company’s news release from April 27, 2022, for more information.
Mental Health
In April, the Company diversified and expanded its portfolio into the mental health market with the acquisition of AltheaDx and the IDgenetix PGx test for mental health conditions. IDgenetix has been reimbursed by Medicare for depression since the fall of 2020, and in a randomized, controlled clinical-use trial demonstrated clinical utility over standard of care, when physicians used the test prior to prescribing a medication. The acquisition adds approximately $5.0 billion to the Company’s estimated U.S. TAM. See the Company’s news release from April 26, 2022, for more information.
In May, the Company announced a collaboration with Camille Schrier, Miss America 2020, as part of Mental Health Awareness Month, to promote the potential of genetic testing and the IDgenetix test to help improve treatment for mental health conditions. See the Company’s news release from May 6, 2022, for more information.
Conference Call and Webcast Details
Castle Biosciences will hold a conference call on Monday, May 9, 2022, at 4:30 p.m. Eastern time to discuss its first quarter 2022 results and provide a corporate update.
A live webcast of the conference call can be accessed here: 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 May 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 355837.
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 expense, stock compensation expense, and change in fair value of contingent consideration.
We use Adjusted Revenue, Adjusted Gross Margin, Adjusted Operating Cash Flow and Adjusted EBTIDA 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 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 on GAAP basis; 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.
1Centers for Medicare & Medicaid Services: View Source