Castle Biosciences (CSTL) Q1 2025: TissueCypher Delivers 117% Growth, GI Expansion Accelerates

May 5, 2025 | By EarningsIQ Research

TissueCypher, spatial omics test for Barrett’s esophagus, delivered breakout 117% year-over-year growth, propelling Castle Biosciences’ top-line and validating its GI expansion thesis. With the ProVise acquisition, Castle sharpens its focus on gastrointestinal diagnostics while navigating reimbursement headwinds in dermatology. Investors should watch for integration execution, reimbursement clarity, and the pace of commercial productivity gains as Castle pivots resources toward high-growth, high-need segments.

Summary

• GI Franchise Momentum: TissueCypher’s triple-digit volume growth and ProVise acquisition signal a decisive shift toward gastrointestinal leadership.
• Dermatology Reimbursement Drag: Loss of DecisionDx SCC Medicare coverage shifts salesforce focus and introduces near-term revenue headwinds.
• Resource Reallocation: Mental health exit and targeted hiring aim to optimize profitability and sustain high-growth test launches.

Performance Analysis

Castle Biosciences posted 21% revenue growth in Q1 2025, underpinned by a dramatic 117% surge in TissueCypher test volumes, which now represent a rapidly expanding share of total test activity. This spatial omics platform, designed to assess risk in Barrett’s esophagus patients, has emerged as the company’s leading growth engine, with management attributing gains to an expanded commercial team, rising clinical acceptance, and focused education efforts. DecisionDx Melanoma, the company’s flagship dermatology test, grew at a more modest 3% in volume, reflecting both market maturity and the anticipated shift in commercial emphasis following reimbursement changes.

Gross margin dynamics were shaped by a one-time amortization charge tied to the discontinuation of the ID Genetics mental health test, temporarily depressing GAAP margins. Adjusted gross margin, excluding this non-recurring expense, remained robust at 81.2%, and management guided to mid-70s percent margins for the remainder of the year. Operating expenses climbed, driven by headcount expansion, salesforce ramp, and higher lab costs, but adjusted EBITDA improved to $13 million, reflecting underlying commercial leverage. Castle’s $275 million cash position provides ample runway for continued investment and M&A.

• GI Acceleration: TissueCypher’s 117% volume growth dwarfed other segments, confirming GI as the new growth anchor.
• Dermatology Plateau: DecisionDx Melanoma’s single-digit growth and SCC reimbursement loss highlight maturing dermatology economics.
• Margin Reset: One-time amortization from mental health test exit hit GAAP margins, but underlying profitability remains stable.

Castle’s topline is increasingly driven by non-dermatology tests, with GI now positioned as the primary vector for sustainable growth.

Executive Commentary

Strategic Positioning

1. GI Franchise Expansion and ProVise Acquisition

Castle’s acquisition of ProVise, a GI health company specializing in esophageal disorders and methylation-based diagnostics, marks a deliberate pivot to deepen its GI portfolio. ProVise’s pipeline, including tissue and non-endoscopic technologies, complements TissueCypher and opens new upstream diagnostic opportunities. Management emphasized the goal of integrating spatial omics and methylation platforms to deliver a multi-omics approach, aiming to further differentiate Castle’s offering in a market with significant unmet need and low five-year survival rates for esophageal cancer.

2. Dermatology: Navigating Reimbursement Volatility

The loss of Medicare coverage for DecisionDx SCC introduces a major revenue headwind, prompting a shift in salesforce incentives and focus back to melanoma. Management is pursuing reconsideration requests for both Novitas and MOLD-EX LCDs, but provided no timeline for resolution and advised investors to exclude SCC revenue from 2025 models. The team expects field force productivity to improve as resources concentrate on the higher ASP and more established melanoma segment, while SCC volumes are expected to plateau and eventually decline without promotion.

3. Operating Discipline and Resource Reallocation

The discontinuation of the mental health IGNX test, following a gradual wind-down of commercial support, reflects a disciplined approach to capital allocation. Management cited payer irrationality and lack of reimbursement as drivers for exit, freeing up resources for higher-return growth areas in GI and dermatology. The impact is expected to be EBITDA accretive, despite a modest revenue reduction, and underscores a willingness to make tough portfolio decisions to sustain profitability.

4. Commercial Team Scale and Deployment

Castle’s commercial build-out now includes roughly 65 GI sales territories and a similar number in dermatology, with hiring decisions tied to territory productivity and market penetration. Management is taking a measured approach to further expansion, monitoring the impact of recent hires and market coverage before committing to additional headcount. The company estimates a 10,000 clinician target pool in GI, suggesting substantial runway for future salesforce optimization.

5. R&D and Pipeline Optionality

With the addition of ProVise’s pipeline and continued investment in atopic dermatitis and other indications, Castle is positioning itself for multi-year innovation cycles. Management highlighted the potential to accelerate pipeline launches using acquired technology, especially in early detection and non-endoscopic diagnostics, though timelines remain fluid. The company’s robust cash balance supports ongoing R&D alongside targeted M&A.

Key Considerations

Castle’s Q1 2025 was defined by a decisive pivot toward GI diagnostics, commercial discipline, and a willingness to reallocate resources away from underperforming assets. The company’s ability to execute on these shifts will determine its ability to sustain high-teens to low-20s normalized revenue growth in the face of reimbursement and competitive challenges.

Key Considerations:

• GI Leadership Opportunity: TissueCypher’s growth and ProVise integration are central to Castle’s next phase, but depend on successful physician adoption and payer acceptance.
• Reimbursement Uncertainty: DecisionDx SCC’s non-coverage status puts pressure on dermatology revenue and clouds near-term visibility until reconsideration outcomes are known.
• Salesforce Productivity: Realigning commercial focus and optimizing territory deployment are critical to maximizing ROI on recent headcount investments.
• Portfolio Discipline: The exit from mental health diagnostics demonstrates a pragmatic approach to capital allocation, but also narrows the addressable market.
• Pipeline Execution: R&D acceleration and technology integration are potential upside levers, but carry execution and regulatory risk.

Risks

Castle faces material reimbursement risk in dermatology, with DecisionDx SCC’s Medicare coverage loss unlikely to reverse in 2025. Commercial success in GI depends on continued evidence generation, payer adoption, and effective integration of acquired assets. The company’s ability to manage operating expenses and deliver on new product launches is critical, especially as legacy dermatology growth slows and competitive intensity rises in both GI and dermatology segments.

Forward Outlook

For Q2 2025, Castle Biosciences guided to:

• Mid-70s percent adjusted gross margin, reflecting normalization after one-time charges
• Continued robust volume growth in TissueCypher, with GI franchise expansion as a key driver

For full-year 2025, management raised revenue guidance to:

• $287 to $297 million (from $280 to $295 million previously)

Management highlighted several factors that will shape results:

• Salesforce focus shifting to melanoma and GI, with dermatology SCC revenue excluded from models
• Integration of ProVise and acceleration of pipeline launches in GI diagnostics

Takeaways

Castle’s Q1 2025 marks a strategic inflection, as GI diagnostics overtake dermatology as the core growth vector and resource allocation sharpens around high-return opportunities.

• Growth Engine Shift: Triple-digit TissueCypher growth and the ProVise deal anchor Castle’s GI ambitions, but require flawless integration and commercial execution.
• Revenue Model Reset: Dermatology headwinds and portfolio pruning create short-term turbulence, but should enhance long-term profitability and focus.
• Execution Watchpoints: Monitor reimbursement developments, salesforce productivity, and pipeline milestones to gauge the durability of Castle’s growth thesis.

Conclusion

Castle Biosciences is reshaping its growth profile, with GI diagnostics now driving the topline and strategic capital redeployment aiming to sustain profitability and innovation. The next several quarters will test Castle’s ability to deliver on integration, payer engagement, and commercial leverage as it navigates reimbursement volatility and competitive shifts.

Industry Read-Through

Castle’s pivot toward GI diagnostics and multi-omics integration reflects a broader industry trend of specialty diagnostics companies seeking growth beyond legacy segments and reimbursement-limited markets. The rapid adoption of spatial omics and methylation-based tests in GI underscores the appetite for precision tools in high-morbidity indications like Barrett’s esophagus and esophageal cancer. Reimbursement volatility in dermatology also serves as a cautionary signal for other molecular diagnostics firms reliant on single-payer coverage, highlighting the need for diversified portfolios and proactive payer engagement. The measured approach to commercial team expansion and portfolio pruning may become a playbook for peers facing similar market and regulatory headwinds.

CSTL Healthcare Diagnostics Gastroenterology Dermatology Spatial Omics Molecular Testing Reimbursement