What happened
Shares of Castle Biosciences (CSTL 1.91%) were down more than 47% on Monday afternoon as three analysts lowered their price targets for the medical diagnostic stock. The healthcare stock is down more than 49% so far this year. The big drop was likely affected by a Medicare contractor's decision not to cover one of the company's tests.
So what
Castle's DecisionDx squamous cell carcinoma (SCC) test tries to identify the risk of metastasis in SCC patients with one or more risk factors, based on 40 genes within tumor tissue. Wisconsin Physicians Service Insurance, a Medicare contractor, recently proposed not covering the company's DecisionDX-SCC test. Based partly on that news, analysts from Baird, SVB Securities, and Lake Street lowered their price targets on the stock. Baird analyst Catherine Ramsey lowered the price target for the stock from $35 to $25. Lake Street analyst Thomas Flaten dropped his target for the company from $63 to $41 and SVB Securities' Puneet Souda dropped its target for Castle from $63 to $35.35.
In response, Castle shared new data showing DecisionDx-SCC can significantly improve metastatic risk predictions in melanoma by complementing current staging systems.
The company also reaffirmed its 2023 revenue guidance to be between $170 million and $180 million and its 2025 revenue guidance for revenue to be between $255 million and $330 million.
Now what
The drop Monday followed a big fall last week, after the company announced unimpressive trial results for its IDgenetix test to help diagnosis for patients with severe depression. The back-to-back bad news has investors concerned and a flurry of releases by Castle isn't changing their opinion, apparently.
The concern is that a setback for Castle's dermatologic tests would curb the company's growth. In the first quarter, the company's DecisionDx-Melanoma and DecisionDx-SCC tests, combined, saw sales rise nearly 40% year over year.
