Castle
Biosciences, Inc. (CSTL, $45.92): “Myriad of Castles!”
By:
Kendra Preissner, AIM Student at Marquette University
Disclosure: The AIM Small-Cap Equity Fund currently holds this
position. This article was written by myself, and it expresses my own opinions.
I am not receiving compensation for it, and I have no business relationship
with any company whose stock is mentioned in this article.
Summary
- Castle Biosciences, Inc.
(NASDAQ: CSTL)
provides testing that is able to predict the recurrence of cancers for patients
diagnosed with invasive cutaneous melanoma in the United States.
- The company has expanded its commercial footprint since
2020, with a recent announcement in 2021 of its intent to acquire Myriad’s
myPath business.
- CSTL launched DecisionDx DiffDx‐Melanoma (DiffDx) and
DecisionDx‐SCC (Dx‐SCC in 2020 helping to
further expand their product portfolio
- The firm indicates that they intend to add 3-5 additional
opportunities to their pipeline which could be launched as early as 2025.
- CSTL is up approximately 7%, as of March 22, since the end of the year 2021, and surprising fourth-quarter results that beat expectations by 41.86%.
Key
points: Castle
Biosciences remains ‘in-play’. CSTL bought myPath for $32.5 million in cash. Myriad
Genetics completed the sale of its subsidiary, Myriad myPath, LLC. Myriad myPath
offers the myPath Melanoma test which will be added to Castle’s portfolio and
contribute to their sales.
The firm’s product
expansion opens new market opportunities. DecisionDx-Melanoma offers the company
an opportunity to expand into the invasive melanoma market which has a $540 million
total addressable market. DecisionDx-SCC provides an opportunity to expand into
gene testing that has a total addressable market of $820 million.
The
expansions suggests that the company will be looking to create or acquire both cancer
and non-cancer solutions as long, and the products continue to serve customers that
are dermatologist, dermatopathologist, or affiliated specialties. The firm has opportunities
to expand its products that are upstream, downstream, and parallel to their current
product portfolio.
Castle
Bioscience is down 30% from one year ago, part of this can be attributed to
their attention being diverted by preparations for completing the acquisition
and boosting the sales of the new products in their pipeline. In addition,
geopolitical risk has created a more volatile environment in the equity markets
as well as other macroeconomic factors like inflation. The stock is still up
from the end of the 2021 fiscal year.
CSTL is up
approximately 7% from the end of the 2021 fiscal year. On February 28th,
2022 the company also announced its 4th quarter results for 2021
beating market expectations by 41.86% with resulting earnings per share of -$0.25
and had forecasted earnings per share of -$0.43.
CSTL also just completed their acquisition of Cernostics. Cernostics provided an esophagus test that adds approximately $1billion to the firm’s estimated U.S total addressable market. This also allows CSTL to expand into the gastrointestinal market.
What has the stock done lately?
Since CSTL completed its acquisition
of Cernostics on December 6, 2021, the stock is up almost 15%. The adjusted
close price on December 6th was $39.94 and on the 7th it jumped to $43.52
which was a 9% increase within one day. As the new products and acquisitions
become more established it will be interesting to see if the combination of CSTL
organic and inorganic growth will generate a company that has negative consequences,
stable financials, or positioned to be a major growth company.
Past Year Performance: CSTL has declined by 30% in value over the past
year, but the stock is still a strong performing, promising equity play. The
firm has a current price of $45.92 and street estimates estimate it could rise
in value anywhere from $60-$94/share. Acquisitions and product line expansion
are driving a lot of the growth and optimistic outlook for the company.
My Takeaway
Castle Bioscience has
created a growth strategy that combines both organic and inorganic growth to
help build up the company’s product offerings and sales. Even though large macroenvironmental
factors are playing out currently, which could greatly affect stocks across all
industries, CSTL has been able to continue releasing new products and juggling
their acquisitions through it all. This current strategy could be contributing
to the 30% performance decrease, but once the company starts to fully implement
these products the firm could provide large upside in the mid to long term.
