Castle Biosciences Stock Falls After Medicare Denial Decision By Investing.com

Investing.com – Castle Biosciences (NASDAQ:CSTL) shares fell 9% after Novitas, a regional Medicare provider, confirmed its decision not to fund one of the company’s cancer tests. The Novitas Medicare Administrative Contractor (MAC) affirmed a local coverage decision (LCD) that resulted in non-coverage of Castle’s DecisionDx SCC test. This regulation is scheduled to come into force on February 23, 2024.

This development follows a similar precedent set by MolDx last year. Despite the setback, analysts emphasize that this result was not unexpected. Leerink Partners’ Puneet Souda maintained an Outperform rating but lowered the price target to $45 from $50. He explained: “The rejection of reimbursement was expected following a similar decision by MolDx last year.” Souda added that Castle Biosciences is expected to receive payments for the test by February 23, 2024, with no further impact on the DDx SCC -Company’s revenue from 2025. The analyst believes that once this controversy is resolved, Castle has “a somewhat clearer future with two key products.”

In line with this, Kyle Mikson of Canaccord Genuity reiterated a Buy rating with a price target of $42. Mikson emphasized that the final LCD decision was anticipated by investors and the market had already removed DDx SCC sales beyond 2024 from its valuation models. “This result was expected by investors,” said Mikson. He suggested that resolving the issue would remove uncertainty and provide clarity over Castle’s future, but acknowledged it could take years to reach a cost recovery. Given the company’s solid fundamentals and attractive valuation, Mikson sees Castle Biosciences stock as extremely promising.

The denial of coverage is undoubtedly a significant event for Castle Biosciences and will impact the company’s financial prospects. However, the market had already priced in the possibility of such a scenario. The focus now turns to how the company will continue on its path without Medicare coverage for its DDx-SCC test.

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