Investing.com — Shares of Castle Biosciences (NASDAQ:CSTL) tumbled 9% after Novitas, a regional Medicare contractor, finalized its decision not to cover one of the company’s cancer tests. The Novitas Medicare Administrative Contractor (MAC) confirmed a local coverage determination (LCD) that resulted in the non-coverage of Castle’s DecisionDx-SCC test. This decision is set to take effect on February 23.
The recent development follows a precedent set by a similar non-coverage decision made by MolDx last year. Despite the setback, analysts have indicated that this outcome was anticipated. Leerink Partners’ Puneet Souda maintained an outperform rating, albeit lowering the price target to $45 from $50, stating, “the non-coverage decision was somewhat expected following a similar decision by MolDx last year.” Souda also mentioned that Castle Biosciences is expected to receive payment for the test until February 23, with no further impact on the company’s DDx-SCC revenue in 2025 and beyond. The analyst believes that with the controversy now settled, Castle presents “a slightly cleaner story ahead with 2 key products.”
Echoing this sentiment, Canaccord Genuity’s Kyle Mikson reiterated a buy rating with a price target of $42. Mikson’s commentary highlighted that the final LCD decision was anticipated by investors and the market had already discounted the DDx-SCC revenue beyond 2024 from their models. “This outcome has been expected by investors,” Mikson stated, suggesting that the resolution of the issue removes an overhang and provides clarity on Castle’s future, despite acknowledging that it may take years to achieve coverage. With the company’s strong fundamentals and discounted valuation, Mikson views Castle Biosciences shares as highly attractive.
The non-coverage decision is a significant event for Castle Biosciences, impacting the company’s financial outlook. However, the market had already factored in the potential for such an outcome, and the focus now shifts to how the company will navigate its path forward without the Medicare coverage for its DDx-SCC test.
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