cstl-20211231

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 31, 2021

For the transition period from _________ to _________

Commission File Number: 001-38984

CASTLE BIOSCIENCES, INC.

(Exact name of registrant as specified in its charter)

505 S. Friendswood Drive, Suite 401, Friendswood, Texas 77546

(Address of principal executive offices) (Zip Code)

(866) 788-9007

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered

Common Stock, $0.001 par value per share CSTL The Nasdaq Global Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ̈

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ̈No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒No ̈

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒No ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐No ☒

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2021 (the last business day of the registrant’s most recently completed second fiscal quarter) was $1.5 billion based on the closing price of the registrant’s common stock on June 30, 2021, as reported by the Nasdaq Global Market.

As of February 21, 2022, there were 25,410,602 shares of common stock, $0.001 par value per share, issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission, or SEC, subsequent to the date hereof pursuant to Regulation 14A in connection with the registrant’s 2022 Annual Meeting of Stockholders, are incorporated by reference into Part III of this Annual Report on Form 10-K. The registrant intends to file such proxy statement with the SEC not later than 120 days after the conclusion of its fiscal year ended December 31, 2021.

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Page

Special Note Regarding Forward-Looking Statements 2

Risk Factors Summary 3

PART I. 5

Item 1. Business 5

Item 1A. Risk Factors 40

Item 1B. Unresolved Staff Comments 77

Item 2. Properties 77

Item 3. Legal Proceedings 77

Item 4. Mine Safety Disclosures 78

PART II. 79

Item 6. Reserved 79

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 96

Item 8. Financial Statements and Supplementary Data 96

Item 9A. Controls and Procedures 96

Item 9B. Other Information 96

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 96

PART III. 97

Item 10. Directors, Executive Officers and Corporate Governance 97

Item 11. Executive Compensation 97

Item 14. Principal Accountant Fees and Services 97

PART IV. 98

Item 15. Exhibit and Financial Statement Schedules 98

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS F-1

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. The forward-looking statements are contained principally in the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

•estimates of our total addressable market, future revenue, expenses, capital requirements and our needs for additional financing;

•expectations with respect to reimbursement for our products, including third-party payor reimbursement and coverage decisions;

•anticipated cost, timing and success of our product candidates, and our plans to research, develop and commercialize new tests;

•the impact of the COVID-19 pandemic on our business;

•our ability to obtain funding for our operations, including funding necessary to complete the expansion of our operations and development of our pipeline products;

•the implementation of our business model and strategic plans for our products, technologies and business;

•expectations with respect to acquisitions of businesses, assets, products or technologies;

•our ability to manage and grow our business by expanding our sales to existing customers or introducing our products to new customers;

•our ability to develop and maintain sales and marketing capabilities;

•regulatory developments in the United States and foreign countries;

•the performance of our third-party suppliers;

•the success of competing diagnostic products that are or become available;

•our ability to attract and retain key personnel; and

•our expectations regarding our ability to obtain and maintain intellectual property protection for our products and our ability to operate our business without infringing on the intellectual property rights of others.

In some cases, you can identify these statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will,” “would” or the negative of those terms, and similar expressions that convey uncertainty of future events or outcomes. These forward-looking statements reflect our management’s beliefs and views with respect to future events and are based on estimates and assumptions as of the date of this Annual Report on Form 10-K and are subject to risks and uncertainties. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements. We discuss many of the risks associated with the forward-looking statements in this Annual Report on Form 10-K in greater detail in the section entitled “Risk Factors.” Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Given these uncertainties, you should not place undue reliance on these forward-looking statements.

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RISK FACTORS SUMMARY

We face many risks and uncertainties, as more fully described in this Annual Report on Form 10-K under the heading “Risk Factors.” Some of these risks and uncertainties are summarized below. The summary below does not contain all of the information that may be important to you, and you should read this summary together with the more detailed discussion of these risks and uncertainties contained in “Risk Factors.”

Risk Related to our Financial Condition

•We rely upon a small number of third-party payors for a significant portion of our revenue.

•Our method of recognizing revenue may not reflect our underlying business.

•We have incurred significant losses since inception, and we may never achieve profitability.

•We are an early, commercial-stage company and have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.

•Our financial results could fluctuate in the future, causing the market price of our stock to decline substantially.

•If our internal control over financial reporting is ineffective, we may not be able to accurately report our financial results or file our periodic reports in a timely manner.

•We may need to raise additional capital to commercialize new products, to expand operations or to fund existing operations.

Risks Related to our Business

•We have been, and may continue to be, adversely impacted by the COVID-19 pandemic, which has, at times, caused decreased test report volume.

•Our revenue heavily relies upon the sale of a single product and our current or future products may not achieve or maintain significant commercial market acceptance.

•Billing for our products is complex and we require substantial time and resources to collect payment.

•We rely on third parties for sample collection, preparation and delivery.

•A depletion or loss of our sample database could significantly harm our business.

•If our primary clinical laboratory facility becomes damaged or inoperable or we are required to vacate our existing facility, our ability to conduct our laboratory work for our commercial products and pursue our research and development efforts may be jeopardized.

•New product development is lengthy and complex and our revenues could be limited if we are unable to increase and support adoption of our products by both physicians and other healthcare providers.

•We rely on limited or sole suppliers for some of the reagents, equipment, chips and other materials used by our products, and we may not be able to find replacements or transition to alternative suppliers if these suppliers are unable or unwilling to continue providing these materials.

•The sizes of the addressable markets for our current and future products have not been established with precision and may be smaller than we estimate.

•The diagnostic testing industry is subject to rapid change, which could make our current or future products obsolete.

Risks Related to Reimbursement and Government Regulation

•We currently have limited reimbursement coverage for our lead product, DecisionDx-Melanoma, and if third-party payors, including government and commercial payors, do not provide sufficient coverage of, or adequate reimbursement for, our products, our commercial success, including revenue, will be negatively affected.

•We conduct business in a heavily regulated industry and failure to comply with regulatory requirements, including those established by the Centers for Medicare & Medicaid Services (“CMS”), and the U.S. Food and Drug Administration (“FDA”) or changes in enforcement discretion for laboratory developed tests could harm our business.

•Data from our clinical studies may change materially, which could harm our business.

•Changes in healthcare policy, statutes or regulations, or our ability to comply with applicable healthcare requirements, could have a material adverse effect on our business and operations.

Risks Related to Intellectual Property

•If we are unable to obtain and maintain sufficient intellectual property protection for our technology, our ability to successfully commercialize our products may be impaired.

•Our commercial success depends significantly on our ability to operate without infringing upon the intellectual property rights of third parties.

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•We rely on information technology systems that we license from third parties and other royalty-bearing license agreements.

Risks Related to Employee Matters and Managing Growth and Other Risks Related to Our Business

•We are highly dependent on the services of our key personnel, including our President and Chief Executive Officer.

•Our employees and any current or potential commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements and insider trading.

•We have, and may continue to, engage in strategic transactions, such as the acquisition of businesses, assets, products or technologies, which could be disruptive to our existing operations, divert the attention of our management team and adversely impact our liquidity, cash flows, financial condition and results of operations.

•Our business may be negatively impacted by cyber-security threats, natural disasters and public health crises.

•Product or professional liability lawsuits against us could cause us to incur substantial liabilities and could limit our commercialization of our products.

Risks Related to Ownership of Our Common Stock.

•The price of our common stock may be volatile or may decline regardless of our operating performance, and you may lose all or part of your investment.

•We have broad discretion in the use of working capital and may not use it effectively or in ways that increase our share price.

•Related party transactions that create conflicts of interest, or the appearances of conflicts of interest, may harm our business and cause our stock price to decline.

•The concentration of our stock ownership will likely limit your ability to influence corporate matters, including the ability to influence the outcome of director elections and other matters requiring stockholder approval.

•Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.

•Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for certain disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

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PART I

Item 1. Business.

As used in this Annual Report on Form 10-K, unless the context indicates or otherwise requires, “Castle Biosciences,” “the Company,” “we,” “us,” and “our” refer to Castle Biosciences, Inc., a Delaware Corporation.

Overview

Castle Biosciences is improving health through innovative tests that guide patient care. For the diseases that our portfolio of tests cover, we believe the traditional approach to developing a treatment plan for cancers and other diseases using clinical and pathology factors alone is inadequate and can be improved by incorporating the personalized information our diagnostic and prognostic tests provide.

Vision and Foundational Strategy

Since our inception in 2008, it has been our vision to transform disease management by keeping people first: patients, clinicians, employees and investors. This foundational strategy remains the guidepost for the direction of our company and the basis of long-term value creation.

Our foundational strategy focuses on executing four principles:

Address Areas With Unmet Clinical Need. Our commercial and pipeline tests address many treatment plan challenges facing physicians by providing physicians and their patients with a laboratory report that contains clinically actionable and personalized information from our proprietary tests to inform the treatment plan for each patient.

Leverage Advanced Technologies For Innovative Tests. We focus on multi-analyte assays with algorithmic analysis (“MAAAs”) that enable us to characterize an individual patient’s tissue biology to improve risk-stratification, improve diagnostic certainty and predict therapy response. Our expectation is that incorporating our personalized test results into the shared decision-making between a patient and their clinician should result in improved treatment plan decisions and lead to optimized health outcomes with a reduction in healthcare costs. Due to the biological complexity of the diseases we target, we believe that MAAAs are the optimal approach to precision testing.

Provide Robust Data To Support The Clinical Value Of Our Tests. We conduct extensive clinical utility and validity studies to support the adoption of, and reimbursement for, our products. This growing set of data is key in educating physicians and patients about the consistent value of our commercial products. Regarding our lead product, DecisionDx-Melanoma, in 2015, we published our initial two peer-reviewed manuscripts. As of February 28, 2022, we have more than 35 peer-reviewed publications supporting the clinical utility and validity of DecisionDx-Melanoma, including multiple prospective studies and two systematic reviews with meta-analyses involving over 6,000 unique patients. We anticipate analyzing more than 20,000 additional patients’ data in cutaneous melanoma studies in 2022. Across our testing portfolio, we currently have 16 ongoing clinical research studies and as of December 31, 2021 we had 341 committed/contributing clinical research sites and 7,800

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patients enrolled in studies. In order to maintain our competitive advantage and increase sales of our products, we will continue to generate additional clinical data to support the use of our products.

Accelerate Test Adoption Through Commercial Excellence. Our commercial team focuses on educating clinicians on the value of incorporating the results of MAAA tests to make more informed treatment plan decisions. In the field of dermatology, this approach has resulted in established relationships with clinicians that allow us to optimize our interactions, increase adoption of our current products and identify areas of unmet clinical need to efficiently launch additional, complementary products. Our significant investment in developing evidence of the value of our tests has resulted in rigorous scientific support and peer-reviewed publications in leading journals, which allows our commercial team to have substantive, in-depth dialogues with physicians. Through these established relationships, we have been able to integrate our products into physicians’ workflows and identify further educational programs, which we believe fosters adoption of our products. We believe our history of commercial success in dermatology will translate into other markets, including ocular oncology and gastroenterology.

Our Test Portfolio

We map out the continuum of diagnostic test services as starting with (i) screening of healthy individuals, to (ii) supporting diagnostic clarity in patients with signs or symptoms of disease, to (iii) risk-stratification or prognosis, to (iv) response to treatment for specific treatment selection and to (v) late-stage testing for use in resistant metastatic disease. We currently focus our investments on innovative test services that assist in providing diagnostic clarity in patients with signs or symptoms of disease, risk-stratification and response to treatment. We have five commercially available proprietary tests that assist physicians and patients along this continuum and focus on answering clinical questions arising during the treatment of dermatologic cancers, uveal melanoma and Barrett’s esophagus (“BE”):DecisionDx-Melanoma, DecisionDx-SCC, DecisionDx DiffDx-Melanoma, myPath Melanoma, DecisionDx-UM and TissueCypher Barrett’s Esophagus Assay. Together, we believe these commercial products support an estimated total addressable market (“TAM”) of $3.0 billion in the United States. Currently, our revenue is primarily generated by our DecisionDx®-Melanoma risk stratification test for cutaneous melanoma and our DecisionDx®-UM risk stratification test for uveal melanoma.

In 2021, we announced the launch of our innovative pipeline initiative to develop a genomic test aimed at predicting response to systemic therapy in patients with moderate to severe psoriasis, atopic dermatitis and related inflammatory skin conditions.If successful, this inflammatory skin pipeline test has the potential to add approximately $1.9 billion to our current estimated U.S. TAM. In 2021, we formed a steering committee comprised of leading experts in the field, received Institutional Revenue Board (“IRB”) approval and enrolled our first patient in the development and validation study for this genomic test. We believe we are on track to launch this test by the end of 2025. We have initiated work on additional pipeline tests which branch out upstream, downstream and parallel to our commercial tests, within or adjacent to our established dermatology commercial call points.

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Operational Pillars Supporting Castle’s Growth

Our near and long-term growth plans are focused on three operational pillars: our strong core dermatology business, pipeline initiatives and strategic opportunities.

Strong Core Dermatology Business

The foundation of our business is our dermatologic cancer franchise, and our lead product is DecisionDx-Melanoma.DecisionDx-Melanoma is a proprietary multi-gene expression profile (“GEP”) risk stratification test that predicts the risk of metastasis, or recurrence, for patients diagnosed with invasive cutaneous melanoma, a deadly skin cancer. In the management of melanoma, as with nearly all diseases, treatment plans are directed by patient risk-stratification. This test has two distinct, complementary clinically actionable uses. The first revolves around predicting the likelihood of having a sentinel lymph node (“SLN”) negative biopsy result so that physicians and patients can discuss the risk and benefit of undergoing the SLN biopsy (“SLNB”) surgical procedure. The second use is to inform the appropriate treatment plan during the initial five years post-diagnosis, regardless of the decision to undergo or avoid invasive SLNB surgery. In a typical year, we estimate approximately 130,000 patients are diagnosed with invasive cutaneous melanoma in the United States. We launched DecisionDx-Melanoma in May 2013. Based on the substantial clinical evidence that we have developed, we have received Medicare coverage for DecisionDx-Melanoma, which represents approximately 50% of the addressable patient population for this test.

In 2021, we initiated a collaboration with the National Cancer Institute (“NCI”) to link Surveillance, Epidemiology, and End Results (“SEER”) Program registries’ data on cutaneous melanoma cases with DecisionDx-Melanoma testing data. The analysis of the first subset of data from patients 65 years and older confirmed the performance of our test to risk stratify the likelihood of progression. The analysis also showed that patients tested with DecisionDx-Melanoma had improved overall survival rates compared to untested patients. In addition to confirming results from previous studies, this data from a large, real-world and unselected patient population, confirmed that patients who received a DecisionDx-Melanoma test result lived longer than patients whose clinicians relied solely on traditional clinicopathologic factors. The first phase of the collaboration links SEER cutaneous melanoma registries that were diagnosed between 2013 and 2018 with DecisionDx-Melanoma results and additional clinicopathologic information from patients tested between 2013 and 2018. We expect that the peer-reviewed publication will be available in 2022. The next planned phase of the collaboration with the NCI is to link the SEER registries’ cutaneous melanoma cases diagnosed post-2018. We expect further data read outs later in 2022 and beyond.

On August 31, 2020, we commercially launched our cutaneous squamous cell carcinoma (“SCC”) proprietary GEP test, DecisionDx®‐SCC, for use in patients with one or more risk factors (also referred to as “high-risk” SCC). On November 2, 2020, we commercially launched our proprietary GEP test for difficult-to-diagnose melanocytic lesions, DecisionDx® DiffDxTM-Melanoma for use in patients with a melanocytic lesion and uncertainty related to the malignancy of the lesion. We

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believe that these two additional skin cancer tests address areas of high clinical need in dermatological cancer and, together, represent an estimated addressable population of approximately 500,000 patients in the United States.

We further expanded our commercially available dermatologic portfolio in May 2021 when we acquired Myriad myPath, LLC (“Myriad myPath Laboratory”) from Myriad Genetics, Inc. for a cash purchase price of $32.5 million. myPath Melanoma is a clinically validated GEP test that addresses the same unmet clinical need as our DecisionDx DiffDx-Melanoma test. Today, we offer both our myPath Melanoma test and our DecisionDx DiffDx-Melanoma test under an offering that we refer to as our comprehensive diagnostic offering (“CDO”) of molecular testing solutions. By offering both of these tests in a single offering, we believe we have demonstrated the ability to improve the test result performance for patients with difficult-to-diagnose melanocytic lesions.

Pipeline Initiatives

We identify areas of significant unmet clinical needs in the treatment of skin cancer and other diseases and leverage our expertise in genomics and other advanced technologies, data analytics and artificial intelligence to develop clinically actionable products. We focus first on confirming the unmet clinical needs of clinicians treating skin cancer and other diseases, which we gather from in-depth conversations with our customers and thought leaders as well as feedback our sales and medical affairs representatives receive from clinicians. Once we have generated a pipeline test that we believe will address an unmet clinical need, we work to validate the product candidate through extensive testing of patient tissue samples, many of which will be housed in Castle’s own biorepository and annotated with clinical outcomes data. We use our extensive data bank of patient tissue samples and clinical outcomes data to conduct development and validation studies, as well as clinical studies to collect new samples in additional diseases.

We have significant expertise in developing proprietary algorithms, conducting clinical studies and using the necessary instrumentation required for efficiently developing our pipeline products.

In 2021, we announced the launch of our innovative pipeline initiative to develop a genomic test aimed at predicting response to systemic therapy in patients with moderate to severe psoriasis, atopic dermatitis and related inflammatory skin conditions. In the U.S. alone, there are approximately 18 million patients diagnosed with psoriasis and atopic dermatitis. Approximately 450,000 of these patients annually are eligible for systemic therapies. If successful, this inflammatory skin disease pipeline test has the potential to add approximately $1.9 billion to our current estimated U.S. TAM. In 2021, we initiated a 4,800 patient, prospective, multi-center clinical study to develop and validate this pipeline test, and have 50 committed centers, out of the initial target of 50. Based upon our current development and validation timelines, we expect to launch this pipeline test by the end of 2025.

Although we are still in the early stages of development, we believe that, utilizing our existing sales channels, we could launch three to five new tests by the end of 2025, potentially adding approximately $1.7 billion to our current U.S. TAM.

Strategic Opportunities

A key pillar of our growth plan is to identify targeted, complementary strategic opportunities. Our M&A philosophy includes entering markets where we expect our history of commercial success in the field of dermatology will translate well. Further, we seek opportunities where we expect to leverage advanced technologies to bring innovative tests to clinicians and patients, where there is an opportunity to transform disease management in areas with unmet clinical need and provide actionable information to answer clinical questions, and where we have the potential to create a suite of tests for use by a single clinician.

We further expanded our commercially available dermatologic portfolio in May 2021, when we completed the acquisition of the Myriad myPath Laboratory, as mentioned above.

In December 2021, we extended our commercial portfolio of proprietary tests into the gastroenterology market through our acquisition of Cernostics, Inc. (“Cernostics”) and the TissueCypher® platform. The TissueCypher platform focuses on unlocking, in the case of the initial test for use in patients with BE, the importance of the location of the expression of proteins or lack thereof within the morphology of the disease (also known as spatialomics). This “spatialomic” information is then interpreted using artificial intelligence approaches to predict the likelihood of progression to high-grade dysplasia and/or esophageal cancer in patients with non-dysplastic, indefinite or low-grade dysplasia BE. We believe the addition of expertise in the spatialomics area positions us for continued growth and success in the diagnostics space, complementing our first-to-market dermatologic franchise and our proprietary test for uveal melanoma.

Our History of Transforming Disease Management

In addition to our dermatologic franchise and our initial entry into the gastroenterology market with our TissueCypher test for BE, we also market tests for patients diagnosed with uveal melanoma (“UM”), a rare cancer of the eye. DecisionDx®-UM is a proprietary GEP test that provides risk-stratification information for patients with UM.

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We believe DecisionDx-UM is the standard of care in the management of newly diagnosed UM in the majority of ocular oncology practices in the U.S., and it is estimated that nearly 8 in 10 patients diagnosed with UM in the U.S. receive the DecisionDx-UM test as part of their diagnostic workup. We launched DecisionDx-UM in January 2010. Based on the substantial clinical evidence that we have developed, we received Medicare coverage for DecisionDx-UM, which represents approximately 50% of the addressable patient population as well as widespread commercial payor coverage.

Test Adoption

The number of test reports we generate is a key indicator that we use to assess our business. A test report is generated when we receive a sample in our laboratory, and then the relevant test information is entered into our Laboratory Information Management System, the expression of the biomarkers is measured, then a proprietary algorithmic analysis of the combined biomarkers is performed to generate a report providing the results of that analysis, which is sent to the clinician who ordered the test. The numbers of GEP test reports delivered by us and our net revenues during the past five years are presented in the table below:

Years Ended December 31,

(1)We commercially launched DecisionDx-SCC on August 31, 2020.

(2)Includes DecisionDx DiffDx-Melanoma, which we commercially launched on November 2, 2020, and myPath Melanoma, which we began offering following our acquisition of Myriad myPath Laboratory on May 28, 2021. We offer both our myPath Melanoma and DecisionDx DiffDx-Melanoma under our CDO.

Dermatologic Franchise Overview

Skin cancer is the uncontrolled growth of abnormal skin cells. There are six types of pre-cancers and skin cancers that result in a total annual incidence of 5.5 million patients. The three most common forms of skin cancers are basal cell carcinomas, SCC and cutaneous melanoma. SCC, the second most common form of skin cancer, is an uncontrolled growth of abnormal cells arising from the squamous cells in the epidermis, the skin’s outermost layer. Melanoma, an aggressive form of skin cancer, originates in the pigment-producing melanocytes in the basal layer of the epidermis. We do not, at this time, have an active focus on basal cell carcinomas.

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Pre-cancers include suspicious pigmented lesions, which are unusual-looking lesions that may be melanoma, and actinic keratosis. The estimated TAM for our dermatologic commercial products, which is based on estimated patient population assuming average reimbursement rate among all payors, is set forth below:

1.Annual U.S. incidence for Stage I, II or III melanoma estimated at 130,000; Annual U.S. incidence for squamous cell carcinoma estimated at 1,000,000 with addressable market limited to carcinomas with one or more high risk features; Annual U.S. incidence for suspicious pigmented lesion biopsies estimated at 2,000,000 with addressable market limited to the 15% with an indeterminant biopsy.

Cutaneous Melanoma

Melanoma tumors originate in the pigment-producing melanocytes in the basal layer of the epidermis. Published statistics suggest that there were nearly 300,000 new cases of melanoma diagnosed worldwide, with the U.S. Surveillance, Epidemiology, and End Results (“SEER”) database estimating that approximately 96,000 invasive cutaneous melanomas are diagnosed in the United States annually, however, multiple publications report that melanoma diagnoses are underreported by between 30% and 72% annually in the United States. Using the mean of the underreporting of these four studies, we estimate the annual incidence of cutaneous melanoma to be 130,000, representing an estimated U.S. TAM of $540 million. According to these publications, the underreporting of melanoma diagnoses reflects the fact that the majority of diagnoses are made by community-based dermatologists and dermatopathologists rather than institutional-based specialists who more typically have tumor registry support. Based on currently available data, we estimate the targetable clinician base is between 11,000 and 15,000.

Additionally, the incidence of melanoma has steadily increased annually over the last several decades, with an estimated growth in the United States of more than 50% during the past ten years.

After a diagnosis of invasive cutaneous melanoma, healthcare providers have traditionally relied solely on clinical and pathology factors from the initial biopsy to estimate the patient’s risk of metastasis to then determine a risk-based treatment plan. This estimation or “staging” process is then used to determine nearly all treatment decisions. Invasive melanoma tumors are staged as Stage I through Stage IV. Stage I tumors have invaded the dermis but are thin, with less than or equal to 2.0 mm invasion into the dermis if not ulcerated, or less than or equal to 1.0 mm invasion into the dermis if ulcerated. Stage I tumors have the lowest population-based risk of metastasis and death from melanoma. Stage II tumors, though localized, are thicker than 2.0 mm if not ulcerated or greater than 1.0 mm if ulcerated. Stage III tumors have evidence of regional metastasis, such as palpable metastasis at the regional lymph node basin, in-transit or satellite disease, or melanoma cell(s) in the SLN tissue but without evidence of distant metastatic spread. Stage IV tumors are those in which distant metastasis, such as to the lung or brain, has been detected.

All patients who are diagnosed with an invasive cutaneous melanoma will undergo a wide local excision procedure with the surgical margins determined by the depth of the tumor. Invasive SLNB surgery is generally recommended to be considered for patients with melanomas greater than or equal to 0.8 mm thick or for thinner melanomas accompanied by an adverse pathologic feature such as ulceration, high mitotic rate or transected base. Tumors with these anatomic based features are believed to result in an SLN-positive biopsy result 5% or more of the time. If the SLNB surgery is performed, then the wide local excision is performed at that time. As noted above, an SLN-positive biopsy result, meaning that at least one melanoma cell was seen in the SLN tissue, leads to re-staging the patient as Stage III. Guideline committees do not recommend SLNB surgery if the likelihood of a positive SLN result is less than 5%. They recommend discussing and considering SLNB surgery if the likelihood of a

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positive SLN result falls between 5% and 10%, and recommend discussing and offering SLNB surgery if the likelihood exceeds 10%. Guideline committees have generally converged on the 5% threshold due to a reported regional false negative rate of the SLNB surgery of 5% (meaning that 5% of the time, or more, the guideline committees expect a patient with an SLN-negative biopsy result will subsequently develop SLN metastasis). However, the published literature documents a median regional false negative rate of 18% and an 11% surgical complication rate. The “regional false negative rate” measures the rate that metastasis to the regional lymph node in patients with a negative SLNB surgical result.

The traditional clinical and pathology staging system for invasive cutaneous melanoma is based upon the anatomic findings of the melanoma; that is what the pathologist can see under the microscope from an initial tumor biopsy and what the physician can feel or see during a clinical exam or upon imaging. While this staging system provides population-based risk of metastasis estimates based on clinical and pathology factors, it does not evaluate nor incorporate the biology of the patient’s primary tissue biology.

Importantly, while it was formerly believed that SLNB surgery improved melanoma specific survival, the NCI conducted a landmark, prospective, randomized multi-center study (“the MSLT-I study”) which showed that the death rate from melanoma was the same in patients who were randomized to the SLNB surgery and those who merely underwent observation, indicating that SLNB surgery is prognostic, and not therapeutic, as it relates to the risk of death from melanoma. On average, 12% of patients undergoing the SLNB surgery will have an SLN-positive biopsy result and 88% will not. Invasive SLNB surgery carries significant healthcare burden. For example, the overall complication rate of SLNB surgery was shown to be 11.3% in a systematic review of 21 articles representing 9,047 patients. A separate review reported that the regional false negative rate of the SLNB surgery ranged from 5% to 21%, with a median rate of 18%.

Both the complication and false negative rates are above the recommended 5% and 10% positivity rates proposed by guideline committees as thresholds at which physicians should either consider (5%) or offer (10%) the procedure to their patients. Further, the SLNB surgery requires the use of general anesthesia, and nearly half of these surgeries are performed in an in-patient setting, leading to an average reimbursed cost of $20,000 to $24,000. Finally, the 88% SLN-negative rate in these surgeries carries significant patient and healthcare system implications because 88% of patients undergoing an SLNB surgery will have no change in their treatment plan or their staging, but are still exposed to the complications from the surgery, including general anesthesia risks, high medical costs and a median false negative rate of 18%. Thus, while it is true that patients who are SLN positive, or re-staged to Stage III, have a higher population-based rate of metastasis and death from melanoma, invasive SLNB surgery does not improve melanoma-specific survival, carries risk of complications, a high false negative rate and significant costs.

In addition to the significant clinical issues involved in only using traditional clinical and pathology factors to evaluate the appropriateness of SLNB surgery, there is a discord between an individual’s “stage” and their actual risk of metastasis or death from melanoma. Based on data from SEER and the American Joint Committee on Cancer (“AJCC”), out of the cutaneous melanoma tumors diagnosed as Stage I, II or III, 80% are classified as Stage I (the lowest risk) and 12% are classified as Stage II (the next lowest risk). However, these data also show that melanomas initially diagnosed as Stage I or II under the traditional staging framework account for 60% of all deaths in patients receiving Stage I, II or III diagnoses. Furthermore, while patients with Stage III melanoma are at a higher population risk of metastasis and death from melanoma than Stage I or II, the five-year melanoma-specific survival rate for Stage II patients is 77%. We believe that the limitations of the current staging system not only result in unnecessary SLNB surgeries for certain low-risk patients, but also lead to overtreatment with adjuvant immune-oncology and targeted therapies for certain patients with Stage III melanoma.

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In summary, risk-stratification, or the risk of metastasis, determines the treatment plans in newly diagnosed patients, including the recommendation for the SLNB surgery, decisions around the initiation of advanced imaging for active surveillance, frequency and specialty for clinical follow-up, initiation of adjuvant therapy and discussion of clinical trial enrollment opportunities. The top portion of the graphic below summarizes the two decision points that DecisionDx-Melanoma impacts. The lower portion summarizes the limitations of relying on clinical and pathology factors alone to determine risk of metastasis that informs SLNB surgery and subsequent treatment plan decisions.

Source: AJCC v7 J Clin Oncol 2009; SEER data release 2017; Morton et al. N Engl J Med 2014; Whiteman et al. J Invest Dermatol 2015; Shaikh et al. J Natl Cancer Inst 2016; Poklepovic and Carvajal. Oncology 2018; Sondak and Zager. Ann Surg Oncol 2010.Moody et al.Euro Jrnl Surg Onc2017.

Cutaneous Squamous Cell Carcinoma

Cutaneous SCC the second most common form of skin cancer, is an uncontrolled growth of abnormal cells arising from the squamous cells in the epidermis, the skin’s outermost layer. Approximately one million patients are diagnosed with SCC annually in the United States. While worldwide data on SCC diagnoses are inconsistently reported, the incidence outside the United States is estimated to be greater than two million diagnoses annually.

Historically, SCC has been classified as one of the “non-melanoma skin cancers” with a clinical focus on curative primary surgery. However, high risk SCC is now recognized as a significant cause of morbidity and mortality, and due to the rate of increased incidence, more patients are now estimated to die annually from SCC in the United States (approximately 15,000 patients) than from cutaneous melanoma. Similar to melanoma, treatment plan decisions are based solely upon clinical and pathology factors from the initial biopsy to estimate a patient’s risk of recurrence or metastasis. However, unlike melanoma, which uses population-based risk analysis of these factors, the estimates are based upon small patient cohorts, and our research shows that most clinicians rely upon individual clinical and pathologic features rather than a staging “group” for guiding treatment plan decisions. Our DecisionDx-SCC test, which we launched on August 31, 2020, is intended for guiding the

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treatment of the estimated 20% of SCC patients, or 200,000 annually, who present with one or more high risk features, representing an estimated U.S. TAM of $820 million.

Identifying high risk SCC presents challenges for physicians. Unlike in cutaneous melanoma, where longitudinal databases were developed in an attempt to align population-based risk of metastasis with particular clinical and pathology factors, the same level of organization has not been given to SCC. To date, there has been a lack of reliance on the two primary staging systems in the United States, the AJCC version 8 and the Brigham and Women’s Hospital (“BWH”) system, which are marked by widely divergent classifications for its two risk categories (high and low). Further, the National Comprehensive Cancer Network (“NCCN”) staging method organizes clinical and pathology features into three risk categories (low, high and very high) based on their association with recurrence risk. A 2014 study compared the then-current AJCC version 7 and NCCN systems to assess concordance between the two. The AJCC system classified 82% as low risk while the NCCN system classified 13% as low risk. Because of the level of discordance among the risk assessment staging systems for SCC, and the lack of available databases, these staging systems end up minimally impacting treatment plans, with patients frequently being over- and under-treated, because of hesitancy by physicians to rely on them.

The two principal staging systems for SCC, AJCC (which is limited to head and neck SCC) and BWH, both classify patients according to the tumor (T), node (N) and metastasis (M) staging method and rely upon a combination of clinical or pathology factors to stage or classify risk of metastasis. The NCCN’s staging method identifies the majority of patients who do go on to metastasize, but its system suffers from the lowest positive predictive value (“PPV”) compared to the AJCC and BWH staging methods. Our initial clinical validation study of 321 patients was focused on patients with one or more high-risk features. Within this study cohort, using the risk criteria established within the NCCN guidelines demonstrated a sensitivity of 96% while PPV was 7% and negative predictive value (“NPV”) was 90.5%. The low PPV means that 93 out of 100 SCC instances labeled as high risk by the NCCN criteria did not actually metastasize. The AJCC and BWH guidelines demonstrated a sensitivity of 38.5% and 25%, respectively, PPV of 33% and 35%, respectively and NPV of 88% and 86%, respectively. A physician that relies solely upon NCCN criteria, given the low PPV, may end up developing an adjuvant treatment plan that includes radiation, or chemotherapy or complete lymph surgical dissection, or a combination of these, for a “high-risk” patient that is ultimately appropriate for only one out of fourteen high-risk patients who will metastasize, but not for the remaining thirteen patients who would not have metastasized. The AJCC and BWH staging systems do demonstrate stronger PPV but would still recommend that two out of three patients undergo an adjuvant treatment plan who will not benefit. These accuracy metrics have created significant discordance in the approach to managing patients with high-risk features, from one end of the spectrum advocating surgical intervention for all high-risk patients to another extreme calling for a “watch and wait” approach for all high-risk patients. The end result is an unacceptable clinical discordance in the approach to treatment plans and significant over- and under-treatment for a diagnosis that leads to the most skin cancer deaths in the United States.

DecisionDx-SCC was developed to improve upon the PPV of the current staging systems for SCC.The test has been shown to be an accurate and independent predictor of recurrence risk in a cohort of 420 cutaneous SCC tumors and demonstrated a PPV of greater than 50% in that cohort.We believe that integrating DecisionDx-SCC can drive risk-appropriate treatment management decisions for physicians and patients.

Difficult-to-Diagnose Melanocytic Lesions

Difficult-to-diagnose melanocytic lesions are pigmented lesions are unusual-looking lesions that may be melanoma. There are approximately two million skin biopsies performed annually specifically to rule in or rule out a diagnosis of melanoma in the United States. Approximately 15% of these biopsies are classified as indeterminate, in which case a pathologist cannot make a definitive diagnosis as to whether the biopsy is benign or malignant. A pigmented lesion biopsy that is difficult to diagnose may lead to an indeterminate diagnosis, in which case the treating physician generally leans towards making a conservative decision and assumes that the lesion is melanoma. A definitive diagnosis of invasive cutaneous melanoma results in a treatment plan that involves wider margins for the definitive wide local excision surgery, consideration of the SLNB surgery and post-diagnosis management plans, including frequent, high intensity surveillance using advanced imaging, frequent clinical visits and encouragement to enroll in clinical studies. If the indeterminate lesion was benign, the recommendation in the majority of cases would be no additional intervention. Thus, the tendency of physicians to treat an indeterminate diagnosis as melanoma leads to significant over-treatment decisions, complications and increased healthcare costs.

myPath Melanoma and DecisionDx DiffDx-Melanoma are independent GEP tests that together comprise Castle’s CDO of molecular testing solutions for difficult-to-diagnose melanocytic lesions.

Our CDO has robust diagnostic resolution for melanocytic lesions with unknown malignant potential, with validation studies demonstrating accurate diagnosis of benign and malignant lesions for 97% of cases tested.

We estimate the U.S. TAM at $600 million for our CDO, comprised of myPath Melanoma and DecisionDx DiffDx-Melanoma.

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Uveal Melanoma Overview

The incidence of uveal melanoma has remained relatively constant over time with approximately 2,000 patients diagnosed annually in the United States, representing an estimated U.S. TAM of $8.0 million. Uveal melanomas arise from the three tissues comprising the uveal tract and vary by location with approximately 90% occurring in the choroid, 5% in the ciliary body and 5% in the iris. Uveal melanoma may also be referred to as ocular melanoma.

Approximately 97% of patients with uveal melanoma have no evidence of metastatic disease at the time of diagnosis and the success rate for definitive treatment of the primary tumor is over 90%. However, within three years, approximately 30% of all patients will experience metastases. Prior to commercial availability of DecisionDx-UM, other clinical staging and molecular diagnostic tests for uveal melanoma had been commercialized, but due to the lack of prospective studies, coupled with their low accuracy, tests were primarily used for research purposes rather than for clinical management of patients in the United States. As a result, nearly all U.S. centers grouped patients into a single, high-risk treatment plan that included frequent, high intensity surveillance using advanced imaging, frequent clinical visits and encouragement to enroll in clinical studies.

DecisionDx-UM is our proprietary GEP test that helps healthcare providers predict the risk of metastasis in patients with uveal melanoma.The test has been shown to have higher prognostic accuracy than chromosomal testing, mutation analysis or clinical features of the tumor, and is recommended by the NCCN for prognosis of uveal melanoma tumors.

Barrett’s Esophagus Overview

There are approximately 4 million patients in the U.S. currently diagnosed with BE and approximately 400,000 endoscopies are performed annually on BE patients—either for initial diagnosis or repeat endoscopy for assessing possible progression of BE (active surveillance). We estimate the U.S. TAM at $1 billion for our TissueCypher Barrett’s Esophagus Assay test, which we acquired through our acquisition of Cernostics on December 3, 2021.

1.384,000 upper GI endoscopies/year with confirmed dx of BE (ND, IND, LGD) x $2,513 = U.S. only TAM of ~$1 billion

The TissueCypher Barrett’s Esophagus Assay is a protein-based MAAA test that was designed and developed to address these limitations in the current standard of care for risk stratification of patients with BE. TissueCypher guides clinical management of BE by:

1.Identifying patients who are at high risk of developing EAC but are currently missed due to reliance on traditional histopathology and clinical variables. This should enable early therapeutic intervention to prevent EAC, or increase surveillance for early detection of EAC at a treatable stage; and

2.Identifying patients who are at low risk of developing EAC, enabling extension of surveillance intervals and reduction in unnecessary procedures.

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Our Testing Solutions

We use MAAA to characterize an individual patient’s tissue biology to inform specific prognosis of tumor development, death due to disease, metastasis or recurrence and aid the decision-making process of the treating physician and their patient to help optimize health outcomes and reduce healthcare costs. Due to the biological complexity of diseases, developing accurate products takes scientific diligence, stringent clinical protocols, machine learning expertise, proprietary algorithms and significant investments of time and capital. In addition, the underlying tissue samples and associated clinical outcomes data required to develop and validate these products are difficult to obtain. Once successfully developed and validated, commercial success requires generating ongoing evidence, such as clinical use documentation, to support appropriate physician adoption, reimbursement success and guideline inclusion.

We currently market five proprietary MAAA tests for use in the dermatologic, ocular and gastroenterology fields: DecisionDx-Melanoma, DecisionDx-SCC, our CDO, DecisionDx-UM and TissueCypher Barrett’s Esophagus Assay. The accuracy of each product in our portfolio is supported by multiple studies published in peer-reviewed journals since completion of the initial clinical validation studies. Also, multiple clinical impact studies have demonstrated a significant impact on physician decisions to alter their treatment plan when the results of our tests are considered in concert with the traditional clinical and pathology factors. DecisionDx-Melanoma, DecisionDx-UM, TissueCypher and myPath Melanoma are currently reimbursed by Medicare. In addition, we have received widespread positive private payor coverage and positive guideline inclusion for DecisionDx-UM, our first melanoma test, launched in January 2010. Since our inception, we have processed more than 100,000 clinical patient samples across our product portfolio.

Our products are designed to provide the following benefits:

•Clinically Actionable Information for Physicians. Our commercial tests provide physicians and their patients with reports that contain clinically actionable information to inform the treatment plan for each individual patient. Our reports are updated as new clinical data is generated that may enable additional clinical decisions to be made. Studies show that clinicians use our test results to make treatment plan changes. For example, four studies were initially conducted to evaluate the clinical actionability of our DecisionDx-Melanoma test, physicians utilizing the results of our test reports changed a patient’s treatment in approximately 50% of cases, indicating physician confidence in the evidence underlying our reports.

•Informed Patient Care. The clinical evidence shows that our products are accurate predictors of a patient’s specific risk of progression to cancer, or metastasis or recurrence of their cancer based upon the gene expression profile of an ocular or dermatologic tumor or, in the case of our BE test, the spatial assessment of biomarkers, independent of available clinical and pathology factors. Physicians use this information to identify patients who are likely to benefit from an escalation of care as well as those who may avoid unnecessary treatments, such as medical, surgical and radiation interventions.

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•Reduced Healthcare Costs for Payors. We believe our products have the potential to reduce overall healthcare costs by enabling physicians and their patients to avoid unnecessary medical and surgical interventions. As an example, without DecisionDx-Melanoma, 88% of patients who receive the SLNB surgery, which has an average in-patient reimbursed cost of $20,000 to $24,000, are found to be SLN-negative and remain classified as low risk. If all patients eligible for the SLNB surgery were tested with DecisionDx-Melanoma and their test results were acted upon, we estimate the potential savings to the U.S. healthcare system could be up to $250 million, after considering the cost of DecisionDx-Melanoma.

DecisionDx-Melanoma

Overview

DecisionDx-Melanoma is our proprietary risk stratification GEP test developed to identify the risk of metastasis for patients diagnosed with invasive cutaneous melanoma. As of February 28, 2022, we have received orders from more than 9,300 clinicians for an aggregate of more than 90,000 tests. Under the traditional staging methods, melanomas are classified into low or and high-risk categories based on population-wide clinical and pathology features, and risk of recurrence guides a physician’s treatment plan recommendations about whether or not to offer invasive SLNB surgery, frequency and use of clinical imaging and follow-up, and/or adjuvant therapy consideration. Limitations of the current AJCC staging recommendations, and the NCCN recommendations for patient management, are demonstrated by the statistic that nearly 60% of the patients who die each year from melanoma are initially diagnosed with Stage I or II melanoma (the two lowest categories of risk).This reflects a need for better risk-stratification or prognostic markers to identify high-risk patients.

To address this need for a more accurate predictor of metastatic risk, we discovered, developed, validated and continue to support the performance of the DecisionDx-Melanoma test. This product is designed to help physicians identify high-risk tumors from among patients receiving a Stage I, II or III diagnosis based on the expression of 31 genes in the primary tissue. DecisionDx-Melanoma does not change the standard diagnostic workflow followed when performing a biopsy of a suspicious lesion, and utilizes the formalin-fixed, paraffin embedded biopsy or wide local excision tissue used to diagnose melanoma and determine AJCC stage. An additional biopsy is not needed. Test results are reported as GEP main classes (Class 1 (low risk) or Class 2(high risk)) or as subclasses (Class 1A represents the lowest risk group, Class 1B/2A represents an increased risk group and Class 2B represents the highest risk group), based on a continuous score ranging from 0-1.

In March 2021, we announced that DecisionDx-Melanoma utilizes an Integrated Test Result (“ITR”), designed to provide more precise risk prediction for patients with Stage I, II or III melanoma. The ITR is calculated by an independently validated algorithm (“i31-GEP”) that uses the DecisionDx-Melanoma continuous score in combination with clinical and pathology factors to provide a precise and personalized prediction of SLN positivity.In October 2021, we announced the completion of independent validation of a new, separate algorithm that integrates the DecisionDx-Melanoma continuous score to provide a prediction of an individual patient’s risk of metastasis and recurrence (“ROR”).This new i31-GEP algorithm for ROR includes the additional endpoints of recurrence-free survival (“RFS”) and distant metastasis-free survival, which are not currently provided by the American Joint Committee on Cancer Eighth Edition staging system.These endpoints are anticipated to be helpful when determining appropriate treatment pathways for each patient’s disease.Results generated by the i31-GEP algorithm guide discussions and recommendations, within current risk-based guidelines, for the SLNB surgical procedure or for surveillance methodologies. i31-GEP to predict SLN metastasis is an artificial intelligence-based neural network algorithm (independently validated in a cohort of 1,674 prospective, consecutively tested patients with T1-T4 cutaneous melanoma) that integrates the DecisionDx-Melanoma test result with the patient’s traditional clinical and pathology features, such as Breslow thickness, ulceration, mitotic rate and age. i31-GEP for ROR combines the 31-GEP continuous score with tumor thickness, ulceration status, mitotic rate, SLN status, age and tumor location to predict likelihood of recurrence, distant metastasis and melanoma specific death within 5 years of the melanoma diagnosis. The algorithm was developed using 1,581 tumors from patients diagnosed with melanoma and was validated in 523 patients. We expect to launch an app based on i31-GEP and the ITR later in 2022.

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Clinical Validation

We have published more than 35 peer-reviewed articles demonstrating the analytical validity, clinical validity and clinical utility of DecisionDx-Melanoma, and we believe the clinical validation studies represent the largest clinical validation program of the metastatic risk of cutaneous melanoma ever conducted. Based on our published data, we have shown that DecisionDx-Melanoma is an accurate independent predictor of the risk of metastasis or recurrence.

Our first study, published in January 2015, analyzed 104 patients with Stage I, II and III melanoma from an independent cohort with long-term outcomes data. This study reported a five-year disease-free survival rate of 98% for patients with Stage I and II melanoma who received a DecisionDx-Melanoma Class 1 test result. In addition, the study also reported that only 2% of patients with a Class 1 test result were SLN-positive.

Our January 2019 study published in the Journal of the American Academy of Dermatology reviewed data on 690 patients with Stage I, II and III melanoma from three previously published long-term archival publications, and enabled analysis of clinically important subgroups considered low-risk based on staging criteria. Overall, the study reported a five-year melanoma specific survival rate of 99% for patients with Stage I, II or III melanoma who received a DecisionDx-Melanoma Class 1A test result.

Our long-term outcomes study data shows that DecisionDx-Melanoma can provide a more specific individual risk of metastasis and death from melanoma that is distinct from the AJCC staging approach that limits prediction to clinical and pathology factors. The only endpoint reported by the AJCC staging approach is death from melanoma. Within patients diagnosed with Stage I melanoma, a DecisionDx-Melanoma Class 2B result predominantly identifies a patient with a risk of death that is similar to a patient with Stage IIIA melanoma (see graph below). By comparison, DecisionDx-Melanoma Class 1A results indicate a 99.7% likelihood of survival from melanoma at five years. Within patients diagnosed with Stage II melanoma, DecisionDx-Melanoma can distinguish between patients who have a very low risk of death from melanoma (>97.1% likelihood of survival at 5-years) from those who have a higher risk of death from melanoma that is similar to a patient with Stage IIB melanoma. Within patients diagnosed with Stage III melanoma, DecisionDx-Melanoma can identify patients who have a likelihood of death from melanoma similar to a patient with Stage IIA melanoma, with the remainder having a risk similar to a patient with Stage IIIC melanoma.

The ability of DecisionDx-Melanoma to accurately reclassify the risk of recurrence or risk of death is clinically significant because NCCN guidelines recommend that the duration and frequency of follow-up and intensity of cross-sectional imaging be based on a patient’s individual conditional probability of recurrence. The NCCN guideline cut-point for these decisions is between Stage I-IIA versus Stage IIB-III. For example, the chart below demonstrates that a patient diagnosed with Stage I melanoma but who has received a DecisionDx-Melanoma Class 2B test result has a melanoma specific survival rate of 92.8%, which is similar to the risk for a patient diagnosed with Stage IIIA melanoma. Today, patients diagnosed with Stage III melanoma are recommended to have an increased follow-up schedule, undergo routine cross-sectional imaging, consider initiation of adjuvant therapy, such as an anti-PD1 inhibitor, and consider enrollment in a clinical trial.

The first prospective, multi-center study of 322 patients diagnosed with Stage I, II and III melanoma was published in August 2017. This initial analysis reported a RFS rate of 97% and overall survival rate of 99% for patients with Stage I, II and III

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melanoma who received a DecisionDx-Melanoma Class 1 test result. Since that time, six prospective studies have been published and each consistently demonstrate the accurate and independent prognostic value provided by DecisionDx-Melanoma for identifying low- and high-risk melanoma tumors.

When evaluating DecisionDx-Melanoma, one of the most important criteria is whether the test adds new information that is independent of the traditional clinical and pathology factors. The formal statistical method used to evaluate independence is the Cox multivariate analysis. Outputs of the Cox multivariate analysis include statistical significance, measured by p-value, as well as the power of the result, measured by Hazard Ratio (“HR”). A p-value of less than 0.05 indicates statistical significance and thus independence. If statistical significance is reached, then the HR indicates the power of the result, with a higher HR indicating greater outcome prediction. For example, an HR of nine means that patients with a high-risk test result are nine times more likely to experience metastasis or death than a low-risk test result. The table below shows the Cox multivariate analysis of the disease-free survival, melanoma-specific survival and recurrence free survival from the four performance studies noted above.

The American Academy of Dermatology and other organizations use the Strength of Recommendation Taxonomy (“SORT”) system to evaluate prognostic tests such as DecisionDx-Melanoma. The SORT system ranks evidence of clinical validity as levels 1, 2 or 3, and assigns a strength of recommendation as levels A, B or C. A SORT level 1A is the highest level and 3C is the lowest. For SORT ranking, “a systematic review or meta-analysis of good quality studies” or “a prospective study with good follow-up” represents a level 1 for good quality evidence of clinical validity. For SORT strength of recommendation, “consistent, good quality evidence” represents a level A recommendation. A systematic review and meta-analysis was published in the Journal of the American Academy of Dermatologyin 2020 in an article titled “Molecular risk prediction in cutaneous melanoma: a meta-analysis of the 31-gene expression profile prognostic test in 1,479 patients.” This meta-analysis reviewed multiple peer-reviewed published clinical validation studies of DecisionDx-Melanoma, including prospective studies. The meta-analysis and the prospective studies satisfied the level 1 ranking of good quality studies and the consistency of DecisionDx-Melanoma data across these studies satisfied the level A strength of recommendation. Thus, the authors concluded that DecisionDx-Melanoma achieved a 1A level of evidence of clinical validity and strength of recommendation under the SORT system. Furthermore, as shown below, the multi-variate analysis for RFS found DecisionDx-Melanoma to be the strongest predictor of ROR compared to the evaluable clinical and pathology factors.

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In addition, we conducted a prospective, multi-center study of 1,421 patients, which was published in Future Oncology in January 2019, that focused on the performance of DecisionDx-Melanoma to predict metastasis to the SLN. This study found that patients with a DecisionDx-Melanoma Class 1A test result with melanomas less than or equal to 2.0 mm thick, which represents 86% of all melanomas, have a 95% probability for an SLN-negative biopsy result. Analyzing this data by age shows that patients 65 years of age or older have a 98% NPV, those between 64 and 55 years of age have a 95% NPV and patients under 55 years of age have a 92% NPV. For physicians and patients evaluating whether to use DecisionDx-Melanoma to guide decision-making on the SLNB surgery, the impact on melanoma specific survival is an important consideration if the SLN status is not known. To address this, we analyzed the long-term outcome data from our Gastman 2019 publication and showed that patients of all ages with a melanoma less than or equal to 2.0 mm thick and a DecisionDx-Melanoma Class 1A test result had a five-year melanoma specific survival rate of 99.6%, while similar patients 55 years or older had a melanoma specific survival rate of 99.3%. This study showed that use of DecisionDx-Melanoma for patients with melanomas of less than or equal to 2.0 mm thick could potentially result in 74% fewer SLNB surgeries.

Clinical Utility

We completed and published four consecutive studies between September 2016 and March 2018 documenting how DecisionDx-Melanoma impacts treatment plan decisions. Based on the results of our DecisionDx-Melanoma test reports, physicians changed their treatment plan recommendations approximately 50% of the time. This change in the management of patient treatment plan recommendations compares favorably to leading molecular diagnostic tests as well as to the SLNB surgery, which only changes clinical decision-making approximately 12% of the time.

Study Design # of Patients % Change in Management

Building on our clinical utility evidence, in October 2020, the publication in Future Oncology of a retrospective study, titled “Integrating the melanoma 31-gene expression profile test to surgical oncology practice within national guideline and staging recommendations,” showed that DecisionDx-Melanoma impacted management decisions for patients diagnosed with Stage I – III melanoma under the AJCC framework. Study authors developed a recommended melanoma patient care algorithm that incorporates DecisionDx-Melanoma to help inform frequency and duration of follow-up visits, blood work and surveillance imaging in line with predicted metastatic risk. The patients’ DecisionDx-Melanoma test result was found to have an impact on the number and duration of follow-up and surveillance visits, and patients assessed as having a high risk of metastasis (designated by a DecisionDx-Melanoma Class 2 test result) received more intensive management than patients assessed as having a low risk (designated by a DecisionDx-Melanoma Class 1 test result). Clinicians using the test were shown to adjust patient management in a risk-appropriate direction, within recommendations of national guidelines.

These studies illustrate how physicians use DecisionDx-Melanoma to inform the treatment pathway for patients who have been diagnosed with invasive cutaneous melanoma. Our DecisionDx-Melanoma test informs two initial treatment decisions: (1) to determine whether to offer and recommend the SLNB surgery to patients with melanomas less than or equal to 2.0 mm thick, and (2) following this decision, to guide the appropriate post-SLNB surgery treatment plan for their patients, including decision-making regarding advanced imaging, frequency of clinical visits, referral to medical oncology, adjuvant therapy, clinical trial enrollment, and watchful waiting.

Health Economics

We believe our products have the potential to reduce overall healthcare costs by enabling physicians and their patients to avoid unnecessary medical and surgical interventions. As an example, without DecisionDx-Melanoma, 88% of patients who receive the SLNB surgery, which has an average in-patient reimbursed cost of $20,000 to $24,000, are found to be SLN-negative and remain classified as low risk under the AJCC framework. If all patients eligible for the SLNB surgery were tested using DecisionDx-Melanoma and their test results were acted upon, we estimate the potential savings to the U.S. healthcare system could be up to $250 million, after considering the cost of DecisionDx-Melanoma.

In addition, DecisionDx-Melanoma can be used to make more informed decisions on advanced imaging, frequency of clinical visits, referral to medical oncology, adjuvant therapy initiation and clinical trial enrollment. In some cases, a DecisionDx-Melanoma test result may guide an appropriate reduction in these decisions based upon a low risk of metastasis, while in others

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it will guide an appropriate increase in medical or surgical intervention with the end result being improved use of healthcare resources.

The American Medical Association’s (“the AMA’s”) Current Procedural Terminology Editorial Panel accepted Castle’s application for a Category I MAAA, Current Procedural Terminology (“CPT”) code for its DecisionDx-Melanoma test. The CPT Editorial Panel is an independent group of expert volunteers representing various sectors of the healthcare industry. Its role is to ensure that code changes undergo evidence-based review and meet specific criteria. The code became effective on January 1, 2021. With this acceptance, two of our proprietary MAAA tests, DecisionDx-Melanoma and DecisionDx-UM, have met the criteria required for a Category I MAAA CPT code.

DecisionDx-SCC

The current treatment pathway (staging systems that rely on combination of clinical or pathology factors to stage or classify risk of metastasis) for patients identified as having high-risk cutaneous SCC suffers from a low PPV for risk of metastasis or recurrence. As a result, many patients categorized as high risk received adjuvant therapy and other unnecessary medical and surgical interventions even though they would not have gone on to metastasize. Conversely, the low predictive accuracy of current methods to identify high-risk patients can lead to undertreatment if patients with a truly high biologic risk are missed. Because these patients cannot currently be identified, they will miss the opportunity to receive the most aggressive of today’s therapeutic options.

To address this clinical need in SCC, we developed DecisionDx-SCC, a proprietary 40-gene expression profile test that uses an individual patient’s tumor biology to predict individual risk of SCC metastasis for patients with one or more risk factors. The test result, in which patients are stratified into a Class 1, 2A or 2B risk category, predicts individual metastatic risk to inform risk-appropriate management. The test is designed to provide a better PPV while maintaining similar NPV. We commercially launched DecisionDx-SCC on August 31, 2020. Nine peer-reviewed publications have demonstrated that DecisionDx-SCC is an independent predictor of metastatic risk and/or that integrating DecisionDx-SCC with current prognostic methods can add positive predictive value to clinician decisions regarding staging and management.

In 2020, development and validation data on DecisionDx-SCC was published in the Journal of the American Academy of Dermatology in an article titled “Validation of a 40-Gene Expression Profile Test to Predict Metastatic Risk in Localized High-Risk Cutaneous Squamous Cell Carcinoma.” The study findings indicate that DecisionDx-SCC demonstrated strong independent prognostic value in multivariate analysis compared to the traditional BWH and AJCC staging systems. More recently, further validation results of a cohort of 420 patients with high-risk SCC from 33 U.S. centers were published in Future Oncology. The study titled, “Enhanced Metastatic Risk Assessment in Cutaneous Squamous Cell Carcinoma With the 40-Gene Expression Profile Test,” upheld previous results demonstrating that DecisionDx-SCC demonstrated significant prognostic value, and that cases with a Class 1 result had metastasis rates near the general SCC population while Class 2B patients had rates greater than 50%. Additionally, a study focused on tumors of the head and neck region also showed strong stratification of risk by DecisionDx-SCC in that cohort, and independent value added to risk prognosis by the test in multivariable models that include other risk factors. We have ongoing multi-center studies involving more than 75 U.S. centers.

Comprehensive Diagnostic Offering

Of the two million suspicious pigmented lesions biopsied annually in the U.S., we estimate that approximately 300,000 of those cannot confidently be classified as either benign or malignant through traditional histopathology methods. A biopsy of a pigmented lesion may lead to an indeterminate diagnosis, in which case the treating physician generally leans towards making a conservative decision and assumes that the lesion is melanoma.

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To address this clinical need, we developed DecisionDx DiffDx-Melanoma, a proprietary 35-GEP test designed to be used as an ancillary tool to histopathology when the distinction between a benign lesion and melanoma is uncertain. We commercially launched this product on November 2, 2020. DiffDx-Melanoma classifies these lesions as benign (gene expression profile suggestive of benign neoplasm); intermediate-risk (gene express profile cannot exclude malignancy); or malignant (gene expression profile suggestive of melanoma). Interpreted in the context of other clinical, laboratory and histopathologic information, DiffDx-Melanoma is designed to add diagnostic clarity and confidence for dermatopathologists while helping dermatologists deliver more informed patient management plans. Validation of this test included a variety of benign and malignant lesions. DecisionDx DiffDx-Melanoma, in tandem with myPath Melanoma, enables us to provide our CDO of molecular testing solutions for difficult-to-diagnose melanocytic lesions.

In 2020, two studies were published in SKIN: The Journal of Cutaneous Medicine. The development and validation study, “Development and Validation of a Diagnostic 35-Gene Expression Profile Test for Ambiguous or Difficult-To-Diagnose Suspicious Pigmented Skin Lesions,” showed that our DecisionDx DiffDx-Melanoma test had a technical success rate of 97%, meaning that a test result was successfully generated, and achieved accuracy metrics that could alleviate uncertainty in difficult-to-diagnose lesions leading to decreased unnecessary procedures while appropriately identifying at-risk patients. The clinical utility study, “A 35-Gene Expression Profile Test for Use in Suspicious Pigmented Lesions Impacts Clinical Management Decisions of Dermatopathologists and Dermatologists,” concluded that the diagnosis of challenging melanocytic neoplasms and subsequent clinical management decisions were influenced by DecisionDx DiffDx-Melanoma results in alignment with the test result. The utility of the test may provide the opportunity for clinicians to deliver more informed patient management plans.

Similar to DecisionDx DiffDx-Melanoma, myPath Melanoma is a proprietary GEP test that we acquired from Myriad Genetics, Inc. in May 2021, following rigorous validation in cutaneous melanocytic lesions to accurately differentiate between benign and malignant melanocytic lesions of unknown potential. myPath Melanoma has over 35,000 clinically resulted cases and 9 publications supporting the accurate diagnosis of benign or malignant lesions by the test.The test evaluates the expression of 23 genes using standard quantitative qRT-PCR and provides an accurate and objective classification suggestive of benign, intermediate, or malignant lesions.

We currently offer both myPath Melanoma and DecisionDx DiffDx-Melanoma in an integrated workflow to enhance both accuracy and technical reliability of diagnostic testing. This comprehensive diagnostic workflow leverages the strengths of both diagnostic GEP tests to provide improved diagnostic clarity. This offering is supported by 12 peer-reviewed publications.

DecisionDx-UM

Overview

At the time of diagnosis nearly all patients with uveal melanoma have no evidence of metastasis yet, approximately 30% of uveal melanoma patients will metastasize within five years and nearly 50% of uveal melanoma patients will metastasize at some point. Traditional clinical staging and molecular diagnostic tests for uveal melanoma have been commercialized, but until recent years the lack of prospective studies of these tests, coupled with low accuracy, resulted in these tests primarily being used for research purposes rather than for clinical management of patients in the U.S. As a result, before commercial availability of DecisionDx-UM, nearly all U.S. centers grouped patients into a single, high-risk treatment plan that included frequent, high intensity surveillance using advanced imaging, frequent clinical visits and encouragement to enroll in clinical studies.

DecisionDx-UM is our proprietary GEP test that helps healthcare providers predict the risk of metastasis in patients with uveal melanoma. We licensed the intellectual property for DecisionDx-UM from The Washington University in St. Louis, Missouri (“WUSTL”). and completed analytical validation and began marketing DecisionDx-UM in late 2009 for use in patients diagnosed with uveal melanoma without evidence of metastatic disease. DecisionDx-UM identifies patients at low risk for progression of their uveal melanoma so that their physicians can appropriately de-escalate the level of care provided. DecisionDx-UM is delivered to approximately 1,600 patients annually, representing approximately 80% of the patients diagnosed in the United States.

Twenty-one peer-reviewed publications involving more than 3,000 patients support the clinical validity and utility of DecisionDx-UM.

The Kaplan-Meier plot from the initial prospective, multi-center Collaborative Ocular Oncology Group (“COOG”) study found that a DecisionDx-UM Class 2 result was more strongly associated with metastasis than any other clinical, pathological or molecular factor, and the negative predictive value for patients with a DecisionDx-UM Class 1 result was 99%. This study also

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compared DecisionDx-UM to the traditional staging based on clinical and pathology factors, and chromosome 3 status (an alternative molecular test to predict the risk of metastasis in uveal melanoma), using Cox multivariate analysis, and found that the only statistically significant factor in predicting a likelihood of metastasis was DecisionDx-UM.

The data from the COOG study, as well as the consistency shown from the additional clinical validity studies, has supported widespread adoption of DecisionDx-UM with more than 90% of the ocular oncology institutions in the United States ordering this test. DecisionDx-UM has been used to guide treatment plan decisions regarding the intensity of a patient’s surveillance and management plan as well as clinical trial enrollment. The current NCCN Guidelines for Uveal Melanoma (last updated June 2021) incorporate DecisionDx-UM as the first risk of distant metastasis predictor and recommend that class result be used to guide frequency and intensity of systemic imaging.

TissueCypher

Esophageal cancer is one of the fastest-growing cancers (by incidence) in the world. The incidence of this once rare cancer has increased by more than 500% since the 1970s. Esophageal cancer remains highly lethal, with a five-year survival rate of 19%.

Chronic reflux in the esophagus causes changes to the molecular and cellular features of the esophagus, which often results in a condition called BE. BE is a serious complication of GERD and a risk factor for the development of esophageal cancer.

There are approximately 4 million patients in the U.S. diagnosed with BE, and annually, approximately 400,000 endoscopies are performed on BE patients. The TissueCypher Barrett’s Esophagus Assay, which is supported by eight peer reviewed publications, addresses an unmet need in BE, as it is designed to objectively and accurately predict progression from non-dysplastic, indefinite for dysplasia and low-grade dysplasia BE to high-grade dysplasia or esophageal adenocarcinoma (“EAC”). This is critical, as EAC is highly lethal, and endoscopic eradication therapy in patients with BE has been proven to reduce progression to EAC. As of February 28, 2022, two abstracts for GI conferences (podium presentations at European Society of Gastrointestinal Endoscopy Days 2022 and Digestive Disease Week 2022) and one peer-reviewed publication have been accepted.

BE is the only known precursor to EAC, which is highly lethal and has a five-year survival rate of 19%, according to Cancer Facts and Figures, ACS 2020. Treatment options, particularly for advanced EAC, are limited, and early detection is critical for optimal patient management. As a result, an estimated 4 million patients with BE in the U.S. are in active surveillance programs, which involve periodic endoscopic surveillance of the esophagus with the goal of detecting malignant progression at a treatable stage. During the endoscopy, biopsies are obtained from the affected tissue, and BE is graded based upon pathology features (histologic assessment) of these biopsies into High-Grade Dysplasia (“HGD”), Low-Grade Dysplasia (“LGD”), Indefinite Dysplasia (“IND”) and Non-Dysplastic (“ND”). Generally, patients with HGD undergo esophageal eradication therapy, which may include ablation or surgical removal of the BE lesions. Patients with LGD generally undergo either endoscopic surveillance every three to six months or endoscopic eradication therapy, while patients with IND or ND generally undergo endoscopic surveillance every three months to five years. While treatment decisions, including surveillance timing, are

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directed by pathology grading, this approach is limited by significant inter-observer variation (pathology discordance) in the grading of tissue biopsies. This discordance is found between community pathologists, as well as pathologists who specialize in BE in large academic centers. Furthermore, molecular and cellular changes associated with progression to cancer often precede the morphologic changes that pathologists can evaluate using histology.

Additionally, while patients with ND, IND and LGD do have a lower rate of progression to EAC than HGD, due to the higher incidence of ND, IND and LGD, these patients represent approximately 63% of patients who may progress to EAC. Since endoscopic eradication therapy is performed with the expectation that it will reduce or stop progression to EAC, the fact that the majority of patients who progress are not graded as having HGD represents a significant unmet clinical need. In addition, the recommendations for the frequency of endoscopic surveillance are based upon low to moderate quality evidence. Together, these limitations in the current standard of care for risk assessment of patients with BE leads to overuse of endoscopies and imprecise use of endoscopic eradication therapy procedures, adding unnecessary costs that fail to reduce the incidence and mortality associated with EAC.

2.Identifying patients who are at low risk of developing EAC, enabling extension of surveillance intervals and reduction in unnecessary procedures.

The TissueCypher Barrett’s Esophagus Assay is a laboratory developed test (“LDT”) provided as a testing service to healthcare providers across the United States, and provides automated, objective risk stratification for patients with ND, IND and LGD BE. It is the only commercially available test providing prognostic risk assessment from esophageal pinch biopsies.

Our Commercial Channel

Sales and Marketing

Our sales and marketing efforts are primarily focused on the United States skin cancer and gastroenterology markets. We employ a direct sales and marketing strategy to educate clinicians on the clinical and economic benefits of our products. Our sales approach is highly technical, and our team is trained to articulate the scientific and clinical evidence behind our products and how they influence the clinical care pathway and ultimately improve patient outcomes. Our sales force is focused on educating and informing the entire patient care team, which consists of treating clinicians, nurses, laboratory and pathology personnel, and finance administrators, on the appropriate use and value of our tests.

The principal focus of our current commercial efforts is to educate clinicians and pathologists on the value of our molecular diagnostic testing products through our direct sales force in the U.S. In dermatology, we began 2020 with 32 outside sales territories. In the third quarter of 2020, we expanded our dermatologic commercial team to create a dedicated sales force of ten territories to support the launch of our DecisionDx Diff-Dx Melanoma test to dermatopathologists. During the first half of 2021, we folded this dedicated team into our existing sales team and completed a further expansion, bringing our dermatologic sales force to the mid-60s. In connection with our acquisition of Cernostics in December 2021, we hired an initial commercial team of approximately 14 outside sales territories, along with commensurate internal sales associates and medical science liaisons, to support our launch of the TissueCypher Barrett’s Esophagus Assay. This dedicated team focuses on gastroenterology specialists that diagnose and manage patients with BE. However, we will continue to evaluate our mix of outside sales territories, inside sales support, marketing and medical affairs in the context of our dermatologic tests and gastroenterology tests and adjust our investments based upon these evaluations.

In 2021, we entered into an agreement with Modernizing Medicine (“ModMed”) that established an interface with ModMed’s electronic health records system, EMA®. The interface is designed to enable dermatologic clinicians to order our DecisionDx skin cancer tests from directly within a patient’s medical record in EMA. Our full suite of dermatologic tests is now available to order within EMA.

DecisionDx-UM addresses a small cancer market, and patients are managed by a small group of ocular oncology surgeons, generally ophthalmology or retina trained specialists. We serve these patients and their physicians by providing highly technical interactions that focus on optimizing the appropriate use of our proprietary and ancillary products.

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Medical Affairs

We also deploy an experienced medical affairs group to assist education of treating physicians and key opinion leaders, to identify and engage sites for our sponsored clinical studies and to evaluate collaborative study opportunities. Our medical affairs strategy complements our sales, marketing and clinical research operations efforts.

Reimbursement

The primary source of revenue for our products is reimbursement from third-party payors, which includes government payors, such as Medicare and the U.S. General Services Administration (“GSA”), and commercial payors, such as insurance companies. Achieving broad coverage and reimbursement of our current products by third-party payors and continued Medicare coverage are key components of our financial success. De novo coverage by government and third-party payors for our pipeline tests will be important over time.

Government Payors

Medicare coverage is limited to items and services that are within the scope of a Medicare benefit category and that are reasonable and necessary for the diagnosis or treatment of an illness or injury. Local coverage determinations (“LCDs”) are made through an evidence-based process by Medicare Administrative Contractors (“MACs”) with opportunities for public participation.

Palmetto GBA MolDX (“Palmetto”) the MAC responsible for administering MolDX, the program that assesses molecular diagnostic technologies, issued a final LCD for DecisionDx-Melanoma, which became effective on December 3, 2018. Noridian Healthcare Solutions, LLC (“Noridian”), the MAC responsible for administering claims for laboratory services performed in Arizona, adopted the same coverage policy as Palmetto on that date, and subsequently issued a final LCD on February 10, 2019. This LCD provided for coverage for patients who are eligible for the SLNB surgery with cutaneous melanoma tumors of 2.0 mm in thickness or less, and patients with clinically negative SLN basins who are being considered for the SLNB surgery to determine eligibility for adjuvant therapy. Melanomas less than or equal to 2.0 mm thick represent 86% of all melanomas. The median age at diagnosis is 63 years old, therefore the Medicare eligible population represents close to 50% of the addressable market.

Palmetto issued a final expanded LCD for DecisionDx-Melanoma, effective November 22, 2020. With this expanded LCD and the accompanying billing and coding articles, in 2021 approximately 96% of the DecisionDx-Melanoma tests performed for Medicare patients have met the coverage criteria. Noridian has adopted the same coverage policy as Palmetto and also issued an expanded final LCD for DecisionDx-Melanoma, effective December 6, 2020.

Separately, Palmetto issued a final LCD for DecisionDx-UM, which became effective in July 2017, and Noridian issued a similar LCD that became effective in September 2017. The Noridian LCD provides for coverage to determine metastatic risk in connection with the management of a patient’s newly diagnosed uveal melanoma and to guide surveillance and referral to medical oncology for those patients. Similar to cutaneous melanoma, the median age at diagnosis for uveal melanoma is estimated at 58-62 years old, therefore the Medicare eligible population represents close to 45% of the addressable market.

On May 17, 2019, CMS determined that DecisionDx-UM meets the criteria for “existing advanced diagnostic laboratory test” status, also referred to as “existing ADLT” status. For 2020, our rate was set by Noridian, our local MAC, but effective in 2021 our rate is set annually based upon the median private payor rate for the first half of the second preceding calendar year. Our rate for 2021 was $7,776 and will remain at $7,776 for 2022, in each case based on the calculation of the median private payor rate.

Also, on May 17, 2019, CMS determined that DecisionDx-Melanoma meets the criteria for “new ADLT” status. Accordingly, from July 1, 2019 through March 31, 2020, the Medicare reimbursement rate was equal to the initial list price of $7,193. From April 1, 2020 through December 31, 2021, the rate was also $7,193, which was calculated based upon the median private payor rate for DecisionDx-Melanoma from July 1, 2019 to November 30, 2019. CMS has informed us that the rate for 2022 will continue to be $7,193, based on the median private payor rate.

myPath Melanoma is currently covered under a MolDX LCD policy through Noridian that oversees laboratories in both Utah and Arizona. Noridian issued an LCD that became effective in June 2019. On September 6, 2019, myPath Melanoma was approved as a new ADLT. The rate for 2022 will be $1,950.

TissueCypher is performed in our Pittsburgh, Pennsylvania laboratory and falls under the Medicare jurisdiction that is managed by Novitas Solutions (“Novitas”). Novitas previously reviewed TissueCypher and we are receiving payments for claims according to the Clinical Lab Fee Schedule (“CLFS”). For 2022, CMS published in its CLFS a payment amount of $2,513 for the test.

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Beginning in 2023, the rates for the DecisionDx-Melanoma, DecisionDx-UM, and myPath Melanoma tests will be set annually based upon the median private payor rate for the first half of the second preceding calendar year. For example, the rate for 2023 will be set using median private payor rate data from January 1, 2021 to June 30, 2021.

In the second quarter of 2020, we submitted our technical assessment dossier for DecisionDx-SCC to Palmetto and Noridian. The dossier was accepted as complete in the third quarter of 2020. In early 2021, we submitted our technical assessment dossier for DecisionDx DiffDx-Melanoma. The dossier was accepted as complete in the first quarter of 2021. We expect that draft LCDs for DecisionDx-SCC and DecisionDx DiffDx-Melanoma could potentially be posted by the end of the second quarter of 2022 resulting in potentially final LCDs effective in 2023. However, there is no assurance that the timing of any draft or final LCD will match our expectations or our historical experience with LCDs for our other tests.

In the second quarter of 2021, Palmetto and the other MACs that participate in the MolDX program posted a revised draft LCD for DecisionDx-Melanoma. The draft LCD includes commentary about two publications regarding the clinical utility of GEP tests and was posted to give providers an opportunity to comment. Each of the draft LCDs include an assessment stating that the MAC does not believe that the new data is sufficient to change the coverage criteria. We have submitted comments on the draft LCD. The comment period on the last of these draft LCDs closed on August 8, 2021. We are unable to predict when the final draft LCD will be posted.

The U.S. Federal Supply Schedule, also known as the GSA Schedule and the Multiple Award Schedule, is a long-term government-wide contract with commercial companies. In August 2021, we were awarded a five-year GSA contract from the Veterans Health Administration for our DecisionDx-Melanoma GEP test.

Commercial Third-Party Payors

We are actively engaged in efforts to achieve broad coverage and reimbursement for our products, followed by contracting with commercial payors. Achieving positive coverage reduces the need for appeals and reduces failures to collect from the patient’s commercial payor. Even with positive coverage decisions, we still experience delays in time to payment. Achieving in-network contracts with third-party payors can shorten the time required to receive payments. Implementing our strategy includes our managed care and medical affairs teams educating third-party payors regarding our strong clinical utility and outcomes data, which we believe validates the value of our products and will persuade more third-party payors to provide value-based reimbursement.

We have broad positive policy coverage for our DecisionDx-UM test, have executed contracts with certain commercial payors and anticipate further increases in contracting. We also have positive policy recommendations from many third-party technical assessment review groups. In 2021, we received payment on approximately 93% of all claims for this test.

We began engaging commercial third-party payors for positive coverage for DecisionDx-Melanoma and have seen some positive coverage policies. With the continued evidence development, we anticipate additional positive coverage policies occurring.

Dependence on Third-Party Payors

We receive a substantial portion of our revenue from a small number of third-party payors, primarily Medicare, BlueCross BlueShield affiliates and Medicare Advantage plans. Our revenue from patients covered by Medicare, Medicare Advantage plans, and BlueCross BlueShield plans, as a percentage of total revenue, was 57%, 28% and 7%, respectively, for the year ended December 31, 2021. BlueCross BlueShield plans and Medicare Advantage plans represent an aggregation of multiple payors making independent reimbursement decisions; however, these plans often base reimbursement decisions on common guidelines which can influence multiple plans simultaneously.

Competition

We are focused on improving health through innovative tests that guide patient care. We believe, today, that there is limited existing competition for our products that provide evidence-based genomic and proteomic solutions to physicians and their patients.

We believe the principal competitive factors in our target markets include:

•Proprietary, disciplined approach to genomic and proteomic analysis including the use of proprietary deep learning, machine learning, artificial intelligence and other techniques to identify and optimize biomarker selection and algorithmic approaches to answer the clinically important questions with accurate tests. This involves the ability to design and efficiently conduct the right clinical studies at the right time;

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•Research and development investments to document the quality, quantity, consistency and strength of the clinical validity data, the impact our products have on clinical use, and demonstration of net health outcome improvement that reduce health system costs;

•Maintaining a strong reputation with the treating physician by providing consistent, transparent, and clinically relevant information that will improve the appropriate management of their patients;

•Ease of use in accessing our products, reimbursement support for our patients and laboratory reports that clearly communicate the clinically relevant data points;

•Demonstrated ability to work with, and secure coverage and reimbursement from, governmental and commercial payors;

•Ability to efficiently commercialize pipeline products to the same customer base as our current products.

We believe we compete favorably on the factors described above.

Today, our principal competition for DecisionDx-Melanoma is existing traditional clinical and pathology staging criteria. While some clinical and pathology criteria have changed over time, this approach has been the standard of care in the United States for many years, and physicians may be unwilling to accept the validity of the published data and adopt our test until it has become incorporated into national guidelines. In addition, we may, in the near future, face competition from a limited number of companies who are working in this disease space, such as SkylineDx and Neracare.

We are unaware of late-stage work being performed to develop and validate a product that would compete with DecisionDx-SCC. We believe that the current primary competitor for DecisionDx-SCC is existing traditional clinical and pathology staging criteria.

DecisionDx-UM competes with a subsidiary of LabCorp and several academic laboratories all of which have had tests available for several years. To date, our data has demonstrated that DecisionDx-UM is clinically and statistically superior to these products.

Today, principal competition for the TissueCypher Barrett’s Esophagus Assay is existing traditional clinical and pathology assessment. In the future this assessment may include the use of immunohistochemical evaluation of individual protein biomarkers as an aid to pathology. While some clinical and pathology criteria have changed over time, this approach has been the standard of care in the United States for many years, and physicians may be unwilling to accept the validity of the published data and adopt our test until this has become incorporated into clinical guideline recommendations from gastrointestinal clinical societies, or other national guidelines. In addition, we may in the near future, face competition from a limited number of companies who are working in this disease space, such as Interpace Diagnostics. Other companies actively engaged in GERD screening to diagnose BE may also look to develop prognostic assays for patients diagnosed with BE, and these could compete with TissueCypher in the future.

Laboratory Operations

Our LDTs, consisting of DecisionDx-Melanoma, DecisionDx-SCC, our CDO and DecisionDx-UM, are currently performed in our College of American Pathologists (“CAP”) accredited, Clinical Laboratory Improvement Amendments of 1988 (“CLIA”)-certified laboratory in Phoenix, Arizona, which went operational in April 2016. As of 2021, we have an approximately 29,700 square feet of facility space supporting our growth and providing certain operational redundancy. We currently perform all laboratory procedures involved in our tests from receiving a requisition form to issuance of the final test result in these facilities. We performed more than 28,000 proprietary GEP tests in 2021. We provide our proprietary DecisionDx-Melanoma, DecisionDx-SCC, myPath Melanoma, DecisionDx DiffDx-Melanoma and DecisionDx-UM products for patients in all fifty states including those that require specific, additional, out-of-state lab licenses or qualifications such as New York, California, Pennsylvania, Maryland, and Rhode Island. Upon receipt, orders and samples are processed through an automated laboratory information management system which, in addition to tracking sample chain of custody, initiates and tracks accessioning, sample eligibility, technical data generation, algorithmic analysis and results reporting. Most of samples are received as paraffin embedded sections from a formalin fixed tissue specimen.

We have a laboratory and associated facilities totaling approximately 8,100 square feet of space in Pittsburgh, Pennsylvania, for the purpose of producing TissueCypher, an LDT with utility in the BE disease space. While this lab is CLIA-certified and positioned to operate in all states except New York, we are working to achieve anticipated CAP accreditation and New York Permitted Lab status in 2022. Our expanded laboratory footprint should also enable us to use this facility to process our dermatology tests, as or if needed.

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Our laboratory facilities house all functions related to quality control and assurance, licensing, accreditation and regulatory compliance. Our quality management program ensures the quality of our laboratory services and products through continuous monitoring of a broad range of key performance indicators including technical, customer service and cybersecurity metrics. Through this program, we promote a philosophy of continuous improvement based upon adherence to validated standards. Our Phoenix facilities houses our clinical research operations and local information technology support, with a similar focus of operation in our Pittsburgh facility.

Raw Materials and Suppliers

We procure certain reagents, equipment, chips/cards and other materials used to perform our tests from sole suppliers such as ThermoFisher Scientific, Inc. and Qiagen, Inc. Some of these items are unique to these suppliers and vendors. While we have developed alternate sourcing strategies for these materials and vendors, and while we have experienced no business interruption due to an inability to source these materials, we cannot be certain whether these strategies will be effective or whether alternative sources will be available when we need them. If these suppliers can no longer provide us with the materials we need to perform our test services, they do not meet our quality specifications, or we cannot obtain acceptable substitute materials, our business would be negatively affected.

License Agreement with The Washington University

In November 2009, we entered into a license agreement (“the License Agreement”) with WUSTL to license certain patent rights and technical information from WUSTL for the development of melanoma products (the “Products”), and services (the “Services”). The rights licensed under this agreement are used in DecisionDx-UM only.

Under the License Agreement, we obtain an exclusive, worldwide, royalty-bearing license to certain patent rights owned by WUSTL (“the Patent Rights”) and a non-exclusive, worldwide license to certain technical information and research property owned by WUSTL, with the right to grant sublicenses under certain conditions, in order to develop the Products and Services. WUSTL retains the right to use the Patent Rights for research purposes.

The Patent Rights that we license pursuant to the License Agreement have been generated through the use of U.S. government funding and are therefore subject to certain federal regulations. See “Risk Factors—Risks Related to Intellectual Property—Our in-licensed intellectual property has been discovered through government funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies, and compliance with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.”

Under the License Agreement, we are required to use best efforts to carry out the activities under an agreed-upon development plan (“the Development Plan”) and meet any and all milestones set forth in the Development Plan. We are required to make milestone payments to WUSTL upon successful completion of development and commercialization milestones as set forth in the Development Plan. For each Product or Service that receives FDA approval, premarket approval or premarket notification, we are obligated to make a milestone payment to WUSTL in the mid-four digits. For the issuance of the first U.S. patent and the first foreign patent, we are obligated to make aggregate milestone payments to WUSTL in the low-five digits.

Under the License Agreement, we were obligated to pay WUSTL an initial license issue fee in the low-five digits. We are also obligated to make royalty payments to WUSTL equal to (i) a percentage in the mid-single digits of our and any of our affiliates’ or sub-licensees’ net sales of Products and (ii) a percentage in the low-single digits of our and any of our affiliates’ or sub-licensees’ revenue from Services. We are also obligated to make royalty payments to WUSTL in the low-to-mid single digit percentage of net sales, with minimum royalty payments to WUSTL every six-month period following the first commercial sale.

The term of the License Agreement will continue for ten years following the last-to-expire valid claim relating to the Patent Rights, unless terminated earlier. WUSTL may terminate the License Agreement upon written notice in the event of (i) our material breach if such breach remains uncured for 90 days, (ii) the exercise of certain rights by us with respect to the Patent Rights and/or the licensed technical information outside the scope of the License Agreement, or (iii) for certain insolvency-related events. We may terminate the License Agreement without cause upon written notice to WUSTL and payment of any amount due to WUSTL under the License Agreement.

Intellectual Property

Our core technology for our products is related to methods and devices for analysis of genetic expression. Using this technology, we are able to provide a more accurate prediction of a patient’s metastatic risk as compared to other methods. We have secured and continue to pursue intellectual property rights globally, including through patent protection covering analysis of metastasis in cutaneous melanoma, as well as treatment of cutaneous SCC. We also rely on trademarks, trade secrets, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain our proprietary position. For more information, please see “Risk Factors—Risks Related to Intellectual Property.”

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Patents and Patent Applications

We have developed a global patent portfolio that as of December 31, 2021, is comprised as follows:

Number of Applications and Patents

Commercial Focus United States International Total

Owned Patent Families

Methods for predicting risk of metastasis in cutaneous melanoma 2 15 17

Methods of diagnosing and treating patients with pigmented skin lesions 1 1 2

Genes and gene signatures for diagnosis and treatment of melanoma 5 29 34

Method for automated tissue analysis 2 3 5

Systems and compositions for diagnosing BE and methods of using same 3 13 16

Methods of predicting progression of BE 2 16 18

Licensed Portfolio from WUSTL

Method for predicting risk of metastasis 2 — 2

Compositions and methods for detecting cancer metastasis 2 2 4

Included in the table above are 12 issued U.S. patents and 60 issued international patents. This global patent portfolio has filing dates ranging from 2009 to 2021, and therefore are projected to expire between 2029 and 2041, subject to any patent term extension or patent term adjustment that might be available in a particular jurisdiction. The owned and licensed families contain issued patents and pending applications that relate to devices, systems, and methods for macromolecular analysis, and reflect our active and ongoing research programs.

Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed applications in the United States are granted a term of 20 years from the earliest effective non-provisional filing date. In addition, in certain instances, a patent term can be extended to recapture a period due to delay by the United States Patent and Trademark Office (“USPTO”) in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective non-provisional filing date. However, the actual protection afforded by a patent varies on a product-by-product basis, from country to country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.

Trademarks and Trade Secrets

As of the date of this Annual Report on Form 10-K, our U.S. trademark portfolio contained 13 trademark registrations.

We rely upon trade secrets, know-how, continuing technological innovation and potential in-licensing opportunities to develop and maintain our competitive position. We seek to protect our intellectual property and proprietary technology, in part, by entering into confidentiality agreements and intellectual property assignment agreements with our employees, consultants, corporate partners and, as applicable, our advisors. These agreements are designed to protect our proprietary information and, in the case of the invention assignment agreements, to grant us ownership of technologies that are developed through a relationship with an employee or a third party. These agreements may be breached, and we may not have adequate remedies for any breach. We additionally seek to preserve the integrity and confidentiality of our data and trade secrets, such as our proprietary algorithms, by maintaining the physical security of our premises and physical and electronic security of our information technology systems. While we have confidence in these individuals, organizations and systems, agreements or security measures may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our commercial partners,

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collaborators, employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

Government Regulation and Product Approval

Regulations

Clinical Laboratory Improvement Amendments of 1988 (“CLIA”)

As a clinical reference laboratory, we are required to hold certain federal, state and local licenses, certifications and permits to conduct our business. Under CLIA, we are required to hold a certificate applicable to the type of laboratory tests we perform and to comply with standards applicable to our operations, including test processes, personnel, facilities administration, equipment maintenance, recordkeeping, quality systems and proficiency testing. We must maintain CLIA compliance and certification to be eligible to bill for diagnostic services provided to Medicare beneficiaries.

To renew our CLIA certificate, we are subject to survey and inspection every two years to assess compliance with program standards. Because our Phoenix, Arizona laboratory is a CAP accredited laboratory, CMS may defer the survey and inspection to those conducted by CAP. We may also be subject to additional unannounced inspections. The regulatory and compliance standards applicable to the testing we perform change periodically, and any such changes are published by CAP. Our SOPs documents & records are updated accordingly and as needed. Any such changes may have a material effect on our business.

Penalties for non-compliance with CLIA requirements include suspension, limitation or revocation of the laboratory’s CLIA certificate, as well as directed plan of correction, state on-site monitoring, civil money penalties, civil injunctive suit or criminal penalties.

State Laboratory Licensing

In addition to federal certification requirements of laboratories under CLIA, CLIA provides that states may adopt laboratory regulations and licensure requirements that are more stringent than those under federal law. Such laws, among other things, establish standards for the day-to-day operation of a clinical reference laboratory, which includes ensuring personnel have the adequate knowledge of training to maintain quality control. We currently provide laboratory services in all 50 states. Additionally, we maintain licenses in New York, California, Maryland, Pennsylvania and Rhode Island which require specific licensure for out-of-state laboratories that accept specimens from those states.

Because we receive specimens from the state of New York, our clinical reference laboratory is required to be licensed by New York, have a lab director with a specific certificate of qualification and is subject to biennial New York state inspections to ensure the lab is compliant with New York licensing standards. New York regulations also mandate proficiency testing for laboratories licensed under New York state law, regardless of whether such laboratories are located in New York. If a laboratory is out of compliance with New York statutory or regulatory standards, the New York State Department of Health (“NYSDOH”) may suspend, limit, revoke or annul the laboratory’s New York license, censure the holder of the license, or assess civil money penalties. We have received formal approval from NYSDOH to offer the following of our proprietary assays to New York patients: DecisionDx-Melanoma, DecisionDx-CMSeq, DecisionDx-UM, DecisionDx-PRAME, DecisionDx-UMSeq, DecisionDx-SCC, DecisionDx DiffDx-Melanoma and myPath Melanoma. Additionally, we are working through the NYSDOH submission and approval process for our newly acquired laboratory and product, TissueCypher, which has utility in the BE disease space.

Federal Oversight of Laboratory Developed Tests

The laws and regulations governing the marketing of diagnostic products are evolving, extremely complex, and in many instances, there are no significant regulatory or judicial interpretations of these laws and regulations. Clinical laboratory tests are regulated under CLIA, as administered by CMS, as well as by applicable state laws. In addition, the Federal Food, Drug and Cosmetic Act (“FDCA”) defines a medical device to include any instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory, intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals. Our in vitro testing products are considered by the FDA to be subject to regulation as medical devices. Among other things, pursuant to the FDCA and its implementing regulations, the FDA regulates the research, testing, manufacturing, safety, labeling, storage, recordkeeping, pre-market clearance or approval, marketing and promotion, and sales and distribution of medical devices in the United States to ensure that medical products distributed domestically are safe and effective for their intended uses. In addition, the FDA regulates the export of medical devices manufactured in the United States to international markets.

Although the FDA has statutory authority to assure that medical devices are safe and effective for their intended uses, the FDA has generally exercised its enforcement discretion and not enforced applicable regulations with respect to in vitro diagnostics that are designed, manufactured, and used within a single laboratory for use only in that laboratory. These tests are referred to

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as LDTs. As a result, we believe our diagnostic services are currently subject to the FDA’s enforcement discretion and are not currently subject to the FDA’s oversight. However, reagents, instruments, software or components provided by third parties and used to perform LDTs may be subject to regulation.

In recent years, the FDA has stated its intention to modify its enforcement discretion policy with respect to LDTs. For example, on July 31, 2014, the FDA notified Congress of its intent to modify, in a risk-based manner, its policy of enforcement discretion with respect to LDTs. On October 3, 2014, the FDA issued two draft guidance documents entitled “Framework for Regulatory Oversight of Laboratory Developed Tests (LDTs),” or the Framework Guidance, and “FDA Notification and Medical Device Reporting for Laboratory Developed Tests (LDTs),” or the Reporting Guidance. The Framework Guidance states that FDA intends to modify its policy of enforcement discretion with respect to LDTs in a risk-based manner consistent with the classification of medical devices generally in Classes I through III. The Reporting Guidance would further enable FDA to collect information regarding the LDTs currently being offered for clinical use through a notification process, as well as to enforce its regulations for reporting safety issues and collecting information on any known or suspected adverse events related to the use of an LDT.

Although the FDA halted finalization of the guidance in November 2016 to allow for further public discussion on an appropriate oversight approach to LDTs and to give congressional authorizing committees the opportunity to develop a legislative solution, the FDA could ultimately modify its current approach to LDTs in a way that would subject our products marketed as LDTs to the enforcement of regulatory requirements.

Medical Device Regulatory Framework

Although we currently market our proprietary testing products as LDTs, which are currently subject to enforcement discretion, we could be subject to more onerous FDA compliance obligations in the future. Specifically, if the FDA begins to actively regulate LDTs, then, unless an exemption applies, each new or significantly modified medical device we seek to commercially distribute in the United States will require either a premarket notification to the FDA requesting permission for commercial distribution under Section 510(k) of the FDCA, also referred to as a 510(k) clearance, or approval from the FDA of a premarket approval (“PMA”), application. Both the 510(k) clearance and PMA processes can be resource intensive, expensive, and lengthy, and require payment of significant user fees.

Device Classification

Under the FDCA, medical devices are classified into one of three classes-Class I, Class II or Class III depending on the degree of risk associated with each medical device and the extent of control needed to provide reasonable assurances with respect to safety and effectiveness.

Class I devices are those with the lowest risk to the patient and are those for which safety and effectiveness can be reasonably assured by adherence to a set of FDA regulations, referred to as the General Controls for Medical Devices, which require compliance with the applicable portions of the FDA’s Quality System Regulation, facility registration and product listing, reporting of adverse events and malfunctions, and appropriate, truthful and non-misleading labeling and promotional materials. Some Class I devices also require premarket clearance by the FDA through the 510(k) premarket notification process described below. Most Class I products are exempt from the premarket notification requirements.

Class II devices are those that are subject to the General Controls, and Special Controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. These Special Controls can include performance standards, patient registries, FDA guidance documents and post-market surveillance. Most Class II devices are subject to premarket review and clearance by the FDA. Premarket review and clearance by the FDA for Class II devices is accomplished through the 510(k) premarket notification process.

Class III devices include devices deemed by the FDA to pose the greatest risk such as life-supporting or life-sustaining devices, or implantable devices, in addition to those deemed novel and not substantially equivalent following the 510(k) process. The safety and effectiveness of Class III devices cannot be reasonably assured solely by the General Controls and Special Controls described above. Therefore, these devices are subject to the PMA application process, which is generally more costly and time-consuming than the 510(k) process. Through the PMA application process, the applicant must submit data and information demonstrating reasonable assurance of the safety and effectiveness of the device for its intended use to the FDA’s satisfaction. Accordingly, a PMA typically includes, but is not limited to, extensive technical information regarding device design and development, pre-clinical and clinical trial data, manufacturing information, labeling and financial disclosure information for the clinical investigators in device studies. The PMA application must provide valid scientific evidence that demonstrates to the FDA’s satisfaction a reasonable assurance of the safety and effectiveness of the device for its intended use.

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The Investigational Device Process

In the United States, absent certain limited exceptions, human clinical trials intended to support medical device clearance or approval require an investigational device exemption (“IDE”), application. Some types of studies deemed to present “non-significant risk” are deemed to have an approved IDE once certain requirements are addressed and IRB approval is obtained. If the device presents a “significant risk” to human health, as defined by the FDA, the sponsor must submit an IDE application to the FDA and obtain IDE approval prior to commencing the human clinical trials. The IDE application must be supported by appropriate data, such as animal and laboratory testing results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. Generally, clinical trials for a significant risk device may begin once the IDE application is approved by the FDA and the study protocol and informed consent are approved by appropriate IRBs at the clinical trial sites. Submission of an IDE will not necessarily result in the ability to commence clinical trials, and although the FDA’s approval of an IDE allows clinical testing to go forward for a specified number of subjects, it does not bind the FDA to accept the results of the trial as sufficient to prove the product’s safety and efficacy, even if the trial meets its intended success criteria.

All clinical trials must be conducted in accordance with the FDA’s IDE regulations that govern investigational device labeling, prohibit promotion and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. Clinical trials must further comply with the FDA’s good clinical practice regulations for IRB approval and for informed consent and other human subject protections. Required records and reports are subject to inspection by the FDA. The results of clinical testing may be unfavorable, or, even if the intended safety and efficacy success criteria are achieved, may not be considered sufficient for the FDA to grant marketing approval or clearance of a product. The commencement or completion of any clinical trial may be delayed or halted, or be inadequate to support approval of a PMA application, for numerous reasons.

The 510(k) Clearance Process

Under the 510(k) clearance process, the manufacturer must submit to the FDA a premarket notification, demonstrating that the device is “substantially equivalent” to a legally marketed predicate device. A predicate device is a legally marketed device that is not subject to a PMA, i.e., a device that was legally marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class II or I, or a device that was previously found substantially equivalent through the 510(k) process. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data is sometimes required to support substantial equivalence.

After a 510(k) premarket notification is submitted, the FDA determines whether to accept it for substantive review. If it lacks necessary information for substantive review, the FDA will refuse to accept the 510(k) notification. If it is accepted for filing, the FDA begins a substantive review. By statute, the FDA is required to complete its review of a 510(k) notification within 90 days of receiving the 510(k) notification. As a practical matter, clearance often takes longer, and clearance is never assured. Although many 510(k) premarket notifications are cleared without clinical data, the FDA may require further information, including clinical data, to make a determination regarding substantial equivalence, which may significantly prolong the review process. If the FDA agrees that the device is substantially equivalent, it will grant clearance to commercially market the device.

If the FDA determines that the device is not “substantially equivalent” to a predicate device, or if the device is automatically classified into Class III, the device sponsor must then fulfill the much more rigorous premarketing requirements of the PMA approval process, or seek reclassification of the device through the de novo process. The de novo classification process is an alternate pathway to classify medical devices that are automatically classified into Class III, but which are low to moderate risk. A manufacturer can submit a petition for direct de novo review if the manufacturer is unable to identify an appropriate predicate device and the new device or new use of the device presents a moderate or low risk. De novo classification may also be available after receipt of a “not substantially equivalent” letter following submission of a 510(k) to FDA.

After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a new or major change in its intended use, will require a new 510(k) clearance or, depending on the modification, could require a PMA application. The FDA requires each manufacturer to determine whether the proposed change requires a new submission in the first instance, but the FDA can review any such decision and disagree with a manufacturer’s determination. Many minor modifications are accomplished by a letter-to-file in which the manufacturer documents the change in an internal letter-to-file. The letter-to-file is in lieu of submitting a new 510(k) to obtain clearance for such change. The FDA can always review these letters to file in an inspection. If the FDA disagrees with a manufacturer’s determination regarding whether a new premarket submission is required for the modification of an existing 510(k)-cleared device, the FDA can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or approval of a PMA application is obtained. In addition, in these circumstances, the FDA can impose significant regulatory fines or penalties for failure to submit the requisite application(s).

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The PMA Approval Process

Following receipt of a PMA application, the FDA conducts an administrative review to determine whether the application is sufficiently complete to permit a substantive review. If it is not, the agency will refuse to file the PMA. If it is, the FDA will accept the application for filing and begin the review. The FDA has 180 days to review a filed PMA application, however, in practice the application review process often exceeds this deadline. During this review period, the FDA may request additional information or clarification of information already provided, and the FDA may issue a major deficiency letter to the applicant, requesting the applicant’s response to deficiencies communicated by the FDA.

Before approving or denying a PMA, an FDA advisory committee may review the PMA at a public meeting and provide the FDA with the committee’s recommendation on whether the FDA should approve the submission, approve it with specific conditions, or not approve it. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

Prior to approval of a PMA, the FDA may conduct inspections of the clinical trial data and clinical trial sites, as well as inspections of the manufacturing facility and processes. Overall, the FDA review of a PMA application generally takes between one and three years but may take significantly longer. The FDA can delay, limit or deny approval of a PMA application for many reasons, including:

•the device may not be shown safe or effective to the FDA’s satisfaction;

•the data from pre-clinical studies and/or clinical trials may be found unreliable or insufficient to support approval;

•the manufacturing process or facilities may not meet applicable requirements; and

•changes in FDA approval policies or adoption of new regulations may require additional data.

If the FDA evaluation of a PMA is favorable, the FDA will issue either an approval letter, or an approvable letter, the latter of which usually contains a number of conditions that must be met in order to secure final approval of the PMA. When and if those conditions have been fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval letter authorizing commercial marketing of the device, subject to the conditions of approval and the limitations established in the approval letter. If the FDA’s evaluation of a PMA application or manufacturing facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. The FDA also may determine that additional tests or clinical trials are necessary, in which case the PMA approval may be delayed for several months or years while the trials are conducted and data is submitted in an amendment to the PMA, or the PMA is withdrawn and resubmitted when the data are available. The PMA process can be expensive, uncertain and lengthy and a number of devices for which the FDA approval has been sought by other companies have never been approved by the FDA for marketing.

New PMA applications or PMA supplements are required for modification to the manufacturing process, equipment or facility, quality control procedures, sterilization, packaging, expiration date, labeling, device specifications, ingredients, materials or design of a device that has been approved through the PMA process. PMA supplements often require submission of the same type of information as an initial PMA application, except that the supplement is limited to information needed to support any changes from the device covered by the approved PMA application and may or may not require as extensive technical or clinical data or the convening of an advisory panel, depending on the nature of the proposed change.

In approving a PMA application, as a condition of approval, the FDA may also require some form of post-approval study or post-market surveillance, whereby the applicant conducts a follow-up study or follows certain patient groups for a number of years and makes periodic reports to the FDA on the clinical status of those patients when necessary to protect the public health or to provide additional or longer-term safety and effectiveness data for the device. The FDA may also approve a PMA application with other post-approval conditions intended to ensure the safety and effectiveness of the device, such as, among other things, restrictions on labeling, promotion, sale, distribution and use. New PMA applications or PMA supplements may also be required for modifications to any approved diagnostic tests, including modifications to our manufacturing processes, device labeling and device design, based on the findings of post-approval studies.

Federal and State Physician Self-Referral Prohibitions

We are subject to the federal physician self-referral prohibitions, commonly known as the Stark Law, and to comparable state laws. Together these restrictions generally prohibit us from billing a patient or any governmental or private payor for certain designated health services, including clinical laboratory services, when the physician ordering the service, or any member of such physician’s immediate family, has a financial interest, such as an ownership or investment interest in or compensation arrangement with us, unless the arrangement meets an exception to the prohibition.

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Sanctions for a Stark Law violation include the following:

•denial of payment for the services provided in violation of the prohibition;

•refunds of amounts collected by an entity in violation of the Stark Law;

•a civil penalty for each bill or claim for a service arising out of the prohibited referral;

•the imposition of up to three times the amounts for each item or service wrongfully claimed;

•possible exclusion from federal healthcare programs, including Medicare and Medicaid; and

•a civil penalty for each arrangement or scheme that the parties know (or should know) has the principal purpose of circumventing the Stark Law’s prohibition.

These prohibitions apply regardless of any intent by the parties to induce or reward referrals or the reasons for the financial relationship and the referral. In addition, knowing violations of the Stark Law may also serve as the basis for liability under the federal False Claims Act (“the FCA”), which can result in additional civil and criminal penalties.

Federal and State Anti-Kickback Laws

The federal Anti-Kickback Statute (“the AKS”) makes it a felony for a person or entity, including a clinical laboratory, to knowingly and willfully offer, pay, solicit or receive any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in order to induce business that is reimbursable under any federal healthcare program. A violation of the AKS may result in imprisonment for up to ten years and fines for each violation and administrative civil money penalties, including an additional amount of up to three times the amount of the remuneration paid. Convictions under the AKS result in mandatory exclusion from federal healthcare programs for a minimum of five years. In addition, The U.S. Department of Health and Human Services (“HHS”) has the authority to impose civil assessments and fines and to exclude healthcare providers and others engaged in prohibited activities from Medicare, Medicaid and other federal healthcare programs. In addition, the government may assert that a claim that includes items or services resulting from a violation of the AKS constitutes a false or fraudulent claim under the FCA, which is discussed in greater detail below. Additionally, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

Although the AKS applies only to items and services reimbursable under any federal healthcare program, a number of states have passed statutes substantially similar to the AKS that apply to all payors. Penalties of such state laws include imprisonment and significant monetary fines.

Federal and state law enforcement authorities scrutinize arrangements between healthcare providers and potential referral sources to ensure that the arrangements are not designed as a mechanism to induce patient care referrals or induce the purchase or prescribing of particular products or services. Generally, courts have taken a broad interpretation of the scope of the AKS, holding that the statute may be violated if merely one purpose of a payment arrangement is to induce referrals or purchases.

In addition to statutory exceptions to the AKS, regulations provide for a number of safe harbors. If an arrangement meets the provisions of a safe harbor, it is deemed not to violate the AKS. An arrangement must fully comply with each element of an applicable safe harbor in order to qualify for protection.

Failure to meet the requirements of the safe harbor, however, does not render an arrangement illegal. Rather, the government may evaluate such arrangements on a case-by-case basis, taking into account all facts and circumstances.

The Eliminating Kickbacks in Recovery Act

The Eliminating Kickbacks in Recovery Act of 2018 (“EKRA”) prohibits knowingly and willfully soliciting or receiving any remuneration (including any kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash or in kind, in return for referring a patient or patronage to a laboratory; or paying or offering any remuneration (including any kickback, bribe or rebate) directly or indirectly, overtly or covertly, in cash or in kind, to induce a referral of an individual to a laboratory or in exchange for an individual using the services of that laboratory. EKRA was enacted to help reduce opioid-related fraud and abuse. However, EKRA defines the term “laboratory” broadly and without reference to any connection to substance use disorder treatment. EKRA applies to all payors including commercial payors and government payors. The law includes a limited number of exceptions, some of which closely align with corresponding AKS exceptions and safe harbors, and others that materially differ. Currently, there is no regulation interpreting or implementing EKRA, nor any guidance released by a federal agency regarding the scope of EKRA.

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Other Federal and State Healthcare Laws

In addition to the requirements discussed above, several other healthcare fraud and abuse laws could have an effect on our business. For example, provisions of the Social Security Act permit Medicare and Medicaid to exclude an entity that charges the federal healthcare programs substantially in excess of its usual charges for its services. The terms “usual charge” and “substantially in excess” are subject to varying interpretations.

The FCA prohibits, among other things, a person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval and from, making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim in order to secure payment or retaining an overpayment by the federal government. In addition to actions initiated by the government itself, the statute authorizes actions to be brought on behalf of the federal government by a private party having knowledge of the alleged fraud, through the FCA’s “qui tam” or whistleblower provision. Because the complaint is initially filed under seal, the action may be pending for some time before the defendant is even aware of the action. If the government intervenes and is ultimately successful in obtaining redress in the matter or if the plaintiff succeeds in obtaining redress without the government’s involvement, then the plaintiff will receive a percentage of the recovery. Finally, the Social Security Act includes its own provisions that prohibit the filing of false claims or submitting false statements in order to obtain payment. Several states have enacted comparable false claims laws which may be broader in scope and apply regardless of payor.

The civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented, or caused to be presented, a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent. A person who offers or provides to a Medicare or Medicaid beneficiary any remuneration, including waivers of co-payments and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be liable under the civil monetary penalties statute. Moreover, in certain cases, providers who routinely waive copayments and deductibles for Medicare and Medicaid beneficiaries, for example, in connection with patient assistance programs, can also be held liable under the AKS and FCA. One of the statutory exceptions to the prohibition is non-routine, unadvertised waivers of copayments or deductible amounts based on individualized determinations of financial need or exhaustion of reasonable collection efforts. The Office of Inspector General of HHS (“the OIG”) emphasizes, however, that this exception should only be used occasionally to address special financial needs of a particular patient. Although this prohibition applies only to federal healthcare program beneficiaries, applicable state laws related to, among other things, unlawful schemes to defraud, excessive fees for services, tortious interference with patient contracts and statutory or common law fraud, may also be implicated for similar practices offered to patients covered by commercial payor.

The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created additional federal criminal statutes that prohibit, among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of, or payment for, healthcare benefits, items or services. Like the AKS, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

CSTL US Equity

CSTL · 10-K · period ended 2021-12-31

Item 1. Business.

CSTL US Equity☆

CSTL · 10-K · period ended 2021-12-31

Item 1. Business.

CSTL US Equity