DermTech, Inc.

Ladies and gentlemen, thank you for standing by and welcome to DermTag's fourth quarter 2020 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. It is now my pleasure to turn the conference over to Ms. Caroline Karner. Now, please go ahead.

Thank you, Operator. Welcome to Durham Tech's fourth quarter and full year 2020 earnings call. Joining me on today's call are Dr. John Doback, President and Chief Executive Officer, and Kevin Sun, Chief Financial Officer. This call will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact are considered forward-looking statements. Forward-looking statements made during this call, including projections of future performance, are based on management's expectations as of today, March 4, 2021, and are subject to various factors, assumptions, risks, and uncertainties which change over time. Actual results could differ materially from those described in such statements. Several factors that may contribute to or cause such differences are described in today's press release and DERMTAC's most recent filings with SEC, including DERMTAC's quarterly report on Form 10-Q for the quarter ended September 30, 2020. In addition, you're encouraged to review the company's to-be-filed annual report on Form 10-K for the year ended December 31, 2020, for any revisions or updates to the information in this release. DermTech undertakes no obligation to update these statements except as required by applicable law. DermTech's press release with fourth quarter and full year 2020 results is available under the investor relations section of the DermTech website, www.dermtech.com, and includes additional details about DermTech's financial results. Also available on the DermTech website are DermTech's latest SEC filings, which you are encouraged to review. A recording of today's call will be available on the DermTech website by 5 p.m. Pacific time today. Now I would like to turn the call over to John.

Thank you, Caroline, and thank you, everybody, for taking the time to join us today. We believe DermTech presents a unique growth opportunity that is capitalizing on two of the biggest trends occurring in healthcare today, the genomics revolution and and the in-home delivery of healthcare. Dermtech is a leader in a new category of medicine we refer to as precision dermatology. Precision dermatology is the use of genomics to provide accurate and objective diagnostic and treatment information for a variety of skin conditions. It is enabled by our non-invasive skin genomics platform based on our Smart Sticker. The Smart Sticker is an adhesive patch collection method that provides pain-free and scar-free skin sampling for genomic testing. Through precision dermatology, we can realize our vision to democratize access to high-quality dermatologic care by allowing any healthcare practitioner, and even the patient, to accurately assess skin disease and health. So while we may be focused on the dermatologist today, our vision takes us beyond the dermatologist into primary care and into the patient's home via telemedicine. And while we may be focused on melanoma with our first product, our platform allows us to address a wide range of skin problems, DermTech is at the forefront of bringing these fundamental transformational changes to dermatologic care. Our lead commercial product, the Pigmented Lesion Assay, or PLA, is the first product to solve a decades-old problem in dermatology, which is the need to enhance the early detection of melanoma by improving diagnostic accuracy and reducing unnecessary surgery. Melanoma is the most aggressive form of skin cancer and is diagnosed approximately 200,000 times each year and results in more than 7,000 deaths in the U.S. Early detection of melanoma is how lives are saved because melanoma is 99% curable when found in the early stages. With the current visual pathology standard, the early detection of melanoma is extremely difficult, leading to a high probability of incorrect diagnosis, both missing early stage melanoma and or falsely giving a positive diagnosis. About 4 million diagnostic surgical procedures are performed each year in the U.S. to diagnose melanoma, and this represents the current served market. However, our opportunity exists not only within this current served market, but also in an expanded market. One of the more important opportunities to find melanoma at the earliest stages is the use of our technology to immediately assess moles that would typically be photographed by the dermatologist and followed over time for change. It is in these moles where a melanoma diagnosis may be delayed or missed, where the earliest stage melanomas may be found, and where our precision platform is ideally suited to provide early detection. Importantly, in this expanded market, we do not directly compete with the surgical biopsy practice of the dermatologist. We believe the expanded market opportunity for these typically photographed or followed moles may be at least as large as the current served market of actual surgical biopsies. In addition to our initial focus on melanoma, we have built a robust pipeline of genomic products for most types of skin cancer, leveraging our smart sticker technology. We believe our skin cancer vertical of products address very large market opportunities of more than $10 billion in the U.S. alone. Our fundamental business model is to drive adoption and test volume of our products in the variety of distribution channels that precision dermatology enables, and then monetize this volume over time by obtaining payer coverage and or leveraging consumer pay options. Key drivers of the business are the continued development of the professional dermatology commercial channel and the development of additional distribution channels outside of professional dermatology, securing commercial payer coverage, and launching new products in the next four to six quarters. We made significant progress on these key drivers in the fourth quarter of 2020. On the product adoption component, We received a record number of billable PLA tests and grew our base of unique dermatology users, despite limited access to physician offices and other pandemic headwinds. We took a significant step forward in the build-out of our commercial organization, and we now have a team of approximately 60, consisting of sales managers, regional directors, science liaisons, professional marketing, inside sales, and managed care personnel. We expect to continue to expand our dermatology sales team throughout 2021, likely targeting approximately 50 sales managers in total, as well as other additional ads to expand beyond dermatology. We believe we can further boost the adoption of the PLA with the launch of our PLA Plus second-generation test in the second quarter of this year. The PLA Plus launch was delayed last year due to COVID testing-related supply chain constraints. The PLA Plus incorporates a TERT mutation biomarker, which improves the sensitivity for melanoma detection and is recognized as a key driver mutation for early stage melanoma. Adoption of our PLA can also be further enhanced by educating and activating the patient to seek out dermatologists that use our test or to encourage non-users to adopt the product. Our digital consumer awareness campaign which was initiated last year, continues to be very successful, generating 6,000 to 7,000 Find a Doctor searches on our website each month. This indicates a strong consumer-patient interest in our PLA and their desire to have more accurate diagnostic testing that minimizes patient discomfort, scarring, and risk of infection. We are also beginning to make significant strides to expand beyond the traditional in-office dermatology sales channel. We continue to establish our strategy in primary care around integrated networks. We are currently working with some prominent networks to commence pilot programs. We have also profiled our existing primary care users and found that they have some unique attributes that may allow us to target them with a focused sales effort. These attributes include having poor or limited access to dermatology specialists, having a significant portion of their practice involving dermatologic care, and having familiarity with genomics through their use of exact science as Cologuard. We have recently commissioned a study to identify primary care physicians in the U.S. that fit this profile. Finally, an important part of our adoption strategy is to expand and improve our telemedicine offering. We continue to make progress on our streamlined, store-and-forward telemedicine solution, which will allow a patient to photograph a lesion and upload it to the cloud for review by a dermatologist, who can then order our test if needed. This solution relies on information technology and software applications. The pandemic has catalyzed the shift toward remote healthcare delivery, and we are well-suited to capitalize on this trend, as we believe we are the only company that can offer in-home skin cancer diagnosis. In the fourth quarter, we completed development and beta testing of some key technology pieces, and we recently hired leadership for the telemedicine effort. We expect to pilot our solution over the next two quarters, and we'll look to expand it commercially in the fourth quarter of this year. Monetizing our growing sample volumes by obtaining commercial payer coverage is the second key component of our business strategy. In the fourth quarter of 2020 and early this year, we made solid progress with commercial payers and announced several contracts with large blues plans in California, Illinois, and Texas. We also received a coverage policy with Geisinger Health, a prominent leader in the adoption of genomic testing to improve patient care. With these recent payer successes, we now have approximately 85 million contracted and or covered lives in the U.S. for the PLA. We also have a number of ongoing developments that we believe will enhance our positioning with payers. This includes new evidence development with the results of our TRUST study and PPV study, a positive addition of our test to the NCSAN cancer guidelines, and our soon-to-be-completed economic impact study with Optum Insights. The top-line results from our trust study confirmed our 99% negative predictive value in a real-world setting. Evaluations of the full cohort of PLA-negative tested patients in the 12- to 20-month period prior to the study enrollment indicated an NPV of at least 99.2%. There were no deaths or late-stage disease identified in this patient cohort of 1,781 tested lesions. A cohort of 302 lesions subjected to repeat PLA testing further confirmed the negative predictive value of 99%. In January 2021, we also published a paper on the positive predictive value of our test. This study demonstrated that the PLA identifies melanoma at a rate that is four to five times higher than the current visual standard alone. In addition, the PLA identifies lesions with higher risk pathologic features that are often managed like early stage melanoma at a rate approximately three times the current visual standard. The combination of these two studies demonstrate that the PLA offers enhanced early melanoma detection and is a significant improvement over the current standard of care. Adding credibility to the clinical evidence we have developed for the PLA, we recently received a favorable inclusion in the National Comprehensive Cancer Network, or NCCN, guidelines. The NCCN is a not-for-profit alliance of 30 leading cancer centers that publishes guidelines to advance high-quality cancer care. Payers and physicians often look to the NCCN to justify adoption and coverage for new technology. We are optimistic that the uniform consensus recommendation for the use of our technology will facilitate payer contracting and coverage, as well as physician adoption and utilization. Lastly, we are close to completing a large economic impact study with OptumInsights, which we believe will demonstrate the cost savings associated with our PLA product. While there is no silver bullet that ensures payer coverage, we believe our cumulative effort to drive test adoption educate payers on the limitations of the current melanoma diagnostic pathway, develop additional clinical evidence, ramp up denied claims appeals, and demonstrate the cost savings of our tests will ultimately lead to broad payer access over the next two to three years. Turning now to the third component of our business strategy, we have been making significant advancements with our pipeline of skin cancer products. we've identified some compelling product opportunities in inflammatory diseases of the skin. We are now completing the internal validation phase for our Luminate product, which will assess ultraviolet-related gene mutations in normal-appearing skin, which is related to skin cancer risk and photoaging. While a big focus in skin cancer with genomics over the last 5 to 10 years has been early detection, we think the future is detection of precancerous genomic changes and this is essentially what our Luminate product does. If this internal validation study is successfully completed as planned, we will finalize development with an external validation study in the second and third quarters of this year with initial target for the product introduction in the fourth quarter of 2021. We also launched a pilot digital consumer awareness campaign to assess demand for the product. This limited campaign has thus far been successful and demonstrating reasonable customer acquisition costs and interest in the product that are still in the very early phases. We are also making progress on the carcinome product to facilitate the diagnosis of basal and squamous cell skin cancer. This product is in the classifier verification stage. We believe that this stage will be completed by the third quarter of this year, with validation testing beginning in the fourth quarter. Our clinical study to enroll subjects and samples for the validation study is fully up and running, and we expect to have complete enrollment around the end of the third quarter of this year. We are still targeting an introduction of this product in the first half of 2022 as an LDT. In Q3 of 2020, we hired Michael Howell, PhD, a highly regarded immunologist specializing in inflammatory diseases of the skin. Dr. Howell and his team have identified several areas that involve assessing the genomic subtypes of atopic dermatitis and other inflammatory diseases to predict response to biologic therapies. Depending on the genomic subtype, certain patients may respond poorly to some therapies, which can cost as much as $30,000 to $40,000 per year. Identifying patients that are likely to respond to a certain therapy may improve patient care and reduce health care costs. These opportunities may create a significant market opportunity. For example, the prevalence of atopic dermatitis in the U.S. is reported to be approximately 12% in children and 7% in adults, with approximately 6.6 million patients having moderate to severe disease, making them candidates for biologic therapy. We have recently initiated a clinical study to identify relevant genomic markers in atopic dermatitis that may predict response to therapies. I will now close by discussing our recent financing activities, which have been very successful and will allow us to capitalize on all the opportunities I just discussed. In January 2021, we completed a public follow-on offering of our common stock and generated $144 million in gross proceeds. This offering was supported by existing investors and brought in new high-quality healthcare-focused investors. We received approximately $20 million in gross proceeds from our ATM, generating aggregate equity financing gross proceeds of approximately $164 million. Lastly, a significant portion of our outstanding public warrants have been exercised, which has yielded an additional $70 million in proceeds. Our cash balance at the end of February 2021 was approximately $260 million. Now I'd like to turn the call over to Kevin to go over our financial results.