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spk02: Ladies and gentlemen, thank you for standing by and welcome to Dermtech's first quarter 2021 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. And to ask a question during the session, you will need to press star and then the number one on your telephone keypad. I would now like to hand the conference over to Ms. Caroline Corner, Investor Relations. Ma'am, please go ahead.
spk09: Thank you, operator. Welcome to Durham Tech's first quarter 2021 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, May 13, 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 DermTech's most recent filings with the SEC, including DermTech's annual report on Form 10-K for the year ended December 31, 2020. DermTech undertakes no obligation to update these statements except as required by applicable law. DermTech's press release with the first quarter 2021 results is available under the Investors 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.
spk04: Great. Thank you, Caroline, and thank you, everyone, for taking the time to join us today. We are pleased to have this earnings call in the month of May, which is the Melanoma and Skin Cancer Awareness Month. Skin cancer is the most common form of skin cancer in the U.S. and results in approximately 15 million diagnostic surgical procedures each year, with 4 to 4.5 million surgical procedures for melanoma alone. DermTech is a leader in non-invasive precision genomics to improve the pathway for skin cancer diagnosis, and this month is our time to showcase the advances in science we have brought to capture this large market opportunity. We believe our skin cancer vertical of products addresses a $10 billion market in the U.S. I will start by reiterating a couple of key messages that the medical community and various skin cancer foundations promote during the month of May. First, unprotected UV exposure is the most preventable risk factor for skin cancer, so using sunscreen with an SPF of 30 or higher, wearing protective clothing, and seeking shade where appropriate can help reduce the risk of skin cancer. Second, and most importantly, early detection of skin cancer, and particularly melanoma, is critical for survival. People are encouraged to perform skin self-exams using the ABCDE criteria to evaluate moles and to have annual skin checks performed by their healthcare provider. With our first product, DermTech is transforming the early detection of melanoma by identifying at-risk lesions that can be removed. 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 US. Early and accurate detection of melanoma can save lives because when diagnosed at the localized stage, the five-year survival rate for melanoma is 99%. The pathway for diagnosing melanoma typically involves dermatologists conducting both surgical and non-surgical procedures. In many cases, dermatologists will often photograph moles at risk for melanoma and follow them over time for change, deciding whether or not a surgical biopsy is necessary. Our product is ideally suited for assessing moles that might otherwise be photographed by a healthcare provider and followed over time for change. It is in these moles where melanoma diagnosis may be delayed or missed, where the earliest stage melanomas may be found, and where our precision platform is well-suited to provide early detection. Importantly, in this non-surgical market opportunity, we do not directly complete with the surgical biopsy practice of the dermatologist. We believe the market for these typically photographed or followed moles may be at least as large as the current served market of actual surgical biopsies. As part of Skin Cancer Awareness Month, We've made a pledge to donate up to $1 million over the next four years to increase skin cancer awareness and support accessibility of skin exams. $5 will be donated to our nonprofit partner organizations for each person who pledges to schedule a skin exam. Aversion to surgical biopsy is one of the factors that limits patients' willingness to schedule skin checks. Our smart sticker technology addresses this problem, and combined with our enhanced early detection of high-risk lesions, we believe we can make an important stride in our quest to reduce melanoma deaths. Our donation will help support events, educational content, and programs to amplify a variety of voices who are joining the fight against melanoma. As we've noted before, DermTech's vision extends beyond skin cancer. Our platform has allowed us to create a new category of medicine we refer to as precision dermatology, which we believe has the potential to improve the diagnosis and treatment of a variety of skin problems. It is our mission to transform dermatology and to democratize access to high-quality dermatology care. We believe we can realize our vision by allowing any healthcare practitioner to accurately assess skin disease and health. Consequently, our vision also takes us beyond the dermatologist into primary care and with even more patient involvement via telemedicine. Our fundamental business model is to drive adoption and test volumes of our products in a 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 our business are the continued development of our professional dermatology channel and other channels outside of dermatology, securing commercial payer coverage, and launching new products over the next 12 to 18 months. We made significant progress on these key drivers in the first quarter of 2021. Despite limited access to physician offices, the peak of the COVID pandemic in early January, and a severe weather event in February that shut down much of the country, we continued to receive a record number of billable samples and grew our base of unique users. Our average daily billable sample volumes increased from approximately 134 per day in Q4 of 2020 to 154 per day in Q1 of 2021. The only new challenge in the quarter related to sample volume was a modest dip in our proportion of billable Medicare samples. However, we still achieved record assay revenue of $2.2 million, primarily due to the favorable claim adjudication from our recent commercial payer contracts and an increase in our ASP to $234 per sample. We believe increasing sample volumes and ASP through additional payer success will provide a long-term compounding effect on future revenue growth. We also launched our PLA Plus second-generation test in April, which we believe will help boost adoption. The PLA Plus improves the sensitivity for melanoma detection up to 97% by incorporating a TERT mutation biomarker, which is recognized as a key driver mutation for early-stage melanoma. The launch of the PLA Plus may allow us to drive utilization among dermatologists and to reengage with users that have been slower to adopt the technology or that have only used the technology sporadically in the past. Our effort to expand dermatology continues to gain momentum, and we are making important progress with primary care networks. Due to the longer sales cycles associated with this effort, we do not have any specific news report on this call. However, we are tracking to initiate pilots with some leading U.S. networks. As noted on the last call, We've also undertaken an analysis regarding the expansion of our current direct sales team and to define the landscape of potential primary care clinicians we may be able to access with a limited direct sales effort. The preliminary data from this analysis, based on the sales of the PLA and PLA Plus, predicts a meaningful ROI from dedicating an additional $10 to $15 million per year in our U.S. direct sales footprint to allow us to expand access to dermatology, pursue a targeted selling approach in primary care, and prepare for the delivery of additional pipeline products into these sales channels. There is clearly a much larger potential investment that could be made to expand further into primary care, but this investment will need to be balanced against our success with integrated networks and the potential we see from our telemedicine effort. These potential investments will also need to be considered in the context of products like carcinome, which may be more ideally suited for primary care. We expect to finalize this planning effort in Q2 and will work to expand our existing sales team and deploy this direct sales organization against an expanded group of targets. It would not be surprising to need substantial additional investments specifically to launch more broadly into primary care. Our efforts in telemedicine are similarly gaining momentum. We recently completed beta testing of our technology solutions to allow store and forward submission of photographs of suspicious moles for review by a clinician. In June, we expect to commence an in-market beta test of this platform in a few select geographies. Assuming success of this in-market testing, we will continue to launch and expand this effort throughout the second half of the year. We also plan to develop additional technology solutions that will streamline access to remote skin sample collection for follow-on laboratory testing. We're also looking at partnering strategies with leading telemedicine companies to deploy our solution within their network. The second key component of our business strategy is monetizing our growing sample volumes by attaining commercial payer coverage. In the first quarter of 2021, our new commercial payer contracts with large blues plans in California, Illinois, and Texas became effective. While we had some early startup challenges with these payer contracts, claims and payments are processing more efficiently now. The startup challenges have mostly been resolved, which is reflected in the improvement of our overall ASP for the fourth quarter and revenue exceeding the high end of our Q1 guidance range, even though our Medicare proportion decreased from Q4. I will now address some recent developments that pertain to Cigna that became public through channels outside of DermTech. In April 2021, Cigna updated the medical necessity criteria of their genetic testing collateral document, which changed the PLA from an experimental, investigational, or unproven status to medical necessity based on the NCCN criteria. To date, the primary genetic testing policy released in February of this year has not been changed. We have spoken with Cigna and we are currently working with their medical team to further define the use and medical necessity criteria for the PLA test. There was some confusion reported by the media about our inclusion in the NCCN guidelines. However, it is clear from the Cigna testing collateral document that they have acknowledged our inclusion in the guidelines, and as we indicated earlier this year, we are included in the NCCN guidelines with a 2A recommendation. We believe the developments with Cigna are positive and we are optimistic that this will lead to favorable coverage. We will provide further updates on this matter after we have completed the process with Cigna and have more definitive information. In Q1, we also completed the economic impact study with OptumInsight or Optum, which we believe demonstrates the potential cost savings achieved with our PLA product. Optum developed an actuarial model that examined 27 million commercial claims to analyze the economic impact of inserting the PLA into the existing diagnostic pathway for pigmented suspicious lesions that relies on a visual assessment and histopathology. Based on a health plan population of 10 million commercial covered lives, the model suggests the PLA, priced at $760 per test, can produce aggregate savings of between $57 million and $81 million over a three-year period when compared to the current pathway alone. Additionally, the study demonstrates the present value net neutral cost or break-even price for the PLA during the same period is between approximately $1,200 and $1,400, or 57% to 82% higher than the Medicare reimbursed rate. The projected savings result from identifying melanoma at an earlier stage, reducing volume and spending associated with avoidable surgical biopsies of benign lesions, and reducing the incidence rate and cost of additional surgical procedures following a negative or inconclusive biopsy. This is the second economic study for the PLA and further supports the cost savings the test can provide for the healthcare system. We believe that commercial insurance payers will be interested in this data as reducing healthcare costs and improving patient care are important objectives. The model Optum has developed will be made available to payers. who can easily validate the claims analysis that was performed and input their own plan's population variables to determine the potential savings and return on investment by adopting the PLA. I will now turn to the third component of our business strategy, new product development. We spent the last year building out our R&D capabilities, and we believe we have reached a critical mass to accelerate our overall new product development. In Q1, we recruited teams of top-tiered scientists, bioinformaticists, and program managers in our clinical and development groups. We've also expanded our data management capabilities, including clinical electronic data capture, and have added a variety of in-house genomic capabilities, including next-gen sequencing and mass array platforms. This has led to the establishment of several academic collaborations and the initiation of new clinical efforts and studies in inflammatory diseases. We still have some additional infrastructure and capability build out to complete, but we are now seeing substantial momentum in a variety of development areas. Our efforts have led to the acceptance and presentation of four abstracts at the Society for Investigational Dermatology conference, which was held last week. Luminate development continues to progress as planned. Again, this product will assess ultraviolet-related gene mutations in normal appearing skin, which is related to skin cancer risk and photoaging. While a big focus in cancer care with genomics over the last five years has been early detection, we think the future is detection of precancerous genomic changes, and this is essentially what our Luminate product does. Enrollment for the internal verification study is complete. The purpose of this study is to confirm the assay's performance, establish the UV skin score algorithm, and confirm the skin sampling protocol. We have also commenced an external validation study to confirm the performance characteristics of the product and the initial algorithm. This study is currently enrolling at six U.S. dermatology centers with a plan to recruit up to 12 sites in total. The study has enrolled very robustly, and we have already completed an enrollment of more than half of our initial minimum target of 1,000 subjects. Consequently, we may expand enrollment beyond the initial target. We are still estimating an introduction of this product in the fourth quarter of this year. We're also making progress on the carcinome product to facilitate the diagnosis of basal and squamous cell skin cancer. As indicated on previous calls, 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 completed enrollment in this validation cohort 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 the first quarter, we also initiated our first clinical study in atopic dermatitis to evaluate genomic markers pre- and post-treatment with biological therapies such as dupilumab. These markers will be correlated with treatment response, including the eczema severity score, itch scores, and adverse events, among others. The goal of this study is to identify markers that will predict treatment response to the drugs and other related outcomes. The study will target enrollment up to 500 patients. Five clinical centers have completed their initiation and one center is already enrolling patients. At this time, we are not able to comment on when the product will be available for this indication, but we are building off some earlier work that we completed in this area and have a panel of genomic markers that we believe are relevant. If we can validate these markers in our current study, We believe we can develop fairly aggressive product timelines. We will update you on the progress of this program in the future. In summary, we are pleased with our Q1 performance and efforts to expand our commercial and development activities and infrastructure. Our financing efforts in the first quarter increased our cash and securities to approximately $258 million. We are excited about our efforts to expand beyond dermatology and our progress with integrated primary care networks. We are similarly enthusiastic to commence the in-market beta testing of our telemedicine platform and expand this offering in the coming quarters. Now I'd like to turn the call over to Kevin to go over our financial results.
spk03: Thanks, John. Total revenues for Q1 of 2021 increased 62% to $2.5 million compared to $1.6 million for the same period in 2020. Assay revenue for the first quarter of 2021 increased 175% to $2.2 million compared compared to 0.8 million for the same period of 2020. We saw improvements to our ASP and Q1, but our potential assay revenue that could be recognized from having broader payer coverage is still meaningfully higher than the actual reported revenue. Billable samples for the quarter were approximately 9,400 compared to approximately 5,800 for the first quarter of 2020, or a 62% increase, and compared to approximately 8,300 in the fourth quarter of 2020, or a 13% sequential increase. Medicare samples represented about 15% of our billable samples in Q1 of 2021 compared to approximately 14% in the same period of the prior year and 18% in Q4 of 2020. The growth in our Medicare proportion continued to be impacted by COVID in Q1 because Medicare patients were less likely to visit the dermatologist during the height of the pandemic. With approximately 1,800 unique ordering clinicians during the last 12 months, we penetrated 36% of our initial target market of approximately 5,000 dermatology clinicians who account for a high concentration of the total annual surgical procedures to diagnose melanoma. And we penetrate about 14% of our current overall target market of approximately 13,000 dermatology clinicians. We had approximately 1,200 unique ordering clinicians in Q1 of 2021 compared to approximately 900 in Q1 of 2020, or a 33% increase. And compared to approximately 1,040 in Q4 of 2020, or a 15% sequential increase. Sales call volumes continue to be affected by the pandemic in Q1 due to the reduced in-office access to clinicians. And we are estimated to be less than 50% of pre-pandemic levels depending on region, but we are seeing some improvement now. Our average quarterly utilization or average number of tests ordered per unique ordering clinician remains strong and with 7.8 billable samples in Q1 of 2021, compared to 8.0 in Q4 and 6.5 in Q1 of 2020. The slight decrease in utilization in Q1 compared to Q4 was due to the strong increase in new users in Q1, which typically order less per month when they first start using the PLA. We continue to achieve record or near-record highs during Q1 in key metrics, including billable samples, new ordering clinicians, average monthly utilization, and number of ordering clinicians who order 10 or more tests per month. Contract revenue decreased 56% to 0.3 million for the first quarter of 2021, compared to 0.8 million for the same period of 2020. Contract revenue continues to be highly variable as it is dependent on the pharmaceutical customer's clinical trial progress, patient enrollment success, and other factors which have been affected by the pandemic. During the quarter, we signed agreements with our pharmaceutical partners worth up to approximately 0.5 million in contract revenue. As of March 31, 2021, we had a maximum of $4.5 million in potential remaining contract revenue related to our current agreements. Gross margin for Q1 2021 was 21% compared to 23% for the same period of 2020. The decrease in gross margin was largely driven by higher contract revenue during Q1 of 2020. Assay gross margin for Q1 2021 was 10% compared to negative 46% for the same period of 2020 and negative 9% for Q4 of 2020. Q1 was the first quarter of positive asset gross margin for the PLA, which given the relatively early stage of commercialization and progress with private payers, highlights the PLA's margin potential at higher volumes. Sales and marketing expense increased 121% to $6.5 million for the first quarter of 2021, compared to $2.9 million for the same period of 2020. The increase was primarily due to additional headcount for the commercial teams and additional marketing investments. We expect sales and marketing expense to continue to increase throughout the year as we increase the size of our sales force and increase our marketing initiatives to raise awareness of our technology. Research and development expense increased 151% to $2.3 million for the first quarter of 2021, compared to $0.9 million for the same period of 2020. The increase was primarily due to higher compensation-related costs and increased clinical trial costs. General administrative expense increased 47% to $5.2 million for the first quarter of 2021 compared to $3.5 million for the same period of 2020. The increase was primarily due to higher payroll related costs and higher stock-based compensation offset by lower legal costs. We expect our general administrative expense to continue to increase throughout the year as we implement systems and infrastructure to support our telemedicine and Luminate direct-to-consumer efforts. Net loss for the first quarter of 2021 was $15.1 million, which included $2.2 million of non-cash stock-based compensation and $1.7 million of expense related to a non-cash change in fair value of the warrant liability, compared to a net loss of $6.9 million for the same period of 2020, which included $1.0 million of non-cash stock-based compensation offset by a $0.1 million of benefit related to a non-cash change in fair value of the warrant liability. At the end of the first quarter, our cash, cash equivalents, and marketable securities totaled $258.2 million. We've made progress with Medicare to resolve the claims adjudication programming issue, but the process is still not fully efficient, and we're still experiencing some delays in getting payments. We also resolved startup challenges with newly contracted Blues plans. However, payment cycles for non-contract commercial payers continue to be long, and success in getting payments continues to be choppy. We do believe inclusion in the NCCM guidelines and data from the Optum study will help in our commercial payer efforts, but it will take some time to play out. We estimate that Q2 2021 assay revenue will be between $2.4 and $2.8 million. We will provide full-year 2021 revenue guidance during our Q2 earnings call. We continue to execute on our core growth drivers thus far in 2021 and are excited about delivering on our initiatives for the rest of the year and beyond. Now I'll turn the call back to the operator for questions.
spk02: Thank you, Kevin. As a reminder to ask a question, just press star and then the number one on your telephone keypad. Again, just press star and then the number one on your telephone keypad. And to withdraw your question, just press the pound key. We'll pause for a moment to compile the Q&A roster. Our first question comes from the line of Doug Shenko from Cohen. Sir, your line is open.
spk01: All right, thank you and good afternoon. I just want to start with a couple of reimbursement questions. So on Cigna, thank you for the update. Probably to take some liberties in paraphrasing, it sounds like you believe you are positively in guidelines but not broadly getting reimbursed at this point. So I guess the question would be, if that's a fair oversimplification, is the question at this point less about whether you're going to get coverage versus what the coverage amount is going to be and in what population? So that's the first on reimbursement. And then the second on reimbursement, more broadly, I mean, this is a good quarter, and you guys sounded good in terms of how you characterized things in your prepared remarks. I think this was a thesis-affirming quarter. For good or for bad, it sure feels right now like we're in a market that wants more than that. They want thesis-enhancing, not just thesis-affirming. So with that in mind, is there anything you can share on recent progress with payers, your discussions, and what the outlook is for more notable expansion in rates of reimbursement over the coming quarters?
spk04: Sure. Regarding the Cigna – Again, I'll reiterate that it is positive, and there is really no question about our inclusion in the guidelines. Cigna has indicated that they are going in the near term to cover our test based on medical necessity on a case-by-case basis. Of course, we believe that a pigment and lesion suspicious for melanoma meets the medical necessity criteria. What we're doing with Cigna now is to establish what the specific use and medical necessity criteria are And we're optimistic that this will lead to coverage. Cigna, you know, a key criteria for Cigna is NCCN guidelines, and they have acknowledged by their update and their collateral document that we are in those guidelines. So, you know, we feel good about where we're headed with Cigna, and we've already had a couple meetings with them. In terms of more broadly across the payer universe, you know, we've expanded our payer access team. We've added several regional directors. And there's a lot of activity going on at the regional level that's building on our success with some of the regional blues plans. And I think we'll have more to report with regional plans going forward. We also, again, we have our goal to get a national payer on board this year, and obviously Cigna is in the mix for that. The Optum study has triggered a meeting and review with UHC, so that will come up here soon. So we think, you know, we're making good progress with payers. What we've always said is that this is a process that takes time. You know, historically, this can take two to three years to get to 80% covered lives on the commercial side. We experienced some delays because of COVID because payers, you know, stopped kind of reviewing new technologies, but the activity has definitely picked up. And, you know, we see all the things, all the data we've generated. We also published a paper, another paper in Q1. maybe even two, I can't remember exactly. But all that stuff is going to add to the data and the information we provide to the payers, as well as the Optum study on the cost savings. So we feel like we're developing a lot of momentum on the payer front.
spk01: All right, that's super helpful. And then if I could just ask two on pacing, and then I'll let others jump in. You know, the 9,400 or so tests in the quarter are That was a bit ahead of our forecast, but I think importantly, based on what you described in your prepared remarks, it seems like, similar to what we've heard from others, that the beginning of the year, maybe January, even into the beginning of February, that things maybe started out a little bit slow due to lingering impact of the pandemic. If that is a fair observation, I'm wondering if you could talk a little bit about kind of the exit rate on the quarter. You know, what percentage of tests were in March? It feels like that might have been 4,000 or above. You know, that would help us as we're thinking about kind of how you entered Q2 and the balance of the year, you know, kind of what momentum you had there. And then kind of along the same lines, in terms of access to doctor's offices, which is you know, typically pretty important to not just getting initial orders but driving repeat orders in higher volume. How would you characterize progress there, and did access improve as you got to the end of the quarter and moved into Q2? Thank you.
spk04: So, you know, we have been seeing accelerating billable sample volumes on a monthly basis all through Q1. We saw that as positive. Access to the doctor's office is still down. We're also hearing reports that there's a lot of emphasis on aesthetic procedures right now, and that medical dermatology is still not quite rebounding as quickly. And that would make sense as dermatologists try to recoup some of their losses over the last year with the COVID. We do think that the environment for access to offices will continue to improve. It's very spotty and tends to be regional, whereas before it was national. So we do expect to gain better access. What we don't have as a company in general is sort of because we really kind of had this larger launch of our product right in the midst of COVID is we don't have sort of trends that we can rely on to understand what, if there's any seasonality, what the impact of vacations are. For example, in April, we saw a little choppiness around spring breaks in our sample volumes, and we're trying to understand if that's going to be a regular occurrence. In general, I think the expansion that we're going to take with our sales Our sales team is going to ameliorate those problems. We spent a lot of time during COVID trying to go deep, meaning to drive utilization of our existing customers with the product. But now we know we can go broader now as the pandemic is resolving and we can focus on breadth and we can get a good meaningful ROI by focusing on breadth and expanding that sales effort. So I think We just need some more operating history to project more clearly exactly what we can expect each quarter, but we're going to grow this quarter. We've been growing despite all these headwinds, and we're going to continue on that pace in the second quarter. We'll have to see exactly what the number turns out because we just don't have any operating history to fall back on at this point.
spk03: Yeah, and to answer your question about the exit rate, so in March we did have between 3,500 and 4,000 samples was the exit rate of billable samples in March. So that should help the modeling and help you understand what the starting point is for Q2. Okay. That's fantastic, guys. Thanks again.
spk02: Thank you. Our next question comes from the line of Brian Weinstein. Sir, your line is open.
spk05: Hey, guys. Thanks for taking the questions. Just to go back on Cigna for a second, I just want to clarify the concept of medical necessity. In your opinion, are there any cases in which the product would be used which would not be medically necessary? I'm just trying to kind of understand how the negotiation is on that. If a certain type of patient is based off of the number of lesions that you may be able to submit or some other qualification that might hold up the concept of medical necessity? Because it seemed that all of these would be medically necessary to us.
spk04: Yeah. So I think, you know, the playbook is in some of the policies, for example, with Medicare and even Geisinger, our test is indicated for lesions that are suspicious for melanoma, meaning they meet, they have one or more of the ABCDE criteria. That's broadly the the indication for the test, and that would be meet medical necessity in our mind, and that's what we're discussing with Cigna. There are places where the test can't be used, mucosal membranes, the palms of the hands, the soles of the feet. If you have a full head of hair on your scalp, you really can't use it there. So there are some places where it can't be used. That's also part of the medical necessity determinations that need to be made. And we also say that if it's clinically obvious melanoma and there are things that the doctors look at to decide if something is clinically obvious melanoma, it's recommended to go straight to the surgical excision at that point. So those are the kind of criteria that are in the Medicare coverage policy and the Geisinger policy. And those are the things that Cigna is going to review. Admittedly, the NCCN guidelines doesn't spell out all those things, and I think that's why they want to understand what we see as the medical necessity criteria and what our data supports, and that's the discussions we're having with Cigna. But you're right. We think there is a broad basis for medical necessity as it pertains to our test and where it's used for a lesion suspicious for melanoma. Great.
spk05: That was very helpful to hear. And then on the Sticking on this theme for a second, are there other payers in which you believe NCCN inclusion is the tipping point typically for inclusion, or was there something about the way that Cigna approached this that may have been different than the way that others may be looking at this?
spk04: Well, Cigna does in their policies state criteria being NCCN. Not all payers state that. Payers will tell us they definitely like the NCCN guidelines as it does validate it, but they will also at the same time say, but we also do our own analysis. So, you know, they typically reserve some, give themselves some flexibility to make their own determinations, but we think it is a very impactful addition and it adds a lot of credibility because basically the NCCN reviewed our full data package. We submitted our full data package to the NCCN And a 2A recommendation means that it's a unanimous consensus, that it's a useful intervention, and that's basically what they came to in that most recent release for 2021. So, yes, we think it's going to have impact with payers, but payers are always going to want to look at things themselves and establish what they think are the medical necessity criteria, and these are the processes you have to go through.
spk05: Great, and then last one for me right now is in the script, it seemed like you talked a little bit more about the concept of these kind of secondary lesions or the watch and wait as kind of being the use case here for the product. Obviously, you know, it can be used in the primary lesions as well, but did I detect any kind of like change in the way that you're approaching the market in terms of your sales and marketing strategy and the way that your sales reps are going to be talking to clinicians?
spk04: You know, what we found with that paper we published earlier in this day in the quarter was that our test enriches for what are called higher risk lesions. So these are lesions that when the pathologist looks under the microscope, he sees atypical cells. And these are lesions that are categorized by the pathologist as having moderate to severe atypia. And when we published that paper, we showed that over half of our tests that are positive fall into that bucket. And a lot of physicians believe those are higher risk lesions. They want to remove them completely. So our positioning has changed a little bit where we're able to say very concretely now that we can identify not only melanoma, they're a much higher proportion than your surgical biopsy pathway, But we can also identify these higher risk lesions at a much higher proportion than the current pathway. So the current pathway, somewhere between 12 and 16 percent of the biopsied lesions fall into that higher risk category, and only 2 to 4 percent fall into actual melanoma. In our case, you know, almost 19 percent of our samples are melanoma, and over 50 percent are in these higher risk lesions. And so there's a little bit of change in our messaging about identifying lesions at risk that need to be removed. But we do position the product that, you know, hey, if you really think that this is melanoma, you should go ahead and biopsy it. But you have all these other lesions that you're following and that have some suspicion. You're not quite ready to put the scalpel on it, but here's a perfect use for our tests. And that message, I think, is generally well received. And it is where they find, they get surprised and they find a melanoma that they didn't expect. And we call that the aha moment. And that will often drive more utilization of our product when they have that aha moment.
spk05: Great. Thank you for all the context. Appreciate it.
spk02: Thank you. Our next question comes from Alex Nowak of Craig Hallam. Sir, your line is open.
spk08: Great. Good afternoon, everyone. I actually want to follow up to Brian's question there around the NCCN guidelines. What other guidelines do you want or are really pushing to get PLA into in the near term? The big two that I can think of is the American Academy of Dermatology and then the U.S. Provided Task Force. I know that one is actually undergoing a review right now. So which one, which of those two, if any, of those guidelines are critical for insurance coverage and also clinician adoption?
spk04: Great. Thank you, Alex. So the U.S. Preventive Task Force, that's for screening tests, right? Our test is actually a diagnostic, and there's been a long, complicated history about whether or not the U.S. PTF wants to advocate for screening for melanoma, which would mean assessing lesions that really don't have any significant signs or symptoms. We've obviously submitted materials to them to support that our tests would be good to help screen for lesions, but that's a very complicated area. We're not really sure that that's going to be resolved because it's been all around what's the cost benefit associated with screening for melanoma. In the case of the AAD, We believe we have a path forward with the AAD that will also be helped by the fact that we're now in the NCCN and there is some overlap of the clinicians that are on the NCCN panels and what happens with the AAD. The AAD just has a much longer cycle in between which they update their guidelines. They did give us a favorable nod. in the most recent saying that, you know, that we may be a useful intervention there too, but they also couch it by saying, you know, we'd like to see more data. We probably have another half a dozen papers that have been published since they updated the guidelines a couple of years ago, so we definitely have more evidence to address that comment that they made in the AAD guidelines. So we do think we have a path forward with the AAD, and as soon as they go ahead and revise those guidelines, not clear exactly when they'll do it, we'll be right in front of them making our case to put a more affirmative position around our test and those guidelines.
spk08: Okay, understood. That makes sense. And then regarding the pretty big step up in ASPs for Q1, Was this all from the three payers you mentioned out there, or are you winning appeals on the back of NCCN and that's included in the ASPs? I guess what I'm trying to figure out, do we assume this level of pricing continues forward sans any additional coverage?
spk03: Yeah, I like that sort of question. So the ASP improvement was a combination of both, and so I would not characterize the better collection efforts as specific appeals related to NCCN yet, but generally we've got better collection across historical claims. Again, it does take somewhere between 12 and 18 months to collect on some older things, and that's what it's been when you're non-contracted with these commercial plans. But then also we did have, again, the improvement to the processing with the Medicare claims that we referenced. That had a portion of the increase, and then the rest of the increase was due to the blues plans coming on board. Again, we started out a little choppy with some things. I think we mentioned that we were still getting some denials, even though the contracts were effective, and we were able to quickly work through those just coding and programming issues with them, and it's running more smoothly now. But in the future, it will continue to be choppy, right, because there is a portion that's just tied to collection experience of these older claims, and then we do believe that, again, we'll hopefully have some success on appeals for NCCM guidelines, but we're still not seeing it yet. So I would say, you know, model, you know, probably somewhere a little lower than what the actual was within the actual Q1 because of choppiness, but longer term and over time, you know, we do expect obviously our ASP2 continue to increase, which is why we expect the compounding of our revenue growth. Yes, okay, that makes sense.
spk08: And then regarding something that was mentioned in the prepared remarks, can you expand on the pilot program with payers? Just when should those launch? Any payers you can call out there? And then really, how does the pilot program work there for a diagnostic test?
spk04: It's a little early for me to talk about specific networks. I think you're referring to the integrated network activity that we have going on. Some of them are payers and networks. Some of them are just networks that rely on outside payers. and they have a focus on primary care. Again, this grew organically over the last year with them expressing a lot of interest in what we're doing. Referrals to dermatologists is a pain point for these networks, so if there's a way that they can limit those kinds of referrals, it's interesting to them. In some cases, we're developing the business case, Our opt-in model is actually relatively applicable from a business case perspective for those integrated networks. It's a little bit different, but fee-for-service is based on physician salaries and overhead and the time component, and that's sort of how integrated networks also build their business cases. So we think that model will help apply there. In some cases, we're designing those pilots so that we can They can understand how the process integrates with their primary care and what is the impact on the referrals. So I'm very pleased with the progress we're making there. We do have somebody now that's directing all of their attention on the sales side to those networks, and we will continue to build out a team to address those networks because there's just growing activity there. We will announce when we can when those pilots either start or when we obtain contracts, but we're just not at a position to longer sales cycle there's many more layers that goes up through the administration here as opposed to when you're calling directly on a doctor's office if that doctor makes the decision. So it's just a longer sales cycle, but I'm very pleased with the activity we're seeing there.
spk08: Okay. Thank you for the clarification. Appreciate the update. Thanks.
spk02: Thank you. Our next question comes from the line of Kevin Dieter from Oppenheimer. Sir, your line is open.
spk10: Hi, this is actually Susan calling in for Kevin. I have a follow-up question on ASBs. Can you comment on the portion of samples reimbursed by commercial payers? You know, it's 15% for Medicare. What is the percentage for commercial payers?
spk03: Yeah, so historically what we said is of the non-Medicare proportion, it was about 15% or less of what was commercial payers. payers reimbursing. So with the blues plans kicking in, we did have a little bit of improvement there. The exact number is somewhere between 15% and 20% of the non-Medicare. So again, somewhere between 15% and 20% of the 85%. And so that's where we would expect that to continue to increase because remember the California plan having about 3.5 million covered lives. California is a good state for us. Texas, the plan that we have, has about 5 million covered lives, I believe, 6 million covered lives, and of the population of that state being about 30 million. So it's not a majority of that population of the state, but it is also a good state for us, where the Illinois plan is actually more than half of the population covered of that state. We have historically not been very active within Illinois. That's a territory that's newer for us, and we're trying to ramp that up. And so we would expect, as we direct our efforts, our marketing efforts, raising awareness about being covered in certain regions, that that proportion of covered by any payers is going to increase over time as well.
spk10: Great. Thank you. And then just another question about adding commercial payers. Can you describe some of the startup issues with implementing the Blues? And do you expect similar issues as you add more commercial payers?
spk03: Yeah, one of the examples that happened was, you know, we had a Blues plan that went effective. It's a contract, and then we started submitting claims, and the internal people at the Blues plan didn't, you know, share their contract with their claims processing. So we're getting denials right off the bat. And so we had to kind of, you know, go back to them and say, hey, here's our contract, right? Did you not get this from your internal team? And so it's not surprising. I'd say that this should be the expectation probably going forward that, startup challenges will occur with any kind of large corporation or organization. But, again, we're very happy because we're able to clear it out and work through it and fix it in a very short order. And, again, those are now processing very efficiently.
spk10: Great. And just one more for me. Can you discuss the current size of your sales force and where the newer members, if any, are in their onboarding training? You guys previously discussed there's usually like a six- to nine-month delay before they become productive.
spk04: We're right around 40, 41 reps currently, and we're working now to expand. Our initial target was to get to about 50 to 55 reps, so we're working to add those additional reps from our initial plan. And as I mentioned on the call, we can get a good ROI and additional investments that would take us up to about 75 to 80 reps, and that's going to take some time to add those, and that's going to be ongoing throughout the year, but I would hope in our expectations that we have the vast majority of those reps on board, start training by the end of the year, and as soon as possible, quite frankly, we're going to try to accelerate that We do think there's a lot of good reps that are available. We have a lot of interest in what we're doing by reps that are out there, so we think we can fill those slots effectively and get that completed by the end of the year.
spk03: Yeah, and we'd also historically thought that it could take somewhere between nine and 15 months after a three-month training period to get those reps ramped up. What we're still trying to measure, again, we're trying to figure this out pre- and during COVID, And so we do think that those timelines might have extended a little bit, but we still haven't made it to that kind of watermark to say, yes, this is, you know, we know it's nine months, we know it's 12 months or something like that. We're still kind of in the middle of it. And obviously COVID has thrown a wrench into our measurement. But that's where we continue to expect that it would be probably a little bit longer than our initial expectations.
spk10: Okay, great. Thank you so much for answering my questions.
spk02: Thank you. Our next question comes from the line of Sungji Nam from BTIG. I'm sure your line is open.
spk06: Hi. Thanks for taking the questions. Maybe could you talk about kind of the rollout plan for PLA Plus? First of all, congratulations on that launch. I'm assuming that will replace PLA altogether. You know, how should we think about how you're going to bill for that? And also, you know, based on the Optum study and the break-even price being, you know, 50% to 80% higher, right, than before? the current Medicare rate. Just how should we think about how you guys are thinking? You know, are there opportunities to kind of, you know, improve on that pricing in the future?
spk04: So regarding the launch of the PLA, you know, that's really, you know, updating the marketing materials we have. We had started kind of seeding the market with this earlier and then kind of officially launched it just towards the end of the quarter, so we did some market succeeding. And we've had published papers on this adding TERT that have been out for a year or more. So it's really now just building awareness that the test is available and it's ordered. It doesn't mean that the PLA is not available. It's both the PLA and PLA Plus, and doctors effectively will typically check both boxes, and we will run the PLA. and the PLA+. We will always report on the PLA+. In some fraction of samples, we can't get a sufficient DNA to run the actual TERT mutation, but we've just rolled it out that way. We don't have a plan to change the pricing or the reimbursement right now around the PLA+. Medicare has communicated to us in the past that we can add a marker We're deciding if we want to go back to them and discuss changes to the reimbursement related to the PLA+, but the cost addition to our COGS by adding that mutation is not very significant, and we still believe we can achieve significant margins without having to worry about trying to bump the price. Obviously, as you're pointing out, there could be room to bump the price, but There are other market factors that affect the pricing and, you know, out-of-pocket costs of patients and things like that that we need to sort through before we think about trying to increase the price substantially for the PLA.
spk03: Yeah, and so we have to bill the TERT every time that we run it, and we don't expect, again, Medicare to pay in the near term, especially as we are now trying to go and talk about getting addition of TERT into the policy and getting coverage for it specifically. but there is a little bit higher potential that the commercial payers would pay for TERT on a standalone basis as we're submitting those claims. And then again, as John mentioned, right, the Medicare, excuse me, the Optum study that you mentioned too, right, it just supports that the higher pricing that is a break-even for these payers over a three-year period, it supports our efforts within commercial payers to recognize that the value that Medicare has prescribed to the PLA is very reasonable and well worth it from a break-even perspective, especially since it provides better accuracy over the current pathway as well as a better patient experience where the patient doesn't have to worry about getting scars, and then especially in a Medicare population where they're anticoagulated, they're at higher risk for infection. So we think there's a lot of benefits here that the Optum study also just further supports that the value is a very good value that's been prescribed.
spk06: Great. That's super helpful. And then maybe going back to one of Doug's earlier questions about the exit velocity, I'm not sure if it's still early, but were you in the months of March and April, you know, in terms of the Medicare samples, did you see kind of meaningful recovery there just given that that was the group that was one of the earliest groups to be vaccinated? I'm just curious if you guys have insight into that.
spk03: Yeah, so I'd say the low point in the Medicare proportion was February. And remember, that was, again, the very height of the pandemic and then the weather event that literally shut people down and people couldn't go anywhere even if they wanted to. We did see some improvement within March and April as, again, we see the vaccination rates continue to increase. But that's an area where we'll continue to focus our team. The direct marketing efforts are towards the Medicare population. raising the awareness that, again, there is no co-pays with Medicare, and so it's not a cost issue for those Medicare patients. As I just mentioned, right, the other factors around being anticoagulative, higher risk for infections, and poor wound healing, those are all good points around the PLA is something that is a benefit of those patients. So we'll continue on and try all the means we can to increase the awareness and raise that proportion.
spk04: Just to add a little color to that, we did some interesting market research with the doctors, and the doctors had a perspective that Medicare patients don't mind being cut. We then went out and did some market research with Medicare patients, and they said, yes, we mind being cut. So we're going out to the doctors also with that market research to inform them that your perception that Medicare patients don't mind being cut is wrong. And those are the kind of things we're doing to drive that Medicare proportion in addition to all that digital marketing that we do that's directed at the Medicare patients.
spk06: Got it. That's super helpful. And then just lastly for me, you guys launched the Digital Consumer Awareness Initiative last year. Just kind of curious, is that kind of, you know, something that you expect to implement indefinitely or is there kind of a finite duration to that program, to that initiative?
spk04: No, we plan to continue. The program continues to grow. It's very successful. It's very cost-effective relative to other medical technologies. We're driving a lot of find-a-doctor searches through the website. I think we've talked about driving as much as 6,000 a month in searches a month through that program, and I think we see some growth in that. So we will continue with that. It also plays into our other efforts with Luminate, which is going to be marketed to consumers, and our telemedicine solution, which will be marketed to consumers. So we'll probably begin to invest more there because we want to build the top of the funnel to drive utilization of those products, the telemedicine solution and Luminate. So it's going to be an ongoing investment. We get a good return on it, and we will continue that going forward and invest more in it going forward.
spk03: And right now the call to action is go to the website and find a specialist. And we certainly see that, again, the find a specialist hit rate has improved over time. And then the doctors who are on our find a specialist listing, we see that their volume of PLA tests increases greater and faster than the ones that are not on the find a specialist list. So, again, we think it's a very useful tool. And as John mentioned, it's very cost effective compared to other methods.
spk06: Great. Thank you so much.
spk02: Thank you. Once again, as a reminder, if you wish to ask a question, just press star and then the number one on your telephone keypad. Our next question comes from the line of Thomas Layton from Lake Street Capital. Sir, your line is open.
spk07: Hey, guys. Thanks for taking the question. Just a couple to wrap up. I was curious if you had any sense from the clinics that are open, if they've shifted away from telehealth, or is there still some of their business that remains telehealth? you know, to take advantage or to, not to take advantage of, but to capture those patients that might still not be willing to come into the office.
spk04: Good question, Tom. You know, in dermatology, they have definitely shifted away from telehealth. Historically, the utilization rates of telehealth and dermatology have been fairly low. Now, dermatology, telehealth dermatology in primary care and other avenues is a big part of that business, but for dermatology customers and our customers, there's less activity on that front. Our telemedicine effort is a way to take us outside of that direct dermatology call and reach a broader group of patients that want to have lesions assessed that may not have access to their dermatologist. We think that thesis remains intact even though dermatologists themselves are not really, they're trying to see patients in their office right now and they're not really doing a lot of telemedicine visits. We do still get a few telemedicine samples in every month, but it's pretty small just because there's not a lot of activity telehealth by our customers.
spk07: And then I know in the past you've had some that have come in from more than two lesions per patient per day to service. And as you start to maybe pivot a little bit towards the, you know, focusing more on the watch and wait lesions, do you think there's going to be an increased proportion of patients or docs that submit multiple lesions per patient that puts you in a bit of a quandary from a reimbursement perspective? Or is that a bit too early to go down that path?
spk03: It's probably a little bit too early. I think we would expect that that could happen. especially for, say, Medicare patients, right, if they are not, if they haven't seen their dermatologist in a while because they've been afraid of getting into the clinic, then a dermatologist might want to test more lesions on that same patient on the same date of service and just make sure and get things done. In that case, right, the Medicare policy does allow for a second body site on the same date of service in a small proportion of cases, and then anything beyond that, we would just need to get medical records and appeal those cases. So we still have a pathway of getting paid for multiple body sites even through Medicare. And then so far our commercial payer contracts don't have specific limitations around number of body sites per date of service. They could go down that route eventually too if over-utilization becomes a concern. But we've got various kind of methods and ways that we can kind of show them that over-utilization is not happening. You know, everything that is being tested with our PLA is something that is, you know, warranted for that testing. And so, yeah, I'd say it's a little too early, but there is that possibility. Great. Thanks, guys.
spk02: Thank you. There are no further questions at this time. And this concludes today's conference. Thank you all for participating.
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