DermTech, Inc.

Good day, ladies and gentlemen, and welcome to the DermTech fourth quarter and full year 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require operator assistance, please press star then zero key on your touchtone telephone. As a reminder, this call may be recorded. I would like to hand the conference over to your first speaker today. That is Caroline Corner, Investor Relations. Please go ahead. Thank you, Operator.

Welcome to Durham Tech's fourth quarter and full year 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, March 1, 2022, 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 quarterly report on Form 10-Q for the quarter ended September 30, 2021, 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, 2021, 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 2021 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. Our recording of today's call will be available on the DermTech website by 5 p.m. Pacific time today. Now I'd like to turn the call over to John.

Thank you, Caroline, and thank you, everyone, for taking the time to join us today. In January of this year, we had a national sales meeting. This was our first national meeting with a fully scaled and resourced commercial team. an important milestone for DermTech and one that I've been waiting on for almost two years now. We now have the necessary capacity to drive adoption of our DermTech melanoma test, or DMT. With this test, we want to change the status quo of early melanoma detection through our non-invasive genomics platform enabled by our smart sticker. The quality of the sales team members is impressive in terms of their commercial experience in dermatology and the numerous accolades they received as sales managers and leaders from their prior companies. But what was most impressive was their motivation and enthusiasm to lead our effort to fundamentally change the practice of dermatology and bring the genomic revolution to dermatologic care. As we will discuss shortly, we believe our investments in the commercial organization are already contributing to the growth and adoption of our melanoma test. Turning to our 2021 performance, we finished the year with over 44,000 billable samples and $11 million in DMT assay revenue, which represents 86% sample volume growth and 160% assay revenue growth over 2020. For Q4 2021, compared to the same period of the prior year, we increased our unique quarterly ordering physicians from about 1,000 to approximately 1,800 providers. We are quite pleased with our 2021 performance, despite experiencing three waves of the COVID pandemic. In addition, as I just noted, we implemented a large commercial scale-up that has significantly redrawn our territories and reporting structures, resulting in some near-term disruption, but positioning us for the growth we see ahead. We often field questions from the investment community about the overall speed of our revenue and test volume ramp-up. In general, we believe we are making meaningful progress given the overall pandemic environment we have been operating in. However, another way to answer this question is to look at the historical performance of our peers. In about two and a half years since launching DMT in earnest, we reached the milestone of approximately 50,000 samples in a single year. And I will emphasize that in our effort to be thoughtful about scaling the organization during a pandemic with reduced physician access, our commercial team growth was slower than we anticipated two years ago. On average, it took many of the peers in our space approximately five years to achieve a similar level of adoption if they achieved that level of adoption at all as measured by sample volume. Another metric to look at is sales rep productivity. We had on average about 40 fully trained sales managers during 2021. These sales managers produced on average between 1,100 and 1,200 samples for the year. We estimate sales manager productivity for some of our peers during a similar period after product introduction was between 507 samples per year per rep. Now, we recognize that we do have a larger market opportunity for melanoma tests than some of our peers have for their respective tests. But if we look at company with a company with an even larger market opportunity than us, for example, one in colon cancer screening, we estimate historical sales representative productivity was approximately 1,000 samples per rep per year at a similar stage of commercialization. We are clearly seeing significant levels of adoption relative to our peers with the melanoma test, which is bringing transformational change to dermatology, a specialty that has not had much exposure to the genomic revolution, nor a product that dramatically changed their method of practice. Now, where we are lower relative to our peers is our top line revenue growth, which is hindered by our lower average selling price, or ASP, which was $252 for Q4 2021. As we have consistently discussed, we believe we will monetize this sample volume by growing our ASP. And as this price approaches our Medicare reimbursement rate of $760, we will see top-line revenue compound meaningfully. The main variables we look at to grow our ASP are increasing the Medicare and covered billable sample proportion, two, increasing our appeal success, and three, attaining additional payer coverage from third-party payers. Medicare represents half of the total addressable market, so ideally our proportion of Medicare samples should be 50%. While we have managed to steadily grow this proportion, we still have significant work to do here as our proportion for Q4 was 23%. We will continue to raise awareness of our product in the Medicare community through our digital marketing efforts, and continue to educate our customers on the benefits of the product to the Medicare population. Clearly, expanding our payer coverage will meaningfully improve our ASP. We currently have approximately 90 million covered lives. Given the fact that we lost approximately one year of payer activity due to the pandemic, our growth in covered lives since our Medicare coverage is on par with peer companies that introduced highly novel diagnostic tests. As we've discussed, we have significant ongoing activity with regional and national payers, and our team is hard at work educating them so they better realize the clinical value proposition which should ultimately lead to coverage. We continue to provide peer-reviewed publications that support coverage of our DMT. In March, we expect the results of the Optum Healthcare Economic Study to be published. Also, the 2022 edition of the NCCN guidelines reaffirms the 2A recommendation for the DMT. We also believe the 2022 document strengthens the overall recommendation by delineating our test as a standalone pre-biopsy assessment and removing some ambiguous preamble language that was present in the 2021 guidance document. We remain optimistic that we will achieve coverage in 2022 from at least one nationally recognized payer. Looking now at recent trends and the patterns we saw in the fourth quarter, we, like so many others, continued to see pandemic-related chopping itch, which continued into November. However, December proved to be quite strong, and we set new records for samples received and unique ordering clinicians, despite a significant drop-off in the last week of the year due to the holidays and Omicron surge. Like many companies, January 2022 remained challenging. However, our growth has recently rebounded, and February broke the sample record volume record that we set in December. Part of our commercial expansion involved developing our peer-to-peer and medical science liaison educational efforts, and we are seeing interest in this effort with well-attended physician-led educational meetings, suggesting the medical community is learning to live with the COVID. In March, we plan to attend the AAD annual meeting, and we'll have a significant presence and marketing effort there, including a prominently placed booth and marketing banners throughout the venue. We continue to invest in our direct-to-consumer marketing to facilitate patient education and to raise product awareness and demand. We currently average about 25,000 searches on our Find a Specialist tool each month by people who are potentially interested in the DMT. In addition, we have made progress with electronic medical record, or EMR, integrations through EMMA, the most common EMR used by dermatologists, and have onboarded nearly 300 locations. We have efforts to onboard approximately 200 additional locations, which should help with process efficiency. All of this gives us confidence that we expect to approximately double our billable sample volume in 2022 and more than double our DMT assay revenue. We continue our expansion into primary care. We have built a small team of account managers to engage with primary care network administrators and executives. The Florida IDN rollout continues, but was slowed due to Omicron. However, activity has recently picked up, and we expect to complete the first phase of this rollout to approximately 300 clinicians in the near future. As discussed previously, our initial efforts in Florida are centered around quantifying certain metrics regarding deployment into primary care, including such factors as the number of accounts a primary rep can handle, the number of sales calls needed to secure an order, conversion rates, and utilization ramp expectations. The pilot we have ongoing in the Midwest continues, but also had some Omicron delays. We have expanded our telehealth offering, DermTech Connect, which is now available in Florida, New York, Illinois, Pennsylvania, Connecticut, Colorado, Missouri, and West Virginia. There are also another 15 to 17 states in which DermTech Connect will be available in the coming month. As a reminder, the telemedicine platform is designed to match an interested patient with a participating independent dermatologist who can assess a suspicious lesion using the DermTech Connect store and forward telemedicine option. The dermatologist may, if warranted, also order our DMT test for the patient. We plan to gain synergies with our marketing efforts and find a specialist tool by providing the DermTech Connect option to people who visit our website, that are interested in connecting with doctors who use the DMT. We are pleased to report that Luminate development is now complete and the assay is currently being transferred into our commercial lab. The supply chain constraints related to sequencing flow cells we mentioned on the last call did spill into the Q1 a little bit and affected Luminate development slightly. We expect to begin introducing this product in the second quarter and recently hired a Vice President of Consumer Products, Adele Walker, with commercial experience from companies such as Allergan and SkinMedica to spearhead our efforts in the consumer-based genomic health and wellness testing market. Given Adele's background, we plan to commence the introduction of this product directly to the consumer with physician oversight. However, sometime in the future, we may look to deploy this test in deficient offices that have consumer product offerings as part of their practice. We are also exploring the development of additional consumer-oriented health and wellness tests to offer through our consumer channel. We continue to make progress on our carcinome test. Though we have more work to do there, the performance of the assay continues to improve, but we have not yet achieved our desired performance metrics. We are still targeting validation of the assay by mid-year and will work to generate utility data in the second half of 2021 to support a Medicare submission. We recently launched DermTech Stratum, to expand our presence and product offerings with the pharma and academic research community. Dermtech Stratum includes additional services such as biomarker identification, new target identification, patient segmentation and stratification, and bioinformatics support. In the last couple of quarters, we are pleased to have seen an increase in engagement with pharma collaborators and have multiple contracts in various stages of negotiation and several new contracts completed. Current indicators suggest that clinical trial activity is resuming after the pandemic induced lull, and we expect this increased activity to drive more research business through STRATUM. In summary, we believe the table is set for a robust 2022, as it will be the first year of commercializing the DermTech melanoma test at an appropriate commercial scale. While the vast majority of our effort will be spent securing adoption in the professional dermatology channel, which should drive nearly all the performance for the year, We will continue our expansion into primary care professional channel, the DermTech Luminate consumer channel, the DermTech Connect telehealth channel, and our DermTech Stratum research channel. I look forward to answering your questions during the Q&A. With that, I'm going to turn it over to Kevin to go over the financial results.