DermTech, Inc.

your conference operator today. At this time, I would like to welcome everyone to the Durham Tech second quarter 2022 financial results conference call. As a reminder, today's conference call is being recorded. All lines will be placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. Thank you. Steve Consavo, Head of Investor Relations. You may begin.

Thank you, Operator. Welcome to DermTech's second quarter 2022 earnings call. Joining me on today's call are Dr. John Doback, our President and Chief Executive Officer, and Kevin Sun, our Chief Financial Officer. Our call today 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 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 our most recent filings with the SEC. We undertake no obligation to update these statements except as required by applicable law. Our second quarter 2022 earnings press release and SEC filings are available on our investor relations website. A recording of today's call will be available on our website later this afternoon. With that, let me turn things over to John.

Thank you, Steve, and thank you everyone for joining us. We have a lot of ground to cover today as we reported our second quarter 2022 financial results, updated our full year outlook for assay revenue, and announced some capital structure items related to our balance sheet. I'm going to jump right in to highlight key commercial trends and outline what we expect from the second half of 2022 for top line growth. I will also touch on steps we are taking to further strengthen our cash runway. The second quarter of 2022 saw us post records across a range of core operating metrics as our sales and marketing team continued to be effective in driving adoption of our DermTech melanoma test, or DMT. We reported 56 percent year-over-year sample volume growth to approximately 18,320, and and a 67% increase in unique ordering clinicians to approximately 2,390, despite elevated sales rep turnover of 15 to 20% in a competitive labor market. Along the way, in the second quarter, we set high marks for daily, weekly, and monthly billable sample volumes multiple times. We also sharpened our focus through an extensive budget and operations review, during the last few months, which resulted in essentially flat total operating expenses when compared to the first quarter. In addition, we streamlined our laboratory processes, which reduced the per-unit cost for our DermTech melanoma test by 28 percent to $177 per test in the second quarter from $246 per test in the first quarter. Overall, the strong execution of our commercial team and operating discipline is producing excellent results. On our last earnings call, we noted that we were considering a small contract sales team to better understand the adoption potential and required investment for the DMT in the primary care space. We've since paused this initiative in favor of other potentially more efficient options. First, we've entered into an agreement with SonoraQuest for primary care distribution in Arizona. SonoraQuest is the largest laboratory testing network in Arizona and serves more than 33,000 patients every day throughout the state. Our agreement establishes a reference testing model where SonoraQuest bills insurance for the samples they generate and pays us a set fee per sample. All testing will occur in our San Diego lab. Arrangements such as these provide good economics for extending our reach in key markets such as primary care while also lowering our capital commitment compared to expanding with a direct sales force. Second, our established integrated delivery network or IDN programs in both Florida and the Midwest are seeing steady traction, but it's been moving more slowly than we anticipated in large part related to lingering COVID impacts. We also recently kicked off a new pilot program with an important payer-provider IDN to further expand our strategic approach to primary care. These types of pilot programs can provide key market insights across different commercial use cases and we believe our targeted strategy to address the primary care market is the right course of action. As it relates to the average selling price or ASP component of our assay revenue, we are now seeing pressure from two primary areas, ongoing Medicare billing impacts and less favorable collection patterns from commercial payers. We believe these emerging trends may last for a few quarters. Specifically, Medicare insurance claim processing has been problematic due to code edits that reject claims where patients have multiple body sites tested on the same day. Some commercial payers have also adopted these code edits, further eroding the ASP. In the second quarter, we engaged with Medicare's billing contractor, NCCI, and expect new insurance code edits to be adopted in the fourth quarter of 2022 that will improve this issue. We also expect commercial payers to adopt this change but it's difficult to predict exactly when their billing systems will be updated. We'll continue to closely monitor these coding impacts and other issues that result in denied payments over the coming months to identify how we can further counteract these factors and get the ASP moving higher. Turning now to our progress with payers, where increasing our covered lives will be an important factor in increasing ASP, We remain actively engaged with patients, physicians, and payers through a variety of activities and advocacy channels to drive policy and contract decisions for our DermTech melanoma test. The total covered lives in the U.S. are approximately 91 million, which breaks down as nearly 68 million for Medicare, Medicare Advantage, and 23 million for commercial payers, which largely comes today from the blues of California, Illinois, and Texas. We are seeing good indicators that reinforce our belief that bringing on commercial payer coverage is only a matter of time. These indicators include active data reviews, increasing sample volumes, direct feedback from payers that our product fulfills an unmet need, and importantly, contract and policy discussions. There's a lot of activity happening with payers that increases our confidence that additional coverage will happen, but we can't always share the details due to the sensitivity of the dialogue. The strong billable sample volume we're seeing with non-contracted commercial payers also undoubtedly helps make our case. Overall, we remain confident that we will be able to meaningfully improve our coverage footprint in 2022, and our goal remains to bring on a nationally recognized payer. Shifting gears to our pipeline and recent developments, specifically with Luminate and Carcinome, we continue to make targeted investments to advance our pipeline in our evaluating projects budgets and timelines given the current economic environment and focus on preserving a healthy cash runway. For Luminate, our direct-to-consumer offering that assesses skin cancer risk, we have locked the assay design and will soon complete processing validation samples that were collected in a large multi-center clinical study. Our market research continues to indicate Luminate is a compelling opportunity. However, given our focus on growing bonds for the DMT in the current economic environment, We believe that it's prudent to push the introduction of Luminate to the first half of 2023. As for carcinoma tests to detect the presence of non-melanoma skin cancers such as basal and squamous cell carcinomas, we continue to methodically navigate through the development challenges for the squamous cell portion of the test. As you may recall, we successfully identified a classifier for basal cell cancers earlier this year. We're working diligently to validate the basal cell classifier and develop plans for utility studies It is important to remember that these product candidates were never intended to have an impact on 2022 revenue and will continue to be mindful of allocating capital to these programs in a disciplined way. In closing, we're executing well against a robust commercial plan while addressing headwinds that have crept up recently that we believe will have a short-term impact on our revenue trajectory. We also believe the increase in insurance claims denials is due in part to our success in driving product adoption and payers pushing back. We are confident that sustained commercial traction combined with our robust payer activity will ultimately drive payer adoption and long-term ASP growth. Growing billable sample volume and supporting activities that bring on commercial payers are clear priorities in 2022 and where most of our capital allocation is earmarked. I look forward to updating you again in the months ahead. With that, I'll turn the call over to Kevin for a more detailed financial review.