DermTech, Inc.

Good day, and thank you for standing by. Welcome to the DermTech third quarter 2022 financial results call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. After the question, during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to Steven Casabo, Head of Investor Relations. The call is yours.

Thank you, Operator. Welcome to DermTech's third 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 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 third quarter 2022 earnings press release and SEC filings are available on our investor relations website. A recording and transcript of today's call will be available on our website later today. With that, let me turn things over to John.

Thank you, Steve, and thank you, everyone, for joining us. The third quarter of 2022 was positive as it relates to bringing on new payers and increasing covered lives, but was tough in terms of sequential growth. Billable sample volumes did grow 54% year over year, but were flat sequentially. Payers continue to impact the average selling price, or ASP, of our DermTech melanoma test, or DMT, which was flat excluding prior period adjustments, but down when including those adjustments, details which Kevin will provide. In addition, we are experiencing some pressure on billable sample growth as payers roll out their typical tactics to impede the adoption momentum we have generated this year. We are addressing this by expanding coverage and using our own tactics to reduce this pressure. As we discussed on the last call, there was also some pressure on billable sample volumes during the quarter in territories with elevated sales rep turnover. Turnover has stabilized and is back to historical levels, and our new reps are ramping up nicely now. We are working to accelerate the historical ramp-up period of new reps to minimize the future potential impact of billable sample volumes. We believe the most impactful thing we can do to stabilize and then accelerate revenue growth is to bring on more commercial payers. It is a critical factor in growing ASP and it removes a barrier to increasing customer usage. To that end, we now have line of sight to adding 30 to 40 million covered lives by the end of the first quarter of 2023. This total would be more than a 35 per cent increase in our current covered lives in the U.S. and is roughly equivalent to the second largest national payer. These covered lives come from a broad combination of payers. which demonstrate the momentum we have gained to raise awareness of the clinical and economic value proposition of the DMT. We've hit a milestone of more than 150,000 DMTs completed, and we believe these strong volumes are contributing to our progress with payers. We expect approximately half of these covered lives will be effective before the end of the year. In addition, pricing is consistent with our long-term targets. We recently executed an agreement with a large regional payer that covers 6 million lives and completed price negotiations with a national government payer that runs the largest integrated healthcare system in the U.S. We expect to be effective by the year end. We also received a policy from a large lab benefits manager. The lab benefits manager is a particularly important win because it represents up to 8 million covered lives itself, reaches potentially another 30 million covered lives through its relationships with health plans, and it was an independently developed policy that clearly outlines the value proposition of our test. In addition, national payers are also leaning in more than they ever have, and we've been able to leverage educational meetings with medical directors into upcoming scheduled comprehensive reviews. We see these upcoming comprehensive reviews as potential important near-term catalysts for our ASP and revenue growth. Overall, we have had more positive activity with payers now than we've had at any time during the last two years, a drought inactivity which was largely driven by the pandemic. We believe we're now in a normalized trajectory to add payers at a similar rate as our more mature diagnostic peers. It is worth noting The significant patient need exists in the large addressable market for melanoma skin cancer. There are 4 million biopsies each year to find approximately 200,000 melanoma cases. Annual treatment costs for melanoma are over $3 billion. Early detection matters as melanoma is very treatable when identified early. Overall, it's a $2.5 billion market opportunity. Along with the nice momentum bringing on payers, We have two initiatives in primary care that can also help strengthen our ASP. First, our agreement with SonoraQuest, which is the largest laboratory testing network in Arizona, establishes a reference testing model where SonoraQuest bills insurance for the samples they generate and pays us a set fee per sample. We have completed systems integration and training of their primary care sales reps is ongoing. We expect this arrangement to begin to begin commercial operations before the end of the year. We're also receiving strong positive feedback regarding the primary with an important payer provider and believe this pilot is tracking in the right direction. I also want to emphasize that we further strengthen our operating discipline and are adjusting our operating expenses to be in line with our tempered near-term revenue trajectory. In closing, Despite our top-line metrics being flat sequentially, long-term improvement in ASP and revenue is clearly all about payers. Substantially, all our capital and energy is focused on two important priorities, expanding commercial coverage for our DMT to boost the ASP and alleviating payer friction in our commercial channel. Given the billable samples we've demonstrated we can generate, monetizing this demand at a higher ASP has the potential to exponentially grow assay revenue. 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.