DermTech, Inc.

Good day and thank you for standing by. Welcome to the Durham Tech's first quarter 2023 financial results 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Conzabo, Head of Investor Relations. Please go ahead.

Thank you. Welcome to Dermtech's first quarter 2023 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 law. Our first quarter 2023 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. In March, we attended our most impactful and energizing American Academy of Dermatology, or AAD, annual meeting. Our booth had incredible traffic with more than 1,000 visitors, and we generated approximately 300 sales leads. Our booth was also a fixture for key opinion leaders, or KOLs, and healthcare practitioners throughout the event. Our momentum at the AAD again demonstrated that precision dermatology guided by non-invasive skin genomics is being integrated into the melanoma care pathway. It's inspiring to see customers and industry leaders independently carrying our vision forward. We also completed our CLIA laboratory move in March. This was a two-year project marked by the tremendous planning effort and execution of our team. We are now in a state-of-the-art facility that brings together all of our San Diego colleagues in one location. I'm proud of our entire team and what this means to DermTech's future. Our capital and energy remain aligned against a few important priorities, expanding coverage for the DermTech melanoma test, or DMT, monetizing existing demand around strong sales execution, and sustaining our cash runway. We're steadily pushing ahead towards these goals. First, the steps we've taken to stabilize our average selling price or ASP, including generating more volume from reimbursed tests, are exhibiting positive signs. We're encouraged that the ASP for the DMT supported 27% sequential increase in our test revenue to $3.4 million. We continue to emphasize the DMT's clinical value proposition and an enhanced customer experience, including electronic ordering of our tests, regional billing concierge services, and healthcare provider training programs. Our sales effort is structured to pull through test volumes in geographies where we've currently picked up insurance coverage and we are exploring additional tactics to maximize our ability to generate reimbursed volumes. We continue to believe the best way to reach a top line inflection point is to bring on more commercial payers. We've added 35 million covered lives since the end of 2022, roughly the equivalent of the second largest national commercial insurance provider. We now have approximately 126 million covered lives in the U.S., which breaks down as nearly 68 million from Medicare and Medicare Advantage, and 58 million from a broad mix of regional and governmental payers. We've also begun to sign agreements with commercial payers in cases where positive coverage policies have recently been issued. Our contract announcement with the major blues plan in North Carolina is a good example. By having both a policy and an agreement in place, We strengthen our connection with insurance providers and further reduce barriers to access because our test becomes available as an in-network benefit. Following closely behind many of the positive coverage policies we announced in the first quarter, we also expect to sign agreements with TRICARE and several other large regional blues plans. Overall, pricing for the contracts we've recently added remains in line with our long-term targets. In addition, A countrywide alliance that serves national counts and more than 10 Blues plans to service the self-insured and employer populations recently issued a positive coverage policy for the foundational assay of the DMT. We are eager to gain access to the millions of members served by this national platform. Furthermore, we anticipate finalizing an agreement with the National Association of Independent Locally Operated Blues Plans. This organization has substantial influence over many regional blues and national commercial plans, and we believe it could bring in additional policies and contracts. We're also making good headway bringing on Medi-Cal, which is California's Medicaid program. We're nearing the end of a long onboarding process that includes several procedural steps and getting aligned on pricing for the DMT. We already have solid test volume with this patient population, and look forward to improving access for Medi-Cal's more than 12 million members. We intend to further leverage the test farm we already have by pursuing Medicaid coverage in several other states. It is important to remember that these Medicaid programs are amongst the largest governmental payers. Our effort bringing on integrated delivery networks, or IDNs, is gaining traction as well, including the large nationally recognized payer provider with which we are conducting a successful pilot. We expect to move to the contract negotiation phase later in the year. As you heard, our momentum with payers remains strong across a broad mix of organizations. We continue to work closely with nationally recognized payers, although two of them reiterated negative coverage policies in recent weeks. We still have multiple opportunities this year to achieve a nationally recognized payer win. Importantly, two independent economic assessments are being performed by the affordability groups related to national plans. The outputs from these assessments are looking favorable, and we believe they could positively influence coverage. One of the chief ways that our visibility with payers goes up is through advocacy channels, including professional societies, physician, and legislative efforts in individual states. It's important to note that bills mandating insurance coverage of genomics testing, or so-called biomarker bills, are expected to be effective in multiple states in late 2023 and early 2024. These states are just the latest in a growing list that recognize the importance of improving access to potentially lifesaving genomic tests. Our visibility with payers has also improved through independent assessors of healthcare technology. As noted previously, we've already received a favorable policy from the second largest lab benefits manager in the U.S. We also recently received a favorable recommendation from a well-recognized nonprofit technology assessment firm that conducts technology evaluations to improve the safety, quality, and cost-effectiveness of care across all healthcare settings. We believe this favorable recommendation could influence coverage by commercial payers. In addition, a large regional payer conducted their own economic assessment using the framework from the Optum Economic Study. This payer discovered their costs for adjudicating pigmented lesions were even higher than the Optum Study. We believe these independent efforts affirm the robust clinical validation and health economic data that has already been published for the DMT. Our TRUST-2 study, which we initiated in 2022, should provide additional evidence in support of our payer discussions. This is a prospective study designed to follow a cohort of 2,000 to 3,000 patients with negatively tested lesions for up to one year. This study also assesses the histopathologic diagnosis of up to 1,000 lesions that tested positive with the DMT and includes the analysis of the TERT add-on test. We expect to release top line results in the second half of 2023. The resulting data, if positive, may potentially allow us to reengage with the two national payers that recently reiterated their negative policies. Overall, we're pleased with the progress we've made since the end of 2022, and we've expanded coverage for the DMT by nearly 40%. Our sales team also executed well into the first quarter, And coming out of the AAD, we were on track for healthy total sample volume growth. However, we have begun to shift our focus to driving reimbursed volumes and ASP versus driving total test volumes. Driving ASP is one factor which helps preserve our cash runway. This change in prioritization aligns with our strong payer progress. As an example of the steps we've taken to implement this strategy, We've realigned our support infrastructure, including concierge services, in territories where we have insurance coverage for the DMT. In addition, we have dissolved certain sales territories to align our focus on reimbursed samples. Further, given our recent increase in covered lives, we've also equipped our sales team with payer mixed data to allow them to target providers with reimbursed billable samples. Lastly, we recently stopped testing samples from pediatric patients and certain Fitzpatrick skin types based on guidance from our lab-accrediting organization. We are working on a plan to reintroduce testing for these patient cohorts with an extremely low incidence of melanoma. Due to all these factors, we expect billable sample volume for 2023 to be relatively flat compared to last year. ASP improvement should increase revenue. I want to emphasize that we continue to look for additional cost savings to preserve our cash runway and optimize our operational and organizational footprint. In closing, we've made great progress bringing on payers and executed well to drive fundamental demand for the DMT. We're now prioritizing generating reimbursed tests versus overall demand growth. We're also aiming to be on the first best footing possible with two national pairs that we still expect to hear from later in the year. Substantially, all our capital and energy is focused on the DMT to expand reimbursed test volumes and commercial coverage and boost ASP. We believe these steps are important as we look to sustain our cash runway and capitalize the business going forward. As a final note, we are in the late stages of identifying my successor, and we expect to announce something soon. This may very well be my last earnings call, and if it is, I have enjoyed working with you all. With that, I will turn the call over to Kevin for a more detailed financial review.