DermTech, Inc.

Good day, and thank you for standing by. Welcome to the DermTech second quarter 2023 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. To ask a question during that session, you will need to press star 1 1 on your phone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded, and I would now like to hand the conference over to your speaker today, Mr. Steve Consable. Sir, please go ahead.

Thank you, Operator. Welcome to DermTech's second quarter 2023 earnings call. With me on today's call are Brett Christensen, 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 2023 earnings press release and SEC filings are available on our investor relations website. A transcript of today's call will be available on our website later today. With that, let me turn things over to Brett.

Thank you, Steve, and thank you, everyone, for joining us. It's been a whirlwind since I joined DermTech in early May. I'd like to start with what excites me about leading DermTech before I jump into the details of how we'll do some things differently moving forward. First, we have a great technology that should be a key tool for healthcare providers. The current standard of care is challenging with the solutions that have been traditionally available to clinicians, but we believe it needs to be better than performing 20 or more invasive surgical biopsies to find just one melanoma. Melanoma is the most aggressive form of skin cancer and claims 8,000 lives annually in the U.S. The DermTech Melanoma Test, or DMT, is non-invasive, rules out melanoma with a 99% negative predictive value, and provides clinicians with objective and actionable genomic data for suspicious lesion. My vision is for the DMT to be deployed universally as part of the melanoma care pathway, and we have an excellent product to execute against this goal. Second, we're pursuing a large addressable market where significant patient need exists. Approximately 200,000 new cases of melanoma are reported every year in the U.S., resulting in $3.3 billion in annual treatment costs. We can help lower these costs by ruling out the need for unnecessary surgical procedures while also providing a better patient experience that may encourage testing suspicious lesions earlier. This is important because early stage diagnosis has a five-year survival rate of 99%, whereas a late stage diagnosis drops the survival rate significantly to 30%. Genomic changes may precede visual changes for melanoma, and the DMT detects genomic markers that are correlated with an increased risk for melanoma and can aid decision-making by clinicians. Third, we're making solid progress with insurance providers, expanding access to our tests, but still need to reinforce our message around the clinical and health economic benefits of the DMT and improve our onboarding process once we complete agreements. Many payers that have comprehensively reviewed the most current data have issued favorable coverage policies and signed agreements during the last several months. We've expanded covered lives approximately 45% to $133 million in 2023 and now work with seven of the top 10 Blues plans and two large governmental payers. These steps expand access to the DMT as an in-network benefit and improve reimbursement. Overall, we've made good progress but must continue to be focused on payers. Based on our coverage today, we reach approximately 45% of total covered lives in the U.S. We have a strong foundation that aligns with our intense focus on prioritizing reimbursed tests and boosting revenue. Our covered lives footprint, coupled with the fact that less than a third of our total billable sample volume is reimbursed today, clearly supports a path to monetizing the significant DMP volume we already have. For example, If our annual volume stayed relatively flat at the 2022 level of roughly 68,000 tests, but we doubled the percentage of these tests for which we are reimbursed, our test revenue could more than double from the approximately 14 million we generated last year. We are okay with trading some volume growth in the short term for a healthy average selling price or ASP and revenue gains. We'll prioritize test volume again when we're further down the path of sustained revenue growth. In addition to our coverage wins, we've received a favorable recommendation from ECRI, a well-recognized nonprofit technology assessment firm. ECRI is focused on healthcare technology evaluation and safety to improve quality, reduce costs, and achieve better outcomes across all healthcare settings. We believe this favorable recommendation could further influence coverage decisions by commercial payers. Our visibility with payers also improves through state legislative efforts. Bills mandating insurance coverage of genomic testing, or so-called biomarker bills, are expected to be effective in several additional states in late 2023 and early 2024. Lawmakers across the U.S. have advocated for improving access to potentially lifesaving genomic tests. Our TRUST II study, which we initiated in 2022, should provide additional real-world evidence in support of ongoing 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. The study also assesses the histopathologic diagnosis of up to 1,000 lesions that tested positive with the DMT. We expect to release top-line results in the second half of 2023. The resulting data, if positive, can support re-engagement with many payers. Across the organization, we made some tough decisions to streamline operations and put all our energy into scaling the DMT and prioritizing reimbursed tests to grow revenue. Building a strong foundation by having success with the DMT has to come first. We believe in the power of our non-invasive skin genomics platform and recognize that it has a broad array of applications in dermatology, but we need to win with the DMT before we consider these other opportunities. The DMT's ASP and test revenue were both up sequentially in the second quarter, which is a good start as we reposition the business around this new strategy, but we have more work to do. We're starting to make some adjustments, especially around the tactics we're deploying to generate reimbursed tests and maximize revenue. First, and perhaps most importantly, we've aligned incentive compensation for our sales team with driving reimbursed tests and revenue over total volume growth. In addition, we've expanded payer mix and analytics reporting to allow the field team to target providers with reimbursed billable samples based on our already healthy demand. Second, we've dissolved certain territories and merged others to focus on reimbursed samples where we already have broad insurance coverage. Over the last two quarters, we've trimmed our sales team from approximately 70 to roughly 60 reps to facilitate this objective. Third, we're going to shift our spending more closely to sales team enablement rather than broad-based marketing efforts. We still plan to participate in national dermatology conferences, but our presence at regional conferences will be more targeted based on several factors. We'll also recalibrate our direct to consumer marketing tactics to capitalize on areas where we already have insurance coverage. We need to build DMT adoption at the ground level with clinicians And this change in our approach should improve traction in communicating the DMT's value proposition. Lastly, we've realigned our support infrastructure, including concierge services and medical affairs support in territories where we have insurance coverage for DMT. We've also improved the integration of electronic health records with our customers, which significantly reduces billing friction and increases the success rate of appeals with payers. In closing, we believe we've now right-sized the business across all functional areas and sharpened our focus. Our capital and energy are concentrated on three key priorities. Prioritizing reimbursed tests over total volume to grow revenue, continuing to expand coverage for the DMT, and sustaining our cash runway. We'll scrutinize every dollar we spend to ensure it supports achieving these goals and generates a strong return. I'm excited to have joined DermTech three months ago to lead this great team, and I look forward to the many successes ahead of us. With that, let me turn the call over to Kevin for a more detailed financial review.