Q1 2021 DermTech Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to their index first quarter of Kay for any one 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 and you asked the question. During the session you will need the press Star and then the number one.
On the telephone keypad.
I would now like to hand, the conference over to MS. Caroline corner Investor Relations Ma'am. Please go ahead.
Thank you operator welcome to <unk> first quarter 2021 earnings call. Joining me on today's call are Dr. John <unk>, President and Chief Executive Officer, and Kevin from Chief Financial Officer the.
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 the 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 May 13 2021.
And they are subject to various factors assumptions risks and uncertainties, which change overtime.
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 I'll take the most recent filings with the SEC, including <unk> annual report on form 10-K for the year ended December 31 2020.
Take undertake no obligation to update these statements except as required by applicable law.
Don't take the press release with the first quarter of 2021 results is available on drove the investors relations section of the <unk> website Www Dot <unk> Dot com and includes additional details about the text financial results also available on the drug Tech website of dorm text latest SEC filings, which you are encouraged to review a recording of today's call will be available.
On the <unk> website by five P. M Pacific time today, now I would like to turn the call over to John.
Great. Thank you Caroline and thank you everyone for taking the time to join us today.
We were pleased to have this earnings call on the month of May which is the melanoma and skin cancer awareness month skin cancer is the most common form of skin cancer in the U S and results in approximately 15 million of diagnostics surgical procedures each year with for years to $4 5 million surgical procedures for melanoma alone <unk> is the leader in noninvasive <unk>.
<unk> genomics to improve the pathway for skin cancer diagnosis and this month as our time to showcase the advances in science, we have brought to capture this large market opportunity. We believe our skin cancer vertical of products address of the $10 billion market in the U S.
I will start by reiterating a couple of key messages that the medical community and various skin cancer foundations promote during the month of May 1st unprotected UV exposure is the most preventable risk factor for skin cancer, so using sunscreen, but the SPF of third year of higher wearing protective clothing, and seeking share where appropriate can help reduce the.
Risk of skin cancer.
And most importantly, early detection of skin cancer, and particularly the melanoma is critical for survival people are encouraged to perform skin cell for example, using the a b C. D E credit criteria to evaluate malls and to have annual skin checks performed by their health care provider.
With our first product <unk> is transforming the early detection of the melanoma by identifying at risk lesions that can be removed melanoma is the most aggressive form of skin cancer is diagnosed approximately 200000 times each year and results in more than 7000 deaths in the U S.
Early and accurate detection of melanoma can save lives because when diagnosed at the localized stage of the five year survival rate for melanoma is 99% the pathway for diagnosing melanoma typically involves dermatologist conducting both surgical and non surgical procedures in many cases dermatologists will often photograph malls at risk for Mel.
Noma and for all of them over time for change deciding whether or not of the surgical biopsy as necessary.
Our product is ideally suited for assessing malls that might otherwise be photographed by a health care provider and followed over time for change. It is in these malls, where melanoma diagnosis may be delayed or missed where the early stage melanomas may be found in where our precision platform is well suited to provide early detection.
Importantly, this is a non surge in this non surgical market opportunity, we do not come directly complete with the surgical biopsy practice of the dermatologist. We believe the market for these typically photographs of followed malls may be at least as large as the current served market of actual surgical biopsies.
As part of skin cancer awareness month, we've made of pledged to donate up to $1 million over the next for years to increase skin cancer awareness and support accessibility of skin exams.
$5 will be donated to our nonprofit partner organizations for each person, who pledges to schedule of skin exam.
A version of the surgical biopsy is one of the factors that limit patients' willingness to schedule of skin checks are smart sticker technology addresses this problem and combined with our enhanced early detection of high risk lesions. We believe we can make an important strides in our quest to reduce melanoma des <unk>.
Our donation will help support events educational content and programs to amplify a variety of voices, who are joining the fight against melanoma.
As we've noted before <unk> vision extends beyond skin cancer. Our platform has allowed us to create a new category of medicine, we refer to as precision dermatology, which we believe has the potential to improve the diagnosis and treatment of a variety of skin problems is our mission to transform dermatology and the democratize access to <unk>.
High quality of dermatology care, we believe we can realize our vision by allowing many any health care practitioner to accurately assess skin disease and health. Consequently, our vision also takes us beyond the dermatologist in the primary care and with even more patient involvement via telemedicine.
Our fundamental business model model is to drive adoption and test volumes of our products and a variety of distribution channels. The precision dermatology enables and then monetize this volume over time by obtaining payer coverage <unk> leveraging consumer pay options.
The key drivers of our business are the continued development of our professional dermatology channel and other channels outside of dermatology, securing commercial payer coverage and launching new products over the next 12 months to 18 months.
We made significant progress on these key drivers in the first quarter of 2021, Despite limited access to physician offices. The peak of the COVID-19 pandemic in early January and the severe weather event in February that shut down much of the country. We continued to recede of record number of billable samples and grew our base of unique users.
Our average daily billable sample volumes increased from approximately 134 per day in Q4 of 2020 to 154 per day in Q1 of 2021, the only new challenge in the quarter related to the sample volume was a modest dip in our proportion of billable Medicare samples. However, we still achieved record asset.
The revenue of $2 2 million, primarily due to the favorable claim adjudication from accretion commercial payer contracts and an increase in our ASP.
The $234 per sample, we believe increasing sample volume and ASP through additional payer success will provide a long term compounding effects of the future revenue growth.
We also launched our PLO plus second generation test in April, which we believe help which we believe will help boost adoption the BLA plus improves the sensitivity for melanoma detection of up to 97% by incorporating of Turk mutation biomarker, which is recognized as the key driver mutation for early stage melanoma.
The launch of the BLA plus may allow us to drive utilization among the dermatologist and to re engage with users that have been slower to adopt the technology was that of only use the the technology sporadically in the past.
Our effort to expand dermatology continues to gain momentum and we are making important progress with primary care networks due to the longer sales cycles associated with this effort. We do not have any specific news to report on this call. However, we are tracking to initiate pilots with some leading U S networks.
As noted on the last call. We've also undertaken in the analysis.
On the analysis regarding the expansion of our current direct sales team and to define the landscape of potential primary care clinicians, we may be able to access with the limited direct sales effort the <unk>.
Preliminary data from this analysis based on the sales of the BLA in PLO plus predicts a meaningful ROI from dedicating an additional $10 million to $15 million per year, and our U S. Direct sales for the footprint to allow us to expand access to dermatology pursue of targeted selling approach in primary care and prepare for the delivery of addition.
Pipeline products into these sales channels.
There is clearly a much larger potential investment that could be made to expand further into primary care, but this investment will need to be balanced against our success with integrated networks and the potential we see from our telemedicine effort. These potential investments will also need to be considered in the context of products like carcinoma, which may be or may be more.
Daily suited for primary care, we expect to finalize this planning effort in Q2 and will work to expand our existing sales team and deploy this direct sales organization against the expanded group of targets.
Would not be surprising to need substantial additional investments specifically to launch more broadly in the primary care.
Our efforts in telemedicine are similarly, gaining momentum we recently completed beta testing of our technology solutions to allow our store and forward submission of photographs of suspicious malls for review by a clinician and June we expect to commence an end market beta test of this platform in a few select geographies assuming success of this end market testing.
We will continue to launch and expand this effort throughout the second half of the year.
We also plan to develop additional technology solutions that will streamline access to remote skin sample collection for follow on laboratory testing. We are also looking at partnering strategies with leading telemedicine companies to deploy our solution within their network.
The second key component of our business strategy is monetizing our growing sample volumes by attaining commercial payer coverage in the first quarter of 2021, our new commercial payer contracts with large blues plans in California, Illinois, and Texas became effective.
While we had some early startup challenge with challenges with these payer contracts claims and payments are processing more efficiently now the startup challenges have mostly been resolved, which is reflected in the improvement of our overall ASP for the fourth quarter and revenue exceeding the high end of our Q1 guidance range, even though our Medicare proportion of <unk>.
Kris from Q4.
I will now address some recent developments of that pertained to Cigna the became public through channels outside of Derm Tech in April 2021, Cigna updated the medical necessity criteria of the genetic testing collateral document, which changed the CLA from an experimental investigational or unproven status.
The medical necessity based on the NCC and criteria to date the primary Cigna genetic testing policy released in February of this year has not been changed.
We have spoken with Cigna and we are currently working with their medical team to further define the use of medical necessity criteria for the PMA test.
There was some confusion reported by the media about our inclusion in the NCC guidelines. However, it is clear from the Cigna testing collateral document that they have acknowledged our inclusion in the guidelines and as we indicated earlier. This year. We are included in the NCC and guidelines with a to a recommendation we believe the developments with Cigna.
Our positive and we're optimistic mystic. This is this will lead the favorable coverage.
We will provide further updates on this matter of after we have completed the process with Cigna and have more definitive information.
In Q1, we also completed the economic impact study with Optum insight or Optum, which we believe demonstrates the potential cost savings achieved with our pls product Optum developed an actuarial model that the exam and $27 million commercial claims to analyze the economic impact of inserting the PLE into the existing diagnostic.
Pathway for pigmented suspicious lesions that relies on a visual assessment and hits the pathology.
Based on the health plan population of 10 million commercial covered lives the <unk>.
I will suggest the BLA priced at $760 per test can produce aggregate savings of between $57 million on $81 million over a three year period, when compared to the current pathway alone.
Additionally, the study demonstrates the present net the present value net neutral cost or breakeven price for the appeal of <unk>. During the same period is between approximately 214, $100 or 57% to 82% higher than the Medicare reimbursed rate.
The projected savings from identifying the projected savings results from identifying melanoma at an earlier stage, reducing volume in spending associated with avoidable surgical biopsies of benign lesions and reducing the incidence rate and cost of additional surgical procedures following of negative oriented conclusive biopsy.
This is the second economic study for the PMA and further supports the cost savings. The test can provide for the health care system. We believe the commercial insurance payers will be interested in this data is reducing health care costs and improving patient care of of course objectives.
The motto model Optum has developed will be made available to payers, who can easy easily validate the claims analysis that was performed and then put their own plans population variables to determine the potential savings and return on investment by adopting the PLE.
I will now turn to the third component of our business strategy New product development. We spent the last year of building out our R&D capabilities and we believe we have reached a critical mass to accelerate our overall new product development in Q1.
We recruited teams of top tiered scientist bioinformatics and program managers in our clinical and development groups. We've also expanded our data management capabilities, including clinical electronic data capture and have added a variety of in house genomic capabilities, including next Gen sequencing and massive array of platforms. This has led to.
The establishment of several academic collaborations and the initiation of new clinical efforts in studies in inflammatory diseases.
We still have some additional infrastructure and capability build out to complete but we are now seeing substantial momentum in a variety of development areas. Our efforts have led to the acceptance and presentation of four abstracts at the society for investigation of the Dermatology Conference, which was held last week.
Illuminate development continues to progress as planned again this product will assess ultraviolet related gene mutations of normal appearing skin, which is related to skin cancer risk and photo aging while the big focus in cancer care with genomics over the last five years has been early detection, we think the future is deter.
<unk> of Precancerous genomic changes and this is essentially what our illuminate product does.
Enrollment for the internal verification stage verification study is complete the purpose of the study is to confirm the assets performance established the UV skin score algorithm and confirm the skin sampling protocol. We have also commenced an external validation study to confirm the performance characteristics of the product and the initial algorithm.
The study is currently enrolling six U S dermatology centers with the plan to recruit up to 12 sites. In total the study has enrolled very robustly and we have already completed enrollment of more than half of our initial minimum target of 1000 subjects. Consequently, we may expand enrollment beyond the initial target.
We are still estimating an introduction of this product in the fourth quarter of this year.
We're also making progress on the Carson on product to facilitate the diagnosis of basal and squamous cell skin cancer as indicated on previous calls this product is in the classifier verification stage. We believe that this stage will be completed by the third quarter of this year with validation testing testing beginning in the fourth quarter, our clinical study to enroll subjects in sample.
For the validation study is fully up and running and we expect to have completed enrollment in the validation cohort around the end of the third quarter of this year we.
We are still targeting an introduction of this product in the first half of 2022 as an LD T.
In the first quarter. We also initiated our first clinical study in atopic dermatitis to evaluate genomic markers pre and post treatment with biological therapies, such as <unk>. These.
These markers will be correlated with treatment response, including the eczema severity score it scores and the adverse events among others. The goal of the studies to identify markers that will predict treatment response to the drugs and other related outcomes the <unk>.
We will target enrollment of up to 500 patients five clinical centers have completed their initiation in one center is already enrolling patients.
At this time, we are not able to comment on when the product will be available for this indication, but we are building off of some earlier work that we completed in this area and have a panel of genomic markers that we believe are relevant if we can validate these markers in our current study. We believe we can develop fairly aggressive product timelines, we will update you on the <unk>.
<unk> of this program in the future.
In summary, we are pleased with our Q1 performance and efforts to expand our commercial and development activities and infrastructure our financing efforts in the first quarter increased our cash and securities to approximately $258 million.
We are excited about our efforts to expand beyond dermatology and our progress with integrated primary care networks. We are similarly enthusiastic to commence the end market beta testing of our telemedicine platform and expand the offering in the coming quarters now I would like to turn the call over to Kevin to go over our financial results.
Thanks, John Paul revenues for Q1 of 2021 increased 62% to $2 5 million compared to $1 6 million for the same period in 2020.
<unk> revenue for the first quarter of 2021 increased 175% to $2 2 million compared to 0.8 million for the same period of 2020.
We saw improvements to our ASP in Q1, but on potential assay revenue that could be recognized from having broader payer coverage is still meaningfully higher than the actual reported revenue.
<unk> samples for the quarter were approximately 9400 compared to approximately 5800 for the first quarter of 2020 or 62% increase compared to approximately 8300 in the fourth quarter of 2020 of our 13% sequential increase.
Medicare samples represented about 15% of our billable samples in Q1 of 2021 compared to approximately 14% in the same period of the prior year and 18% in Q4 of 2020.
The growth in on Medicare proportion of continued to be impacted by COVID-19 in Q1, because of Medicare patients are less likely to visit the dermatologist during the height of the pandemic.
With approximately 1800 unique ordering clinicians during the last 12 months, we penetrated 36% of our initial target market of approximately 5000, dermatology clinicians who account for a high concentration of the total annual surgical procedures to diagnose melanoma and we penetrate about 14% of our current overall target market.
Of approximately 13000 dermatology clinicians.
We had approximately 1200 unique ordering clinicians in Q1 of 2021 compared to approximately 900 in Q1 of 2020 or 33% increase and compared to approximately $1 40 in Q4 of 2020 or 15% sequential increase.
Sales call volumes continue to be affected by the pandemic in Q1 due to the reduced in office access to clinicians.
And we are estimated to be less than 50% of pre pandemic levels, depending on region, but we are seeing some improvement now.
Our average quarterly utilization of average number of tests ordered per unique ordering clinician remained strong and was seven eight billable samples in the Q1 of 2021 compared to 8.0 in Q4 and $6 five in Q1 of 2020.
The slight decrease in utilization in Q1 compared to Q4 was due to the strong increase of new users in Q1, which typically order of less per month when they first started using the BLA.
We continue to achieve record or near record highs during Q1 in key metrics, including billable samples new ordering clinicians average monthly utilization and number of ordering clinicians who order of 10 or more tests per month.
Contract revenue decreased 56% of <unk> 3 million for the first quarter of 2021 compared to <unk> 8 million for the same period of 2020 contract revenue continues to be highly variable as it is dependent on the pharmaceutical customers clinical trial progress patient enrollment success and other factors, which have been affected by the pandemic.
During the quarter, we signed agreements with our pharmaceutical partners worth up to approximately <unk> 5 million in contract revenue as.
As of March 31, 2021, we had a maximum of $4 $5 million of potential remaining contract revenue related to our current agreements.
Gross margin for Q1, 2021 was 21% compared to 23% for the same period of 2020. The decrease in gross margin was largely driven by higher contract revenue during Q1 of 2020.
Assay gross margin for Q1, 2021 was 10% compared to negative 46% for the same period of 2020 of negative 9% for Q4 of 2020 Q.
Q1 was the first quarter of positive assay gross margin for the PLO, which given the relatively early stage of commercialization and progress with private payors highlights the pls margin potential at higher volume.
Sales and marketing expense increase of 121% of $6 5 million for the first quarter of 2021 compared to $2 9 million for the same period of 2020 the.
The increase was primarily due to additional head count for the commercial teams and additional marketing investment, we expect sales and marketing expense to continue to increase throughout the year as we increased the size of our sales force and increase our marketing initiatives to raise awareness of our technology.
Research and development expense increase of 151% of $2 3 million for the first quarter of 2021 compared to <unk> 9 million for the same period of 2020. The increase was primarily due to higher compensation related costs and income increased clinical trial costs.
General and administrative expense increased 47% the $5 2 million for the first quarter of 2021 compared to $3 5 million for the same period of 2020 the.
The increase was primarily due to higher payroll related costs and higher stock based compensation offset by lower legal costs.
We expect our general and administrative expense to continue to increase throughout the year as we implement systems and infrastructure to support our telemedicine and illuminate direct to consumer efforts.
Net loss for the first quarter of 2021 was $15 1 million, which included $2 2 million of noncash stock based compensation and $1 7 million of <unk>.
<unk> related to a noncash change in fair value of the warrant liability compared to a net loss of $6 9 million for the same period of 2020, which included 1.0 million of noncash stock based compensation offset by a <unk> 1 million of benefit related to a noncash change in fair value of the warrant liability.
At the end of the first quarter, our cash cash equivalents in marketable securities totaled $258 2 million.
We've made progress of Medicare to resolve the claims adjudication programming issue, but the process is still not fully efficient and we're still experienced some delays in getting payments. We also resolved startup challenges with newly contracted blues plans, our payment cycles for non contracted commercial payers continue to be long and success in getting payments continues to be the choppy. We do believe inclusion in the <unk>.
Guidelines and data from the Optima study will help in our commercial payer efforts, but it will take some time to play out.
We estimate that Q2 2021 assay revenue will be between two four and $2 8 million.
We'll provide full year 2021 revenue guidance during our Q2 earnings call.
We continue to execute on our core growth drivers of thus far in 2021 and are excited about delivering on our initiatives for the rest of the year and beyond now I will turn the call back of the operator for questions.
Thank you Kevin as a reminder.
As a reminder to ask the question just for Star and then the number of line on your telephone keypad again. This fresh start and then the number of lines on your telephone keypad Anthony J. Your question just first accounting for Apache.
For a moment to compile the Q&A roster.
Our first question comes from the line of Doug Schenkel from Cowen Sir Your line is open.
Alright, Thank you and good afternoon.
Wanted to start with a couple of reimbursement questions. So on Cigna. Thank you for the update.
Probably to take some liberties and paraphrasing. It sounds like you believe you are positively in guidelines, but not broadly getting reimbursed at this point. So I guess the question would be if that's a fair over simplification is the question at this point less about whether youre going to get coverage versus what the coverage amount is going to be.
And then what population so that's the first on reimbursement and then the second on the reimbursement more broadly.
I mean this is a good quarter and you guys sounded good in terms of how you characterize things on your prepared remarks.
I think this was the thesis of affirming quarter for good or for bad It sure feels right now like we're in a market that wants more of than that they want thesis enhancing not just thesis affirming so with that in mind is there anything you can share on recent progress with payers your discussions and what the outlook is for the more notable.
The spansion and rates of reimbursement over the coming quarters.
Sure regarding the Cigna.
Situation again, I'll reiterate that it is positive.
And there is really no question about our inclusion in the guidelines of Cigna has indicated that they are going in the near term to cover our test for.
Based on medical necessity on a case by case basis of course, we believe that a pigmented lesion suspicious for melanoma meet the medical necessity criteria, what we're doing with Sigma now is to establish what the specific use and medical necessity criteria are and we are optimistic that this will lead to coverage.
Cigna of key criteria for Cigna is MCC and guidelines and they have acknowledged by their update on their collateral document that we are in those guidelines. So.
So we feel good about where we're headed with Cigna and we've already had a couple of meetings with them.
In terms of more broadly across the payer universe, we we've expanded our payer access team. We've added several regional directors and Theres a lot of activity going on at the regional level. That's building on our success with some of the regional Blues plans and I think we will have more to report with regional plans.
Going forward we.
The.
Also again, we of our goal to get of National payer on board this year on obviously sickness.
In the in the mix for that the.
The Optima study has triggered a meeting and review with UHC. So that will come up here. Soon so we think we're making good progress with payers. What we've always said is that this is the process that takes time. Historically this can take two to three years to get to 80% covered lives on the commercial side.
We experienced some delays because of COVID-19, because payers stop kind of reviewing new technologies, but the activity has definitely picked up.
We see all of the all the things all the data we've generated we also published a paper and other paper in Q1.
Maybe even two I can't remember exactly but all of that stuff is going to add to the the data and the information we pride of the payers as well as the Optima study on the cost savings. So we feel like for developing a lot of momentum on the payer front.
Alright, that's super helpful. And then if I could just ask two on pacing and then I'll, let others jump in.
On the 9400 or so tests in the quarter.
That was a bit of ahead of our forecast, but I think importantly, based on what you described in your prepared remarks.
It seems like similar to what we've heard from others that at the beginning of the year maybe January even in terms of the beginning of February.
The things maybe started out a little bit slow due to lingering impact of the pandemic.
That is a fair observation I'm wondering if you could talk a little bit about kind of the exit rate on the quarter.
What percentage of cash for it in March it feels like that might have been 4000 or above that that would help us as we are thinking about kind of.
You entered Q2 on the balance of the year kind of what momentum you have there.
And then kind of along the same lines in terms of access the doctor's offices, which is.
Typically pretty important not just getting initial orders, but driving repeat orders and higher volume how would you characterize progress there and did access improve as you got to the end of the quarter and moved into Q2. Thank you.
So we have been seeing accelerating billable sample volumes on a monthly basis. All through Q1, we saw that as positive access to the Doctor's office is still down.
We're also hearing reports that theres a lot of emphasis on aesthetic procedures right now and the medical dermatology is still not quite rebounding as quickly and that would make sense as dermatologists trying to recoup some of the.
There are losses over the last year with the COVID-19.
We do think that the environment for access to offices will continue to improve it's very spotty and tends to be regional was before it was national So we do expect the gain better access.
We don't have as a company in general of Sir.
Because we really kind of had the larger launch of our product right in the midst of COVID-19 as we don't have sort of trends that we can rely on to understand what if theres any seasonality with the impact of vacations are for example in April we saw a little choppiness around spring breaks in our sample volumes and we're trying to understand if that's going to be a regular occurrence.
In general I think the expansion that we're going on and take with our sales.
Our sales team is going to ameliorate those problems. We spent a lot of time during COVID-19 trying to go deep meaning to drive utilization of our existing customers with the product, but now we know we can go broader now as the pandemic is resolving and we can focus on breadth and we can get a good meaningful ROI.
By focusing on breadth and expanding net sales effort. So I think we just need some more operating history to project more clearly exactly what we can expect each quarter, but we're going to grow this quarter, we've been growing despite all of these headwinds and we are.
We're going to continue on that pace in the in the second quarter, we'll have to see exactly what the number turns out because we just don't have any operating history to fall back on at this point.
And to answer your question about the exit rate. So in March we did have between 3500 4000 samples was the exit rate of billable samples in March so that should help the modeling and help you understand what the starting point is for Q2.
Okay. That's fantastic guys. Thanks again.
Thank you. Our next question comes from the line of Brian Weinstein, Sir Your line is open.
Hey, guys. Thanks for taking the questions.
Just to go back on the signal for a second I just want to clarify the concept of medical necessity.
In your opinion are there.
Any cases in which the product to be used which would not be medically necessary I am just trying to kind of understand how.
Although the negotiation is on that is to a certain type of patients based on some of the number of of.
The reasons that you may be able to submit or some other qualification that might hold up the concept of medical necessity because it seemed that all of these would be medically necessary to us.
Yes, so I think the playbook is in some of the policies for example, with Medicare and even geisinger.
Our test is indicated for lesions that are suspicious for melanoma, meaning they meet the have one or more of the ABC. The criteria that's broadly the the.
The indication for the test and that would be medical necessity and meet medical necessity in our mind and Thats, what we are discussing with cigna.
There are two places where the test can be used in the causal membranes. The palms of the hands the sales of the feet.
If you of a full head of hair on your scalp you really can't use it there. So there are some places where it can't be used that's also part of the medical necessity determinations that need to be made and we also say that if you. If it's clinically obviously obvious melanoma and there are things that the doctors look at the decided something as clinically obvious melanoma.
It is recommended that go straight to the surgical excision of at that point. So those are the kind of of the criteria. They are in the medical in the Medicare coverage policy on the Geisinger policy.
And those are the things that Cigna is going to review admittedly the mtc and guidelines of the spell out all of those things and I think thats why they want to understand what we see as the medical necessity criteria and what our data supports and Thats. The discussions we're having with cigna, but youre right. We think there is a broad basis for medical necessity as it pertains to our test.
And where it's used for suspicious lesions suspicious for melanoma.
Great that was.
That was very helpful to hear and then on the sticking.
Sticking on the scene for a second are there other payors in which you believe CCN inclusion is the tipping point typically.
For for inclusion or was there something about the way the cigna approached us that may have been different in the way that others may be looking at those.
Well the thing that does in their policies state criteria of being end CCN not all payers state that.
Payers will tell us they definitely like the NCC and guidelines as it does validate it but they will also of the same time say, but we also do our own analysis. So.
They typically reserve some some.
Given until some flexibility to make their own determinations, but we think it is very impactful addition.
And it adds a lot of credibility because basically the NCC and reviewed our full data package, we submitted our full data package to the CCN and of to a recommendation means that it's a unanimous consensus that.
It's a useful intervention and thats basically what they came to in the most recent.
Release for 2021, so yes, we think it's going to have.
Impact with Payors.
But payers are always going to want to look at things themselves and the establish what they think are the medical necessity criteria and these of the process you have to go through.
Great and then last one for me right now is in the script. It seemed like you talked a little bit more about the concept of these kind of secondary legions of the watch and wait for just kind of being the.
On the use case here for <unk> for the product obviously it can be used in.
On the primary reasons as well, but did I detect any kind of like changing the way that you're approaching the market in terms of your sales and marketing strategy and the way that your sales reps are going to be talking to clinicians.
Perhaps a little bit instead of a little bit what we found with that paper. We published earlier in this day in the quarter was that our test enriches for what are called the higher risk lesions. So these are lesions that.
When the pathologist looks under the microscope. He sees atypical cells in either of lesions that have or are categorized by the pathologists of having moderate to severe atypia and when we published that paper, we showed that over half of our tests.
Our positive fall into that bucket and a lot of physicians believe those are higher risk lesions they want to remove them completely so.
Our positioning has changed a little bit where we're able to say very concretely now that we can identify not only of melanoma of a much higher proportion of menu of surgical buys the pathway, but we can also identify the entire risk lesions at a much higher proportion than the current pathway. So the current pathway somewhere between 12 and 16% of the biopsy of lesions fall into the.
The higher risk category, and only 2% to 4% fall into the actual melanoma in our case.
Almost 19% of our samples of our melanoma and over 50% of on these higher risk lesions.
And so there's a little bit change of our messaging about identifying legions at risk that needs to be removed, but we do positioning the product that hey, if you think it is if you really think that this is melanoma you should go ahead and and biopsy. It but you have all of these other lesions that youre following.
That have some suspicion you're not quite ready to put the scalpel on it but he was the perfect use for for the for our tests and that message I think is generally well received and it is where they find they get surprised and they find the melanoma. The didn't expect and we call that the aha moment and as often that will often dry.
I've more utilization of our product when they have that Aha moment.
Great. Thank you for all of the context I appreciate it.
Thank you. Our next question comes from the line of from Alex Nowak of Craig Hallum. Sir Your line is now from.
Great. Good afternoon, everyone I actually want to follow up on Brian's question, there around the NCC guidelines, what other guidelines do you want to are really pushing to get into in the near term of the big two that I can think of the American Academy of dermatology in the U S provide the task force I know that one is actually undergoing review right now, so which one of which of those two if any.
Of those guidelines are critical for insurance coverage and also clinician adoption.
Great. Thank you Alex so the use of preventive task force that's for screening tests right. Our test is actually a diagnostic.
And there has been a long complicated history about whether or not.
The U S PDF wants to advocate for screening for melanoma, which would mean.
<unk> lesions that really don't have any significant signs or symptoms.
Obviously submitted materials to them to the support that our test would be good to to help screen for lesions, but that's a very complicated area. We're not we're not really sure that that's going to be resolved because it's all been all around what's the cost benefit associated with screening for melanoma.
In the case of the AAD.
We believe we have the path forward with the AAD.
Well also be helped by the fact that we're now on the <unk> and there is some overlap of the clinicians that are on the mtc and panels and what happens with the AAD. The AAD just has a much longer cycle between which they update their guidelines. They did give us a favorable nod in the most recent saying that that we may.
Be a useful intervention there too, but they also couch it by saying we'd.
We'd like to see more data, we probably have another half of dozen papers that have been published since the updated guidelines of couple of years ago. So we definitely have more evidenced the address that comment that they made in the AAD guidelines. So we do think we have a path for with the AAD and as soon as they go ahead and revise those <unk>.
<unk>, it's not clear exactly when they do it will be right in front of them.
Making our case too.
To put of more affirmative position around our test and those guidelines.
Okay understood that makes sense and then regarding the pretty big step up in Asps for Q1 was this all from the three payers you've mentioned out there or are you winning appeals on the back of MCC and that's included in the Asp's I guess, what I'm trying to figure out do we assume this level of pricing continues forward.
Sans any additional coverage.
Yes, Alex Thanks for the question so the.
The ASP improvement was the combination of both and so I would not I would not characterize the better collection efforts as specific appeals related to MCC on yet, but generally we've got better collection across the historical claims again, it does take somewhere between 12 and 18 months to collect on some older things and that's what it's been when Youre non contracted for.
With these commercial plans, but then also we did have again the improvement to the processing with the Medicare claims that we referenced that had a portion of the increase and then the rest of the increase was due to the blues plans coming on board again, we started out a little choppy with some things I think we mentioned that we were still getting some denials, even though the plan the cons.
Tracts are effective and we were able to quickly work through those just coding and programming issues with them and its running more smoothly now but in the future of will continue to be choppy right. Because there is a portion that is just tied to collection experience of these older claims and then we do believe that again, we will hopefully have some success on appeals for MCM guidelines.
But we're still not seeing it yet so I would say.
The model, probably somewhere a little lower than what the actual was within the actual Q1 because of choppiness, but longer term and over time, we do expect obviously the earliest to continue to increase which is why we expect the compounding of our revenue growth.
Yes, Okay that makes sense and then regarding something that was mentioned in the prepared remarks can you expand on the pilot program with payers just when should those launch any payers you can call out there and then really out of the pilot program work there for diagnostic tests.
It's a little early for me to talk about specific networks, I think you're referring to the integrated network activity that we have going on some of them on payers and networks. Some of them are just networks that rely on outside payers.
And they are.
The focus for on primary care.
We again this grew organically over the last year with them expressing a lot of interest in what we're doing.
The referrals to dermatologists as of pinpoint for these networks. So if there's a way that they can.
The limit those kinds of referrals.
Interesting to them in some cases, we're developing the business case, our Optum model is actually relatively applicable from a business case perspective for those integrated networks with the little bit different but.
Fee for service is based on the physician salaries and overhead in the time component.
And thats sort of how integrated networks also build their business cases, so we think that model will help apply there.
Some cases were designing those those pilots so that we can they can understand how the process integrates with their primary care on what is the impact on the referrals. So I'm very pleased with the progress we're making there.
We do have somebody now the sort of directing all of the attention on the sales side for those networks and we will continue to build out of team to address those networks because theres just growing activity. There we will announce when when when we can win those pilot either start on when we obtain contracts, but we're just not at the position to longer sales cycle.
There is many more layers. It goes up through the administration here as opposed to when you talk calling directly on a doctor's office if that doctor make the decision. So it's just the longer sales cycle, but I'm very very pleased with the activity we're seeing there.
Okay. Thank you for the clarification I appreciate the update.
Thank you. Our next question comes from the line of Kevin <unk> from Oppenheimer. Sir Your line is open.
Hi, This is actually Steven calling in for Kevin.
I had the follow up question on Asps can.
Can you comment on the question of the sample reimburse by commercial payers.
15% of Medicare.
The percentage for commercial payers.
So historically, what we said is of the non Medicare proportion it was about 15% or less of what was commercial.
Payers reimbursing, so with the blues plans kicking in we did have a little bit of improvement there.
The exact number of somewhere between 15% to 20% of the non Medicare So again think fit somewhere between 15% to 20% of the 85% and so that's where yes, we would expect that to continue to increase because.
Remember, the California plan, having about $3 5 million covered lives of California is a good state for us.
Texas the plan that we have is about.
5 million covered lives I believe 6 million covered lives and of the population of that state being about $30 million. So it's not the majority of that population of the state but it is also a good state for us where the Illinois plant is actually more than half of the population covered of that state. We have historically not been very active within the Illinois that's of territory.
That's newer for us and we're trying to ramp that up and so we would expect as we direct our efforts of our marketing efforts raising awareness of all being covered in certain regions that thats. The proportion of covered by any payers. This is going on increase over time as well.
Great. Thank you.
And then just on.
Another question about <unk>.
Adding commercial payers can you describe some of the startup issues with implementing the players and do you expect similar issues as you add more commercial payers.
Yes on one of the examples of what happened was.
We had of Blues Blues plan that went effective it's a contract and then we started submitting claims in the internal people at the Blue plan didn't share of the contract with the claims processing. So we're getting denials right off the bat and so we had the kind of go back from them and say hey, Here's our contract rate did you not get this from your internal team and so it's not surprising.
I would say that these this should be the expectation probably going forward. The startup challenges will occur with any kind of large corporation organization.
But we again, we're very happy because we're able to cleared out and work through it and fix it in a very short order and again those are now processing of very efficiently.
Great and just one more for me.
Can you discuss the current size of your sales force and where then you remember if any are in their on boarding training.
As previously discussed as you really like the six to nine months the lag before they become productive.
We are right around $40 41 reps currently.
And we're working now the.
Span our initial our initial target was to get to about $50 to 55 reps of where we're working to add those additional reps from our initial plan and as I mentioned on the call.
We can get a good ROI on additional investments that would take us up to about 75% to 80 reps.
And thats going on it takes some time to add those and we're going on thats going on on be ongoing throughout the year, but I would hope and our expectations that we have the vast majority of those reps on board started training by the end of the year and as soon as possible credit frankly, we're going to try to accelerate that we do think there's a lot of good reps that are available.
We have a lot of interest in what we're doing by.
<unk> reps that are out there. So we think we can fill those slots effectively in and get the completed by the by the end of the year.
We'd also historically thought that it could take somewhere between nine and 15 months. After a three month trading period to get those reps ramped up what we're still trying to measure again, we're trying to figure this out pre kind of end during COVID-19 and so we do think that those timelines the might of extended a little bit, but we still haven't made it to that kind of watermark to say, yes. This is we know it's nine months, we know it's <unk>.
Months or something like that we're still kind of in the middle of it and obviously COVID-19 has thrown a wrench into our measurement, but that's where we continue to expect that it would be probably a little bit longer than our initial expectations.
Okay, great. Thank you so much for answering my question.
Thank you. Our next question comes from the line of some of the Nam from beat the IV. Sir Your line is open.
Hi, Thanks for taking the question.
Maybe could you talk about kind of the rollout plan for PLE class first of all congratulations on that launch.
Assuming that will replace PLE altogether.
Should we think about how you're going to sales for that and all of it.
Based on the Optima study and the.
Breakeven price of 50% to 80% higher rate than the.
Current Medicare rate on just how should we think about how you guys are thinking are there opportunities to kind of.
Hi, <unk>.
On the pricing with each other.
So regarding the launch of the BLA.
That's really.
Updating the marketing materials, we have we had started the kind of seeding the market with this earlier and then kind of starting to officially launched it.
In the towards the end of the quarter. So we did some market to seating and we have we've had published papers on this adding turk that had been out for a year or more. So so it's really now just making building awareness of the test is available and it's ordered it doesn't mean that the BLA is not not available it's both the PLO MPLA per.
And doctors effectively will typically checks both boxes and we will run the plc.
And the Pls plus we've always reported on the PLO plus and some fraction of samples we can't get a sufficient DNA to run the <unk>.
Actual hurt mutation, but.
But.
We've just rolled it out that way.
We don't have a chance plan to change the pricing of the reimbursement range right now around the PLE plus Medicare as communicated to us in the past that we can add a marker.
We're deciding if we wanted to go back to them in the discuss changes to the reimbursement related to the Pls plus but the addition of the cost addition to our Cogs by adding that mutation.
Is not very significant.
We still believe we can achieve significant margins without having to worry about trying to bump the price obviously as you're pointing out there is there could be room to bump the price, but there are other market factors that affect the pricing in out of pocket cost of patients and things like that that we need to sort through before we think about trying to increase.
The price substantially for the PLE.
So we have to build the term every time that we run it and we don't expect again Medicare to pay in the near term, especially as we are now trying to go in and talked about getting addition of <unk> into the policy in getting coverage for it specifically, but there is a little bit higher potential that the commercial payers would pay for Richard on Standalone basis.
As we submitting those claims.
And then again as John mentioned right the.
The Medicare excuse me the Optima study that you mentioned to rate of just supports that.
The higher pricing that is the breakeven for the payers over the three year period. It supports our efforts within commercial payers to recognize that the value of that Medicare is prescribed to the BLA.
Very reasonable and well worth it from a breakeven perspective, especially since it provides better accuracy over the current pathway as well as of better patient experience, where you don't the patient doesn't have to worry about getting scars and then especially on the Medicare proportion of population, where there anti coagulated the higher risk for infection. So we.
I think theres a lot of benefits here that the Optima study also just sort of further supports that the value is of very good value thats been prescribed.
Great that's super helpful and then.
Going back to one of Delta earlier questions about the exit velocity I'm not sure. If it's still early but where are you in the right.
As of March and April.
In terms of the Medicare samples did you see kind of meaningful recovery. There just given that that was the group that was one of the earliest groups to be vaccinated.
Just curious if you guys have insight into that.
Yes, so I'd say the low point in the Medicare proportion was February and remember that was again the very height of the pandemic and then the weather event that literally shut people down and people couldn't go anywhere even if they wanted to we did see some improvement within March and April as again, we see the vaccination rates continue to increase the.
That's an area, where we will continue to focus our team the direct marketing efforts are towards the Medicare population raising the awareness that again, there is no co pays with Medicare and so it's not a cost issue for those Medicare patients.
I just mentioned right the other factors around being anti coagulate of higher risk for infections and poor wound healing. Those are all good points around the BLA is something that is the benefit of those patients. So we will continue on and try all of the means we tend to increase the awareness and raise that proportion.
Just to add a little color to that we did some interesting market research with the doctors and the doctors had a perspective that Medicare patients don't mind being cut. We then went out and did some market research with Medicare patient and they said, yes, we mind being cut so we're going out to the doctors also with that market research to inform them that.
The perception that Medicare patients don't mind being cut is wrong and those of the kind of things we're doing to drive that Medicare proportion. In addition to all of that.
Digital marketing that we do this directed at the Medicare patients.
Got it that's Super helpful. And then just lastly from me you guys launched the digital consumer awareness initiative last year, just kind of curious is that kind of.
Being that you expect to implement indefinitely or is there kind of that.
The finite duration to that program for that initiative.
We plan to continue the program continues to grow its very successful, it's very cost effective rate of relative to other medical technologies, we're driving a lot of find the doctor searches.
Through the website.
I think we've talked about driving.
As much as of 6000 per month.
Searches of months through that program and I think we see some growth in that so we will continue with that and it also plays into our other efforts with the illuminate which is going to be marketed to consumers in our telemedicine solution, which will be marketed to consumers. So we'll probably begin to invest more of their because we want to build the top of the funnel.
To drive.
Utilization of those products of telemedicine solution illuminate so it's going to be on ongoing investment we get a good return on it and we will continue that going forward and invest more on it going forward.
Right now of the call to action is fine. The go to go to the website and find the specialists and we certainly see that again to find the specialists hit rate has improved over time and then the doctors who are on our final specialist listing we see that their volume of Pls test increases greater and faster than the ones that are not on the final spec.
<unk> list. So again, we think it's a very useful tool and as John mentioned, it's very cost effective compared to other methods.
Great. Thank you so much.
Thank you once again as a reminder, if you wish to ask the question. This press Star and then the number one on your telephone keypad. Our next question comes from the line of Thomas Nathan from Lake Street Capital. Sir Your line is open.
Hey, guys. Thanks for taking the question just a couple of wrap up.
I was curious.
If you had any sense from the clinics that are open if they have shifted away from telehealth or is there still some of their business that remains telehealth to.
To take advantage of or to not to take advantage of of but to capture those patients that might still not be willing to come into the office.
Good question, Tom on dermatology, they have definitely shifted away from telehealth.
Historically, the utilization rates of tell us in dermatology have been fairly low.
Now of dermatology.
The health dermatology in primary care and other avenues as a big part of that business, but for dermatology customers and our customers. There is less activity on that front.
Our telemedicine effort is the way to take us outside of that.
Direct dermatology call and reach a broader group of patients that when they have lesions of set that may not have ex access to their dermatologists. So we think that thesis remains intact, even though dermatologists themselves are not really they are trying to see patients in their office right now and they're not really doing a lot of telemedicine visits we do still get a few telemedicine.
And samples in every month, but it's it's pretty small just because theres not a lot of activity of telehealth by our customers.
Okay.
And then I know in the past you've had you've had some samples that have come in from from more than two lesions per patient per data service and as you start to maybe pivot a little bit towards the.
Focusing more on the watch and wait lesions do you think theres going to be an increased proportion of patients or docks that submit multiple lesions per patient.
Puts you in a bit of a quandary from a reimbursement perspective.
On a bit too early to go down that path.
It's probably a little too early I think we would expect that that could happen, especially for say Medicare patients right. If they are not if they haven't seen the dermatologist in a while because they've been afraid of getting into the clinic that of dermatologists might want to test more lesions on the same patient on the same day to service and just make sure and get things done.
In that case right. The Medicare policy does allow for a second body side on the same day the service and a small proportion of cases, and then anything beyond that we would just need to get medical records and appeal of those cases. So we still have the pathway of getting paid for multiple body sites, even through Medicare and then so far our commercial payor contracts don't have specific limitations around number of.
Body sites per data service.
It could go down that route eventually two of over the utilization becomes a concern, but we've got various kind of methods and ways that we can kind of show them that over utilization is not happening everything that is being testing being tested with our BLA is something that is warranted for that testing and so I'd say, it's a little too early but there is that part.
<unk> ability.
Great. Thanks, guys.
Thank you there are no further questions at this time.
And this concludes today's conference day.
Thank you all for participating you may now disconnect.
Okay.
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