Q3 2021 DermTech Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the <unk> third quarter 2021 earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require operator assistance. Please press star.
Then zero key on your attached on telephone as a reminder, this call maybe recorded.
Now I'd like to hand, the conference over to your first speaker for today that is Caroline corner Investor Relations. Please go ahead.
Thank you operator, welcome to <unk> third quarter of 2021 earnings call. Joining me on today's call are Dr. John <unk>, President and Chief Executive Officer, and Kevin <unk>, Chief Financial Officer.
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 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 November nine 2021 and are subject to.
These factors assumptions risks and uncertainties, which change over time.
Results could differ materially from those described in such statements.
Several factors that may contribute to our cause such differences are described in today's press release and <unk>. Most recent filings with the SEC, including <unk> annual report on Form 10-K for the year ended December 31, 2020, and quarterly report on Form 10-Q for the quarter ended September 32021 Genpact.
<unk> undertakes no obligation to update these statements except as required by applicable law context.
<unk> press release with third quarter 2021 results are available under the Investor Relations section of the <unk> website Www Dot <unk> Dot com and includes additional details about <unk> financial result, also available on the <unk> website at <unk> SEC filings, which you are encouraged to review a recording of today's call will be available on the <unk> website.
<unk> P M Pacific time today, now I would like to turn the call over to John.
Thank you Caroline and thank you everyone for joining us today, a few weeks ago. We attended the fall clinical Dermatology conference in Las Vegas. This is the second largest dermatology conference behind the American Academy of Dermatology annual meeting in the spring not only to <unk> have a tremendous presence at the conference and our technology was.
Okay, and a large plenary session, but in general the potential genomics and the inroads at is making into dermatological care was visible at a level that I have not seen before as I walked the halls of the conference I overheard numerous dermatologists and as industry people, having discussions about genomic applications in dermatology, which again is a first for me and.
Signals growing enthusiasm among the dermatology community about how genomics can improve patient care.
With that I will share with you an anecdote about how our <unk> melanoma test or DMT dramatically improve patient care. This particular story involves the dermatology physician assistant who had a history of atypical malls and concerns about melanoma. She was a bit skeptical about our DMT and wanted to try it on several lesions on her own body before.
<unk> it to her patients one of the lesions tested turned out to be double gene positive and was subsequently diagnosed at an early stage melanoma insight to.
So even retested one of the negative lesions six months later over some lingering concerns about it and it remained negative giving her significant peace of mind. She has become a real believer in regular user of the Durham Tech test and continues to use it for her own skin checks. This case study highlights how our <unk> melanoma test enables early Mel.
Noma detection, while avoiding unnecessary surgical procedures.
Many companies experienced softness in the third quarter and <unk> was no different our growth challenges for the most part were external and included the Delta variant wave of the pandemic and pent up vacation demand by both clinicians and patients.
Sales rep access to physician offices declined again to less than 50% of pre pandemic levels in patient traffic for medical dermatology was soft. So this number is harder to quantitate.
We also were impacted by hurricane Ida, which disrupted the southeast and one of our fastest growing territories, Louisiana, but it also had an impact on our more mature territories in the northeast due to extensive flooding as the storm moved across the country, we estimate that hurricane either alone impacted our overall test volume by at least 5% in Q.
Three and continues to impact one of our larger customers, who in Louisiana that had their practice destroyed.
Despite experiencing this trifecta of challenging external factors, we continued to execute against our core business drivers our year over year quarterly assay growth was healthy and increased 140% from $1 2 million to $3 million with sample volumes growing from approximately 6700 to approximately 11.
720 <unk>.
For the year through the third quarter, we had performed almost 33000 melanoma tests versus almost 16000 for the same period last year, despite operating in a difficult environment with a sub optimally sized commercial team.
Our Q3 assay revenue was essentially flat sequentially at $3 million with a slight increase in ASP to $252 per sample.
We also increased our Medicare proportion to record levels as we continue to penetrate this ideal patient population for our noninvasive melanoma test we did see a healthy increase in unique ordering clinicians, which grew by 11% sequentially or about 160 clinicians to approximately 1590 <unk>.
The modest assay revenue growth. Despite the increase in your new unique ordering clinicians underpins the macro environmental headwinds had kept sample volume and consequently assay revenue relatively flat over Q2.
The most significant development of the quarter was the completion of our sales force expansion and our effort to build a world class dermatology sales organization, which we have been delaying for the past 18 months due to the pandemic. We now have 72 sales reps nine regional directors and two area directors to address a larger number of approximately 9%.
10000 professional dermatology target clinicians.
This team has an average of 13 years sales experience with an on average seven years in dermatology sales along with 76, President clubs winners and all of them with new product launch experience.
These reps are currently undergoing classroom and field training and we are taking the time to be thoughtful as we split territories and onboard the new reps. We now have the core infrastructure to drive future growth and provide a buffer against regional external factors that can hamper. This growth we expect contributions from the new hires to kick in during Q1 2000.
'twenty, two and beyond we expect to approximately double our sample volume this year over last year and we are optimistic a similar trend will continue and to accelerate through 2022.
Now that we have reached full commercial scale and the worst of the pandemic is hopefully behind us.
Another positive recent development is the completion of our first pilot with an integrated primary care network in Florida due to the success of this pilot. We are now approved to commence sales of our melanoma test to their 78 clinics and approximately 300 providers.
Through the remainder of this quarter, we will work to train and educate the providers in the network that have interest in accessing the technology. We currently plan to deploy our Florida sales team in medical Science liaison team against this account to pull through potential adopters. The success of the pilot was due to the enthusiastic reception from the primary care physicians.
Who participated in the effort and word of mouth interest from other network positions that wanted access to our melanoma test.
We also recently expanded the pilot with another large primary care network in the Midwest and are hoping to complete this pilot in the next one to two quarters.
We have begun investing in the selling infrastructure to primary care networks, which consists of dedicated personnel and marketing initiatives to develop a robust pipeline of network pipeline of network opportunities.
We have previously discussed various strategies to sell into the primary care channel and we currently believe the most efficiency efficient strategy is to dedicate focused teams of sales reps against the networks. After we have secured a commitment to introduce our melanoma tests throughout the entire network.
Through this effort, we will build our initial foundation in primary care selling which we expect to develop further as the Carson on product for non melanoma skin cancer becomes commercially available.
Our telemedicine in market Beta test continues to progress nicely in Florida. We are pleased with the volume of App downloads, which indicates interest in the offering as expected acquisition cost per telecom salt and per test order were initially high. However, these costs will decrease as we become more efficient with our digital marketing and social.
Media targeting and after we optimize price and the customer experience.
We are encouraged by these initial results and are working to expand the number of states where this solution is available with further expansion, we will gain synergies with our find a doctor marketing effort by providing the telehealth option to patients that visit our find a doctor page.
We are also developing channel partners to both leverage our technology solution and our offer our remote clinician guided sample collection service.
We recently established a contract with dermatologist on call a leading dermatology telehealth provider in the U S. Dermatologists on call will provide tell a dermatology services as a covered benefit for 20 million lives in 2022.
Under this agreement a board certified Dermatologist will review a picture of a suspicious lesions submitted through the dermatologist on calls technology platform and order a <unk> melanoma test if warranted dermatologist Oncall will provide supervisory remote collection of a skin sample using our smart sticker and the sample will be sent to our gene lab to run.
The test.
An important part of our telehealth strategy will be to further expand partnerships with virtual care providers and develop our customer ecosystem beyond the brick and mortar building this customer ecosystem positions us to address an unmet need for access to dermatology care and helps keep keep virtual visits as virtual as possible.
Which is especially attracted to other online healthcare platforms, including health insurers and employers.
Our activity with regional and National payer groups remains robust and is our second core business driver. We recently signed agreements with a fairly large multistate blues plan with approximately 2 million covered lives with effective dates within Q3.
Of this year. This plan covers new territories that were created with our recent sales expansion. So there will not be an immediate impact on revenue. However, we are optimistic it will facilitate adoption and awareness in the new territories.
We're also pleased with the progress with several other important payers and we are optimistic we will announce additional successful contracts in the coming quarters.
<unk> study has been published and we are educating payers that requested to see the data published about the importance of the results. We are also working to publish the results of the Optum economic study, which is another data set that payers have requested to see in peer reviewed published form we expect to have this papers submitted for peer review before the year end, we estimate we now.
Now have approximately $90 million covered under our contracted lives in the U S for our <unk> melanoma test.
Now to our third business driver new product development, there are supply chain.
Strength across our development programs related to sequencing flow cells, we're not certain when this issue will resolve or if it will worsen in the coming months illuminate development has been modestly affected we still expect to have the validation is complete and the product available for introduction in Q1, we originally.
Plan for an introduction of illuminate in late Q4 with a broader marketing push in Q1 after the December holiday rush. So.
<unk> does not materially affect our plans for a broader DTC effort in Q1 and throughout next year.
We are currently pleased with the performance of the product and its ability to assess ultraviolet damage to key driver genes associated with skin cancer and photo aging.
We also plan to pilot direct selling a direct selling effort to dermatologists and this model a dermatologist would acquire illuminate and sell it to patients to guide treatment decisions. There are several variables we need to understand about this model that need to be resolved in the pilot program before rolling this out more broadly into our commercial team.
Carcinoma classroom verification is progressing as planned and we have completed enrollment in the validation study cohort, we have been able to manage the supply chain impact to this program, thus far and as soon as the verification effort is complete which is targeted by year end, we will look to validate the class for with expected completion.
By mid 2022 pending any changes to the supply chain issue.
Lastly, our effort in precision therapy for atopic dermatitis continues to scale up and we expect to have all 24 sites enrolling in the study by year end, we had a modest increase in our enrollment percentage, which was affected by various COVID-19 factors already discussed and we expect enrollment will accelerate as more sites come on board.
Our contract revenue was light again this quarter due to the slowdown in activity for inflammatory drug trials related to Covid recently, we have had more engagement from companies looking to deploy our platform into their development programs and we expect to have some new contracts before the end of the year.
While the third quarter presented ongoing challenges related to the pandemic. We believe the table is set to support the long term growth of Derm Tech, reaching full commercial scale with sales reach across the entire U S is an important milestone for us and one that has been delayed for many quarters. Our vision is to lead the genomic revolution in dermatology in skin health.
And we now have the infrastructure to make this reality.
Now I'd like to turn the call over to Kevin to go over our financial results. Thanks, John total revenues for Q3 of 2021 increased 122% to $3 <unk> million compared to $1 4 million for the same period in 2020.
<unk> assay revenue for the third quarter of 2021 increased 140% to $3 8 million compared to $1 2 million for the same period of 2020, we continue to see improvements to our ASP in Q3, but a potential assay revenue that could be recognized from having broader payer coverage is still meaningfully higher than the actual reported revenue.
Billable samples for the quarter were approximately 11720 compared to approximately 6700 for the third quarter of 2020, or 75% increase and was sequentially flat compared to the second quarter of 2021 medic.
Medicare samples represented about 22% of our billable samples in Q3 of 2021 compared to approximately 17% in the same period of the prior year and 19% in Q2 of 2021.
Our Medicare proportion of samples is now recovering from the pandemic low point. However, however, additional growth in our Medicare proportion could be impacted by future pandemic conditions.
With approximately 2400 unique ordering clinicians during the last 12 months, we penetrated 48% 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. This translates into a 25% penetration of our.
<unk> initial target market of 9% to 10000, dermatology clinicians and penetration of about 18% of the 13000 total practicing dermatology clinicians.
We had approximately 1590 unique ordering clinicians in Q3 of 2021 compared to approximately 950 in Q3 of 2020 or 67% increase and compared to approximately 1430 in Q2 of 2021 or a 11% sequential increase.
Our average quarterly utilization or average number of test order per unique ordering clinician remained strong and was seven four billable samples in Q3 compared to $8. Two in Q1 and seven eight in Q1 of 2021 and 7.0 in Q3 of 2020.
As expected overall utilization did very end declined slightly as we added more new accounts since new users typically order less per month when they first start using our melanoma test we still expect our total billable sample volumes to increase as potential lower utilization rates are offset with a higher number of overall ordering clinicians.
Contract revenue decreased 41% to 76000 for the third quarter of 2021 compared to 129000 for the same period of 2020.
As of September 32021, we had a maximum of $4 2 million in potential remaining contract revenue related to our current agreements.
Gross margin for Q3 of 2021 was 4% compared to negative 18% for the same period of 2020. The increase in gross margin was largely driven by higher billable samples and assay revenue during Q3 of 2021.
Asset gross margin for Q3 of 2021 was 3% compared to negative 29% for the same period of 2020 and 11% for Q2 of 2021.
Sales and marketing expense increased 114% to $9 8 million for the third quarter of 2021 compared to $4 6 million for the same period of 2020, primarily due to additional head count for the commercial teams and additional marketing investment, including digital media direct to consumer advertising and professional promotion.
We expect sales and marketing expense to continue to increase as we recognize the fully burdened cost of our expanded sales force for the full reporting periods and two due to increases in our marketing initiatives to raise awareness of our technology.
Research and development expense increased 173% to $4 4 million.
For the third quarter of 2021 compared to $1 6 million for the same period of 2020, the increase was primarily due to higher compensation related costs.
Increased increased clinical trial costs and additional lab supplies.
We expect R&D expense to continue to increase as we ramp up our pipeline development efforts.
General and administrative expense increased 111% to $6 2 million for the third quarter of 2021 compared to $2 9 million for the same period of 2020. The increase was primarily due to higher payroll related costs and higher stock based compensation and higher audit and legal costs.
We expect our general and administrative expense to continue to increase as we implement systems and infrastructure to support our direct to consumer efforts and overall growth.
Net loss for the third quarter of 2021 was $20 1 million, which included $3 7 million of noncash stock based compensation offset by <unk> 2 million of benefit related to a noncash change in fair value of the warrant liability compared to a net loss of $9 3 million for the same period of 2020, which included $1 4 million of <unk>.
Noncash stock based compensation offset by <unk> 1 million of benefit related to a noncash change in fair value of the warrant liability.
At the end of the third quarter, our cash cash equivalents restricted cash and marketable securities totaled $252 $5 million.
We are revising our full year 2021 assay revenue guidance to be between $10 5 million and $12 million, mainly due to the impact of the Delta variant and Hurricane Ida We still saw some softness in October and while the first week of November has picked up nicely. We have some lingering concerns about physician access and the holiday season with continued pent up travel.
Demand is early November trends are sustained we could still fall within the lower end of our prior guidance range. Our revised guidance still represents solid growth of 148% to 183% over 2020 and as John mentioned, we believe we can continue at a similar trajectory in 2022.
We're excited.
About our sales force expansion in the progress of our integrated primary care network pilots and the expansion of our telemedicine efforts beyond Florida and with partnerships and we believe we have built the appropriate infrastructure to drive growth in 2022 and beyond.
Now I'll turn the call back to the operator for questions.
Thank you, Kevin ladies and gentlemen, if you have a question at this time. Please press. The Star then the one key on your Touchtone telephone and if your question has been answered or you wish to remove yourself from the queue. Please press the pound key now our first question is coming from Brian Weinstein of William Blair Go ahead Sir.
Hey, guys good afternoon, and thanks for taking the question.
And so.
So I thought we'd just start out.
Kind of following up on Kevins closing comment there and some of the stuff you were talking about John in your prepared remarks, as we think about it.
<unk> 'twenty two because I think at this point in the earnings season, everybody should be well aware of all of the trends that were going on in Q3, and how that's impacting Q4 across the board, but as we try and keep our forward focus here and we think about 2022, maybe you can just go back over some of the key drivers that are really going to drive that.
Because I thought I heard you say.
That you expected.
A doubling of volume this year and that you expected that similar trend to continue into next year. So I want to make sure I heard you say that is sort of the trajectory we should be thinking about things.
Things that I guess have you the most excited about 2022 and the growth opportunity.
Yes, that's exactly it I mean as I said we.
We will approximately double this year and we expect that trend to continue next year and I believe that it will accelerate.
Extremely positive about 2022, because we finally achieved that scale up of our sales team and I think that's going to be the biggest driver.
<unk>.
The progress of the business.
Is our effort within that dermatology sales channel.
We just got a fantastic sales force that we've put together they all just come have terrific pedigree's and terrific success as sales reps. So we're very optimistic about what theyre going to do.
We're also making progress as we talked about against the primary care networks and while at this point, we don't quite know what the utilization rate is within the within the primary care channel and we don't quite know how many reps we need to call on a certain number of primary care docs to generate that utilization, we do think there's a big opportunity there.
And we will continue to push on that and I think that represents.
Further upside over what we think we'll do within that dermatology professional channel.
Great and just to kind of follow up on that primary care opportunity can you just talk about the process of getting involved here you talked about the one in Florida, There's one it sounds like in my neck of the woods here in the Midwest.
What does that process look like and what are they looking for in order to sort of endorse bringing on the technology and then to have your sales force go on and then try and sell it.
It starts out it's really starts out as an executive level sales. So you really kind of go in at the top.
You need to get some buy in at the executive level, which is typically the issue we've talked about where these primary care networks have a real pain point associated with outside referrals to dermatologists it costs them money and Theres not a lot of access so if we get buy in from the executive level. Then it goes to a clinical review and their review of our all of our data and if that looks good there.
And then asked to do a pilot and those are those pilots. They typically want to understand that this test doesn't really interfere with the overall patient flow and traffic in and ability of the dermis. The primary care doctors to to see the patients that they need to see every day.
And they also obviously look for the feedback from the primary care physicians about how they feel about the product and if that is successful then it moves to a stage, where we can essentially get what we call sort of a license to hunt in which means we can go and offer the test to all of the or some number of the of the.
Physicians within that network and then the technology integrations will occur as that process is occurring.
These folks I'll like to live off their electronic medical records and so we then we'll proceed with that technology integration and Thats. The process, we've gone through with that Florida network.
And the others were in discussions with.
Yes, and there are several that you are talking to that correct.
We're developing a very nice pipeline of those opportunities. We do have somebody who is focused solely on identifying those opportunities and initiating the discussions at that executive level and she is developing a very nice robust pipeline of those opportunities.
Okay, and then last one for me if I can squeeze one in here.
And that the sales force as it sounds like you have.
Finally kind of the.
The numbers that Youre looking for into high quality sales force, how do you manage kind of splitting of territories, that's going to be going on and just sort of manage the rollout here of of these new these new reps and ensure that you get sort of maximum productivity when they when they really start hitting the road here in the first quarter.
Yes, as you are aware of any time youre doubling our sales team and splitting territories. There is a lot of distraction associated with that effort the hiring and training and then as territories get split that means the rapid and the existing territory is focusing on a smaller subset of the doctors we feel.
Like we can imagine manage that but obviously that is a factor that we have to take into account and things how things are going.
And we will manage it.
Effectively.
The Big thing, we're doing right now is <unk>.
Training those sales reps up and Theyre getting mentored by the other sales reps and <unk>.
That's really the best way to get them trained up and that's why when we really look to their contribution is going to occur in starting in Q1, they're going to spend this whole quarter. They really just started in October. So it is going to occur in Q1. After they go through this training and Mentorship program with the existing reps.
<unk>.
And then it will be through all the distraction and disruption youre talking about that occurs when you scale up a sales team that should all be behind us.
And we will be hitting the ground running in Q1 of 2022.
Great. Thanks for taking the questions.
Thanks, Brian.
Yes.
And our next question is from Max Masucci of Cowen and company go ahead Sir.
Hey, John and Kevin Thanks for taking the questions.
Thank you Max.
So can we start on on the Trust study great to see the data published in skin in mid September.
A breakout.
In terms of the the the regional impact that we could see in queue for from that remains from Aida.
The impact of Delta Delta variant on volumes and any expectations for how the asp's trend sequentially just.
Just to get a bit more detail around how we can sort of bridge from from the from the guidance. We have today to me than the low end of the price range.
Yeah. So we've previously mentioned that a big concentration of our current sample volume was in the Sun belt States. So that includes the south.
Florida, Texas, but as well as states like California, and then bigger states like New York and so those big states with large populations still remain a big Big States for us in terms of sample volume, what we mentioned before and the call was at Louisiana was literally one of our fastest growing territories. We hired a really good sales were up there who had some good relation.
Chips and was able to really drove up the interest and find the model that worth of getting the demand from the various physicians on tap and so with Ida specifically that.
Ran right through Louisiana, and so the example, you gave on the prepared remarks was one of our largest customers had their practice destroyed so.
Just one example, there's others within it as well as the lasting impact that's why we say.
It could have continued effect us within Q4 and potentially beyond because it's hard to say how long. Some of these things can rebuild that being said what we do expect though is now that we have a broader salesforce that goes it essentially covers the entire U S. These regional type factors will be hopefully less impactful in the future but for Q.
Four we would still expect some potential heads.
Headwinds related to Ida and again, because Ida ran up through the northeast and there was the flooding situations.
Those those areas have recovered a little bit better than some of the places in the south so from an ASP perspective again, we still expect a sequential improvement with nasp's, but it will be lumpy.
How much Isps improve over time, that's one of the hardest things. The model. We are focused on the key drivers for how we can improve ISP growth, including driving proportion of samples through are covered contracts, both Medicare and the commercial contracts the worry of coverage.
But again, that's the one that's really hard because if we get some other payers on board that can help and as we improve the.
The proportions within cover territories that will help but again, we do expect asp's to kind of trend up slightly probably within Q4 and then throughout 2020. It's just the right is hard to definitively said.
That was just add to that the thing that concerns us about the fourth quarters, we got hit so hard with the vacation through August and.
September and we had mentioned that on the prior we weren't sure. If there was seasonality, but there was clearly a pent up vacation demand. We're hearing similar things about people wanting to get together for the holidays. So that's the only thing that gives us an pause about the rest of the fourth quarter are not the only thing, but one of the things is driving our thinking about further we just don't know how to forecast that right now because.
It was so strong and that August September timeframe, and we're just with all these holidays coming up and now kids can be vaccinated people want to take a visit to the relatives were just worried that that may have an impact and so that's why we're being conservative about how we look at the rest of this quarter.
We just want to lose credibility with you guys by.
By not telling you what's really happening on the ground and those are the things that we're thinking about.
Yeah, absolutely makes sense and then dermatologist on call when does that officially kickoff is Q4 does that kick off at the beginning of next year.
Access to 20 million patients is fantastic.
<unk>, depending on one that kicks off if there's anything you can do to hit the ground running any opportunities for joint marketing, maybe with without a partner.
Really.
Drive penetration that channel.
Yes, we we are going live with that dermatologist oncall.
Relationship now we are training up their doctors, it's going to take the rest of the core to get through all of their.
<unk>, so dermatologist that are in their network, but we are starting that now.
They're they're covered lives benefit is really kicking in 2021, and that's where we would.
See that exposure to those 20 million covered lives starting in 2022.
Right now.
Because the only way to really assassinate typical malls with the surgical biopsy I would say the proportion of of visits for tele dermatology for suspicious moles as a lower proportion, but I think with marketing and now understand there is a true virtual care option, where you can have a test in the whom we're going to work to kind of increase.
That overall proportion and that will take some time, but that's something we'll be working on throughout.
Throughout the year with dermatologists, all calling in getting access to the folks that.
That they will have their service is a benefit and then our own efforts that will be doing with our with our find a doctor patient offering that telemedicine option to the patients that come to find a doctor page and we've already gotten our first samples and from that partnership with that relationship actually this week and so even though as we're going through the training.
Calls again, it's alive right now and it's it's going to help contribute so it will like Jonathan it'll take a little bit of time to ramp up but again, we're very optimistic and what that relationship can do for us.
Great. Thanks for taking my questions.
And our next question is from soon G Numb.
Go ahead.
Hi, Thanks for taking my question, maybe one for Kevin.
For a gross margins. Obviously you guys are seeing improvement there year over year end of the year to date you over here.
Curious about.
Hi, Shirley.
It's declined especially for the I think with Martin if there is any one time impact.
Tribute are there.
What kind of driving I think myself that Carl.
Yes, yes, so we were staffing up in anticipation of some additional growth obviously delta it impacted that growth and so I'd say from a fixed Cogs perspective. It was relatively flat over Q2, we just had some additional variable costs related some head count so scientists in San Diego.
Their high demand because of just the biotech industry within San Diego and so when we find good scientists in lab people lab team members will go and get them because again, we will know that we'll need their capacity here in the near future. We're also putting in some technology improvements within the lab infrastructure, which had a little bit of impact for the quarter in terms of some variable cost.
So that was really the main two reasons.
That's that's helpful.
And then John obviously, you guys are making good progress with the Medicare portion of the.
Despite the challenging.
Market environment. So was curious are you is there.
An incremental effort you are making with that population or I'm, just trying to figure out if it's kind of been.
And market can.
That you're essentially experiencing.
Well, we think it's hard to put exactly the reasons behind it but we think.
As.
The Medicare population has gotten more vaccinated and they are more out and about living their lives that that could be a factor that's contributing to that rising proportion because for so long they were kind of staying away from places like the dermatologist, so that could be a factor.
We are more broadly marketing the test digitally.
That patient population, so that could be helping a little bit it's hard to put an exact number on it but an exact reason behind it but we're pleased with it and we've seen this trend now every quarter going up and we we expect that to continue to make improvements there and it is a key focus for us.
Got check right and then just lastly for me.
First time hearing about that supply chain constraints on the sequencing float belt and so I was wondering if you have a sense when that might.
The address if you are hearing anything from the supplier as far as that when that might normally.
For you guys.
That's really been really hard to tell we just can't get enough and even when we go into our outside suppliers of these services are contracted providers of sequencing serving services, they're having trouble too and so their lead times are extended for the same reason.
We're not quite sure we know where they come from the come from overseas So maybe their stuff.
Los Angeles or something but it's hard to say, it's just we've got big orders for those and we're only getting onesies and Twosies right now.
They are trying to work with us to get as many as possible.
What details they just don't have the flow cells.
And and that's just it's just been a hang up that slowed things down a little bit.
As we validate that luminate product, but.
Again, right now not an impact on the carcinoma.
And we're hopeful that it will be resolved.
Still optimistic that product will also be done by mid 2022, despite the near term kind of supply chain issue with flow cells I think the J P. Morgan analysts wrote about this a while back ago.
Luminous challenge with flow sales, but maybe a month ago and then we started experiencing that.
Great. Thank you so much.
Okay. Thank you.
Ladies and gentlemen, if you have a question at this time. Please press the star than the one key on your Dash Stone telephone and our next question is from Alex Novak of Greg Hallum Go ahead, Alex Greg.
Good afternoon, everyone is the refined sales approach and the new branding strategy here resonating, where you're not trying to fully replace a biopsy any more and really kitchen declared additions to think about the empty is more ancillary on an alternative to watch the waiting is that that helping the conversation at all with you the new or existing inclination.
Yeah, absolutely I think that.
We spend a lot of time working on the messaging and refining it and we've been rolling out that new messaging out with our existing sales reps and that's obviously going into the hands of the new sales reps, but the general starting messages Hey, we're not here to take away. Your biopsy. We're here to help you with these lesions that you can't biopsy for a variety of reasons and that just sort of take.
[noise] down the the general.
Concern that.
Doctors may have about that.
And it opens up the conversation much better in general we've tightened up all the marketing messaging.
We've gone to a consultative selling model with with MSL support et cetera, and so I think all those things are are part of just the refinement of our commercial strategies in planning and we expect those things to pay off his now that we've done a full commercial team.
And just hoping to understand more about the inner center ramp here. So the unique ordering clinician can you quantify how many of these are ordering 10 or more samples or whatever you consider to be high volume users out there and just how quickly does a new clinician go from an initial user to a high volume cost.
Sure.
We haven't disclosed the breakouts of the various utilization buckets, yet, but as you can imagine again, what is the new conditions come on board. They start out in those first two buckets, which as we call. The dabbler as one to two months and then the mid tier which is three nine months.
We've been measuring that and it's kind of varied right. So how quickly does do they go from the lower tier buckets to the higher to buckets I'd say, it's very then it it's really tied to their experience right. So if the clinician who's ordering the test.
Start seeing these things, where it's really just eye opening where they didn't think something was super suspicious, but they used our test and lo and behold things come back as positive that gets them kind of acknowledging the technology, a little bit quicker, but we don't have a good.
Average type of number for all the use case, just because the pandemic is clouded some of these things we haven't had the right access the right repetition with the order and clinicians to really make sure that they can ramp up and understand the technology is there really starting to adopt and use it it's something that will target disclosing a little bit more of the buckets and the timing of getting through the tears in the future.
We're just trying to get make sure that the data we have during this pandemic environment is really clean and understood and that we're not muddying. The waters by just again, putting out data that's just muddied by Covid right now.
Yeah, no that makes sense and then the incoming sales team would you rather have them go out there and try that drove up new questions or do you see a better maybe near term, maybe even midterm Roy by a rapid existing customers.
Well, we expect them to do both right I mean, there are is going to be when you're in the.
Territory, there is going to be some existing business. If that territory was split so we expect them to go after that existing business and we also expect them to.
To bring in new customers I think before our territories were a bit larger.
Two or 250 doctors per territory, which is a pretty heavy number for sales reps two for one sales rep to cover with the right frequency and reach now we're down to more like 100 to 125 doctors per territory, which now there's adequate frequency and reach within that group. So we expect both of them to drive that.
This was an existing customers, but bring in new customers in general, though our focus is now breath right. The pandemic focus to go deep. We're just trying to drive utilization with an existing accounts now that we're fully scaled up and the pandemic is starting to wane, we want to go abroad, and we want to bring on as many users as we can and.
And and then as we get that broad group of users on then drive that utilization over time within that broader group of users fur.
For a million dollars have about probably about half of the new reps are so ah really getting dropped into brand new territories. So the expectation for them is the majority of what they are doing will be to get a breath of new customers on board and.
And then we also have some other customers who might have ordered a while ago and just haven't ordered for a little bit. So it gives us an opportunity to get back in front of them. Because again, we know dermatology is a frequency and repetition type of.
Specialty where if you don't have frequent side of contact with them then they might forget about it and just not order as much or even potentially even stop ordering so we want to kind of have the new reps do all of those.
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Okay that makes sense and then just lastly, how are you thinking about other dermatology asset that on here and strengthen the infrastructure just generally thinking about for example, meta Optimus technology that using <unk> is there anything else that you could.
Add on here to help fully integrate this for for clinicians.
I guess, we do have a big push right now to do the electronic medical records integration, we're working with them on that is growing very well, we're rolling that out to more and more clinicians every quarter that's been going on for the last couple of quarters, We think thats another.
Another important piece to facilitate and streamline the ordering of the test so that will.
Continue.
We haven't identified any other ancillary technologies in the near term that we want to necessarily one and bring in house, we think that.
The.
More important just to focus on our platform and we've got a lot of work to do and a lot of upside from where we are today and penetrating the markets. We have we've got a deep pipeline of products. We just didn't we need to get the job done with those before worry about bringing on a lot of other things that can represent more distractions. So that's really our focus.
And.
We don't have any any plans in the near term to bring anything new and in addition to what John mentioned in the prepared remarks, so the integrated delivery networks that we have bacon.
They can use various types of emr's and so even though we're integrating currently with Emma the other couple of pilots going on or using different emr's. So we will have multiple emr's that will do the integrations for both to facilitate their submissions of tests requisitions, but and also the second phase of those integrations will allow us to grab medical records and.
That will help with the appeal process that we need to do on the back as well.
Got it appreciate the update thanks.
And our next question is from Thomas Flatten Lake Street go ahead Thomas.
Hey, guys. Thanks for taking my question, Kevin just wanted to revisit guidance for a second on the low end would imply a pretty substantial downtick in testing volume in the fourth quarter. So.
It kind of sounded like there was some lingering effects of Idaho, maybe some pandemic, maybe some vacations, but the low end would imply kind of an acceleration and the brakes, if I can say it that way.
That would that would shrink the business rather than just keep it flat can you just walk me through the conservatism there over what we saw in the third quarter.
Yeah. So in the third quarter July was great. We came out of Q2 before Delta came about and everything was really good.
Rocking on all cylinders and then Delta came about and again August and September were the tough ones.
And so as we start out here in October and November October was again, a little bit choppy, but as we mentioned November has picked back up and so to get to a flat Q4 over Q3, we still need some acceleration from where we are now and so that's why we say because of the uncertainty around the vacation environment come.
Lean towards the holidays, we're just not quite sure of how how it plays out in addition to Ida. So Louisiana was the example, right I mean, there's that one practice that we mentioned where who knows how long it takes them for them to rebuild and that was one of the largest customers in that territory for what was our largest and fastest excuse me our fastest growing territory.
Some of the other impacts around the south whether it's Florida or the other states in the south they're still dealing with some of that either cleanup as well. So again I think it's just a matter of us being conservative and.
Trying to make sure we capture the low and even though we might think that we're coming in above that we just don't want to like Jonathan lose the credibility for some reason things kind of slowdown even more with with any of those things or potentially even another variant another wave of the pandemic comes at us.
Many people are probably reading about the fifth way of going on in Europe right. Now so it's hard to say what the impacts for us will be as winter approaches and people head indoors more so that's really all it is is the low end of the new range is just really conservatism for where we think the bottom really is and again. We do think will will be ahead of that is just the things that were unsure.
How it plays out.
Got it and then looking forward freeze.
For either of you John R. Kevin as we think about a doubling of testing volumes in 22 over 21 can I just assume that any illuminate volume is not included in that and that would be upside.
Correct, Yeah. So when we talk about the trajectories for next year, we're talking about the term technical Anoma test exactly.
And then just one final one.
Didn't catch it during the prepared remarks did you have a timing or thoughts on timing of the optum publication.
It'll be submitted before the year and the one thing we can't control is the peer review process, sometimes that takes a couple of weeks, sometimes it can take a couple of months and we just we know the publication, we're going to submit it to it should go in here.
Within a few weeks and then we'll just have to see what the peer review cyclist. So I suspect it will be out there.
If not by the end of the year in the first part of the next year.
Got it I appreciate it thanks.
And I'm not showing any further questions.
And gentlemen, thank you for participating in today's conference and this concludes today's program you may all disconnect everyone have a great day.
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Uh-huh.
Alright.
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