Q4 2021 DermTech Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the <unk> fourth quarter and full year 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 on your thought.
Just on the telephone as a reminder, this call may be recorded I would now like to hand, the conference over to your first speaker today that as Caroline corner Investor Relations. Please go ahead.
Thank you operator, welcome to <unk> fourth quarter and full year 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 March one 2022 and are subject to various.
Factors assumptions risks and uncertainties, which change over time.
Actual results could differ materially from those described in such statements.
Factors that may contribute to or cause such differences are described in today's press release and <unk>. Most recent filings with the SEC, including <unk> quarterly report on Form 10-Q for the quarter ended September 32021. In addition, we are encouraged to review the Companys to be filed annual report on Form 10-K for the year ended December 31 2021.
For any revisions or updates to the information in this release don't take undertakes no obligation to update these statements except as required by applicable law <unk> press release with fourth quarter and full year 2021 results is available under the Investor Relations section of the <unk> website Www Dot <unk> Dot com and includes additional details about <unk> financial.
Also available on the <unk> website at <unk> latest SEC filings, which you are encouraged to review a recording of today's call will be available on the <unk> website by five PM Pacific time today, now I would like to turn the call over to John .
Thank you Caroline and thank you everyone for taking the time to join US today in January of this year, we had a national sales meeting. This was our first national meeting with a fully scaled and resource commercial team an important milestone for <unk> and one that I have been waiting on for almost two years now.
We now have the necessary capacity to drive adoption of our <unk> melanoma test or DMT with this test we want to change the status quo of early melanoma detection through our noninvasive genomics platform enabled by our smart sticker.
Quality of the sales team members as impressive in terms of their commercial experience in dermatology and the numerous accolades they received as sales managers and leaders from their prior companies, but what was most impressive was their motivation and enthusiasm to lead our efforts to fundamentally change the practice of dermatology and bring the genomic revolution.
To dermatological care.
As we will discuss shortly we believe our investments in the commercial organization are already contributing to the growth and adoption of our <unk> melanoma test.
Turning to our 2021 performance, we finished the year with over 44000, billable samples and $11 million and DMT assay revenue rich rich represents 86% sample volume growth and 160% assay revenue growth over 2020.
For Q4 2021 compared to the same period of the prior year, we increased our unique quarterly ordering physicians from about 1000 to approximately 800 providers.
<unk> pleased with our 2021 performance despite experiencing three waves of the Covid pandemic. In addition, as I. Just noted we implemented a large commercial scale up that has significantly redrawn territories and reporting structures, resulting in some near term disruption, but positioning us for the growth we see ahead.
We often field questions from the investment community about the overall speed of our revenue and test volume ramp up in general we believe we are making meaningful meaningful progress against the over given the overall pandemic environment. We have been operating in however, another way to answer. This question is to look at the historical performance of our peers.
In about two and a half years since launching DMT in earnest, we reached the milestone of approximately 50000 samples in a single year and I will emphasize that in our effort to be thoughtful about scaling the organization during a pandemic with reduced physician access our commercial team growth was slower than we anticipated two years ago.
On average it took many of the peers in our space approximately five years to achieve a similar level of adoption if they achieve that level of adoption at all as measured by sample volume.
Another metric to look at our sales rep productivity, we had on average about 40 fully trained sales managers. During 2021. These sales managers produced on average between 1100 1200 samples for the year, we estimate sales manager productivity for some of our peers. During a similar period after product introduction was between 570 samples per.
Year per Rep now, we recognize that we do have a larger market opportunity for <unk> melanoma test and some of our peers have for their respective tests, but if we look at company with a company with an even larger market opportunity than us for example, one in colon cancer screening we estimate historical sales representative productivity was approximately 1000 samples per rep per year.
At a similar stage of commercialization.
We are clearly seeing significant levels of adoption relative to our peers with the melanoma test test, which is bringing transformational change to dermatology specialty that has not had much exposure to the genomic revolution, nor products that dramatically changed their method of practice now where were lower relative to our peers as our topline.
Revenue growth, which has hindered by our lower average selling price or ASP.
Which was $252 for Q4 2021 as we have consistently discussed we believe we will monetize this sample volume by growing our ESP and as this price approaches our Medicare reimbursement rate of $760, we will see topline revenue compound meaningfully.
Main variables, we look at to grow our ISP are increasing the Medicare and covered billable sample proportion to increasing our appeal success and three attaining additional payer coverage from third party payers.
Medicare represents half of the total addressable market. So ideally our proportion of medical Medicare Sam samples should be 50%.
While we have managed to steadily grow this proportion we still have significant work to do here as a proportion for Q4 was 23%.
We will continue to raise awareness of our product in the Medicare community through our digital marketing effort and continue to educate our customers on the benefits of the products in the Medicare population.
Clearly expanding our payer coverage will meaningfully improve our ESP. We currently have approximately $90 million covered lives given the fact that we lost approximately one year of payer activity due to the pandemic our growth in covered lives since our Medicare coverage is on par with peer companies that introduced highly novel diagnostic tests as we've discussed we have significant ongoing.
The activity with regional National Payors, and our team is hard at work educating them. So they better realize the clinical value proposition, which should ultimately to coverage. We continue to provide peer reviewed publications that support coverage of our DMT in March we expect the results of the Optum health care economic study to be published also.
The 2022 edition of the NCC and guidelines of reaffirms the <unk> recommendation for the DMT.
We also believe the 2022 documents strengthens the overall recommendation by delineating our test as a stand alone pre biopsy assessment and removing some ambiguous preamble language that was present in the 2021 guidance document.
We remain optimistic that we will achieve coverage in 2022 from at least one nationally recognized payor.
Looking now at recent trends in the patterns, we saw in the fourth quarter, we like so many others continue to see pandemic related Choppiness, which continued into November . However, however December proved to be quite strong and we set new records for samples received and unique ordering clinicians despite a significant drop.
Off in the last week of the year due to the holidays and omicron Serge.
Many companies January 2020 to remain challenging however, our growth has recently rebounded in February broke the sample record volume record that we set in December .
Part of our commercial expansion involve developing our peer to peer and medical science liaison educational effort and we are seeing interest in this effort with well attended physician led educational meetings, suggesting the medical unit community is learning to live with the Covid in.
In March we plan to attend the annual meeting and we will have a significant presence and marketing effort, there, including a prominently placed booths and marketing banners throughout the venue. We continue to invest in our direct to consumer marketing to facilitate patient education and to raise product awareness and demand. We currently average about 25000 searches on our find a special.
This tool each month by people who are potentially interested in the DMT. In addition, we have made progress with electronic medical record or EMR integrations through Emma the most common EMR used by dermatologists and have on boarded nearly 300 locations. We have efforts to onboard approximately 200 additional load.
Patients, which should help with process efficiency.
All of this all of this gives us confidence that we expect to approximately double our billable sample volume in 2022 and more than double our DMT assay revenue.
We continue our expansion into primary care, we've built a small team of account managers to engage with primary care network administrators and executives.
The Florida IGN rollout continues but it was slow due to omicron. However activity has recently picked up and we expect to complete the first phase of this rollout to approximately 300 clinicians in the near future.
As discussed previously our initial efforts in Florida are centered around quantifying certain metrics regarding deployment into primary care, including such factors as the number of accounts a primary rep can handle the number of sales calls needed to secure an order conversion rates and utilization ramp expectations.
We have ongoing in the Midwest continues but also had some omicron delays.
We have expanded our telehealth offering <unk> connect which is now available in Florida, New York, Illinois, Pennsylvania, Connecticut, Colorado, Missouri, and West Virginia.
There are also another 15 to 17 states in which <unk> connect will be available in the coming months.
As a reminder, the telemedicine platform is designed to match an interested patient with a participating independent dermatologists, who can assess a spiff suspicious lesion using the <unk> tech connect store and forward telemedicine option.
Dermatologists may if warranted also order our DMT.
Tests for the patient.
We plan to gain synergies with our marketing efforts and find a specialist tool by providing the termed tech connect option to people who visit our website that are interested in connecting with doctors who use the DMT.
We are pleased to report that illuminate development is now complete and the assay is currently being transferred into our commercial lab the supply chain constraints related to sequencing flow sales. We mentioned on the last call did spill into Q1, a little bit and affected illuminate development slightly we expect to begin introducing this product in the second.
Quarter, and recently hired a vice president of consumer products, Adele Walker with commercial experience from companies, such as Allergan and skin medica to spearhead our efforts in the consumer based genomic health and wellness testing markets given the <unk> background, we plan to commence the introduction of this product directly to the consumer with physician oversight. However, some.
Time in the future we may look to deploy this test inefficient Asian offices that have consumer product offerings as part of their practice. We are also exploring the development of additional consumer oriented health and wellness tests to offer through our consumer channel.
We continue to make progress on our carcinoma test.
Though we have more work to do there the performance of the assay continues to improve but we have not yet achieved our desired performance metrics. We are still targeting validation of the assay by mid year and will work to generate utility data in the second half of 2021% to support our Medicare submission.
We recently launched <unk> stratum to expand our presence and product offerings with the pharma and academic research community <unk> stratum includes additional services such as biomarker identification, new target identification patient segmentation and stratification and bioinformatics support in the last couple of quarters. We are pleased to have.
<unk> seen an increase in engagement with pharma collaborators and have multiple contracts in various stages of negotiation and several new contracts completed current indicators suggest that clinical trial activity is resuming after the pandemic induced slow and we expect this increased activity to drive more research business through stratum.
In summary, we believe the table is set for a robust 2022 as it will be the first year of commercializing the <unk> melanoma test and an appropriate script commercial scale.
While the vast majority of our effort will be spent securing adoption in the professional dermatology channel, which should drive nearly all of the performance for the year. We will continue our expansion into primary care professional channel. The Derm Tech Luminaire consumer channel the Durham Tech connect Telehealth channel and our <unk> Tec Stratum research channel.
I look forward to answering your questions during the Q&A with that I'm going to turn it over to Kevin to go over the financial results. Thanks, John assay revenue for Q4, 2021 increased 90% to $3 8 million compared to $1 6 million for Q4 2020 assay revenue for full year 2021 increased 160 <unk>.
<unk> to <unk> 11.0 million compared to $4 2 million for 2020.
Total revenues for Q4, 2021 increased 49% to $3 2 million compared to $2 1 million for Q4 2020.
Total revenues for full year, 2021 increased 101% to $11 8 million compared to $5 9 million for 2020.
Q4, 2021, ASP was $252 per sample, a 34% increase compared to $188 per sample in Q4, 2020 and was flat sequentially our potential assay revenue that could be recognized from having broader payer coverage is still meaningfully higher than the actual reported revenue.
Billable samples for Q4 2021 were approximately 11780 compared to approximately 8300 for Q4, 2020, or a 42% increase and was up slightly sequentially compared to Q3 2021.
Billable samples for full year, 2021 increased 86% to approximately 44620 compared to approximately 24000 for 2020.
Medicare samples represented about 23% of our billable samples in Q4 2021 compared to approximately 19% in Q4, 2020 and 22% in Q3 2021.
With approximately 2800 unique ordering clinicians during the last 12 months, we penetrated 56% 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 29% penetration of our expanded digital.
Target market of 9% to 10000, dermatology clinicians and penetration of about 22% of the 13000 total practicing dermatology clinicians.
We had approximately 800 unique ordering clinicians in Q4 2021 compared to approximately 1040 in Q4, 2020, or 73% increase and compared to approximately 1590 in Q3, 2021 or 13% sequential increase.
Our average quarterly utilization or average number of tests ordered per unique ordering clinician was $6 five billable samples in Q4 2021 compared to seven four in Q3 2021 and eight zero in Q4 2020.
We continue to see new users typically ordering less per month, when they first start using our melanoma test overall utilization declined slightly as expected since we added more new accounts during the quarter, we still expect a higher number of order overall ordering clinicians to contribute to higher billable sample volumes and offset potentially lower utilization rate.
Contract revenue decreased 65% to <unk> 2 million for Q4, 2021 compared to <unk> 6 million for Q4 2020.
As of December 31, 2021, we had a maximum of $4 2 million in potential remaining contract revenue related to our current agreements.
Gross margin for Q4, 2021 was 4% compared to 19% for Q4 2020. The decrease in gross margin was largely driven by lower contract revenue during Q4 2021 compared to Q4 2012.
Assay gross margin for Q4, 2021 was negative 1% compared to negative 9% for Q4, 2020, and 3% for Q3 2021.
Sales and marketing expense increased 161% to $13 3 million for Q4 2021 compared to $5 1 million for Q4 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 due to increases in our marketing initiatives to raise awareness of our technology.
Research and development expense increased 213% $6 8 million for Q4 2021 compared to $1 9 million for Q4 2020, the increase was primarily due to higher compensation related costs.
<unk> 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 administrative expense increased 153% to $7 2 million for Q4 2021 compared to $2 8 million for Q4 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 for all growth.
Net loss for the fourth quarter of 2021 was $26 1 million, which included $3 8 million of noncash stock based compensation offset by <unk> 3 million of benefit related to a noncash change in fair value of the warrant liability.
<unk> to a net loss of $10 7 million for the same period of 2020, which included $1 4 million of noncash stock based compensation and $1 $3 million of expense related to a noncash change in fair value of the warrant liability.
At December 31, 2020, our cash cash equivalents restricted cash and marketable securities totaled $228 5 million.
We are issuing full year 2020 assay revenue guidance to be between $22 million and $26 million, which represents growth of 100% to 136% over 2021.
In addition, given the softness in January due to omicron, but a nice recovery in February we estimate Q1, 2022 assay revenues to be between $3 4 million and $3 8 million, which represents growth of 55% to 74% over Q1 2021.
We're very happy with the strong growth of our of all our key metrics during 2021, especially given the challenging pandemic environment.
Keenly focused on executing on our growth drivers during 2022, now I'll turn the call back to the operator for questions.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then the one key on your Touchtone telephone. If a question has been answered or you wish to remove yourself from the queue. You May press the pound key.
Ask that you please limit yourself to one question and one follow up one moment for our questions.
Our first question comes from the line of Brian Weinstein from William Blair. Your line is open.
Hey, good afternoon, Mr. Griffin on for Brian Thanks for the question.
Just to start on the full year guide.
Just talk a little bit more about the assumptions there.
In terms of where you think wrap accessories for the full year.
Realization.
In particular Asps.
So we're comfortable with that guidance we gave.
Again, when you look at periods.
When are when the virus has settled down we see the growth that we expect some of this came from some numbers. We saw back in actually the June July time period, where reps, we're doing six reps samples per day per rep, and if you amortize those numbers out over a larger sales team that we just put in place at <unk>.
Two two.
See how we are comfortable with that with the guidance that we can double our sample volume revenue. What we saw in February is very encouraging and it suggests that that is achievable and so we're comfortable with that.
The Asps is very hard to model out I'll, let Kevin comment on that and Rep access I think is improving and I think again.
It just points given what we saw in January when Omicron was raging and what we see now in February I think that just shows that when the environment normalizes and the frequency of visits that we can.
We can attain to the with physicians goes up we see the kind of the.
The kind of demand and adoption of the product in Tampa growth that we won.
As we mentioned on the call so increasing our ASP, we've got three main variables, increasing the Medicare <unk> covered billable sample proportion.
Being that Medicare was 23% in Q4, we've got opportunity to improve our ESP by getting more Medicare patients as we raise the awareness in that population and then also the cover contracts, we have in California, Texas, Illinois and others.
We also plan to increase our appeal success.
And then additional coverage so we moderate we model moderate growth over the year, because we can't predict when a payer will come on board, but as we can pull these levers with proportion and appeal success that we can drive activity and we model some steady growth throughout the year and that's how we say that.
The revenue guide is essentially at least doubling from 2021 with the upside based on our top top end of the range of our guidance.
Okay. Thank you.
And then just can you give us your updated thoughts on.
Primary care and telemedicine sort of market expansive initiative that you're working on.
Do you feel more or less confident about those with some of the pilots that have been going up.
Sure. So right now we see the best opportunity in primary care with these primary care networks or integrated delivery networks. They kind of exists to avoid referrals outside the network to specialists because it cost them more.
Money to do that basically until they want to retain the patients within their networks are melanoma test allows them to avoid referrals to dermatologists for melanoma suspicious lesions most of them, which are likely to be negative and so the referral never needed to occur in the first place. It's a top down sales. So we started out the.
<unk> level.
And then we have to sort of get a license to hunt if you will to offer the test to the physicians within that network.
We.
We just built out that team we have a nice pipeline of opportunities that we're exploring there and that they are moving forward.
In terms of how we want to approach it we want to understand what how we need to deploy sales reps against their primary care network.
So that we can get the right pull through of the product and that's what we're trying to learn through the effort we have going on in Florida, and we just haven't gotten completing the rollout completed there because of the various pandemic.
Waived that occurred but again as the omicron has waned. We're back now training those doctors up and then we will understand those metrics and that will inform us as we bring new ideas on how we need to deploy against those those types of accounts, yes regarding tele medicine. So we plan to have close to half the country.
Available with <unk> here in the coming months as we just mentioned and so again, we've always viewed that telemedicine is.
Great kind of alternative for certain people, which obviously was highlighted during the height of the pandemic, but telemedicine for diagnostic, especially with four melanoma.
New market and it will take some effort to kind of fully build that out but we see that still is a good opportunity in the future and which is why we're investing into it current day, but like John also mentioned on the call, we expect that probably 90% or so or more of our effort.
Our actual commercial effort for 2022 will come from the threshold dermatology channel.
Okay, and if I could.
Just one more on the <unk>.
Contract revenues and a maximum of $4 2 billion they are exiting the year.
How should we think about that the cadence of that rolled off and maybe what youre expecting in 2022 there.
Yes, it's hard to predict because a lot of that its really back loaded in the trials. So the biggest portion of the contract revenue. We receive is the extraction work once the trials have been.
<unk> fully.
Enrolled in samples have been taken.
Because of the pandemic delays again this is where a lot of the pharma trials were just delayed for a while we are seeing that activity pick up now, but it is hard to predict when they will fulfill their enrollments and when we'll actually get those samples in.
We hope to have some better insight here in the coming months.
It looks like this pandemic weigh it is waiting and seeing what activity of these pharma companies can do but as of right now it's very hard to predict what it looks like throughout the rest of this year.
Okay. Thanks for the time guys.
Thank you. Our next question comes from the line of Max Masucci from Cowen and co. Your line is open.
Yeah.
Hey, thanks for taking the questions.
Just wanted to start just curious if youre seeing any.
Margin pressure due to rising input costs.
<unk> supply chain disruptions.
Love to get your latest view on <unk>.
Supply chain.
Is there anything you can offer on the cadence of gross margins.
During the year that'd be great.
Yes, we haven't seen a lot of supply chain issues or cost issues, yet so as the waves of the pandemic.
Go down the requirements on PCR supplies also go down and so we haven't had challenges running our melanoma tests, we have seen just I'd say from inflation in general is wages, where.
San Diego is a competitive market and we have adjusted wages and certain laboratory areas that are in cogs to be competitive with the market.
And then equipment I'd say.
<unk> term equipment around additional capacity or some of the new technologies and things like that that's where we havent seen issues, yet, but we have to be very good at planning on when we need to place those orders. So that we can get the appropriate lead time. So quick quick answer is we haven't seen a lot of impact yet other than maybe some wages here just locally given how hot.
The laboratory and scientific markets are here in San Diego, but we are monitoring it very closely.
Is it fair to say in anticipation of.
What was potential disruptions, particularly when the when the pandemic was at its peak, we've always kind of built up.
Supplies and even the head count to make sure if people if we had an outbreak.
Of the pandemic. So we've got we've run a little bit rich in general Cogs, because we just didn't want to get caught short win win that when everything was turbulent during the pandemic. So that's another factor that we're trying to get that more in line with with the growth we're seeing.
Yes, It makes sense and then just curious if you've made.
Any more incremental adds to the sales force.
The numbers have held steady.
The Q3 call and then in terms of the Covid impact you are seeing today.
More in your customer base in terms of access or within your sales force.
We're at about 70 reps I mean, I think we've had very minimal turnover.
And we plan to kind of maintain or our sales force at that 72 number.
Throughout the year right now.
May add some reps.
And the primary care setting as we learned to understand what those metrics are but we're still in the process of planning.
Planning there.
And then I'm sorry, the other question was.
In terms of.
Alright fair enough.
Yes, I mean look the funny thing about I'm, a proud as the doctors were getting sick, that's what we notice which was kind of different than the other waves. So not only access would go down, but we had some challenges with doctors going out for a week or two because they were picking up the virus.
It's hard to say all of those things all I know is that.
As the numbers came down on <unk> and the.
People, starting to kind of relaxing and going back to their daily lives our volume picked up.
Substantially I think we saw in terms of our average daily sample numbers about 2025% increase over what we saw from our prior peak in that December timeframe. So we saw robust rebound.
Optimistic we will continue.
Just hoping that the viruses in the endemic phase. So we don't go through these things and where we hope to just people are learning to live with it but whenever there are issues or it's clear the correlations between our success with adoption and the rise they ebb and flow of the pandemic.
One to one correlation you just see it.
And.
With smooth sailing I think we can see the kind of adoption, we want to see with the product.
Got it and just one final one for Kevin.
Just in terms of the guidance.
I understand the timing of new reimbursement wins is very challenging to predict but if you look at the size and <unk>.
Types of payers that Youre engaged with right now you see asps trending more gradually throughout 'twenty, two or should we expect more of a call.
Step function in the back half.
Yes, we would we model a more gradual kind of increase throughout the year just because it is really so hard to predict so if we take it that if we get any of these payer wins, it's really upside to us, but that's how we model is more of a gradual ESP ramp.
Great. Thanks for taking the questions.
Thank you. Our next question comes from the line of Kevin <unk> from Oppenheimer. Your line is open.
Hey can you thanks for taking our question.
First our on on reimbursement I appreciate you calling out your expectation for.
Signing up one national payer are there any particular.
Milestones that you think sort of potentially drive some of those discussions potentially to fruition, specifically you called out publication.
In March and some other features but im just trying to better sort of appreciate that confidence and maybe.
If you can talk about your kind of.
How you're thinking about potential reimbursement wins.
National payers, whether that site total covered lives metric or some other feature.
I think we're just trying to better understand sort of what's.
Try understanding.
Hey.
Payer landscape is that's baked into your guidance.
Well, we just we in the past we've heard well we wanted to see the trust study we want to see the the Optima economic study and those are now out in the public domain and so the payers that asked for that data and that information, we're obviously going to circle back with them.
And now that we have those I mean that gives us some confidence that they're going to take the look at the test the way. They promised us two based on that data that was set to be published and needed to be published.
There was also some discussion about the CCN wasn't totally clear there was this preamble language and we went to the NCC and we asked them to clean it up and they did so obviously circle back with them. So we're trying to address the things that the payers have sort of.
<unk>.
Spoken to us about what they want to see we believe we have addressed them.
And that's why we.
We believe we are making progress with the payers.
As we've talked about in the past, it's hard to predict we know that we've gotten some of the medical directors on board with the test they have recommended the test to their policy panel, but the policy panel that we have no input into that has come back with an additional question or two so.
We think we're doing what we need to do to educate the payers.
We're providing the information they are asking for and Thats. The best we can do in terms of trying to drive a potential coverage policy.
And that's why we think it's a question of.
When not if to get these payers onboard.
The in terms of regional payers, we built out a team we've got regional activity.
All quadrants of the U S now and.
It's the same thing there, it's a new it's a new product payers aren't good with new technology that totally changes transform a particular pathway in medicine and they have to get their head around and we're in that same stages with a lot of regional payers, where theyre trying to understand that value proposition again, we think we will have some success. There just like we talked about last.
Call that we brought on a regional payer with another 2 million lives.
Yes.
In the Midwest So.
A lot of activity, we believe that activity is going to bear fruit, we can't predict exactly when.
But we like what we're seeing and we think it's positive activity.
Great. That's super helpful. And then maybe just.
Like others sort of parsing part of our guide here, if we back out Q1 revenue guide on assay.
It implies $21 million or so.
For the last three quarters of 2002 by math is more or less correct.
<unk>.
Should we think of this.
More similar to kind of a step up with three quarters.
Give or take around kind of that.
7 million dollar kind of figure are.
Yes.
Kind of pretty steady bill for the year exiting.
Eight $9 million kind of range of America dies out quarterly guidance because.
Yes.
All of their annual guidance implies pretty significant step up after Q1, so I just want to appreciate cadence.
We estimate that it will be kind of each quarter will be better than the next right because with the salesforce that we hired I mean Q1 is really the first quarter that they were fully trained and into the field and contributing and so that's how we build the model is that as more time goes on and as those new reps can get fully up to speed.
They'll contribute more over time, so thats, how we model out is that every quarter is better than the last.
Great. Thanks for taking my questions.
Thank you. Our next question comes from the line of Alex Nowak from Craig Hallum Capital. Your line is open.
Great. Good afternoon, everyone staying on that last point there I was hoping you could expand on how that bigger sales force is helping out there in the field so far as productivity ramping similar to how you expected or the team's finding that now is the territories, there, but smaller but they have a bit more capability to take on take out more and then any initial jostling of the territories.
Being included in that Q1 guide.
Well I think it's early for us to know exactly what the appropriate ramp up as we've talked about many times, we are trying to map that out but we.
We've always had sort of.
Slowdowns when the virus occurs we havent, we don't have a good number but.
We again, we saw a very robust February I would say areas, where we had a footprint already maybe a territory that was too large because of the smaller sized sales team before that we now split and added a new rep.
And now the frequency of calls has gone up to where they should be that's where we're seeing that impact currently of the new sales reps.
And places where Theres Virgin Terry that's where we're trying to map out what should that growth look like when is it a completely new territory.
But.
Hopefully by in the next couple of quarters, assuming we don't have another setback with the macro environment and the virus will be able to understand what is the typical ramp up for a rep. Both in the Virgin territory and someone who is now.
More right size territory with the adequate frequency of calls.
But but again February is telling us the things we're doing the things we put in place the training.
Peer to peer education all of those things are working and we just need to keep executing according to that plan.
And keep our fingers crossed that the.
The the environment stays stays normal more normalized than it's been in the past.
Yes.
It's a bit hard to look at utilization just given you are adding a lot more physicians in the mix, but if you look at those physicians that will be used in the test for let's say a year year and a half or so or longer are you seeing that their same store sales is already starting on the starting to increase from here.
We definitely know that time and consistency of sales caused leads to higher utilization.
Sure.
Yes.
With our customers in general.
As we've talked about before there is often a catalyst for the test find something that a physician didnt expect and that often as another catalyst to drive more utilization and we see our consistent users that have had the consistency of sales calls their utilization grows fairly steadily over time with some step.
Changes when we have one of those moments so.
That's really what we're looking for the game is about frequency of calls.
That's why we wanted to scale the sales team so that we can't get the right sized territories, we could get the right frequency of calls.
Early the early data from territories that were split where we had some presence and now we see a higher frequency we are seeing that.
That frequency of call.
And regularity of visits improve the pull through.
<unk>.
So those are the things we're looking at and I think it's pretty clear that it's all about regular customer engagement to drive that utilization.
Okay understood and then for carcinoma.
Spend on what Youre doing there to improve the assay performance is this youre starting to look at additional genetic targets or is this just basically a refinement of the current test.
It's a little bit of both the refinement of the test.
A lot of the performance we have now has been done with sequencing and.
Sequencing is it doesn't quite have the fidelity and the dynamic range of like <unk>.
PCR so were migrating some of these targets into the PCR platform to get better differentiation. So that is a process going on.
It's a complicated disease as we've talked about it it's a complicated test because we're talking about two cancers that we need to differentiate from.
A whole host of other things a list of 910, others that are confused with those cancers.
And so it's a challenging assay to develop.
And so, but we are making steady progress and we're confident we're going to solve.
The problem.
And the challenges there we just.
It's a matter of.
Adding more genes and improving the algorithms through additional samples and training those algorithms with additional numbers of samples that go in to make it better and more effective at that discrimination.
Alright understood I appreciate the update thanks.
Thank you once again, if you have a question. Please press Star then the number one on your Touchtone telephone.
Your next question comes from the line of Thomas Flaten from Lake Street Capital. Your line is open.
Hey, guys appreciate you taking the questions.
First one Kevin for you on gross margin could you give us some sense of the level of volume that we need to see to see some real positive movement.
And gross margins, where you can kind of get to closer to that ideal.
Diagnostic margin are we talking 100000, 300000, I'm just trying to wrap my head around what that looks like.
Yes.
It's more complicated than just volume because ASP has such a tremendous impact on it even if you look at our current results for Q4, if our ASP was in the five to 600 range I mean, we would already be at close to like a <unk>.
50% margins or better so it really is a combination of both of those which again because of the challenges with predicting when payers come onboard it's hard to model out the ASP.
But that's how we think about it right is that our core.
Cogs for Q4 and for the full year for that matter for 2021.
About I think 42% or so of the Cogs were fixed for the full year and that represents capacity of about 125 to 150000 tests given kind of the current footprint and the current equipment and so we're our year was at 44600.
20 samples were not even utilizing half or even a third of the capacity. So that's where the fixed cost can be leveraged up pretty well with just adding some management staff versus more space more equipment.
Where things again get a little bit more complicated is as we're building the new laboratory, which will look to enter into by probably Q3 Q4 of this year.
It will greatly expand our capacity not just for the improvements within the expected volume increases for the melanoma tests, but for these other tests that are coming to market. So we're going through that work right now to see how can we.
Minimize any potential overcapacity in the new laboratory, but that's why it's a little challenging to say at what volume is it because it's really a combination of both volume and ASP.
And then just one other question on the guide the volume that you're expecting this year is that virtually entirely from traditional dermatology or are you anticipating any contribution from primary care market Tele medicine et cetera, just I'm trying to get a sense of what.
How much they might be contributing this year.
Yes, I mean, we've focused a big part of our efforts as we mentioned right on the professional dermatology channel for the melanoma test.
So thats why we say all of these efforts that we're doing within primary care within telemedicine within these new products.
Think that they provide either a backstop our upside to it so the newer products eliminate carcinoma again those are ones, where we don't have a whole lot baked in even if its upside because they're new and we've got to either get some data for our Medicare submission in respect to <unk> carcinoma or with illuminate it's a different type of test and consumers are used to seeing.
It's not a family lineage or.
Hereditary disposition test, but it is a test that can provide actionable information to help reduce risk of potential skin cancer in the future. So its a great idea we have great market research on it but we got a price tested do some beta testing see what kind of cost it takes to get the right number of.
Lead into the top of the funnel and see what conversion looks like so that's why we keep saying that a lot of 90% or more of our effort related to the guide even as really the professional dermatology channel further melanoma test.
Got it I appreciate it guys. Thank you.
Thank you. Our next question comes from the line of Nathan <unk> from Stephens. Your line is open.
Hey, guys just a quick question from me on illuminate.
Given this is a consumer based product and you will be paid by consumers versus having to establish reimbursement.
Is it fair to assume this product could be accretive to gross margins in 2022 or maybe potentially 2023.
And maybe similar to an earlier question if not is there a level.
Is there a certain level, where it could become accretive to gross margins that you could point to.
Well.
We've become experts at digital marketing over the last few years, particularly as it pertains to the melanoma product and we've learned how you.
The steps you have to go through to sort of.
Introduced the product and get consumers interested and drive them through the funnel and we call. It we always call. It a launch and learn and then it's a process that takes six to 12 months to kind of optimize the messaging optimize the algorithms and get that funnel and your customer acquisition costs to where they should be so.
We wouldn't say anticipate much.
In 2000, and this year and we would be looking to next year for it to be.
<unk> contribution.
Because it's really the launch and learn we've got to start understanding how to digitally market and how to drive those those funnel metrics.
We do think that the way, we develop the product and it can be a meaningful product in that.
Can have.
A meaningful gross margin associated so once it becomes mature we'll be able to communicate more effectively what we think the contribution will be yes.
In terms of the set up within the laboratory. So there are shared technologies with our <unk> melanoma test that we can leverage and just use some more current capacity.
But it looks like that there will be some new technologies around the sequencing side of things and so that's why we're at a low volume in the lunch launch and learn type of environment, We don't really utilize those that equipment as to the full scale. So it's possible it could be accretive and again it depends on the price testing that we have to perform during.
The launch and learn to see.
Because the market research is good.
When the rubber hits. The road is when people are willing to put their credit card online and what is that price point and so that's the key testing one of the key testing areas that we have to do it in this launch and learn to see if it will be accretive right away or not.
Got it thank you.
Thank you and I'm not showing further questions at this time, ladies and gentlemen, thank you for participating in today's conference. This concludes today's program Joanna all disconnect everyone have a great day.
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