Q1 2022 DermTech Inc Earnings Call
Good day, and thank you for standing by and welcome to <unk> first quarter 2022 financial results call. At this time, all participants are in a listen only mode.
The speaker's presentation, there will be a question and answer session.
And so I'll ask a question during the session you will need to press star one on your telephone keypad.
The pure Cranford assistance, you May press Star zero.
And I'll turn I'll now hand, the call over to Mr. Steve <unk>. Please go ahead.
Thank you operator, welcome to <unk> first quarter 2022 earnings call. Joining me on the call today are Dr. John <unk>, our President and Chief Executive Officer, and Kevin <unk>, Our Chief Financial Officer.
Our call today will include forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95.
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 expectations as of today.
Are subject to various factors assumptions risks and uncertainties, which change over time.
Actual results could differ materially from those described in such statements. Several factors that may contribute to our cost such differences are described in today's press release and our most recent filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2021, and our quarterly report.
On Form 10-Q for the quarter ended March 31 2022.
We undertake no obligation to update these statements except as required by applicable law.
Our first quarter 2022 earnings press release, and FCC filings are available on our Investor Relations website.
A recording of today's call will also be available on our website later today with that let me turn it over to John .
Thank you, Steve and thank you everyone for joining us today at.
At the end of March we attended the American Academy of Dermatology or AAD annual conference, which was in person for the first time since the pandemic started for me. It provided another data point that indicates we are breaking through and then genomics in dermatology continues to gain heightened awareness and important transition for any.
Company has to have its customers and industry experts begin to carry the message independently of the company's efforts. We saw this at the AAD conference with our <unk> melanoma test or DMT being referenced or discussed in numerous clinical and scientific sessions that we did not organized we want to change the status.
<unk> early melanoma detection through our noninvasive genomics platform enabled by our smart sticker and numerous independent clinicians are now joining our efforts also our booth had meaningfully greater traffic in past meetings and led to approximately 300 sales leads.
Consumer awareness push around the meeting also spurred approximately 100000 site visits and over 33000 and find a specialist searches we continue to increase the number of specialists in the database who are familiar with the DMT and now have over 650 locations or an 89% increase from Q1 of 2021.
Yesterday was melanoma Monday, and the start of melanoma awareness month, and the DMT was presented on the today show. The DMT will also be discussed and additional magazines and national New segments, and we've engaged with melanoma survivor Influencers to increase awareness of the need for skin checks in the.
Availability of the DMT, we will continue the significant marketing push through the month of May and are renewing our commitment to donate to skin cancer focused nonprofits when people make a pledge to get a skin check.
Q1, 2022 was a record quarter for our core commercial metrics. Despite a soft start in January due to AUM occurred. We finished Q1 with approximately 14370 billable samples at 22% increase from the prior record set in Q4 as a revenue also increased to a record of $3.
$5 million or an 18% increase from the prior Q4 record we believe the large commercial scale up we implemented last fall that significantly redo territories and sales reporting structure is now resulting in the growth. We expected April was a strong month and continued the growth trajectory. We saw in the second half of Q1 after.
Omicron subsided.
We continue our efforts to expand into primary care networks and our team is actively engaging with a variety of networks around the country. We have resumed training physicians in the Florida network. Following the omicron wave delay and have now trained about half of the approximately 300 clinicians we have deployed a sales rep into this network to drive more adoption.
And utilization is improving we're also expanding our pilot with the Midwest West network and have trained several new offices and.
In addition, we are negotiating and negotiating an agreement to pilot direct selling to primary care with a small contract sales team of approximately 15 to 20 inside and outside sales Representatives. This group will call on primary care offices that we have identified to have a modest dermatology practice based on an insurance claim.
Look alike analysis. The purpose of this selling pilot is to determine utilization metrics in primary care and the investment required to appropriately appropriately target this channel.
Turning now to our progress with payers. During Q1, we added a payor contract with approximately 1 million covered lives, bringing our total covered lives to approximately $91 million. This plan has a high concentration of covered lives in the southwest region. So we should be able to monetize some of the existing healthy sample volumes in that.
Region.
We have ongoing engagement with large regional and national payers and continue to hear the supporting data for the DMT is compelling. We are also increasing our visibility with payers to advocacy with professional societies physicians and patients.
We spent the last 24 months developing strong relationships with groups such as the melanoma Research Foundation, the melanoma Research Alliance and the AAD spots skin cancer program and we recently received an endorsement from the melanoma Research Alliance. We are working to leverage these relationships to help drive policy and contract decisions with payers.
With the publication of the Optum Health economic study in skin, which was published by the National Society for cutaneous Medicine, we received a very strong editorial endorsement from the members of the societies leadership Board, which includes key dermatology opinion leaders in several former AAD President.
This endorsement summarize the clinical value proposition of the DMT and they concluded and I quote, creating broad access and coverage to transformative diagnostic technologies, such as the <unk> GE EP, which is how they referred to our DMT is in the best interest of our colleagues the healthcare system and most importantly, our patients.
With this advocacy momentum building, we remain optimistic that we will achieve coverage in 2022 from at least one nationally recognized payor.
Turning to telehealth, we continued to expand Durham Tech connect which is now available in 44 states that represent 95% of the United States population termed tech connect as a longer term strategic initiatives that we plan to invest in over time to raise awareness among potential patients. We believe this offering to be an important.
<unk> toward improving patient access to skin cancer assessments through a network of independent dermatology clinicians.
Now moving to our pipeline initiatives, we continue to prepare to launch illuminate later this year with the hiring of our new VP of consumer products in the first quarter. We've completed additional consumer research that underscores product positioning as a non melanoma pre cancer risk assessment tool this product will detect acquired.
And normal appearing incentives exposed skin educating consumers on skin cancers other than melanoma, and then offering a test to evaluate their pre cancer risk in cancer risk will allow us to have a unique and differentiated product offering much of 2022 will be spent educating consumers and testing key messages.
Content and digital promotion tactics and pricing, we don't expect meaningful 2022 revenue contributions.
These educational and testing activities could take place through early 2023.
Our carcinoma pipeline product is intended to facilitate the assessment of basal and squamous cell skin cancers, we have identified a classifier for basal cell cancers and are now working on the final validation assuming this validation cohort confirms the assay performance, we will look to begin generating Utah.
<unk> data as soon as possible.
We continue to refine the squamous cell classifier and are demonstrating improvements to the overall performance. However, we have not yet locked down a final classifier that is ready for validation testing and subsequent utility studies and.
Finally, we continue the expansion of <unk> stratum to provide research and development services to the pharma and academic research communities. <unk> stratum include services, such as biomarker identification, new target identification patient segmentation and bioinformatics support we are pleased to have seen an increase in engagement with pharma.
Collaborators during the last couple of quarters and signed approximately $400000 in new contracts. During Q1, we are seeing a pickup in clinical trial activity and interest in our stratum offerings. The activity is still below pre pandemic levels.
In addition, we have identified a research use only product to differentiate a topic dermatitis from psoriasis with a high degree of accuracy and have initiated marketing of this assay through stratum. We believe this product will have utility and confirming the diagnosis of psoriasis or atopic dermatitis for patient enrollment into drug development.
<unk> studies for the treatment of these two conditions since up to 20% of patients in these development programs may be enrolled with an incorrect diagnosis.
We will also evaluate this product and determine if it may have utility as a clinical diagnostic test.
In summary, 2022 is off to a solid start hitting various all time record we expect to further realize the benefits of a scaled commercial organization with continued traction in the dermatology channel, which will drive the vast majority of our revenue growth in 2022. Nonetheless, we will continue to make investments to expand our commercial channel.
In the primary care, the Durham Tech illuminate consumer channel the telehealth Derm Tech connect Telehealth channel and our Durham check stratum research channel with that I'll turn the call over to Kevin Thanks, John I'm going to jump right into our quarterly results as our revenue for Q1, 2022 increased 61% to $3 5 million.
Compared to $2 2 million for Q1 2021 total revenues for Q1, 2022 increased 47% to $3 7 million compared to $2 5 million for Q1 2021.
Q1, 2022, ASP was $245 per sample, a 5% increase compared to $234 per sample in Q1, 2021 and was down slightly on a sequential basis, which included seasonal impacts from resetting of deductibles.
ASP improvement will continue to fluctuate as collection patterns can vary and may alter the trajectory from quarter to quarter, our potential assay revenue that could be recognized from having broader payer coverage is still meaningfully higher than actual reported revenue.
Billable samples for Q1 2022 were approximately $14370 compared to approximately 9400 for Q1 2021 or 53% increase.
Medicare samples represented about 24% of our billable samples in Q1 2022 compared to approximately 17% in Q1, 2021 and 23% in Q4 of 2021.
We have additional opportunity to further penetrate the Medicare market since Medicare represents half of the total biopsies for melanoma each year.
With approximately 3240 unique ordering clinicians during the last 12 months, we penetrated 36% of our expanded initial target market of 9000, dermatology clinicians and penetrated about 25% of the 13000 total practicing dermatology clinicians.
We had approximately 2040 unique ordering clinicians in Q1 2022 compared to approximately 200 in Q1, 2021 or 70% increase when compared to approximately 800 in Q4, 2021 or 13% sequential increase.
Our average quarterly utilization or average number of tests ordered per unique ordering clinician was 7.0 billable samples in Q1 2022 compared to $6 five in Q4 2021 and seven eight in Q1 2021.
Overall utilization increased sequentially, even with a record of new quarterly ordering clinicians.
Improved sales call frequency contributed to higher utilization rates of existing prescribers and offset lower utilization rates of new ordering clinicians, who typically order less per month when they first start up.
Contract revenue decreased 40% to <unk> 2 million for Q1, 2022 compared to <unk> 3 million for Q1 2021.
Contract revenue continues to be highly variable and is dependent on our pharmaceutical customers clinical trial progress patient enrollment success and other factors.
As of March 31, 2022, we had a maximum of 4.0 million potential remaining contract revenue related to our current agreements.
Gross margin for Q1, 2022 was 4% compared to 21% for Q1 2021. The decrease in gross margin was largely driven by lower contract revenue and higher assay Cogs during Q1 2022 compared to Q1 2021.
Assay gross margin for Q1, 2022 with zero percent compared to 10% for Q1, 2021 and negative 1% for Q4 2021.
Gross margin decreased due to higher head count related costs for annual raises and market adjustments given the competitive local market for scientific talent.
Sales and marketing expense increased 137% to $15 4 million for Q1 2022 compared to $6 5 million for Q1 2021, primarily due to additional head count and additional marketing investments, including digital media direct to consumer advertising professional promotion and additional travel costs.
We expect sales and marketing expense to increase throughout 2022, as we recognize the full impact of our expanded sales force and increase our marketing spend to drive awareness of our technology research and development expense increased 182% to $6 3 million for Q1 2022 compared to <unk> $2 3 million for Q1 2021, the increase was primarily due.
Due to higher payroll related costs higher stock based compensation increased clinical trial costs and additional lab supplies, we expect R&D expense to increase during the rest of the year as we ramp up our pipeline development efforts.
General administrative expense increased 66% to $8 6 million for Q1 2022 compared to $5 2 million for Q1 2021. The increase was primarily due to higher payroll related costs higher stock based compensation and higher audit and legal fees and additional facility related costs, we expect our general and administrative expense to increase through.
2022, as we implement systems and infrastructure to support our overall growth.
Net loss for the first quarter of 2022 was $30 1 million or $1 <unk> per share, which included $33 9 million of noncash stock based compensation compared to a net loss of $15 1 million or <unk> 55 per share for the same period of 2021, which included $2 2 million of noncash stock based compensation.
And $1 $7 million of expense related to a noncash change in fair value of the warrant liability.
As of March 31, 2022, our cash cash equivalents restricted cash and marketable securities totaled $202 3 million.
We are affirming our full year 2022 assay revenue guidance between $22 million and $26 million, which represents growth of 100% to 136% over 2021.
The strong growth of key financial and operational metrics. During Q1 is a testament to the solid foundation has been built in the prior quarters, especially giving a challenging pandemic environment.
Look forward to executing for the rest of the year now I will turn the call back to the operator for questions.
Thank you presenters at this time for their participants if you would like to ask a question. Please press star one on your telephone keypad.
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We will pause for just a moment to compile the Q&A roster.
We have our first question from Brian Weinstein from William Blair. Please go ahead.
Okay.
Hey, guys. Thanks for taking the questions.
I guess just to start out with.
And the utilization per Doc recognizing that of course is new docs coming on.
Can you just talk about where that was kind of versus your expectations.
With.
The sales force now kind of fully deployed and people too.
Get to kind of a more.
Normal efficiency.
Can you just talk about what you think that utilization per Doc should be doing throughout the year give us some some context for how that could expand throughout the year.
Sure I think in general we're pretty pleased with it we always expect a drop in utilization when we have a significant number of physician adds which occurred.
Physicians always start out kind of dabbling I guess and then with more.
Calls from our sales rep, they and consistency of use they begin to ramp up their utilization. So I would say, where we were actually pretty pleased given the the add the new physician adds that we had and we expect that to.
We expect it to be kind of up and down but with a general trend upward.
Because we will be adding more docks throughout the year and we'll kind of go through those cycles, but we also saw that we are driving overall utilization as general through existing customers.
And.
And that's what we expect to see primarily Kevin do you have anything to add yes, I'd say I mean, we've talked before about the shift in our strategy from going deep within the current base to now going broad and so while we are focused on that.
The ability to schedule a full day of sales calls is still challenging we've talked about that before to where.
To really round out the day reps historically would do drop ins, which that piece is something that has still not come back.
To be very diligent about scheduling with sales call and so we're as we're filling up the day for our reps they do target and try to.
We get a lot of the new reps new sales.
Bleeds and doctors on board, but when they are filling out the data will still call on existing doctors like John said I think we're very happy it's probably a little bit better than we expected at this point, especially given that those new reps.
Q1 was the first quarter that they are really getting going.
And as John said too we expect that overall utilization will kind of pick up throughout the year is now we've got the new base of ordering doctors and then.
We'll keep calling on existing doctors kind of going forward.
And where do you think access is right now relative to pre pandemic or relative to your expectations also where do you think patient visits are in general at this point in office.
So I think in general patient visits are pretty well recovered I think we saw some data recently, where it might be down and sort of the 5% range and even some months it picked up a little bit. So I think the patients are returning access by reps is still not at pre pandemic levels. It is improving.
But we're still down from the number of calls per day, we would like our sales reps to make.
And I think a lot of calls now will have to be scheduled they tried to do drop in calls between schedule calls and that's really kind of where the challenges remain as just those drop in calls as we've talked about in the past we have various things we're doing from peer to peer selling which helps offset some of those changes with dinner events and thing.
Like that where we would get.
One of our speakers to speak to all the physicians about it and our Derm Tech degree program, which is about educating the whole office about the use of our platform.
<unk> be kind of combat some.
<unk> reduced call frequency that we're that we saw that we see with as we're coming out of the pandemic.
Okay, and then one more for me if I could squeeze one in here, we hear a lot about you guys talking about telehealth as well as the primary care opportunities here.
Recognizing that there is still very early and it's still playing out but is there a way for you to frame what the opportunities are here. If I was thinking about those two is there one that is more of a.
A near term driver one that's kind of a bigger opportunity longer term just can you put a little meat on the bone for us to kind of help us understand how big these potentially could be over time.
Sure I mean I.
Thank them more relevant sort of near term opportunities in primary care.
And <unk>.
As we've talked about for the last quarters, we've been making inroads into that segment.
As we've also talked about the challenge with primary care is not that they don't believe in genomics they've adopted genomics.
And they also believe in what we're doing it's just that they are taking care of a lot of other things and so the question really is what is the utilization rate within our primary care office.
And and how do you drive that utilization rep right from a certain.
Salesforce effort, meaning he calls and number of.
Physicians that a rep would have in a territory for primary care the market would obviously be massive I mean with with 250000 primary care is if you could get after all of those and you can drive even a few tests per month through that channel assuming there was a return on investment for that sales force.
Theres clearly would be a big opportunity there we have to time that with our ASP growth because to make those investments and get the return on the best when do you want to have the right coverage and the right ASP. So you get a return on that investment those are all the variables. We're trying to understand I am sorry, we got some jets overhead if you hear that we live near a mirror.
<unk> Air Force base, we're glad they're they're up in the air but they caused a little background noise anyway, It's obviously, a big opportunity on telehealth.
We think that's a long term shift in healthcare the challenge with any telehealth and you've probably heard about some of the dynamics occurring that market is really about customer acquisition and just the sheer competitiveness in that whole area. That's why we're trying to synergize that offering with our other marketing initiatives like find a spec.
We do think it's a long term opportunity that's why we expanded to all of those states we are seeing.
Improvements in the overall use of that platform, we haven't really stepped fully on the accelerator because the acquisition cost to get a sample through that particular channel are prohibitively high still they are coming down there will be a point when that number comes down low enough, where we have to say its time.
For us to invest more into that channel, particularly as that cost maybe start to near the customer acquisition cost for a sales Rep. For example, so those are the metrics. We're looking at to decide how heavily we invest in that telehealth, but we believe it's a long term.
Shift that's going to occur and we want to participate in that and Thats why we are laying the foundation.
Okay. Thank you for that guys.
We have our next question from Max Masucci from Cowen. Please go ahead.
Hi, This is Stephanie on for Maximus. Thank you thanks, Chris.
Taking my question.
If you could give us can you first give us a sense of.
How your recent conversations with commercial Payors have changed following the official publication of the cost benefit analysis and skin and specifically have you found that the publication.
Getting better or worse.
Type of commercial payers for instance, regional Payor national payers or large national bird.
I think its yes to all of the above.
Publication is definitely resonating.
I think that editorial which is not technically evidence, but it is a strong endorsement is also resonating that goes along with that publication.
And.
All I can say is that we like the progress we're seeing with the payers. They are definitely leaning in there listening to our story.
We can't predict exactly when theyre going to come on board we just.
Believe that it is not a question of if but rather the timing and the when they come onboard.
And we have a tremendous data package they are realizing that and.
Overall, the progress is happening there both regional and national.
And we expect to have more favorable.
News flow in that regard throughout the year and we're still maintaining our goal to bring on that national payer nationally recognized payer for sure.
Got it that's helpful.
And then also last quarter you highlighted that.
Electronic ordering.
With an additional tool Hunter Endo will mind, giving us an update on the number of locations with electronic ordering and haven't seen any increase in quarter four and attachment implementing.
Ordering feature.
We have a little north of 360 locations that are now integrated so about 60, just in the last couple of months since the last call that we talked about and so we have about 150 <unk> additional that are in the pipeline to be integrated here in the coming months.
Whatever we do have those integrations, we do see increases of ordering patterns from the doctors, who integrate and that's a big reason why we're doing it it's the efficiency for the physicians practice and the ability to.
Send them in in a way that is.
Within their normal workflows, so thats something that I think thats common within dermatology and it's something that we're seeing as well. So we are seeing that payoff between improvement utilization.
Okay.
Got it that's helpful and if I could squeeze in one more.
With respect to your efforts in the primary care setting do you have any plans to increase your targeted contract sales team further penetrate the setting.
Are there any challenges that you can highlight there.
The South Florida network and the pilot in the Midwest.
So.
The investments we're making.
There.
Until we get the data back if it makes sense and we believe there is a return on that investment by going directly after primary care, we will make that investment that's fiber where Brian this pilot with the contract.
Sales team, we think there is a.
The reason we're doing the contract says we think there is an opportunity there we have managed to call on some of these doctors that have.
This modest dermatology practice in the primary care setting and we've had some success in getting them interested in the products and now we want to make a more concerted effort there so.
That's just the more we invest there is really a function of the outcome of that particular.
Direct selling effort on the IDM, we as we talked about we have built up a team they have a deep pipeline of opportunities there the offering resonates in general with these idms, who are really trying to save.
Costs and that occurs often by avoiding outside referrals to specialists, so and thats more of a top down sell as we have discussed in the past where you are going more at the executive level, you've got to get buy in there before they allow your.
Our sales representatives to even call on their physicians. So that's a different type of sale and we're we're pretty much committed to that strategy and we are making progress on that strategy.
And we will continue to do so because we believe theres a good return there.
Going after those networks.
We've talked about in the past.
Got it. Thank you so much for taking my question.
We have our next question from Alex Nowak from Craig Hallum Capital. Please go ahead.
Great Good afternoon, everyone.
Just curious how important was the in person meeting and also the national sales meeting here in order to get the market down with clinicians and ordering logistics just given the bigger sales force now and they haven't been in person for some time just any trends that you can.
You could share on how physicians onboard and utilization began to trend later in March that would make you go out to those meetings.
Well as I.
In my opening remarks April we continued to have growth over the second half of the.
Q1 and.
Is that I think is probably related to that push we had at the AAD.
And the enthusiasm we saw there.
As we mentioned we've got a lot of leads through that we had a tremendous marketing presence there it dovetails nicely with our consumer digital marketing that we do so.
I think what we saw personally what we saw in April as a result of that that heightened awareness that that occurred at the AAD meeting.
The exact contribution I don't think we've teased that out yet but in general.
We like the trends that we're seeing.
And.
As I would say to my team here two years or three years ago. When you mentioned <unk> to a dermatologist or blood could potentially boiled because they saw us as a threat now they leaned in and say Hey, I've got to learn about this what can you tell me and it's definitely a shift from where we were a few years ago and you saw that at the at the AAD Conference and I think we're seeing that now as we.
Can you post that conference and all the efforts, we're going to do through May and the melanoma awareness month in terms of NSM I think it was also important I mean, getting the new pitch down making sure that the marketing and the messaging is consistent and accurate.
Specially with all the new reps. So that was a really important piece that we did see some pickup in activity right. After that national sales meeting kicked off so we know it really energize the team and I think again, just getting getting people together in person. After this long two years of limited kind of contact for many many people just rebuilding some of those personal connections and bonding.
As people need to do I think we saw that in December two we mentioned the Speaker Bureau training that we held here in person in San Diego and again, it's just when you get the buzz going getting people together in a room talking about something they are passionate about it's something that's hard to replicate in a digital type of environment like zoom and things like that so I think all of those in person.
Events are really helping and driving towards the expected growth that we're looking at for this year.
Yes understood on the payer side do you think the NCC guidelines. The Optum side of the trust data is that all going to be announced before the change here or do you think another guideline.
It's going to be needed or potentially another study.
What's the potential.
Flipping payers, who are a national payer.
Without potentially either another guideline change or big publication.
That said that's a difficult question to ask we're obviously trying to get in the guidelines and I think we will be successful there because they have even said that they want to harmonize with the NCC and guidelines and we're clearly there. The problem is the AAD guidelines don't get updated except once forever.
About every seven years and in the last cycle was just a couple of years ago.
Can we force them to do another review.
That would be a challenge.
Data is always important we hear that we have a very compelling data data package, but that doesn't mean that we stop generating data because clearly whenever we have data we bring that back to the payers. So we do have ongoing.
Activity and studies, we have a large utility study going on in that looks at the utilization with the term add on that we've talked about in the past for the melanoma tests and I think we're working to try to get something out on that later this year and.
So we're always looking to build on our dataset and never hurts to have more data, we're confident in the product and generating that data.
And.
Well that is one piece of data that going to be the one that tips the scales in our favor.
I'll have to see.
In general we think this constant pressure using patient advocacy appeals all of those things we've talked about that puts pressure on the payers driving the overall volume.
This is clearly a technology is here to stay or the all the factors that are going to go into two ultimately converting to a national payer win.
Yes, understood it's difficult to determine what's going to stick that payer over just last one just on the inflationary environment going on right now has the company decided to make any temporary pauses here, it's a new program.
Maybe just some more detail of the forecast opex throughout the year and then also like plan to preserve capital at this time.
Yeah, we're not we're not pausing any programs per se I would say what we are doing is making sure. We have a very good lens and review process for assessing new programs. We've said it before too I mean, one of our challenges and it's a good challenge to have is that we have so many different opportunities with our technology, but we do want to make sure we focus on high value targets. So we're.
Finding some of our processes, making sure we have good data, we're making good decisions based on assumptions on data and we can get together and then being very prescriptive about it. So there's a saying we'd like to have around here is that when it comes to investment. We don't we don't mind investment, but we tried to do is really <unk>.
Please out all the waste within systems, and so we haven't seen a whole lot of inflationary pressures really.
There is there is obviously some pressures around.
Wages and head count growth, just because of the employment markets.
But other than that we haven't seen a lot of real pressures for that and then in terms of spend in opex guidance. So we are kind of spinning a few things right now we'll have a better take on that that we can disclose a little bit later, we mentioned the small contract salesforce that we are negotiating right now once we kind of bring that on and what does the effort look like.
DTC marketing in primary care to accompany that effort. That's when we'll have a better idea of what the the opex and the spend looks like for the rest of the year.
I would just add Alex that as I said in my comments the vast majority of our investment is to drive the DMT into that dermatology channel. We want to win there. We are winning there we need to continue to win there. We are piloting these other investments that represent expansion opportunities and.
That is primarily focused on the primary care, but we're making sure that we use the capital we have today and really make sure we drive and win within that dermatology channel.
Because that's where we see our strongest growth right now.
Yeah understood I appreciate the update thank you.
We have our next question from Thomas Flaten from Lake Street Capital. Please go ahead.
Hey, guys I appreciate you taking the questions.
I was wondering if you could comment on your success rate with the appeals for non covered payers are you getting better at it or are they becoming more relaxed I'm just curious if thats a potential offset on.
Against ASP pressure.
We are getting success on appeals, that's something that we have is kind of a corporate goal and we measure it because these processes can take a while but I'd say that we're probably halfway to our goal for the year.
Four months into the year. So that is kind of a one of the main pressure points for payers here right. It's getting the volume it is getting the data and then it's also the transactional <unk>.
And that the payers have to deal with the appeals and and again, we're seeing that when we get good medical records that support the utility of the test and the right diagnosis. Then we can win on those appeals.
And if we use the blues that you have under contract.
As a case study so to speak could you maybe map out what from the time. The contract is signed to when things are running smoothly like what does that transition periods look like and are you able to quantify.
At all what type of penetration do you think you might have made into the into the market in the blues plans, where you do have coverage in our rate and all of them.
Yes, I'd say that.
It's different by the different plans. So some of the blues plans were fairly efficient and up and running within a quarter or two.
There was another plan that had some hiccups in how their processes and things that took maybe an extra quarter.
But other than that once we kind of get up and running with them call.
Call it within three quarters than they are running efficiently and then the penetration within the plans again. It also varies based on the stage. So, Illinois as an example that plan has a little north of half of covered lives in the state for the BCBS contract, we have whereas in California that plant is $3 5 million covered lives out of the call it 39 or so million within the store.
So it's a much smaller proportion so I'd say, we still have opportunity to penetrate further into those.
What's difficult is it.
Not like we can necessarily target specific plans as we're trying to raise awareness and with the sales team and call on various ordering doctors. So it just happens to kind of play out that when the Doctor does order, depending on which insurance that they have that they will.
It ends up being in one of these contracted blues or not it is a focus for us we're trying to increase those proportions because that's another way we can increase the ASP, but its just a little bit harder to control given how dispersed now bearing those plans can be.
And then just one quick final one for me with respect to the to the facility transition in San Diego could you talk a little bit about the status and then what we might expect to see relative to gross margins as all of that comes online as you facilitate that transition.
Yes, we have moved into our new fourth floor, which is our office space.
It just happened.
Last month, and then we're on track to complete the lab build outs, which includes both the R&D and the CLIA labs by probably the fourth quarter with a move in and around that time as well we are working right now on what the impacts of the margins are.
Obviously, if there is extra space, we talked that in Torrey pines here, we've got capacity for about 150000, or so tests per year, but in the new del Mar Labs will have capacity for about 1 million tests per year.
So so that we don't overburden margin in the near term. We're currently strategizing ways to kind of separate segregate out and separate some of that space. So it doesn't kind of impact margin right away.
We're kind of working on that because again constructions literally going on right now we're broke ground just.
A month or so ago.
Excellent thanks for taking the questions.
Once again, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question from Nathan <unk> from Stephens. Your line is open.
Yeah, Hey, guys. Thanks for taking the question. This is Jacob on for maintenance. So previously you guys said that you expected about 9% of your volume growth in 2022.
Come from.
Professional dermatology channel, but now that <unk> been granted access in 44 States does that change your view on this year's commercial blend or expected volume.
And.
Alright, guys. So you guys anticipating maybe take a while so you have to gain widespread adoption.
Yes, I think what we said was 90% to 95% I'm not sure. If you said, 9% 90, but that's why we say the vast majority of the growth yes. The vast majority of our growth for the year is tied to the professional dermatology channel for the melanoma test.
As Jon kind of mentioned right. We do think telehealth is something that is part of the future, but because of the competition within it we're not modeling in any significant growth. There. So it's one of those things where now that we've just started leveraging the direct to consumer marketing, we do to bring people to our website to find a specialist we've.
<unk> our website so that right. There is people are looking for specialists. They can also access the derm Tech connect landing page and if they're kind of in the process of trying to find a specialist but they don't have one they can't find one thats close enough by or the next appointment is too far out in time than they could go right there and try the drug taken adoption. So.
We could be surprised it could take off quicker than expected. We're just not building in that into our plans right now.
Okay got it and then.
Can you just maybe provide any color on like how much you guys plan to spend on like the advertising.
Driving that adoption like Youre talking about.
That already baked in to your budget for this year or do you maybe expect cash burn to incur.
Groups as a result.
Yes, we've taken healthy spend on the DTC advertising side.
We don't give specifics around it but if you look at kind of the trends of what Q1 was for the sales and marketing line item. That's why when we said we expect that line item to continue to increase over time, which will include both ramp ups and efforts in marketing campaigns as well as just the full burden cost of the expanded sales force.
And again, what we're trying to do right now is just leverage the current DTC spend that we have to go direct people to find a specialist.
That does start to pay off with additional telehealth type of sample volume growth, we could consider it but I think thats, where we would just need to kind of see how it plays out for a little bit before we formally.
Dedicate some additional capital there.
Okay got it thanks.
There are no further questions at this time ill turn the call over back to the presenters. Thank you.
Thank you again for everybody for joining us on the Q1 earnings call. We had a record breaking quarter, we look forward to being able to execute on the future and we feel like the foundation has been firmly set for the rest of the year. Thank you for your time.
Ladies and gentlemen. This concludes today's presentation you may now disconnect. Thank you.
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