Q2 2022 DermTech Inc Earnings Call
Good day my name is Shawn until and I'll be your conference operator today at this time I would like to welcome everyone to the Derm Teck's second quarter 2022, and that's results conference call.
Today's conference call is being recorded all lines, we have placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad, if you'd like to withdraw your question. Please press star one again thank you.
Steve.
Investor Relations you may begin.
Thank you operator, welcome to <unk> second quarter 2022 earnings call joining.
Joining me on today's call are Dr. John <unk>, our President and Chief Executive Officer, and Kevin Sun, Our Chief Financial Officer.
Our call today will include forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.
All statements made on this call that do not relate to matters of historical fact are considered forward looking statements.
Forward looking statements made during this call, including projections of future performance are based on management's expectations as of today and are subject to various factors assumptions risks and uncertainties, which change over time.
Actual results could differ materially from those described in such statements. Several factors that may contribute to a cautious differences are described in today's press release and our most recent filings with the SEC. We undertake no obligation to update these statements except as required by applicable law or <unk>.
Quarter 2022 earnings press release, and SEC filings are available on our Investor Relations website.
Recording of todays call will be available on our website. Later this afternoon with that let me turn things over to John Thank.
Thank you Steve and thank you everyone for joining us we have a lot of ground to cover today as we reported our second quarter 2022 financial results updated our full year outlook for assay revenue and announce them capital structure items related to our balance sheet I'm going to jump right in to highlight key commercial trends and outlined what we expect.
From the second half of 2022 for top line growth I will also touch on steps, we're taking to further strengthen our cash runway.
The second quarter of 2022 saw US post records across a range of core operating metrics as our sales and marketing team continued to be effective in driving adoption of our <unk> melanoma test our DMT.
We reported 56% year over year sample volume growth to approximate approximately 18320 and 67% increase in unique ordering clinicians to approximately 2390, despite elevated sales rep turnover of 15% to 20% and a competitive labor market.
Along the way in the second quarter, We said high marks for daily weekly and monthly monthly billable sample volumes multiple times.
We also sharpened our focus to an extensive budget and operations review during the last few months, which resulted in essentially flat total operating expenses when compared to the first quarter. In addition, we streamlined our laboratory processes, which reduced the per unit cost for our <unk> melanoma test by 28% to $170.
$77 per test in the second quarter from $246 per test in the first quarter overall.
Overall, the strong execution of our commercial team and operating discipline is producing excellent results on our last earnings call. We noted that we were considering a small contract sales team to better understand the adoption potential and required investment for the DMT in the primary care space. We've since pause this initiative in favor of other potentially.
More efficient options.
First we've entered into an agreement with Sonora Quest for primary care distribution in Arizona, Sonora Quest is the largest laboratory testing network in Arizona and serves more than 33000 patients every day throughout the state our agreement establishes a reference testing model were Sonora quest builds insurance for the samples they generate.
And pays us a set fee per sample all testing will occur in our San Diego lab arrangements such as these provide good economics for extending our reach in key markets such as primary care, while also lowering our capital commitment compared to expanding with a direct sales force.
Second our established integrated delivery network, our IGN programs in both Florida, and the Midwest are seeing steady traction, but it's been moving more slowly than we anticipated in large part related to lingering COVID-19 impacts were.
We also recently kicked off a new pilot program was an important payer provider IGN to further expand our strategic approach to primary care. These types of pilot programs can provide key market insights across different commercial use cases.
We believe our targeted strategy to address the primary care market is the right course of action.
As it.
Late to the average selling price or ASP component of our assay revenue. We are now seeing pressure from two primary areas ongoing Medicare billing impact and less favorable collection patterns from commercial payers.
We believe these emerging trends may last for a few quarters, specifically Medicare insurance claim processing has been problematic due to codecs that reject claims where patients have multiple body sites tested on the same day.
Some commercial payers have also adopted these could added further eroding the ASP.
In the second quarter, we engaged with Medicare billing contractor and CCI and expect new insurance code edits to be adopted in the fourth quarter of 2022 that will improve this issue. We also expect commercial payers to adopt this change, but it's difficult to predict exactly when their billing systems will be updated we'll continue.
To closely monitor these coating impacts and other issues that result in denied payments over the coming months to identify how we can further counteract these factors and get the Asps moving higher.
Turning now to our progress with payers, we're increasing our covered lives will be an important factor in increasing asps.
We remain actively engaged with patients physicians and payers through a variety of avid activities and advocacy channel to drive policy and contract decisions for our <unk> melanoma test. The total covered lives in the U S or approximately $91 million, which breaks down as nearly $68 million for Medicare and Medicare advantage.
And $22 million for commercial payers, which largely comes today from the Blues are California, Illinois and Texas.
We are seeing good indicators that reinforce our belief that bringing on commercial payer coverage is only a matter of time. These indicators include active data reviews, increasing sample volumes direct feedback from payers that are product fulfills, an unmet need and importantly contract and policy discussions.
There is not a lot of activity there is a lot of activity happening with payers that increases our confidence that additional coverage will happen, but we cannot we shared the details due to the sensitivity of the dialogue.
The strong billable sample sample volume, we are seeing with non contracted commercial payors also undoubtedly helps make our case overall, we remain confident that we will be able to meaningfully improve our coverage footprint in 2022, and our goal remains to bring on a nationally recognized payor.
Shifting gears to our pipeline and recent developments specifically with Lumination carcinoma, we continue to make targeted investments to advance our pipeline and are evaluating project budgets and timelines given the current economic environment and focus on preserving a healthy cash runway for illuminate our direct to consumer offering that assesses skin cancer risk.
We have locked the assay design and will soon complete processing validation samples that were collected in a large multicenter clinical study our market research continues to indicate illuminate is a compelling opportunity. However, given our focus on growing volumes for the DMT in the current economic environment. We believe it is prudent to push the.
A illuminate to the first half of 2023.
As for carcinoma tests to detect the presence of non melanoma skin cancers, such as basal and squamous cell carcinoma, we continue to methodically navigate through the development chance for challenges for the squamous cell portion of the test as you may recall, we said that successfully identify the classifier for.
Basal cell cancers earlier this year.
We are working diligently to validate the beta cell classifier and develop plans for utility studies is important to remember that these product candidates were never intended to have an impact on 2022 revenue and will continue to be mindful of allocating capital to these programs in a disciplined way.
In closing, we're executing well against our robust commercial plan, while addressing headwinds that have crept up recently that we believe will have a short term impact on our revenue trajectory. We also believe the increase in insurance claims denials is due in part to our access success in driving product adoption and payers pushing back we are confident that sustained commend.
<unk> traction combined with our robust payer activity will ultimately drive payer adoption and long term ASP growth growing billable sample volume and supporting activities that bring on commercial payers are clear priorities in 2022, and where most of our capital allocation is earmarked I look forward to updating you again in the months ahead with that I'll turn.
The call over to Kevin for a more detailed financial review, Thanks, John and good afternoon, everyone I'll start by reviewing our key operating and financial metrics for the second quarter, and then recap the 2022 assay revenue guidance, we revised today I'll close by summarizing our liquidity profile recent balance sheet activity and future capital requirements.
Assay revenue in the second quarter increased 43% to $4 1 million largely due to a 56% year over year increase in available samples to approximately 18320.
Assay revenue and billable sample volume grew at a healthy sequential rate of 18% and 27% respectively.
As John noted, we're executing well despite a few challenges and we continue to post records from many operating and sales metrics.
Total revenue for the second quarter increased 36% to $4 2 million up from $3 1 million in last year's period, primarily on higher assay revenue digging.
Digging in a bit deeper on our key top line drivers first we had approximately 2390 unique ordering clinicians in the second quarter, another record and a 17% increase from roughly 2040. According clinicians in the first quarter.
Approximately 3660 unique ordering clinicians during the last 12 months, we penetrated 41% of our current target market of 9000 dermatology clinicians.
Our average quarterly utilization or average number of test ordered per unique ordering clinician was $7 seven billable samples in the second quarter versus 7.0 in the first quarter and eight two in the year ago period overall.
Overall utilization increased sequentially, even with a record number of new quarterly ordering clinicians important touch points such as the American Academy of Dermatology meeting in March and improved sales call frequency directly correlate to higher utilization rates by existing prescribers to offset the typically lower utilization rates of new ordering clinicians.
Third Medicare samples represented about 24% of our billable samples in the second quarter, which was unchanged as a percentage from the first quarter and up from 19% last year, while the proportion of Medicare in the second quarter was essentially unchanged sequentially. The absolute number was over 900 samples more due to a growing number of total billable samples.
It's important to highlight that Medicare represents half of the total biopsies for melanoma, each year and that we remain focused on accelerating penetration of this market segment.
Fourth ASP was $226 per sample in the second quarter down slightly on a sequential basis as we shared before ASP improvement will not be linear and may fluctuate in the short term there is a clear path to significant long term improvements in ASP by expanding payer coverage.
Lastly, one statistic to showcase the incredible value of appropriately scaled and trained sales force and the six months spanning January to June 2022, our overall rep productivity nearly doubled from Allergan roughly 50 billable samples per rep per month to over 90 billable samples per rep per month. Our goal is for all reps on average to generate.
At least 175 to 200 billable samples each month are higher performing reps and some reps in established territories are already performing at or above this level.
Contract revenue declined modestly to <unk> $1 million during the second quarter and remains unpredictable as it is closer to the length of the clinical trial progress of our Biopharma customers.
Focusing next on operating expenses.
Cost of revenue was $3 2 million or 24% year over year increase yielding an assay gross margin of 22% the improvement in asset gross margin from 11% in the year ago period, and zero percent last quarter was primarily a result of streamline laboratory processes reduced per unit labor and supplies.
In addition increased billable sample volume also absorb some excess capacity.
Total cost of revenue was $3 3 million, a 25% year over year increase yielding a total gross margin of 23%.
Cost of revenue increased largely due to growth in billable sample volumes.
Sales and marketing expenses were $15 $1 million during the second quarter, a 90% increase from the year ago period, primarily due to higher employee related costs from increased head count and marketing expenditures.
Research and development expenses were $6 9 million or 92% year over year increase largely resulting from higher employee related and lab costs.
General and administrative expenses were $8 9 million, 41% higher compared to the second quarter of 2021, the increase was driven by higher employee related and infrastructure costs.
As a result of the extensive budget and operations review, we've cut some planned increases across all of our Opex line items, including delaying some planned hires for the rest of the year and now expect total operating expenses to be flat in the second half of the year, despite growing billable samples and prudently advancing our product portfolio.
Net loss for the second quarter of 2022 was $29 6 million, which included $4 8 million of noncash stock based compensation compared to a net loss of $17 1 million for the same period of 2021, which included $3 5 million of noncash stock based compensation.
Moving now to our outlook for assay revenue, which we revised lower today.
We now forecast full year, 2022 assay revenue between $16 million and $19 million, which represents year over year growth of approximately 59% at the midpoint of the range.
As we outlined earlier this revision is largely due to the softness we're seeing in ASP compared to the modest improvements. We previously expected throughout the year as well as some potential pressure on billable sample volume from an uptick in sales force turnover, we've onboard a terrific new sales reps, who need to go through a training and ramp up period before they typically reach productivity levels similar to establish.
Reps.
And finally, a review of our liquidity profile and balance sheet at.
At the end of June we had cash cash equivalents restricted cash and marketable securities balance of $177 4 million.
We believe we have sufficient funds to meet our operating and capital requirements through the first quarter of 2024, we.
We did take two important housekeeping steps as it relates to our balance sheet and access to capital first we filed a new shelf to replace our previous shelf, which is substantially depleted.
We filed a new at the market or ATM facility of $75 million, Although we have not provided our sales agent any immediate parameters related to its usage.
Overall, we're comfortable with our cash runway and don't anticipate any immediate capital needs, but we may use the ATM opportunistically in the future while being mindful of the cost of equity capital in the current environment.
In summary, we're executing well in the first half of 2022 and grew our commercial business at a healthy pace. Despite the temporary headwinds and economic challenges most of our core operating metrics are moving in the right direction in our commercial and payer teams are making excellent progress. We look forward to updating you again soon and with that I'll turn things back to the operator for Q&A.
At this time I would like to remind everyone in order to ask a question. Please press star one.
So just a moment to compile the Q&A roster.
Our first question comes from Alex Nowak with Craig Hallum Capital. Your line is open.
Great. Good afternoon, everyone I was hoping we could start off with the Medicare billing code issue.
Maybe a specific weakness what you said, but the ASP dropped in Q2, so I'm curious what ultimately happened to that eroding at the ISP here in Q2, and then what are the billing code edits that you are trying to push through any any additional information would be helpful.
Yes, so with Medicare billing and the LCD. There is a limitation on number of body site tests can be done on the same patient on the same data service, we've seen a trend where those that proportion has been increasing and as that increases. It just pushes delays for when we can actually collect on those claims.
And when we can recognize the revenue for those so the code at it Thats being put in we expected in the fourth quarter.
It changes the codell its actually match with the LCD.
Approves and so where we can get paid on two tests on a data service without having to file any appeals are additional require any additional metro medical records to get paid.
I see so the current LCD is set up for or the excuse me. The current billing code is set up for one test per data service today versus the LCD up too.
The current code added is set up for one but then also if there is two or more of the entire claim gets denied.
Under the LCD, we should be paid now at least for two tests on the same data service without anything else.
And then again, we would have to appeal with medical records when it's three or more body sites. So that we can demonstrate the medical necessity to Medicare.
Okay understood and regarding I guess, the big drop in the Asps. This quarter doesn't sound like those quotas went into effect. This quarter, that's been kind of an ongoing trend. It's really due to more of the samples are coming from the same patient. So maybe the question is how many or what is the average number of samples per patient today compared to.
Let's say last year.
We havent disclosed those metrics, but we can say is the trends are is that there are more tests that are being done on average per patient now than there were a year ago. In this period and that is what is causing some of the pressures we're seeing on the asp's.
No.
Note Alex is that we also.
Some of the commercial payers adopt a similar code on it says Medicare so.
That also put some pressure outside of just the Medicare we have multiple buyers that site from some of the folks we have a contract with so we have to they're going to have to also work through that added too.
Once that changes made by in CCI.
Okay understood that makes sense and then last question just regarding the new guidance, if youre, assuming that Isps are unchanged unchanged here from Q2, it looks like the guide assumes a small call past sequential step up in Q3 and Q4. Despite Derrick that's doing about 4000 more tests in Q2, so I'm curious why.
The sequential past games dropped so much in Q3 and Q4.
Okay.
Yes. So there is we continue to expect robust billable sample volume growth through the rest of the year and like we said the revision that we make to the guidance, it's largely due to the softness that we're seeing in the ESP, which has always been difficult to predict we've seen ASP fluctuations during similar stages of commercialization in our.
Space.
We do expect those MCC eyecode edits to updates of positively impacts DSP through the rest of the year, but the recent payer commercial payer trends bring risk of additional downward pressure overall, we believe both of these developments are positive for our long term outlook as they are related to increased adoption.
We may see some potential pressure on billable sample volume from that uptick in sales force turnover and again, there could be some seasonality for derm patients due to summer vacations and yearend holidays, it's just difficult to predict and pin down how exactly seasonality may impact volumes, given our limited commercial operating industry in fact that much of it has been during the pandemic.
So we don't break out specifically the trend it's all encompassed within the updated assay revenue guidance.
Understood. Thanks for the update I appreciate it.
Our next question comes from Brian Weinstein with William Blair. Your line is open.
Sure.
Hey, good afternoon Griffin on for Brian Thanks for the questions.
Maybe just on the private payer front, and I guess relating to Medicare as well.
First on Medicare and both are these payments coming in I mean can you give us a sense of what youre getting no Paisley.
For quarter, what Youre expecting.
Okay.
And then.
There is a sense of how broad it is on the private payer side, how broad these coated.
Are becoming an issue on the private payer side with one or two payers or most of the players that you are doing well.
Yeah on the Medicare front, so as we disclosed 24% of our sample volume in the quarter is Medicare we haven't disclosed of those how many are multiple body sides between two three or more or anything like that but what we mentioned again is that the trend has been that more tests are being done on the same data service. So.
Generally under the current code edits, we will get paid on one body sites.
And then if it's two or more at all the whole claim gets denied and we have to appeal. It with medical records. So Dakota that we expect to occur in the fourth quarter will now get paid at least for the first two body sites and then when it's three or more will have to go on appeal does.
So generally that's.
Where.
If Medicare is paying us for any other body sites. They are paying us generally the whole amount.
On the commercial side.
It's a trend that we are also seeing continue with multiples and higher and as John mentioned two right. So when commercial payers that we've even contracted with they don't have any of these limitations on usage on per data service, but we did see that they started using these codell its recently, which has impacted current.
Trends from a commercial side, so it's hard to predict when they will revert to the new code edits since they didnt use these code at it when we first got the contract, but it's one of those.
Positive improvements, we think that will ultimately improve the longer term ASP trend both on the commercial and Medicare side.
Okay.
And then.
On the private payer side.
The clinical and economic utility Denver, trusting Optum insight and <unk> I know. This question is asked will operate just wanted to revisit it.
Feel like you need any additional data or guideline inclusion it gets some payers onboard.
On the process just revisit that.
It's a sense of how long it takes to get in front of a player.
Dave that process and when you ultimately are in these discussions with payers what their pushback user or what they are talking to you guys about.
But I think that in general I said on the last call that I was encouraged by the activity that we're seeing in the engagement with payers and that sentiment only improved in the last quarter, we talked about all the good indicators I think.
From data reviews, which is an iterative process writing policies can come up to review, one or twice a year and always looking at new data, where I was trying to put new data in from in front of them, but we're also able to get.
Looks at our data even an off cycle period. So in general I think the activity is very encouraging as I mentioned, we are we do have contracting and policy discussions as we learned in the past we can't get too far in front of those things because it does take time and we can't comment until everything is all set and done.
But but overall.
We're seeing as is.
Even more favorable than what we saw in the last quarter.
As I said in my prepared remarks, we do expect to meaningfully improve our coverage footprint and we still have that goal around the national payer.
So it requires some patient theres no silver bullet, if we said many times and it can take some time, but overall were very favorable with what we're seeing with the with the commercial payers at this time.
Okay. Thank you.
Our next question comes from Nathan <unk> with Stephens. Your line is open.
Yes.
Hey, guys. Thanks for taking the question. This is Jacob on for Mason.
You guys have made great progress on growing volumes and the number of unique ordering clinicians over the past couple of years and into this year.
So how should we think about the percentage of questions utilizing your melanoma tests percentage of test volumes and utilization rates between the large academic centers and community centers.
Like are you seeing more traction with one versus the other how should we think about that.
I think we're pretty pleased with our utilization most I would say much of it comes from community based terms, that's where most derivative practice in that as well and we've talked about this in the past.
Our targets as a independent practice during maybe 1% to four practitioners, which is about half of that market and thats where were seeing a lot of uptake. We are seeing nice utilization among academic centers, though on top of that but I would say what drives really our sample volume growth is that community based practice.
And that's where we're making the most progress Kevin has the numbers on how we've driven utilization it does fluctuate up and down depending on how many doctors we might add in a quarter because of new doctors tend to use it a little lower rate than an existing user, but we were actually pretty pleased with the way the utilization rate and maintained in this past.
Despite having a record addition of new doctors, so again, those things point to a successful ability to drive that.
Commercial.
Adoption of the product and the struggle, which has always been present us with payors and payers not wanting to say, we're going to solve that over the long term also so.
All of those metrics around commercial adoption, we're very happy with.
Okay got it and then think about <unk>.
Operating expenses from.
From a capital allocation standpoint, I know you guys mentioned in your lane.
Planned hiring throughout the rest of the year for your sales team.
Just a breakdown, maybe quantitatively or qualitatively what areas of your business.
Our expected to see the largest investments going forward now that you've.
Delayed at hiring you have progress made in primary care until health as well as a number of ongoing R&D projects.
What areas of Opex, our priorities for capital allocation, and maybe where do you see the most leverage.
Throughout the rest of the year and into 'twenty three.
Sure just to clarify one thing when we talked about delaying hires and expected hires it's really across the board.
We will still higher positions, if it's directly related to sample volume growth.
We're being very mindful of the capital allocation is we're spending the vast majority of it on the <unk> melanoma test and commercializing it since it is again, we're creating a category here.
Precision precision dermatology and we're in the early stages. So we have to focus on topline growth drivers and then we will also focus on the capacity within the laboratory to meet the demand.
And then the areas, where again, we're being very prudent and mindful on the opex spend as some of these ancillary things right again, we think theyre all have great opportunity, whether it's telehealth, whether it's any of the new products in our pipeline, whether it's primary care, but we're being very prudent in the current economic environment. So that we go after these things in the most efficient manner as possible.
Okay.
Okay got it thanks, that's it for me.
Our next question comes from Max Masucci with Cowen Your line is open.
Hey, guys. Thanks for taking the questions I missed a portion of the prepared remarks I apologize for any redundancy here.
Maybe Kevin just to confirm I think.
Are you actively recruiting the backfill of 15% to 20% turnover.
Being a bit more patient there and then the people that lapped it.
The other derm focused companies.
Several larger labs that have sort of been building out their presence in San Diego more recently.
Yes.
The backfill as we had maybe other than maybe one or two we have hired all the baxalta.
And again there'll continue to be a small amount of turnover like there isn't any company, but they those new hires have gone through their first training period, they've come to San Diego and.
Started up the ramp up period.
The ones that we have experienced some of that turnover it.
It was really companies in the Biopharma space. There is a few companies that were launching derm products.
And again, it's our overall competitive market there, so thats, where we experienced most of that turnover.
Okay, Okay got it and then.
Yes, I will ask it slightly different variation of the prior questions I'm, sorry for that but you've been chipping away at commercial payer coverage wins.
Obviously for some time now even well prior to the code editing issues. So I guess, specifically for commercial payers, where you are in more advanced conversations around coverage.
The code editing issue makes it harder to get that across the goal line I guess the question is yes, the code editing impact does.
As an effect.
Existing conversations when you are trying to get trying to get across the goal line for coverage or.
Creating I guess establishing.
New relationships with payers you hadn't interacted with before.
No.
They are really unrelated that was a specific Medicare thing we've talked about in the past was a real challenge for us.
Actually get Medicare fix that permanent we didnt lending continued up that way, it's actually a big win we got our local congressman involved in with something we've been working on for several quarters trying to fix you got a fix for us within a couple of weeks so.
That's excellent.
The fact that we finally got that coda and issue saw that was a specific Medicare thing doesn't really relate to Medicaid to commercial payers other than we found recently a few of our contracted payers started adopting that same code and so we don't think it impacts our discussion with payers about coverage of contracting but.
But we do want to get that behind us because it obviously bled through in terms of how the codes were being processed by some of our contracted payers.
So those things will start to work themselves through.
We're actually have when we finally got that thing resolved it's been kind.
Of an overhang.
It did take our local congressman to help us do that but it shouldnt impact our overall the progress, we're making with the payers on our contract and policy disc.
Discussions.
That's great.
Super helpful clarification.
And then maybe final one for Kevin I think we've talked in the past geographic distribution of sales reps just figured it's worth checking in and as of the end of this quarter. How do you feel like the sales force is represented in some of the more Medicare heavy region.
Versus other regions that might be a little bit more commercial payer.
<unk>.
Yes, we like our representation in how we've deployed our sales force.
Have a heavy concentration in the areas, where there are more procedures for melanoma.
And that actually does correlate fairly well with where the Medicare population is also spread out so.
So again, we've we've been heavily focused on the sunbelt areas the eastern Seaboard, the west coast.
But what the expansion. We recently did that was really in the central part of the country and the northern Plains areas, where we just had no presence before so those are again were theyre coming along nicely.
It's obviously an area, where we've got full coverage now of the Continental U S and we like how we're deployed both for Medicare and just general commercial insurance in general.
Got it.
I appreciate the color as always.
Our next question comes from Francois.
<unk> with Oppenheimer. Your line is open.
Alright, thanks for taking the questions just a couple of here the sales rep turnover or is that something thats been pretty consistent or has there been a real.
Kind of acceleration of that turnover very recently here.
No. It was it was.
A recent phenomenon, we always have some modest turnover are minor turnover, but in the second quarter. We saw above average and that was really because of the three product launches that were occurring.
Dermatology focus drugs in three companies ramping up fairly.
Fairly sizable.
Sales forces to introduce those new pharma products that got approved so.
We think that's behind us and we like what we've done to recruit to replace those folks. We think we are competitive with our sales force and we certainly feel like.
We're going to be able to deliver with our current sales force, who replace as we need but but that was really just the.
We think a one time thing because of those three of our product launches that occurred.
Understood and then on the you talked about the lingering COVID-19 impact can you just.
Maybe discuss more like how that is still headway.
<unk> headwind in.
And why maybe that is that kind of getting better with time or what's still the COVID-19 issue with you guys.
It's not so much in the derm and there is still that.
Access has not returned to pre COVID-19 level that is more of that hybrid acts as we've talked about that last time, it's really more of with the IBM.
They tend to be a little more cautious and anytime there is some COVID-19 cases started picking up and they are also I think having some struggle with staffing related to cohort. So it's really just within that IBM, where do you see that lingering COVID-19 impact. We did we were we were.
We're supposed to start the pilot with that payer.
Your IBM that I talked about in my prepared remarks at the beginning of the year, but COVID-19 pushed that out all the way to this quarter. We just kicked that off in fact, we thought we've been through that pilot and may be reaping some of the benefits of that relationship.
So thats <unk>.
Pacific Covid impact there in that particular IBM. So I think it's really related to the IBM. They are sort of in reaction to any uptick in COVID-19 cases in their staffing problems related to it not so much in it.
And that.
<unk> channel.
Okay, Great and then maybe lastly, just on the Asps to make sure I understand so there could be some some more pressure going forward in the next few quarters and you guys have kind of changed your guidance and whatnot, but any.
How do you feel comfortable you talked about the.
Youre comfort with long term value growth is that just through more volumes, how do we know that this is <unk>.
Maybe a few quarters of a hiccup and then long term why do you feel so confident that the ASP should tick back up.
Yeah as we've seen in our industry when you have greater volume, especially on the commercial payer side.
Could start increasing the level of denials on the initial basis, because again, it's higher volume and now companies are on their radar. We've seen this play out in other companies in our space and so this allows us to go and file the appeals and caused the interactions with those payers and start having more of those.
<unk> discussions so again, it's what we believe it's a good long term.
<unk>, but it could lend some near term pressure on the ASP as we work through those dynamics I think the long term values, where we've talked about we should monetize that volume 18000 billable samples is last quarter. We believe our ISP is going to grow and begin to approach that Medicare pricing, which is at 760 <unk>.
You can you can do the math you pick a number.
Call it 80% of that if that's where we ultimately settled out on an ASP or revenue would be meaningfully higher because we're monetizing that volume. So we that's why we think the long term values in tact, we've got to drive that adoption. We do believe will ultimately win this payer game and it comes through driving adoption and monetizing all of that fantastic volume.
Building every quarter.
Perfect Alright, that's it for me thank you very much.
Again, if you would like to ask a question. Please press star one. Our next question comes from Thomas Flaten with Lake Street Capital markets. Your line is open.
Hey, guys. Thanks for taking the question.
Given what youre seeing in terms of the number of samples per patient for data service what are you.
Proactively doing as you're discussing this with private payers in terms of having a greater than two.
And what are your plans around going back to the LCD and having that amended to allow for more real world coverage.
So.
We.
We don't really try to bring on the multiple body side issue with other payers if unless they bring an app it's not something.
And we don't really Havent written into the contract that we have so far and we've talked about that before.
As always this concern from payers why over utilization and that was a concern with Medicare in the early days of the LCD and the way. They wanted to address it was to put a limit on the number of tests that could be collected on the same data service, having said that Medicare has been very good on the appeal in terms of us being able to appeal term even more.
Two claims on the same data service in us winning those appeals with Medicare, but we will ultimately take all of that data back to Medicare.
And see if we can increase.
Increased that number of samples allowed per data service.
The timing on that is just when we get enough data and enough of those appeals one that's occurring.
And then there is obviously a backlog with multi access so there's some timing issues there it's.
It's not high on our radar because we are able to overturn some of those some of those.
We hope to win some of those appeals are a lot of those appeals even more than two.
It hasnt been a big problem yet on the commercial side, we'll have to see how that plays out over time.
And we try to avoid that with payers unless they really bring it up and had a new contracting with commercial payers unless they bring it up and they are worried about that.
We would probably have to address it in the same way with Medicare.
And just a follow up and ask another question about guidance just to make sure I understand so how much more downside ASP do you think there can be because sequentially AFP was down less than 10%, but the guidance was down more than 25%.
From where it was previously so I mean are we talking sub $200 ASP here is kind of what your <unk>.
Preparing us for I, just want to make sure I understand those.
That dynamic a little more.
Yes, I mean, as we said right. This is one of the hardest things for us to predict is what the asps will be.
Like we said we know the NCI quota changes will positively impacted but the recent trends on the commercial side contributed to some.
Some additional downward pressure.
It's very hard for us to predict what that could be but we've kind of incorporated in considering those things into our revised guidance.
Okay. Appreciate it thanks guys.
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