Q4 2023 DermTech Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by. Welcome to DermTech's fourth quarter 2023 financial results call. At this time, all participants are in a listen only mode.

Ladies and gentlemen, thank you for standing by and welcome to.

<unk> fourth quarter 2023 financial results call at this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you wouldn't each press star one one on your telephone.

Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised; to withdraw your question, please press star 1 1 again.

Didn't hear an automated message advising your hand just raised.

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Operator: Please be advised that today's conference is being recorded. I would like now to turn the conference over to Steve Kunszabo. Please go ahead. Thank you, operator. Welcome to DermTech's fourth quarter 2023 earnings call. With me on today's call are Bret Christensen, 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 1995. All statements made on this call that do not relate to matters of historical fact are considered forward-looking statements.

Now to turn the conference over to Steve can say both please go ahead.

Thank you operator, welcome to <unk> fourth quarter 2023 earnings call.

On today's call are Brent Christiansen, 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 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 statements regarding projections of the future performance or financial outlook up to AMETEK.

Steve E. Kunszabo: Forward-looking statements made during this call, including statements regarding projections of the future performance or financial outlook of DermTech, the performance, patient benefits, cost-effectiveness, commercialization, and adoption of our products, and the market opportunity for our products, are based on management's expectations as of today and are subject to various factors, assumptions, risks, and uncertainties which may change over time. Actual results could differ materially from those described in such statements. Several factors that may contribute to or cause such differences are described in today's press release and our most recent filings with the SEC, including our annual report on Form 10-K, filed today. We undertake no obligation to update these statements except as required by applicable law.

The performance patient benefits cost effectiveness commercialization and adoption of our products and the market opportunity for our products 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 or cause such differences are described in today's press release and our most recent filings with the SEC.

<unk> our annual report on Form 10-K filed today.

We undertake no obligation to update these statements except as required by applicable law.

Steve E. Kunszabo: Our fourth quarter 2023 earnings press release and SEC filings are available on our investor relations website. A recording and transcript of this call will be available on our website later today. With that, I will turn things over to Bret.

Our fourth quarter 2023 earnings press release, and our SEC filings are available on our Investor Relations website, a recording and transcript of this call will be available on our website later today with that let me turn things over to Brad.

Bret Christensen: Thank you, Steve, and thank you, everyone, for joining us. We are encouraged by the sustained improvement in many of our key performance indicators as they continue to head in the right direction throughout the second half of last year. In the fourth quarter, ASP for the DermTech Melanoma Test, or DMT, grew 55% year-over-year, while test revenue increased 38% on the same basis.

Thank you Steve and thank you everyone for joining US we are encouraged by the sustained improvement in many of our key performance indicators as they continued to head in the right direction throughout the second half of last year and the fourth quarter Asps for the <unk> melanoma test or DMT grew 55% year over year.

Test revenue increased 38% on the same basis. We also reported another all time record high in the Medicare proportion of billable samples, which is about half of our addressable market and posted our highest gross margin in six quarters.

Bret Christensen: We also reported another all-time record high in the Medicare proportion of billable samples, which is about half of our addressable market, and posted our highest gross margin in six quarters. With the additional restructuring actions we announced last month, we may see a total reduction in annualized operating expenses of approximately $40 million compared to 2022. We will continue to emphasize reimbursed tests and growing revenue. Before I take you through a few commercial highlights, let me briefly revisit the key pillars of our story. First, we have a proprietary, non-invasive skin genomics technology that has demonstrated it can enhance the standard of care for evaluating lesions suspicious of melanoma.

But the additional restructuring actions, we announced last month, we may see a total reduction in annualized operating expenses of approximately $40 million compared to 2022.

We will continue to emphasize reimbursed tests and growing revenue.

Before I take you through a few commercial highlights let me briefly revisit the key pillars of our story.

First we have a proprietary noninvasive skin genomics technology that has demonstrated it can enhance the standard of care for evaluating lesions suspicious of melanoma.

Bret Christensen: Approximately 4 million surgical biopsies are performed annually to find nearly 190,000 new cases of melanoma. Dermatologists are working hard to provide great patient care, but their practice can benefit from new tools that supplement existing methods. The DMT rules out melanoma with a 99% or greater negative predictive value, or NPV, and can support decision-making by clinicians. Second, we and many leading clinicians believe there is a place for the DMT in every dermatologic practice alongside established protocols. As a starting point with dermatologists, we're aiming to identify the numerous instances in which a healthcare provider doesn't want to biopsy a clinically suspicious lesion but still wants to provide patients with peace of mind.

Approximately 4 million surgical biopsies are performed annually to find nearly 190000, new cases of melanoma dermatologists are working hard to provide great patient care, but their practice can benefit from new tools to supplement existing methods. The DMT rules out melanoma, with a 99% or greater negative predictive.

<unk> or NPV and can support decision, making by clinicians.

Second we and many leading clinicians believe there is a place for the DMT and every dermatologist practice alongside established protocol.

As a starting point with dermatologists, we're aiming to identify the numerous instances in which health care provider doesn't want to biopsy clinically suspicious lesion, but still wants to provide patients with peace of mind.

Bret Christensen: Our customers and patients can trust the results when they use our test, and there is room for it to be integrated into the current melanoma care pathway. And third, we can reduce health care costs by providing genomic data to clinicians who can rule out the need for certain surgical procedures while also providing a better patient experience. On the payer front, all the insurance providers we brought on board in 2023, which represent approximately 42 million new covered lives, have started paying some claims for the DMT. We're determined to continuously improve the onboarding and reimbursement process with payers to speed up the revenue benefit. Finally, the Blues Plan of Rhode Island and a Blues Plan in the Mid-Atlantic recently issued favorable coverage decisions for DMT.

Our customers and patients can trust the results when they use our tests and there is room for it to be integrated into the current melanoma care pathway.

And third we can introduce help we can reduce health care cost by providing genomic data to clinicians who can rule out the need for certain surgical procedures, while also providing a better patient experience.

On the payer front all the insurance providers, we brought on in 2023, which represent approximately 42 million new covered lives have started paying some claims for the DMT, we're determined to continuously improve the onboarding and reimbursement process with payers to speed up the revenue benefit.

Okay.

Finally, the blues plan of Rhode Island, and a blues plan in the mid Atlantic recently issued favorable coverage decisions for the DMT.

Bret Christensen: In January, we were incredibly pleased to announce positive top-line data for the TRUST-2 study. With a large cohort of more than 20,000 patients, the results reaffirmed the DMT's real-world clinical utility with an NPV of 99.7% to rule out melanoma, which is meaningfully higher than other currently available methods. For clinicians and patients, a high NPV delivers assurance that a suspicious pigmented lesion which tests negative is unlikely to be melanoma.

In January we were incredibly pleased to announce positive top line data for the trust II study with a large cohort of more than 20000 patients. The results reaffirm the DMT is real world clinical utility with an NPV of 99, 7% to rule out melanoma, which is meaningfully higher than other currently available methods.

For clinicians and patients a high NPV delivers assurance that are suspicious pigmented lesion, which tests negative is unlikely to be melanoma.

Bret Christensen: This study is an important way to continue to build trust with our customers, and we're actively showcasing the clinical value of DMT in the field. The outstanding TRUST-2 study results will also allow us to re-engage with insurance providers that don't cover our test. We're working to make the full study available in a peer-reviewed medical journal and expect to have an article published in the next several months.

This study is an important way to continue to build trust with our customers and we're actively showcasing the clinical value of DMT in the field.

The outstanding interests to study results will also allow us to reengage with insurance providers that don't cover our test we're working to make the full study available in a peer reviewed medical journal and expect to have an article published in the next several months, we will continue to reinforce our message around the clinical and health economic benefits of DMT with also.

Bret Christensen: We will continue to reinforce our message around the clinical and health economic benefits of DMT with all stakeholders. Our visibility with payers is also improving through state legislative efforts. Bills mandating insurance coverage of genomic testing, or biomarker bills, are gaining traction across the U.S. as lawmakers advocate for improving access to potentially life-saving genomic tests. Legislation has now been enacted in 14 states, and eight additional states introduced biomarker bills in 2023 that are making their way through the legislative process.

Take holders.

Our visibility with payers also improves through state legislative efforts bills mandated insurance coverage of genomic testing or biomarker bills are gaining traction across the U S. S lawmakers advocate for improving access to potentially life saving genomic tests.

Legislation has now been enacted in 14 states and eight additional states introduce biomarker bills in 2023 that are making their way through the legislative process.

Bret Christensen: Moving now on to our commercial business, where we continue to dedicate substantially all of our resources to growing reimbursed tests and boosting revenue. We now have two quarters behind us since we changed our approach. We believe it is evident these changes have had a positive impact on our top line, but we're still refining our tactics as we learn more.

Moving now on to our commercial business, where we continue to dedicate substantially all of our resources to growing reimbursed tests and boosting revenue. We now have two quarters behind us since we changed our approach. We believe it is evident these changes have had a positive impact on our top line, but we're still refining our tactics as we learn more.

Bret Christensen: First, incentive compensation for our sales team continues to be linked to reimbursed tests and revenue over volume growth. We're also arming the field with robust analytics reporting to support these goals. Additionally, more recently, we reduced the target list for our sales managers.

First incentive compensation for our sales team continues to be linked to reimburse test and revenue over volume growth.

We're also arming the field with robust analytics reporting to support these goals.

More recently we.

We reduced the target list for our sales managers. This change also allows us to foster stronger relationships with our customers and increases touch frequency in the field.

Bret Christensen: This change also allows us to foster stronger relationships with our customers and increases touch frequency in the field. Second, as a result of additional restructuring actions we undertook in January, we dissolved certain sales territories and merged others to further optimize our footprint and focus on the highest-value regions. As a result, we reduced our sales territories from approximately 60 to roughly 55.

Second as a result of additional restructuring actions, we undertook in January we dissolved certain sales territories and merged others to further optimize our footprint and focus on the highest value regions. As a result, we reduced our sales territories from approximately 62, roughly 55, we are intentionally pursuing the strategy that <unk>.

Bret Christensen: We are intentionally pursuing a strategy that prioritizes ASP and revenue growth over volume growth in the short term. In closing, we've significantly improved many of our key operating and financial indicators for two consecutive quarters. We believe this approach is the best way to reach a meaningful revenue inflection point. With that, I'll turn the call over to Kevin for a more detailed financial review. Thanks, Bret. And good afternoon, everyone.

<unk> Asps and revenue growth over volume growth in the short term.

In closing, we significantly improved many of our key operating and financial indicators for two consecutive quarters. We believe this approach is the best way to reach a meaningful revenue inflection point.

With that let me turn the call over to Kevin for a more detailed financial review.

Thanks, Brett and good afternoon, everyone I'll outline our key financial and operating metrics for the fourth quarter, then summarize how we're thinking about 2024, I'll wrap up by recapping, our liquidity profile and cash runway estimates all.

Kevin Sun: I'll outline our key financial and operating metrics for the fourth quarter, then summarize how we're thinking about 2024. I'll wrap up by recapping our liquidity profile and cash runway. All comparisons are to the prior year period unless otherwise noted. Test revenue was up 38% to $3.7 million, largely due to a higher ASP for the DMT. However, test revenue was flat sequentially. Available sample volume declined 11% to approximately 15,580 and was down less than 1% sequentially.

All comparisons are to the prior year period, unless otherwise noted.

Test revenue was up 38% to $3 7 million largely due to a higher ASP for the DMT.

Revenue was flat sequentially.

Billable sample volume declined 11% to approximately 15580 and was down less than 1% sequentially.

Kevin Sun: The year-over-year and sequential decrease was partly due to prioritizing reimbursed tests ahead of total volume and the overall reduction in the size of our sales. As previously noted, we also stopped testing samples from pediatric patients and certain schizophrenic skin types in early 2023 based on guidance from our lab accrediting organization, which also affected the year-over-year comparison. The sequential decrease was also partly due to seasonality as we have previously seen during the year-end holiday season.

The year over year and sequential decrease was partly due to prioritizing reimburse test ahead of total volume and the overall reduction in the size of our sales force.

As previously noted we also stopped testing samples from pediatric patients and certain Fitzpatrick skin types in early 2023 based on guidance from our lab accrediting organization, which also affected the year over year comparison.

The sequential decrease was also partly due to seasonality we have previously seen during the year end holiday season.

Kevin Sun: Contract revenue was $0.2 million compared to $0.3 million. The decrease is due to the timing of activity related to clinical trial progress of our biopharma customers. Total revenue increased 31% to $3.9 million, primarily due to higher test revenue. Drilling into our test revenue driver, first, ASP was up 55% to $238 per sample and up 1% sequentially. The Medicare proportion of billable sample volume hit another all-time record high, increasing sequentially from

Yeah.

Contract revenue was <unk> 2 million compared to <unk> 3 million. The decrease is from the timing of activity related to clinical trial progress of our biopharma customers.

Total revenue increased 31% to $3 $9 million, primarily on higher test revenue.

Drilling into our test revenue drivers.

First ASP was up 55% to $238 per sample and up 1% sequentially.

The Medicare proportion of billable sample volume hit another all time record high increasing sequentially from 27% to 28%.

Kevin Sun: In the last three quarters, this proportion has increased by 5 percentage points and has contributed to the ASP improvement. We're beginning to see consistent payment from TRICARE at the VA, as well as improved payment from certain of the Blues plans we signed on last year. The revenue benefit is ramping from the big increase in covered lives we've achieved, but we still need to clear administrative and billing obstacles in some cases before we improve payment behavior from certain insurance providers. Net positive prior period adjustments had a negligible impact on test revenue during the fourth quarter. ASPs may fluctuate in the future if payers update their administrative procedures or other requirements for payment, even those payers with consistent reimbursement history. Second, we had approximately 2,200 unique ordering clinicians in the fourth quarter, down 2% sequentially.

And the last three quarters. This proportion has increased by five percentage points and has contributed to the ASP improvement.

We're beginning to see consistent payment from Tri care at the VA as well as improving payment from certain other blues plans, we signed on last year.

The revenue benefit is ramping from the big increase in covered lives, we've achieved but we still need to clear administrative and billing obstacles in some cases before improved payment behavior from certain insurance providers.

Net positive prior period adjustments had a negligible impact on test revenue during the fourth quarter.

S. P may fluctuate in the future if payers update their administrative procedures or other requirements for payment, even those payers with consistent reimbursement history.

Second we had approximately 2200 unique ordering clinicians in the fourth quarter down 2% sequentially.

Kevin Sun: Because we're currently focused on building deeper relationships with clinicians rather than creating broad awareness for the DMT, the level of unique ordering clinicians may continue to be flat or even modestly down in the short term. Third, our average quarterly utilization, or average number of tests ordered per unique ordering clinician, was 7.1 billable samples in the fourth quarter, up from 7.0 in the third quarter and versus 7.2 in the year-ago period. Turning now to Operating Expenses, the cost of test revenue was $3.4 million, an increase of 4%, yielding a test gross margin of 7%. Our quarterly test gross margin was the highest it's been in six quarters. The increase in test revenue was primarily due to higher infrastructure costs related to our new lab.

Because we are currently focused on building deeper relationships with clinicians rather than creating broad awareness for the DMT. The level of unique ordering clinicians may continue to be flat, Oregon modestly down in the short term.

Third our average quarterly utilization or average number of tests ordered per unique ordering clinician was $7. One billable samples in the fourth quarter up from 7.0 in the third quarter and versus seven two in the year ago period.

Turning now to operating expenses.

Cost of test revenue was $3 4 million, an increase of 4%, yielding a test gross margin of 7%.

Quarterly test gross margin was the highest it's been in six quarters.

The increase in cost of test revenue was primarily due to higher infrastructure costs related to our new lab.

Kevin Sun: Sales and marketing expenses were $8.4 million, a 38% decrease, largely due to lower employer-related and marketing expenditures. Research and Development Expenses were $3.3 million, a 34% decrease primarily due to lower employer-related and lab supplies costs. General and administrative expenses were $8.4 million, a 14% decrease driven by lower employer-related costs offset by higher infrastructure costs related to our new facility.

Sales and marketing expenses were $8 4 million or 38% decrease largely due to lower employee related and marketing expenditures.

Research and development expenses were $3 3 million or 34% decrease primarily due to lower employee related and lab supplies costs.

General and administrative expenses were $8 4, million% to 14% decrease driven by lower employee related costs offset by higher infrastructure costs related to our new facility.

Kevin Sun: On a full year basis, including the impact of our comprehensive restructuring actions and other efforts to identify cost reductions, we expect an approximately $40 million annualized reduction in total operating expenses versus 2020. Total operating expenses for 2024 are currently estimated to be approximately $80 million. The net loss was $19.1 million, which included $3.2 million of non-cash, stock-based compensation expense compared to a net loss of $28.2 million, which included $5.3 million of non-cash, stock-based compensation expense.

On a full year basis, including the impact from our comprehensive restructuring actions and other efforts to identify cost reductions, we expect an approximately $40 million annualized reduction in total operating expenses versus 2022.

Total operating expenses for 2024 are currently estimated to be approximately $80 million.

Net loss was $19 1 million, which included $3 2 million of noncash stock based compensation expense compared to a net loss of $28 2 million, which included $5 3 million of noncash stock based compensation expense net.

Kevin Sun: Net loss decreased 32% while test revenue increased 38%. Moving now to how we're thinking about 2024. We believe DMT volumes could be flat to modestly down for the first half of 2024 compared to the same period last year, primarily due to our focus on reimbursed tests and the impact in the field from restructuring actions and the change in tactics, which will continue to emphasize ASP and revenue growth. And lastly, a review of our liquidity profile and balance sheet. At year-end, we had cash, cash equivalents, restricted cash, and marketable securities of $59.3 million.

Loss decreased 32%, while test revenue increased 38%.

Moving now to how we're thinking about 2024.

We believe DMT volumes could be flat to modestly down for the first half of 2024 compared to the same period last year, primarily due to our focused on reimbursed test and the impact in the field from our restructuring actions and the change in tactics will continue to emphasize asps and revenue growth.

And lastly, a review of our liquidity profile and balance sheet.

At year end, we had cash cash equivalents restricted cash and marketable securities of $59 3 million.

Kevin Sun: Cash burn is estimated to decline to $55 million to $60 million annually based on the fourth quarter 2023 run rate, a roughly 40% decrease from our net cash burn in 2022. We believe we have cash runway into the first quarter of 2025, not to exceed 12 months from today's 10K filing. In summary, our plan demonstrated sustained results in growing revenue during the second half of 2023 while operating with a leaner organization. Now, I'll turn the call back to Bret.

Cash burn is estimated to decline to $55 million to $60 million annually based on the fourth quarter of 2023 run rate of roughly 40% decrease from our net cash burn in 2022.

We believe we have cash runway into the first quarter of 2025 not to exceed 12 months from today's 10-K filing.

In summary, our plan demonstrated sustained results and growing revenue during the second half of 2023, while operating with a leaner organization now.

Now I'll turn the call back to Brent.

Bret Christensen: Thanks, Kevin. Before we wrap up and move to Q&A, I'll share a compelling patient story that inspires us as we forge ahead. A patient was seeing her dermatologist on a monthly basis for severe acne treatment without any other concerns. During her last visit, she mentioned a mole on her arm that she hadn't noticed before.

Thanks, Kevin before we wrap up and move to Q&A I will share a compelling patient story that inspires us as we forge ahead.

We're seeing her dermatologists on a monthly basis for severe acne treatment without any other concerns during her last visit she mentioned a mall on our arm that she hadn't noticed before the clinician evaluated the mall and wasn't concerned but because the patient was worried at DMT was ordered the test came back positive, indicating a correlation with melanoma.

Bret Christensen: The clinician evaluated the mole and wasn't concerned, but because the patient was worried, a DMT was ordered. The test came back positive, indicating a correlation with melanoma. A biopsy of the lesion was then sent to a pathologist, who confirmed it was melanoma, and the patient was referred to a surgical oncologist.

Biopsy of the lesion was then sent to our pathologists, who confirmed it was melanoma and the patient was referred to a surgical oncologist. The health care provider is still in shock that this patient may have otherwise walked out of the office. His story much like others, we hear on a regular basis highlights the critical need for prices in genomics as cancer is a disease of the genome.

Bret Christensen: The healthcare provider is still in shock that this patient may have otherwise walked out of the office. This story, much like others we hear on a regular basis, highlights the critical need for precision genomics as cancer is a disease of the genome, and the current visual assessment standard is challenging even for an expertly trained medical professional. The DMT helps clinicians evaluate higher-risk lesions alongside other traditional tools. With that, I'll turn the call back to the operator for Q&A. Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

And the current visual assessment standard is challenging even for and expertly trained medical professional the DMT helps clinicians evaluate higher risk lesions alongside other traditional tools with that I'll turn the call back to the operator for Q&A.

Thank you.

Minder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again please.

Operator: Please stand by one moment while we compile the Q&A roster. The first question comes from Thomas Flaten with Lake Street Capital Markets. Your line is open.

Please standby one moment, while we compile the Q&A roster.

Yeah.

The first question comes from Thomas Flaten with Lake Street Capital markets. Your line is open.

Thomas Flaten: Hey guys, appreciate you taking the questions. Out of curiosity, I don't want to clarify. Kevin, you said that you expect volumes in the first half, down relative to the first half of 2023. Did I hear that right?

Hey, guys I appreciate you taking the questions.

Just out of curiosity I just wanted to clarify Kevin you said that you expect volumes in the first half of 2024 would be down relative to the first half of 2023.

Kevin Sun: That's correct. Okay, so... We're getting closer to where we were in 3Q and 4Q, or a lesser reduction from the mid to high 17s. Yeah, we're not providing specific guidance right now. You know, we're happy with the performance in Q4. And again, where our updated strategy to prioritize reimbursed volume drove a 55 percent year over year ASP growth and a 38 percent year over year test revenue growth. Q4 was the second quarter in a row where we've achieved sequential growth in these top line metrics. So, as we said, we believe volumes could be down for the first half because of the impact in the field from the restructuring and the change in tactics. We have about 15 fewer sales territories now than we did in Q1 of 2023. We do plan to continue to emphasize throughout the organization our focus on driving ASP improvements, but providing any specific guidance right now remains difficult without having a trend for several quarters in payer reimbursement behavior and the sustained effectiveness of our updated commercial tactics.

That's correct.

Okay. So.

Closer to where we were in <unk> and <unk> or a lesser reduction from the 17 the high the mid to high <unk>.

Yes, we're not providing specific guidance right now.

We're happy with the performance in Q4, and again, where our updated strategy to prioritize reimburse volume drove a 55% year over year ASP growth and a 38% year over year test revenue growth.

Q4 was that second quarter of what we've achieved sequential growth in these top line metrics.

As we said we believe the volumes could be down for the first half.

Because of the impact in the field from the restructuring and the change in tactics. We have about 15 fewer sales territories now than we did in Q1 of 2023 and we do plan to continue to emphasize throughout the organization our focus on driving ASP improvements, but providing any specific guidance right now remains difficult without having a trend for several quarters.

<unk> and payer reimbursement behavior and the sustained effectiveness of our updated commercial tactics.

Kevin Sun: And with respect to the $40 million reduction in OPEX relative to 2022, could you help us maybe spread those savings around? Is it kind of a pro rata cut across the three OPEX lines, or how should It would be fairly, I think, consistently spread as we saw within the fourth quarter results. So it is all up and down the organization where we've made cost-saving and efficiency efforts. And so I think, as we said previously, looking at the fourth quarter of 2023 as kind of a benchmark going forward, that's a good kind of jumping off point for where we think expenses and costs will be in the future. And then one final one, if I might, was there anything specifically you did tactically to drive that number up? Or was this just kind of a natural evolution of the business where that's starting to get closer to where it should be in the kind of around about, Yeah, hi, Thomas, this is Bret. I'll take that one.

Got it and with respect to the $40 million reduction in Opex relative to 2022 could you help us maybe spread those savings around that is it kind of a pro rata.

Cut across the three opex lines or how should we think about that.

It would be fairly I think consistently.

Consistently spread as we saw within the fourth quarter results. So.

It is all in the up and down the organization, where we've made cost saving and efficiency efforts and so I think as we said previously.

At the fourth quarter of 2023 is kind of a benchmark going forward thats, a good kind of jumping off point for where we think expenses and costs will be in the future.

And then one final one if I might was there anything.

<unk> to the Medicare penetration was there anything specific that you did tactically to drive that number up or was this just kind of a natural evolution of the business, where that's starting to get closer to where it should be in the kind of around about 50%.

Yeah, Hi, Thomas This is Brett I'll take that one if you remember there's quite a few taxes that we deployed starting in the middle of last year and they evolve throughout the year, but many of those were around the focus for the mix that comes in the door reimbursed tests and certainly a big portion of that is Medicare if you remember we changed.

Bret Christensen: If you remember, you know, there's quite a few tactics that we deployed, you know, starting the middle of last year, and they evolved throughout the year. But many of those were around the focus for the mix that comes in the door, reimbursed tests, and certainly a big portion of that is Medicare. If you remember, we changed comp plans for our field sales personnel to focus on revenue and reimbursed tests versus strictly volume, which was historically how comp was laid out for them. We also provided them with the analytics and targeting tools to help them understand where most of their reimbursement was coming from. And on top of that, we reduced the number of targets that each rep was calling on so they can go deeper into each practice. And all that has sort of paid dividends in the form of Medicare reimbursement, but also just overall ASP. Fantastic.

Plans for our field sales personnel to focus on.

Revenue and reimbursed tests versus strictly volume, which was historically how comp was laid out for them. We also provided them with the analytics and targeting tools to help them understand where.

Most of their reimbursement was coming from and we on top of that we've reduced the number of targets that each rep was calling on so they can go deeper into each practice at all of that is sort of paid dividends in the form of Medicare reimbursement, but also just overall ASP.

Thomas Flaten: I appreciate you taking the questions. Thank you. One moment for the next question. The next question comes from Andrew Brockman with William Blair. Your line is open. Hey, guys. Good afternoon.

Fantastic I appreciate you taking the questions. Thank you.

For the next question.

The next question comes from Andrew Brockman with William Blair. Your line is open.

Andrew Brackmann: Thanks for taking the questions. Maybe just one on the major commercial payers. In the 10k, I think you call out that you believe there's a possibility to secure some sort of contract from them over the next 12 to 24 months. You maybe just sort of talk about some of the confidence behind sort of putting that timeframe out there or anything, which has sort of changed over the last handful of months here. Yeah, hi Andrew. It's Bret.

Hey, guys. Good afternoon, thanks for taking the question maybe.

Maybe just one on the major commercial payers in the 10-K I think you call out you believe there is possibility to secure.

From a contract from them over the next 12 months to 24 months can you maybe just sort of talk about some of the confidence behind sort of putting that timeframe out there anything which has sort of changed over the last handful of months here. Thanks.

Yeah, Hi, Andrew it's.

Bret Christensen: We, you know, we continue to have really good conversations with the national payers. We're happy with where reimbursement ended this past year, adding, you know, 42 million covered lives and finishing about 45% of all covered lives for DMT. We did get, as you remember, three negative policy decisions last year from three of the nationals.

We continue to have really good conversations with the national payers were happy with where reimbursement ended this past year, adding 42 million covered lives and finishing at about 45% of all covered lives for DMT.

We did get if you remember three negative policy decisions last year from three of the nationals. We're having good conversations with one but trust II as an opportunity for us when that is published in the next several months to go back to all the national payers and continue those conversations.

Bret Christensen: We are having good conversations with one, but trust two is an opportunity for us when that's published in the next several months to go back to all the national payers and continue those conversations. And, you know, as we've said in the past, we're just optimistic because the economics of DMT are so strong for payers that we know they'll eventually draft favorable policies and cover the test.

<unk> said in the past, we're just optimistic because of the economics of DMT are so strong for payers that we know they'll eventually draft favorable policy and cover the test.

Andrew Brackmann: And then, Bret, you sort of talked about reducing the target lifts for your commercial team. Anything analytically that you can share that shows that the greater frequency and greater touch here leads to either greater utilization of the test or even movements towards more reimbursed tests for those providers? Thanks, Andrew.

Great.

And then Brett can you sort of talked about reducing the target level for your commercial team anything analytically that you can share what sort of shows that the greater frequency and greater touch year leads either greater utilization of the death or even movement towards more reimburse test for those providers.

Bret Christensen: We're still learning a lot from the revised tactics last year. But one thing we know is that, you know, selling DMT in dermatology requires time and frequency in the field. And we revised the messaging with the salespeople to start with a clinical argument for DMT, making sure that dermatologists understand the clinical utility, the 99.7% negative predictive value that we showed in Trust 2. Then we figure out where we can integrate it into the practice. So it's a non-threatening message that, you know, gets them to say, look, sometimes I don't want to do a biopsy. And when I don't want to do a biopsy, yes, I would use DMT.

Yes, Thanks, Andrea we're still learning a lot from the revised tactics last year, but one thing we know is that selling DMT in dermatology requires time and frequency in the field and we've revised the messaging with the salespeople to start with a clinical.

Yes.

Gumede for DMT, making sure that dermatologists understand the clinical utility of the 99, 7% negative predictive value that we showed in trust II, then we figure out where we can integrate it into the practice. So it's a non threatening message that.

Get them to say look.

Sometimes I don't want to do a biopsy and what I don't want to do a biopsy, yes, I would use DMT and whatever that percent of biopsies is 20%, 25%, 30% we work on integrating that into their practice. So it becomes habit and just part of what they normally do and that takes some time. It takes frequency. It takes a number of sales calls and so that's why we.

Bret Christensen: And whatever that percent of biopsies is, 20%, 25%, 30%, we work on integrating that into the practice so it becomes a habit and just part of what they normally do. And that takes some time. It takes frequency. It takes a number of sales calls. And so that's why we think fewer targets allows for that to happen quicker. I'll leave it there.

Think fewer targets allows for that to happen quicker.

I'll leave it there thanks guys.

Andrew Brackmann: Thanks, guys. One moment for the next question. The next question comes from Mark Massaro with BTIG; your line is now open. Hey guys, this is Vidyun and I'm for taking the So I guess on the ASP front, are there any health plan wins that haven't turned on yet? I think you alluded to some administrative and billing obstacles preventing where you do have coverage.

One moment for the next question.

The next question comes from Mark Massaro with <unk>. Your line is now open.

Hi, This is Ian on for Mark Thanks for taking the question.

Okay.

Are there.

Win win that haven't turned on yet.

Thank you alluded to.

Administrative and billing obstacle preventing payment.

Kevin Sun: So just any more granularity you could give there. Yeah, I believe for the most part, most of all of the wins that we had last year have started paying something, but there is certainly still upside potential in improving the payment rate, because again, it's sometimes documentation, sometimes it's specific processes we have to follow to allow for better payment with them. So they are improving, but there is still more room for improvement and to focus on those efforts to, you know, improve them as much as we can. And then just any trends and utilization per ordering clinician to call out. I think we've chatted in the past that it takes a certain number of tests that clinicians need to get through to get their first positive results and really understand the value proposition. So, nothing else.

You have coverage for you any.

Any more granularity you could get there.

Okay.

Yes, I believe for the most part most of all of the wins that we had last year have started paying something.

But there are certainly still upside potential in improving the payment rate.

Because again, it's sometimes it's documentation sometimes it's specific.

Processes, we have to follow.

To allow for better payment with them. So they are improving but there is still more room for improvement and to focus on those efforts too.

Improve it as much as we can.

Okay perfect. Thanks, Kevin.

And then.

Trends in utilization per ordering clinician to call out.

I think we had it in the past that it takes a certain number of pads that clinicians need to get through to get there.

In Brazil, I didn't really understand the value proposition.

Kevin Sun: Yeah, no, I think, as we said before, because we're trying to go deeper right now, the number of unique ordering clinicians in any quarter could be flat or even modestly down. But with that same rationale, we would expect utilization to increase. Because again, if we're going deeper and making sure that it's integrated into the practice, as Bret mentioned, making sure that the clinicians understand the clinical value and the best places to use the technology and how to get comfort to their patients with it, we do believe that it should drive increases in utilization on a per doctor basis. And that's where we're focused right now. Instead of broad marketing and awareness, it's really going deep and trying to get advocates and trying to get them to understand where to use it and integrate it into their practice. Thank you for taking the time for the next question. The next question comes from Mason Carrico with Stevens. Your line is open. Hey guys, thanks for the questions. Two quick ones up front for me if that's all right.

Or just anything else to call out there.

Yes, no that I think as we said before because we are trying to go deeper right now the number of unique ordering clinicians in any quarter could be flat or even modestly down but with that same rationale we would expect the utilization to increase.

Because again, if we're going deeper and making sure it's integrated into practice as Brett mentioned, making sure that the clinicians understand the clinical value and the best places to use the technology and how to get comfort to their patients with it we do believe that that should drive increases in utilization on a per doctor basis.

And that's where our focus right now instead of broad marketing and awareness, it's really going deep and trying to get advocates and trying to get them to understand where to use it and integrate it into their practice.

Thanks for taking the question.

One moment for the next question.

The next question comes from Nathan <unk> with Stephens. Your line is open.

Hey, guys. Thanks for the questions two quick ones the upfront from me here, if that's all right.

Mason Owen Carrico: Maybe on the news of discontinuing the TERT optional add-on assay, could you kind of talk about the cost benefit there from a COGS per test perspective? And second, you guys had previously talked about some ongoing projects to drive down COGS. I think some of those depended more on volumes and scale, others were more project-related. So could you just walk through where you stand on some of those today? Yeah, hey, Mason.

Maybe on the news of discontinuing the turd optional add on assay could you kind of talk about the cost benefit there from a Cogs per test perspective, and then second you guys had previously talked about some ongoing projects to drive down Cogs I think some of those dependent more on on <unk>.

Volumes and scale others were more project related so could you just walk through where you stand on some of those today.

Yeah, Hey, Matt So with turn itself again, what we.

Kevin Sun: So with TERT itself, again, what we assessed as part of the TRUST-2 dataset is that there was limited improvement in some of the key statistical measures or performance metrics of the test when TERT was included. And we also have determined through getting feedback from clinicians who use our test that TERT didn't really impact clinical decision making too much. So the reason that we decided to simplify the DMT and stop testing TERT was just that, to simplify it and based on patient need and how it's being used in clinical practice. As a benefit of that decision, though, we should get some improvement in COGS. TERT was a DNA mutation that was run on a separate piece of equipment, and so that was the only use for that equipment.

First as part of the Trust II data set is that there was limited.

Limited improvement in some of the key statistical measures our performance metrics of the test when <unk> was included and we also have determined through getting feedback from clinicians who use our tax test that tariff didn't really impact clinical decision, making too much. So the reason that we decided to.

To simplify the DMT and stop testing <unk>.

Just that to simplify it and.

And based on the patient need and how it's being used in the clinical practice as a.

As a benefit to that decision, though we should get some improvement in Cogs.

Turkey was a <unk>.

Kevin Sun: And there was also additional processing time, and people needed to be able to use that equipment. So we're still working on that. And, again, part of the reason we also discontinued it is that we were only able to report out a test result in about a third of the time that was ordered or less. So we haven't quantified yet exactly what that will be because there will certainly be some direct cost savings from not having to use supplies and labor. But as we're still working through what to do with the equipment, and now we also have fixed costs that are spread to other parts of the process, that's going to be a big part of what we're going to be doing in the future.

<unk> mutation that was run on a separate piece of equipment and so that was the only used for that equipment and there was also additional processing time and people needed to process those things and again part of the reason. We also discontinued it is that we are only able to report out a test result in about a third of the time that was ordered or less so we haven't quantified yet.

Exactly what that will be because there will certainly be some direct cost savings from not having to use supplies and the labor, but as we're still working through what to do with the equipment and now we also have fixed costs that are spread to other parts.

The processing so it should provide some savings, but we haven't provided definitive detail on that yet and then as relates to the other cost saving measures. So we will continue to focus on all sorts of things, whether it's systems improvements, whether it's material cost related to the configurations or.

Kevin Sun: So it should provide some savings, but we haven't provided definitive detail on that yet. And then it relates to other cost-saving measures. So we'll continue to focus on all sorts of things, whether it's systems improvements, whether it's material costs related to the configurations or different things within the kits, labor efficiency, automation, these are all things that we'll continue to work on, as well as technological improvements. Some of them can go a little bit sooner than others. Some of them take some more work to validate and ensure that it doesn't affect how the test works.

Different things within the kits labor efficiency automation. These are all things that will continue to work on as well as technology improvements some of them can go a little bit sooner than others. Some of them take some more work to validate and ensure that it doesn't affect how the test works, but we're committed to continue to.

Kevin Sun: But we're committed to continuing to improve the COGS profile. And as we saw just in Q4, you know, we had just slightly lower volume than in Q3, which meant that the fixed portion of the cost was spread over, again, a slightly lower base than in Q3, but we were also able to reduce the COGS on a per-test basis by about 6% in Q4 sequentially. And that's the lowest cost per test that we've had since actually moving into the new laboratory. So we're committed to improving it, and we've already demonstrated some improvements to it, and we'll put out some more information around TERT specifically once we get the change fully implemented. I got it.

Improve the Cogs profile and as we saw just in Q4.

Had just slightly lower volume.

And then Q3, which meant that the fixed portion of the costs were spread over again, a slightly lower base than in Q3, but we're also able to reduce the cogs on a per test basis about 6% in Q4 sequentially and thats the lowest cost per test that we've had since actually moving into the new laboratory. So we're committed to improving it and we.

<unk> already demonstrated some improvements to it and we'll have some more information around <unk>, specifically once we get it fully.

The change fully implemented.

Kevin Sun: Thanks, Kevin. As a reminder, to ask a question, please press star 11 on your phone and wait for your name to be announced. One moment for the next question. The next question comes from Dan Brennan with Cohen. Your line is open.

Got it thanks, Kevin.

As a reminder to ask a question. Please press star one on your phone and wait for your name to be announced one moment for the next question. The next question comes from Dan Brennan with Cowen Your line is open.

Daniel Gregory Brennan: Great, thanks. Thanks for taking the question. Sorry, I joined a few minutes late.

Great. Thanks, Thanks for taking the question sorry, I joined a few minutes late.

Kevin Sun: And I just wanted to understand a little bit, and you probably already addressed this, but in terms of the outlook for 24, I don't think you're giving much away, but I'm just wondering if there's any framework to at least consider from a price-volume standpoint how we might think about it. Yeah, we're going to continue to emphasize throughout the organization our focus on driving ASP improvements, but providing specific guidance right now remains difficult without having a trend for several quarters in payer reimbursement behavior and whether or not, you know, there's the sustained effectiveness of our updated commercial tactics. So we're not providing any additional detailed guidance at this point. Is it fair to think like the streets got 20 million in revenue for 24 versus, you know, they call it 15 million this year? I mean, rather than be completely off the wall is, I mean, is there any framework at all to think about magnitude or just impossible?

And I just wanted to understand a little bit and you've probably already addressed this but in terms of the outlook for 'twenty four I don't think youre, giving much but I'm just wondering if there's any framework to at least consider from a price volume standpoint, how we might think about it.

Yes, we're going to continue to emphasize throughout the organization our focus on driving ASP improvements, but providing the specific guidance right now remains difficult without having a trend for several quarters and payer reimbursement behavior and whether or not there is the sustained effectiveness of our.

Commercial tactics, so we're not providing any additional detailed guidance at this point.

Is it is it fair to think like the streets got $20 million in revenue for 24 versus the call it $15 million this year.

Rather than be completely off sides.

Is there any framework at all to think about magnitude or just impossible at this point.

Kevin Sun: It's very challenging and difficult at this point, based on the factors we've just said. But as we said, we'll continue to focus the team on driving those ASP improvements to drive revenue improvements, which we were able to demonstrate in Q3 and Q4 with the change in tactics to be able to get some improvements there. So that's where the focus will continue to be. But yeah, we're just not providing detailed guidance right now. And on the TRUST2 study... You talked about it's really important to engage with payers, like what kind of payers are you specifically looking to engage with? Any potential timeline for, like, review and decision? Yeah, hi Dan, it's Bret.

It's very challenging and difficult at this point based on the factors. We've just said, but as we said we will continue to focus the team on driving those improved ASP improvements.

To drive revenue improvements, which we were able to demonstrate in Q3 and Q4 with the change in tactics to be able to get some improvements there. So that's where the focus will continue to be but yes, we're just not providing detailed guidance right now.

And on the Trust II study.

I think you talked about it's really important to engage with payers like what what kind of payers are you specifically looking to engage with them.

Potential timeline of like reviewing decision.

Yes, Hi, Dan It's Brett yes.

Bret Christensen: Yeah, TRUST2 is going to help us with all outstanding payers that don't have a positive policy yet for DMT, specifically nationals. We think it's a large cohort, 20,000 patients, our highest negative predictive value that we have to date of 99.7, but all of our publications show over 99%. So it will help with the majority payers and the discussions that we're having to date, and we expect that publication probably in the next several months. So it's a really good opportunity for us to put that in front of payers and restart any negative policy decisions but also continue the ones that we're having today. And just maybe one final one on that. So is NPV definitely the most important metric to consider? Like, what else would payers look at in the study? Yeah, since it's a rule-out test, and what clinicians are looking to do is just rule out the need for biopsy and further procedures, the negative predictive value is really by far the most important factor for us.

Yes, just who is going to help us with all outstanding payers that don't have a policy of positive policy yet for DMT, specifically the nationals. We think it's a large cohort 20000 patients are highest in.

Negative predictive value that we have to date of $99 seven but all of our publications show over 99%. So it will help with the majority of payers and the discussions that we're having to date.

We expect that publication probably in the next several months. So it's a really good opportunity for us to put that in front of payers and restart any negative policy decisions, but also continue the ones that we're having today.

Got it and just maybe one final one on that so is the NPV.

Definitely the most important metric to consider like like what else, where the payers look at in the study.

Okay.

Yes, since it's a rule out test and what clinicians are looking to do is just rule out the need for biopsy and further procedures. The negative predictive value is really the by far the most important factor for us. It's it's what they point to as a rule out test and we're pleased with that result.

Bret Christensen: It's what they point to as a rule-out test, and we're pleased with that result. Okay, great, thank you. One moment for the next question. The next question comes from Connor Chamberlain with Craig Hollum. Your line is open. Hey, good afternoon. This is Connor on for Alex.

Okay, great. Thank you.

One moment for the next question.

The next question comes from Connor Chamberlain with Craig Hallum. Your line is open.

Hey, Good afternoon. This is carter on for Alex Thanks for taking my questions.

Connor Chamberlain: Thanks for taking my questions. So you've been working on getting these commercial payers online for years now. Can you maybe talk about how DermTech has evolved their approach in talking with these payers? Connor yeah it's we've been we've been working a while to get payers on board but if you remember you know we we went public in 2019 had a bit of a of a blackout with kovat but quickly got back on track with payers adding 42 million covered lives last year seven of the top ten blues so we're having we're having really good progress these discussions just take time and they take more time with the Nationals who tend to drag their feet and do a little bit more analysis so the discussions are going well it's impossible to predict when they'll come through but trust to again is a really good opportunity for us to put some strong data in front of these payers and we're optimistic that we'll continue to progress throughout the year, Great, and then just one more here. With current OpEx pushing about 80 million run rate for 24, and we're still getting minimal gross profit, just how do we make this math work?

So you've been working on getting these commercial payers online for years now.

Can you maybe talk about how Jeremy <unk> casualty ball their approach and talking with these payers over time.

Economy Yeah.

We've been we've been working a while to get payers on board, but if you remember.

We went public.

Public in 2019 had a bit of a.

Of our blackout with Covid, but quickly.

Got back on track with payers, adding 42 million covered lives last year seven of the top 10 blues. So we're having we're having really good progress. These discussions just take time and they take more time with the nationals, who tend to drag their feet and do a little bit more analysis. So that the discussions are going well, it's on it's impossible to predict when they'll come through but trust to again.

Really good opportunity for us to put some strong data in front of these payers and we're optimistic that we will continue to progress throughout the year.

Great and then just one more here.

With current Opex, pushing about $80 million run rate for 'twenty, four and we're still getting minimal gross profit just how do we make this math work.

Kevin Sun: So we believe we have cash running late in the first quarter of 2025, not exceeding 12 months from today's 10k filing date based on our cash on hand, our most recent cash usage, and our future operating projections. We're going to continue to focus on driving ASP improvement to improve revenue, and we'll continue to focus on trying to find cost-saving measures and efficiencies wherever we can. Great, thanks. I have no further questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect. **Alright guys, thank you for hanging out with me. Don't forget to give the video a thumbs up, and I'll see you later! **

So we believe we have cash runway into the first quarter of 2025, not exceeding 12 months from today's 10-K filing date based on our cash on hand, our most recent cash usage in our future operating projections.

We're going to continue to focus on.

Driving ASP improvements to improve revenue.

And we will continue to focus on trying to find cost saving measures and efficiencies wherever we can.

Great. Thanks for the update.

I show no further questions at this time this will conclude.

Conclude today's conference call. Thank you for your participation you may now disconnect.

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