DermTech(DMTK) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The net loss for Q2 2023 was $31.4 million, compared to a net loss of $29.6 million in Q2 2022, reflecting an increase in non-cash stock-based compensation expense from $4.8 million to $7.5 million [2] - Total revenue for Q2 2023 fell 6% year-over-year to $4.0 million, primarily due to lower test revenue, but was up 14% sequentially [55] - Test revenue decreased 14% year-over-year to $3.6 million, largely due to a downward revenue adjustment of $0.3 million from prior periods [53] Business Line Data and Key Metrics Changes - Average Selling Price (ASP) was $204 per sample in Q2 2023, down 10% year-over-year but up 6% sequentially [12] - Cost of test revenue was $3.9 million, a 21% year-over-year increase, resulting in a test gross margin of negative 10% [13] - Contract revenue increased to $0.4 million in Q2 2023 from $0.1 million in the same period last year, attributed to new agreements with biopharma customers [54] Market Data and Key Metrics Changes - The proportion of billable sample volume from Medicare grew sequentially from 23% to 25% in Q2 2023 [12] - Approximately 2,420 unique ordering clinicians were recorded in Q2 2023, down 5% from the previous quarter, with a penetration of 48% of the target market of 9,000 dermatology clinicians [58] Company Strategy and Development Direction - The company is focusing on prioritizing reimbursed tests over total volume to grow revenue, with a goal to increase ASP and test revenue in 2023 compared to 2022 [60] - The company aims to expand coverage for the DermTech Melanoma Test (DMT) and sustain its cash runway, with a cash position of $89.7 million at the end of the quarter [61][62] - Legislative efforts are underway to mandate insurance coverage for genomic testing, which could positively impact volumes and ASP if passed [41][75] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about ongoing discussions with national payers and the potential for favorable coverage decisions based on recent health economic data [21] - The company anticipates that DMT volumes will remain flat in 2023 due to the focus on reimbursed tests, but expects ASP and test revenue to increase [60] - The TRUST 2 study is expected to provide additional real-world evidence to support payer discussions, with top-line results anticipated in the second half of 2023 [42][70] Other Important Information - The company has streamlined operations and reduced its sales team from approximately 70 to 60 representatives to focus on reimbursed tests [46] - Sales and marketing expenses decreased by 13% year-over-year to $13.0 million, primarily due to reduced marketing expenditures [59] Q&A Session Summary Question: How should we think about gross margins? - Management indicated that the increase in per test COGS was due to higher infrastructure costs and wages, but they are committed to reducing COGS going forward [9] Question: Can you walk through how you're restructuring the clinical teams for coverage wins? - Management noted that they are focused on increasing covered lives and ensuring a higher percentage of reimbursed tests, currently at about 45% [20] Question: What impact would biomarker bills have on volumes and ASP? - Management stated that many states are considering legislation to require insurance coverage for tests with critical biomarkers, which could enhance access and reimbursement [75] Question: Where will the reductions in operating expenses come from? - Management explained that the restructuring affected most departments, with a focus on prioritizing the DMT and reducing broad marketing initiatives [77] Question: How will the ATM facility be used going forward? - Management indicated that the ATM provides flexibility and is one of the lowest cost capital options, with careful consideration for future deployment [78]