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DermTech Using $144M Financing to Spur Marketing, Telemedicine Efforts For Molecular Melanoma Assay

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NEW YORK – Following the close of a $143.7 million public offering earlier this month, skin cancer diagnostic company DermTech seeks to expand its direct-to-consumer (DTC) and telemedicine operations by building out its digital marketing platform for its pigmented lesion assay (PLA).

Despite pauses in payor agreements due to the COVID-19 pandemic in 2020, the San Diego-based firm expects to increase commercial coverage for the PLA while widening its pipeline to diagnose other varieties of skin cancer.

Current methods of detecting melanoma, and by extension skin cancer, usually involve a biopsy extracted from the patient's tissue for analysis by a pathologist. However, some samples can be unclear and thus may require additional and larger biopsies, which can be painful and invasive.

In contrast, DermTech's PLA platform uses an adhesive patch sample collection platform for epidermal RNA. The assay examines skin cells to separate potential melanoma gene expression from benign pigmented skin lesions.

After marking a lesion with a pen on each patch, a clinician sends the sample to DermTech's CLIA-certified, CAP-accredited lab. DermTech then performs reverse transcription PCR to measure preferentially expressed antigen in melanoma (PRAME) and long intergenic noncoding RNA 518 (LINC) on the sample, generating a molecular pathology report within two to three days.

DermTech CFO Kevin Sun said that the firm completed its first public offering on Jan. 11. While the base deal was for $125 million, he noted that the offering had been oversubscribed through both current and new investors, yielding gross net proceeds of $143.7 million.

Sun said that DermTech will use the funds to expand its commercial organization and structure by developing its salesforce. The firm will hire additional sales representatives to work with clinical dermatologists interested in the PLA.  

"There are integrated primary care networks that come to us and are interested in our technology, so they can avoid referrals to specialists," Sun said.

Todd Wood, chief commercial officer of DermTech, explained that the firm had developed a remote collection option for the PLA during the early phase of the COVID-19 pandemic. Patients can collect a sample with its smart sticker through a virtual appointment with their doctor, without the need for an in-office visit.

"We [also] developed an imaging app, allowing for an asynchronous store and forward evaluation of a suspect mole, which is currently in beta testing," Wood said. "This creates a closed loop virtual engagement process, allowing patients to submit a suspicious mole for evaluation and receive the PLA test for remote collection if appropriate.”

Wood argued that creating the telehealth platform expands patient access to dermatology care across all of DermTech's digital channels and expands the firm's capabilities "into new channels and tactics."

DermTech will also use the round's funding to help mobilize and further invest in DTC efforts with patients this year. Wood explained that the firm previously built out a digital engagement initiative in May 2020, during melanoma awareness month, to spread patient awareness of skin cancer and the PLA.

"We're trying to tap into those investment dollars by moving forward to expand our program around a consumer engagement and education campaign to ultimately amplify their voice in the provider's office … and ultimately request the PLA," Wood said. "We see that patients are frustrated with the current standard … and are highly interested in our test, [which] is more accurate and less invasive."

To convince dermatologists to use the PLA, DermTech published the topline results of the TRUST longitudinal study in December 2020. In the study, the researchers collected 1,781 lesions during a 12-to-24-month period that initially tested negative and then were re-evaluated using the PLA for melanoma. They then monitored 302 of the lesions through repeat testing with the PLA.

Of the 302 lesions routinely tested with DermTech's PLA, 268 were negative while 34 were positive over time. Three lesions that tested positive through both PLA and a histopathologic review were diagnosed as Stage 0 melanoma, confirming what DermTech has claimed as the test's greater than 99 percent negative predictive value.  

While DermTech has submitted the results for publication, Sun declined to say which scientific journal the final study will be published in later this year.

Driving commercial adoption

In a note to investors last week, Oppenheimer analyst Kevin DeGeeter noted that major barriers to adoption of DermTech's PLA include the lack of widespread commercial coverage and test awareness. While the firm signed a slew of contracts with health insurance groups in 2020, Sun believes the most important agreement involved Medicare because of its market share for melanoma biopsies.

"Medicare represents about half of the market of surgical biopsies for melanoma here in the US, and [thus] in essence we have half of the market already covered," Sun said. "We think that having some of these large Blue plans coming on board will hopefully be the first of a few dominoes to fall, especially with additional data we're putting out around the TRUST study."

While PLA — which costs $760 per assay — is covered by CGS Administrators, a Medicare Administrative Contractor that participates in the MolDx program, Sun declined to disclose the contracted prices the firm has established with preferred provider networks.

"What we can say is that our goal is to maintain Medicare value whenever valuable and as much as possible," Sun said. "We're pleased that, with the contracts we've gotten so far, they've been able to assign value that is consistent with our price targets."

In addition to Oppenheimer, other investment firms including Craig-Hallum and William Blair have perhaps taken notice of DermTech's progress and recently initiated coverage on its stock.

DermTech's stock has risen about 27 percent to $42.78 since it closed the public offering on Jan 11.   

To further advance the case for commercial coverage, DermTech has also commissioned a new economic study to help insurers understand PLA's cost benefit for the melanoma space. The firm will compare the cost of the PLA to the long-reaching expenses of the current diagnostic pathway, which Wood emphasized may involve not only an initial biopsy but additional invasive and costly decisions.

"If [the biopsy] is an uncertain result, they would have to go back and take a bigger sample and [hopefully] read it better that way," Wood said. "Because it's so challenging at times, they [often] give the call of excising the lesion despite [the fact] they're not sure about it being melanoma."

As DermTech continues to sign agreements with commercial payors, the firm has also partnered with pharmaceutical companies including Biogen, Incyte, and AbbVie to evaluate changes in biomarkers consistent with drug treatment response. Despite delays caused by the COVID-19 pandemic, Sun said that DermTech has signed new contracts with existing partners and additional agreements other pharma firms.

While the PLA is currently a laboratory-developed test, Wood said the firm is still evaluating whether to pursue a 510(k) application with the US Food and Drug Administration in the future.

Product pipeline

DermTech will also use the funds from the recent financing round to flesh out its pipeline of diagnostic products.

For example, DermTech is building a skin cancer product called "Luminate," which will look at a patient's UV skin damage at the genomic level and potentially determine the risk of developing non-melanoma skin cancers over time. The firm expects to launch pilot and market research studies in the first half of 2021, followed by a limited launch of the assay as an LDT later this year.

DermTech is also developing a skin cancer product called "Carcinome" for basal and squamous carcinoma, with plans to release the assay as a LDT in 2022, Sun said. The firm is also exploring additional inflammatory conditions that it might be able to improve the drug response rate using a cost-effective diagnostic, including lupus, psoriasis, and atopic dermatitis.

DermTech appointed Michael Howell in September 2020 as its CSO to coordinate new product development and spur clinical validation efforts.

Sun said that Howell will help the company "develop a roadmap for building the pipeline of inflammatory diseases, and which one to go after first. For instance, he noted, atopic dermatitis is a large market opportunity where the firm believes it can save payors "a whole lot of money," in terms of therapeutics.