DermTech, the company promising to revolutionize melanoma detection with its non-invasive genomic test, is painting a picture of progress. Revenue is up, expenses are down, and new payer agreements are rolling in. Yet, a closer look at their latest earnings call transcript reveals a subtle shift in strategy that might signal a deeper issue: waning physician confidence in the DermTech Melanoma Test (DMT).

The company has repeatedly emphasized its pivot towards "reimbursed tests," prioritizing revenue over volume growth. On the surface, this appears to be a sound strategy. After all, what good is a test no one will pay for? But a less charitable interpretation suggests DermTech is attempting to mask an underlying problem: doctors aren't ordering the test as frequently.

Let's examine the evidence. In both Q3 and Q4 2023, DermTech reported a decline in billable sample volume. While the company attributes this to a strategic realignment of sales territories and a focus on reimbursed tests, this explanation feels incomplete. If doctors truly believed in the value of the DMT, wouldn't they be clamoring for its use, regardless of immediate reimbursement?

Further supporting this hypothesis is the declining number of unique ordering clinicians. DermTech saw a 7% sequential decrease in Q3 and hasn't provided specific figures for Q4, only stating it could be "flat or even modestly down." This suggests that not only are existing users ordering the test less frequently, but fewer new doctors are adopting it.

Declining Billable Sample Volume

The chart below illustrates the decline in billable sample volume reported by DermTech in Q3 and Q4 2023.

The company's response to this apparent decline in adoption is to "go deeper" with existing clinicians, focusing on education and integration into practice workflow. While this tactic might bolster utilization among a select group of highly engaged physicians, it fails to address the broader concern: why aren't more dermatologists embracing the DMT?

One potential answer lies in the nature of the test itself. As a rule-out test, the DMT's primary value proposition is its high negative predictive value (NPV). While the recent TRUST 2 study boasts a 99.7% NPV, it's worth noting that this metric is only relevant for patients who ultimately test negative. For the small percentage who receive a positive result, the DMT merely triggers a biopsy, a procedure they might have undergone anyway based on clinical suspicion alone.

Dermatologists, already comfortable with visual assessment and biopsy, might be questioning the incremental benefit of a test that primarily confirms what they already suspected. Furthermore, the time and effort required to collect the sample and explain the test to patients, coupled with the lingering uncertainty surrounding reimbursement, could be discouraging broader adoption.

Here's where the numbers get interesting. DermTech claims a 5% penetration of the estimated 4 million annual biopsies would translate to $150 million in revenue. However, this calculation assumes a price point in line with the Medicare rate, which currently stands at $238 per sample. With commercial payer reimbursement still lagging, achieving this revenue target seems increasingly improbable.

Moreover, the $150 million projection is predicated on maintaining a 99% NPV. Should the NPV dip even slightly in real-world settings, the cost-effectiveness argument, a cornerstone of DermTech's pitch to payers, crumbles.

DermTech is at a crossroads. While their commitment to cost reduction and securing payer contracts is commendable, they must also address the apparent slowdown in physician adoption. If they fail to convince dermatologists of the DMT's value, their dream of revolutionizing melanoma detection risks becoming a cautionary tale of a promising technology undone by lackluster demand.

"Fun Fact: Did you know DermTech's proprietary "Smart Sticker" used to collect skin samples is actually a sophisticated microfluidic device? It gently lifts cells from the skin's surface without causing any pain or scarring, making it a truly patient-friendly alternative to traditional biopsies."