I thought I would introduce DermTech to this board as it helps me articulate my own investing thesis and I haven’t really seen a deep dive presented to date.
So what does DermTech do? DermTech is disrupting the skin cancer and skin treatment industry. Traditionally a dermatologist would need to take a biopsy in order to determine if a patient had skin cancer, DermTech has developed a sticky film that the doctor can now place over the patient’s affected region. This film (Pigmented Lesion Assay - PLA) captures the skin’s genomic material which results in a much more accurate test and can also detect cancers earlier than the traditional biopsy approach, leading to better patient outcomes. It is also cheaper than a biopsy.
DermTech is in its infancy and just at the beginning of its rollout, its quarterly revenue has been a bit lumpy given the lockdowns but has managed some impressive growth rates.
Q1-2020 - 100%
Q2-2020 - -44% initial covid outbreak and lockdown
Q3-2020 - 220%
Q4-2020 - 91%
Q1-2021 - 177%
As the above shows apart from the hard lockdown, the company has still managed to maintain its hypergrowth and they have acknowledged covid was a headwind. Now with the country slowly opening and people resuming elective procedures this should help DermTech see more Dermotologists. In order to facilitate this growth they mentioned they are looking to double the sales force from about 40 to 80 sales reps this year, with 80% hiring complete. This explains why the S&M expense has risen from $2.90 per share in Q1-2020 to $6.50.
The execution also appears to be strong, what I look at is ‘Assay Revenue’ but also the number of new clinics being onboarded every quarter.
Net Increase of new clinics onboarded
Q3-2020 - 50
Q4-2021 - 90
Q1-2021 - 160
The numbers appear to show the product is resonating with the market, along with 2 economic studies which confirm how this technology helps reduce healthcare costs and has been endorsed by the National Cancer Network.
Catalyst for growth are:
Signing up a large healthcare provider like Sigma. To date, they continue to have dialogue, but other insurers such as Blue Cross at smaller localities do provide coverage as does Medicare.
New products are slated for later this year which help measure the amount of UV damage a patient’s skin has, they have teamed up with large cosmetic companies such as L’Oreal, to help provide bespoke solutions to these patients. This will be released for Q4, but won’t impact numbers until next year.
Currently only targeting USA, plans to also move internationally.
The above should see the company maintain its hypergrowth (100%+) for several years to come, and its capital light model should see gross margin’s rise to match those of our software companies.
Would like to give credit to Jonah Lupton who, like Saul and many others on this board, freely gives his time to help us all invest better. He first wrote up the stock on Twitter and has provided a great deep dive here - https://jonahlupton.substack.com/p/dmtk-dermtech-ee2 and here - https://jonahlupton.substack.com/p/update-on-dmtk-dermtech
What does everyone think?