Could that suspicious mole be cancerous? DermTech wants doctors to reach for a patch, not a scalpel.
The company’s adhesive patch tells if a mole is benign or needs added attention. In contrast, most physicians remove a small skin sample to test for melanoma, the deadliest type of skin cancer.
DermTech’s quest to upend dermatology is ramping up. The La Jolla company — which has 60 employees — plans to add 20 to 40 workers within the next 18 months. A year ago, the payroll stood at 35 employees.
This expansion plan follows DermTech going public through a reverse merger with Constellation Alpha Capital.
DermTech took over Constellation’s public stock listing — now trading as “DMTK” and “DMTKW” on Nasdaq — and the management of the business. The deal, which closed Aug. 30, provided DermTech with $27 million in capital.
Wider Rollout of Tests
Now, the company is gearing up for a wider rollout of its tests. CEO John Dobak said cliché words like “disrupt” and “revolutionize” actually apply here.
“People talk about their companies being disruptive or transformative all the time, and I think that’s diluted the impact of those kinds of adjectives,” Dobak said.
“But (our tests) will fundamentally change the way medicine is practiced. And I don’t think there are a lot of companies that can make those kinds of claims.”
Regular financial statements, a stipulation of being public, will shed light on whether the company is living up to its ambitions.
As a baseline, DermTech’s recent quarterly disclosure shows $613,000 in revenue, albeit with a $3.3 million operating loss. That was for a three-month stretch that ended June 30.
DermTech’s patch — which resembles a circular Band-Aid — goes on a suspicious lesion. After being peeled off, it’s sent to the company’s lab. Scientists then analyze genetic material lifted from the upper layer of skin for cancer-causing genes.
Approval to Do Testing in 50 States
Last year, the company won approval to do testing in all 50 states and the District of Columbia.
Through its flagship test — pigmented lesion assay, or PLA — roughly 90% of patients test negative for melanoma, meaning they were spared a needless scar, Dobak said. For patients who test positive, their lesion is removed via incision and examined further.
The test’s probability of failing to detect melanoma is less than 1%, according to Dermatology Online Journal. Dobak said standard of care — looking at a slice of tissue under a microscope — has a 17% chance of missing early-stage melanoma.
The American Cancer Society estimates 96,500 new melanomas will be diagnosed in 2019. About 9,700 people are expected to die of the cancer.
Peer-reviewed journals have validated DermTech’s tests, from efficacy to lowering costs. David Crean, a managing director at Objective Capital Partners, said next the company must sway more physicians.
“Is a clinician going to rely on this to give a definitive diagnosis of cancer? And are they going to change their behavioral as a result?”said Crean, who consulted for the company about four years ago.
Dobak said studies show 99% of the time physicians act on the test results.
“If it’s negative, they don’t do a biopsy. They just monitor the lesion per standard of care. And if it’’ positive, they submit for surgical biopsy,” Dobak said.
Doctors are one thing. Dobak recently spoke at Biocom’s devicefest and digital health conference about warming up insurers and regulators to new technologies.
One takeaway: Getting various stakeholders on board — some of which have competing interests — takes persistence. DermTech isn’t alone there. Dobak counted DermTech as among a handful of genomics companies gunning for old-school invasive tests.
“With anything new, people are skeptical,” Dobak said.
But in a major step toward greater insurance reimbursement, the company recently won draft Medicare coverage under a program called MoIDX for molecular diagnostic tests. The decision is expected to be finalized later this year, in what would likely prove persuasive among insurers.
To give an idea of its market potential, DermTech says some 3.5 million surgical biopsies are ordered annually for melanoma concerns.
One source of competition: algorithms trained to detect cancer in skin lesions. But Dobak said DermTech’s technology alone tests for the root cause of skin cancer, whereas other tests look at indirect measures.
A follow-up study published this spring in Dermatology Online Journal noted the accuracy of the company’s PLA test.
“The PLA is a test that transforms the current diagnostic pathway from one that is subjective, invasive, and of low accuracy to one that is objective, non-invasive, and highly accurate,” states the peer-viewed journal.
DermTech is also working on tests for inflammatory diseases and customizing drug treatment. In addition, pharmaceuticals use DermTech’s technology to pinpoint which clinical trial patients will respond to dermatology drugs.
Began as CRO
The company was founded in 1996 as a contract research organization, or CRO, in which it supplied dermatology services to pharmaceuticals. But DermTech pivoted in 2007 to improving melanoma diagnosis.
Although it recently went public, DermTech earlier flirted with the idea. In 2014, the company scrapped plans for a $25 million initial public offering, or IPO.
“There was some thinking that an IPO window was going to open up in the genomics and molecular space,” Dobak said. Not only did that fail to happen, but DermTech’s tests needed more work.
Dobak, who took the reins in 2013, said reproducibility vexed the company.
“We’re dealing with very small quantities of low-quality RNA that are migrating from the deeper layers of the skin up to the surface. It was extremely challenging to get our processes to the point where we could reliably deliver an answer to physicians,” he said.
Fast forward. Having reached reproducibility — and desiring more investors — DermTech made another run at going public. The reverse merger with Constellation Alpha Capital proved to be a quicker route than an IPO, per Dobak.
“The opportunity presented itself,” he said of the deal, which involved a one-for-two stock split. Investors included RTW Investments, HLM Venture Partners, and Qualcomm co-founder Irwin Jacobs.
With high-profile backing, can the company get doctors to ditch the scalpel?